Blair v. Infineon Technologies AG
2010 WL 2608959, 720 F. Supp. 2d 462, 2010 U.S. Dist. LEXIS 64608 (2010)
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Rule of Law:
To survive a motion to dismiss, a complaint seeking to pierce the corporate veil under an alter ego theory must plead specific facts demonstrating that two corporations functioned as a single economic entity and that the parent company's domination was used to commit a fraud or injustice. Similarly, to establish single employer liability under the WARN Act, the complaint must allege facts supporting the five factors promulgated by the Department of Labor.
Facts:
- Siemens AG, a German corporation, formed Infineon Technologies AG and Infineon Technologies North America Corporation (collectively 'Infineon').
- Infineon later spun off its memory chip operations into a new company, Qimonda AG, and its U.S. subsidiaries (collectively 'Qimonda').
- Infineon retained 77.5% stock ownership in Qimonda, installed its own board members and executives in key positions at Qimonda, and provided substantial financing.
- Infineon and Qimonda shared extensive operations, including human resources, legal services, financial reporting, and employee recruitment, with employees covered by an 'Infineon Group Severance Plan'.
- Infineon allegedly forced the Qimonda U.S. subsidiaries to transfer 87% of their sales revenue to Qimonda AG, in an effort to make the parent attractive for a sale while leaving the subsidiaries unable to meet their financial obligations.
- The Qimonda subsidiaries closed their U.S. facilities, terminating the plaintiffs' employment without paying promised severance or providing legally required notice of the mass layoffs.
- Following the closures, the Qimonda subsidiaries filed for bankruptcy.
Procedural Posture:
- Lakita Blair and other former employees of the Qimonda Subsidiaries sued Infineon AG and Infineon North America in the U.S. District Court for the District of Delaware.
- The complaint alleged violations of federal and state laws, including ERISA and the WARN Act.
- The complaint sought to hold the Infineon defendants liable for the actions of their bankrupt subsidiaries under the theories of 'alter ego' and 'single employer' liability.
- The Infineon defendants filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the plaintiffs failed to plead sufficient facts to support any theory of derivative liability.
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Issue:
Do former employees' allegations that a parent company retained majority ownership, installed its own officers in the subsidiary, consolidated financial statements, provided central services, and siphoned funds from the subsidiary, thereby preventing it from paying severance, sufficiently state a plausible claim for alter ego and single employer liability to survive a motion to dismiss?
Opinions:
Majority - Sue L. Robinson
Yes. The plaintiffs have sufficiently alleged facts to state a plausible claim for relief under both alter ego and single employer theories of liability. For the alter ego claim, the court applies a two-part test requiring plaintiffs to show that the corporations operated as a single economic entity and that there was an element of fraud or injustice. The court found plaintiffs plausibly alleged several factors of the 'single entity' test, including gross undercapitalization, insolvency, failure to observe corporate formalities, and siphoning of funds. The allegation that Infineon deliberately siphoned funds to 'bleed dry' the Qimonda Subsidiaries while propping up Qimonda AG satisfies the required 'element of injustice.' For the WARN Act claim, the court applied the five Department of Labor (DOL) factors for 'single employer' liability. The court concluded that plaintiffs sufficiently pled all five factors: (1) common ownership (Infineon's 77.5% stake), (2) common officers, (3) de facto control over the decision to close the plants, (4) unity of personnel policies (shared recruitment and severance plan), and (5) dependency of operations (commingled finances and shared services). Therefore, the claims are not speculative and can proceed to discovery.
Analysis:
This decision illustrates the application of the 'plausibility' pleading standard established by Twombly and Iqbal to complex corporate liability claims. It clarifies that to survive a motion to dismiss on an alter ego or single employer theory, a plaintiff must allege specific, concrete facts for each element of the relevant legal test, rather than making conclusory assertions. The case provides a roadmap for pleading derivative liability against a parent corporation by detailing the types of factual allegations—such as financial siphoning, shared services, and interlocking directorates—that courts will deem sufficient to proceed to discovery. The ruling reinforces that the corporate veil is not absolute and can be pierced at the pleading stage if there are sufficient allegations of control and injustice.
