Fletcher v. Atex, Inc.
68 F.3d 1451 (1995)
Rule of Law:
A parent corporation is not liable for the acts of its subsidiary unless the plaintiff can pierce the corporate veil by showing the two operated as a single economic entity and that an injustice would result, or can establish liability under traditional tort theories like agency, apparent manufacturer, or concerted action.
Facts:
- From 1981 until December 1992, Atex, Inc. was a wholly-owned subsidiary of Eastman Kodak Company ('Kodak').
- Plaintiffs-appellants used computer keyboards manufactured by Atex and claimed to have developed repetitive stress injuries as a result.
- Atex participated in Kodak's centralized cash management system, where all subsidiary funds were centrally managed but a strict accounting of each subsidiary's funds was maintained.
- Kodak required its approval for Atex's major expenditures, real estate leases, and asset sales.
- Atex's promotional literature, packaging materials, and some corporate documents occasionally displayed the Kodak logo and referred to Atex as a 'division' or part of a 'merger' with Kodak.
- Kodak did not design, manufacture, sell, or distribute the Atex keyboards.
- In 1990, after the keyboards in question were designed and manufactured, Atex retained Kodak's Design Resource Center to conduct a one-time ergonomic evaluation of three keyboard models.
Procedural Posture:
- Fletcher and Hermanson filed separate complaints against Atex, Inc. and Eastman Kodak Company in the United States District Court for the Southern District of New York.
- The two actions were consolidated before the district court for summary judgment proceedings.
- After extensive discovery, Kodak filed a motion for summary judgment in both cases.
- The district court granted Kodak's motion for summary judgment, dismissing all claims against it.
- The plaintiffs appealed the district court's judgment to the United States Court of Appeals for the Second Circuit.
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Issue:
Under Delaware and New York law, can a parent corporation be held liable for injuries allegedly caused by its wholly-owned subsidiary's products under theories of alter ego, agency, apparent manufacturer, or concerted tortious action, when the parent does not manufacture, sell, or distribute the product but maintains typical oversight and allows its logo on some of the subsidiary's materials?
Opinions:
Majority - Cabranes, J.
No. A parent corporation cannot be held liable for its subsidiary's torts under these circumstances. To pierce the corporate veil under Delaware's alter ego theory, a plaintiff must show both that the companies operated as a 'single economic entity' and that an 'overall element of injustice or unfairness' would result from respecting the corporate form. Here, Kodak and Atex observed corporate formalities, and Kodak's oversight—including its cash management system and approval of major expenditures—was typical of a parent-subsidiary relationship and insufficient to establish domination. Furthermore, the plaintiffs failed to show any injustice or fraud that would warrant disregarding Atex's separate corporate existence. The theories of agency and apparent manufacturer also fail because Kodak was not involved in the sale or distribution of the keyboards, did not hold Atex out as its agent, and the plaintiffs provided no evidence of reliance. Finally, the concerted action claim fails because there is no evidence of an agreement to commit a tort or that Kodak provided substantial assistance to Atex's allegedly tortious conduct.
Analysis:
This decision reinforces the high legal threshold required to hold a parent corporation liable for the actions of its subsidiary. It clarifies that typical oversight, such as centralized financial systems and approval of major transactions, does not by itself constitute the domination required to pierce the corporate veil under Delaware's demanding alter ego test. The ruling also narrowly construes other liability theories in the parent-subsidiary context, making it clear that incidental use of a parent's logo or limited post-manufacturing consultation is insufficient to establish agency, apparent manufacturer, or concerted action liability. The case serves as a strong precedent protecting parent corporations from liability for their subsidiaries' products, so long as corporate formalities are respected and the parent is not directly involved in the chain of distribution.
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