Legal Memorandum: Liability of Parent Corporation for its Subsidiary

Issue: Under Wyoming law, when can a parent corporation be held liable for the acts of its subsidiary corporation under the theory of derivative liability?

Two theories exist to establish a parent corporation’s liability for its subsidiary corporation’s acts: direct liability and derivative liability. United States v. Bestfoods, 524 U.S. 51, 64-65 (1998).  With respect to derivative liability, the doctrine frequently used to impose liability vicariously—respondeat superior—is generally inapplicable in the parent/subsidiary context.  See Fiscus v. Atl. Richfield Co., 742 P.2d 198, 202 (Wyo. 1987) (“Fiscus I“) (holding allegations seeking to impute liability on the parent for actions of the subsidiary based on respondeat superior do not state a claim).

However, one type of derivative liability that is recognized is alter ego liability.  Liability under this doctrine is achieved through “piercing the corporate veil” of the subsidiary to reach its principal shareholder, the parent corporation:

The Wyoming Supreme Court has addressed the piercing of a corporate veil under the “alter ego” or the non-existence of an actual separate entity issue. . . .  When there is such a unity of interest and ownership that the individuality, or separateness, of [such] person and corporation has ceased; [and] that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice” then the veil may be pierced.  Jackson Hole Traders, Inc. v. Joseph, 931 P.2d 244, 251 (Wyo. 1997) (citing Minifie v. Rowley, 187 Cal. 481, 202 P. 673, 676 (1921) (other citations omitted).

Gasstop Two, LLC v. Seatwo LLC, 2010 WY 24, ¶ 11, 225 P.3d 1072.