Legal Memorandum: Liability of Parent Corporation for its Subsidiary

Issue: When can a parent corporation be subject to liability for the acts of its subsidiary corporation?

Area of Law: Business Organizations & Contracts, Corporate & Securities
Keywords: Parent corporation's liability; Actions or other fault of the subsidiary
Jurisdiction: Federal
Cited Cases: None
Cited Statutes: None
Date: 02/01/2015

The United States Supreme Court recently confirmed that it is not necessary for a plaintiff to expressly plead one or more recognized theories of liability to satisfy pleading requirements.  Johnson v. City of Shelby, 135 S. Ct. 346 (2014).  In its brief opinion, the Court explained that the federal rules “do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.”  Id. at 346.  The Court quoted Wright & Miller’s statement that “[t]he federal rules effectively abolish the restrictive theory of the pleadings doctrine, making it clear that it is unnecessary to set out a legal theory for the plaintiff’s claim for relief.”  5 Charles Alan Wright & Arthur R Miller, Federal Practice and Procedure § 1219, at 277-78 (3d ed. 2002), quoted in Johnson, 135 S. Ct. at 347.

Of course, even though a complaint need not state the theory on which a plaintiff seeks to recover, eventually the plaintiff will have to prove the elements of at least one theory of liability to prevail.  Thus, it is essential to determine what theories may apply.

When the tortious actions or conduct of a parent corporation and those of its subsidiary are involved, a parent corporation’s liability may be based on one of two different grounds.  See United States v. Bestfoods, 524 U.S. 51, 64-65 (1998).  First, the parent may be liable under a theory of direct liability, premised on the parent’s own wrongful actions, as opposed to the actions or other […]

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