Gardemal v. Westin Hotel Co.
186 F.3d 588 (1999)
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Rule of Law:
A parent corporation cannot be held liable for the torts of its subsidiary under an alter ego or single business enterprise theory without evidence of complete domination and resulting injustice. Additionally, a foreign subsidiary is not subject to general personal jurisdiction in a forum state without a showing of continuous, systematic, and substantial contacts with that state.
Facts:
- In June 1995, Lisa Gardemal and her husband, John W. Gardemal, traveled to Cabo San Lucas, Mexico, to attend a medical seminar.
- They stayed at the Westin Regina Resort Los Cabos, which is managed by Westin Mexico, S.A. de C.V., a subsidiary of the U.S.-based Westin Hotel Company.
- The concierge at the Westin Regina directed the Gardemals and a group of guests to a snorkeling spot called 'Lovers Beach'.
- The beach was known for its dangerous surf and undercurrents, a fact not disclosed by the concierge.
- While at the beach, a large wave swept John Gardemal and four other men into the ocean.
- John Gardemal drowned as a result of the incident.
Procedural Posture:
- Lisa Gardemal sued Westin Hotel Company and Westin Mexico in federal district court, asserting wrongful death and survival actions under Texas law.
- Defendant Westin filed a motion for summary judgment, arguing it was a separate corporate entity from its subsidiary, Westin Mexico.
- Defendant Westin Mexico filed a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction.
- A magistrate judge reviewed the motions and recommended that both be granted.
- The district court conducted a de novo review, accepted the magistrate's recommendations, and dismissed Gardemal's entire suit.
- Gardemal, as the appellant, appealed the district court's judgment to the U.S. Court of Appeals for the Fifth Circuit.
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Issue:
Under Texas law, can a U.S. parent corporation be held liable for the alleged negligence of its foreign subsidiary under a theory of alter ego, and can that foreign subsidiary be subject to personal jurisdiction in Texas for a tort committed abroad based on its limited and indirect contacts with the state?
Opinions:
Majority - DeMoss, J.
No. A parent corporation is not liable for the acts of its subsidiary, and a foreign subsidiary is not subject to personal jurisdiction in the forum, under these circumstances. First, to hold Westin liable under an alter ego theory, the plaintiff must show that Westin Mexico was operated as a mere tool of Westin, with such unity that their separateness ceased. Here, the evidence shows only a typical parent-subsidiary relationship (shared stock, common officers, quality control manuals), not the 'complete domination' required to pierce the corporate veil. Westin Mexico maintained its own corporate formalities, bank accounts, staff, and insurance, and there was no evidence it was undercapitalized or that respecting the corporate form would lead to injustice. Second, the court lacks personal jurisdiction over Westin Mexico. There is no specific jurisdiction because the lawsuit does not arise from any activity Westin Mexico purposefully directed at Texas; the seminar was promoted by a third party. There is no general jurisdiction because Gardemal's vague allegations of advertising and contracting with Texas businesses do not meet the high bar of 'continuous and systematic' contacts required to sue a foreign corporation for an injury that occurred outside the forum.
Analysis:
This decision reinforces the significant legal separation between parent and subsidiary corporations, making it difficult for plaintiffs to 'pierce the corporate veil' without showing almost total control and an inequitable outcome. It clarifies that normal corporate oversight, brand sharing, and interlocking directorates are insufficient to establish alter ego liability. The ruling also underscores the demanding standard for establishing general personal jurisdiction over foreign defendants, requiring concrete evidence of substantial and continuous business operations within the forum state, not just intermittent advertising or contracts.
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