SSP Partners v. Gladstrong Investments (USA) Corp.
2008 Tex. LEXIS 997, 52 Tex. Sup. Ct. J. 95, 275 S.W.3d 444 (2008)
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Rule of Law:
Corporations cannot be held liable for each other’s obligations merely because they operate as a single business enterprise; liability requires proof that the corporate form was abused to achieve an inequitable result. Furthermore, an upstream supplier who is not a manufacturer is not required to indemnify a downstream seller under Texas statute, nor under common law without a showing of independent fault.
Facts:
- Tianjin Sico Lighters Company, a Chinese company, manufactured WAX-brand disposable butane lighters in China.
- Gladstrong Hong Kong, also a Chinese company, designed the lighters' safety wheel, patented it, and was the exclusive exporter.
- Gladstrong Hong Kong owns Gladstrong Investments (U.S.A.) Corp., a California corporation, which imports, promotes, and distributes the lighters in the United States.
- Metro Novelties, Inc., a Texas corporation, purchased WAX lighters and sold them to SSP Partners, a Texas general partnership.
- SSP Partners retailed the WAX lighters through its Circle K convenience stores.
- A child's aunt purchased two WAX lighters at an SSP Circle K store.
- A house fire, allegedly started by one of the WAX lighters due to a defective child-resistant mechanism, resulted in the death of a five-year-old boy.
- Following the child's death, Gladstrong USA issued safety recall notices for the WAX lighters, stating they violated federal child safety regulations.
Procedural Posture:
- The parents of a deceased child sued SSP Partners and Gladstrong Investments (U.S.A.) Corp. in a Texas trial court for product liability.
- SSP sought indemnity from its supplier, Metro Novelties, Inc., and from Gladstrong USA. Metro also sought indemnity from Gladstrong USA.
- The parents settled their claims with both Gladstrong USA and SSP.
- SSP settled its indemnity claim against its supplier, Metro.
- Gladstrong USA moved for summary judgment on SSP's remaining indemnity claims against it.
- The trial court granted summary judgment for Gladstrong USA, dismissing SSP's claims.
- SSP (appellant) appealed the summary judgment to the Texas Court of Appeals.
- The Court of Appeals reversed the trial court's judgment in part and remanded the case for further proceedings.
- Both SSP and Gladstrong USA petitioned the Supreme Court of Texas for review.
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Issue:
Does the 'single business enterprise' theory allow a non-manufacturing corporation to be held liable for the statutory or common law indemnity obligations of a legally separate, manufacturing affiliate?
Opinions:
Majority - Justice Hecht
No. The single business enterprise theory is not a valid basis for imposing one corporation's liabilities on another. To disregard the corporate structure, there must be evidence of abuse or injustice, such as using the corporate form to perpetrate fraud or evade a legal obligation. Here, Gladstrong USA and Gladstrong Hong Kong are separate entities, and merely coordinating their activities for a common business purpose does not make them jointly liable. Furthermore, Gladstrong USA is not a 'manufacturer' under the Texas indemnity statute because it only imports and distributes the lighters, and is not involved in making them. Finally, an innocent upstream seller like Gladstrong USA has no common law duty to indemnify a downstream seller unless the upstream seller is proven to be at fault for the product's defect.
Analysis:
This case is significant for explicitly rejecting the 'single business enterprise' theory as an independent basis for imposing vicarious liability in Texas corporate law. It reinforces the 'bedrock principle' of limited corporate liability, clarifying that courts will only pierce the corporate veil in cases of abuse or injustice, not simply because affiliated companies have integrated operations. This decision heightens the burden for plaintiffs seeking to hold a parent or affiliate corporation liable for another's actions, requiring them to meet the traditional, more stringent tests for alter ego liability or veil piercing. The ruling also narrowly construes the statutory definition of 'manufacturer' for indemnity purposes, protecting distributors and importers from the automatic indemnity obligations placed on those who actually make products.
