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Courts have pierced the corporate veil when a parent exerted too much control over its subsidiary.
IT IS A GENERAL principle of corporate law in the United States, as in most nations, that a parent corporation is not liable for the acts of its subsidiaries. U.S. v. Bestfoods, 524 U.S. 51, 61 (1998). Moreover, absent specific circumstances, individual owners of stock are not personally liable for the acts of the corporation of which they are shareholders. The primary reason for forming a corporate entity is to limit the shareholders' risk and exposure to the capital contributed. Shareholders are willing to take the risk that the value of the stock they purchase is subject to market fluctuations secure in their knowledge that they will not be held personally liable for the actions of the company in which they have invested, absent special circumstances.
If the lines of decision-making authority are blurred or corporate formalities are not observed, however, a U.S. parent corporation may find itself brought into a U.S. court for actions that occurred overseas and that primarily involved its foreign subsidiary. Alleging that U.S. companies are liable for damages caused over
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seas by the actions of their foreign subsidiaries, and thereby attempting to pierce the corporate veil, foreign plaintiffs have brought an increasing number of cases in U.S. state and federal courts.
Such actions are brought not merely because U.S. companies are viewed as "deep-pocket" defendants, but also because U.S. law may allow causes of action not available overseas (such as Title VII of the Civil Rights Act of 1964 and the Alien Tort Claims Act), and because U.S. law may allow greater recovery in civil litigation (punitive damages and higher limits for recovery of damages in industrial accidents).
A Mexican company, subsidiary of a U.S. corporation, held its annual picnic on a warm spring day in Tijuana. The female workers
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who attended the picnic were told that the parent company's U.S. CEO was present and that, at his request, they had to participate and be videotaped in a bikini dance contest. Although the harmful actions took place in Mexico, the workers filed a suit in California Superior Court, alleging that the Tijuana facility was a "satellite" of the American parent because the parent paid all of the subsidiary's expenses and salaries and exerted control over all of the subsidiary's operations. Aguirre v. American United Global Inc., No. BC 118159 (Los Angeles Co., Calif., Super. Ct. filed Dec. 15, 1994). The parent ultimately closed down its Mexican operation and settled for an undisclosed amount.
In another case, Rodriguez v. Sierra Western, No. 97-506 (El Paso, Texas, Co. Ct.), a sewing-machine mechanic of a Mexican subsidiary company was driven home from work by an employee of the U.S. parent corporation. The U.S. driver got into an accident and the mechanic broke his jaw and shoulder. Although the accident occurred in Mexico, the injured worker sued the Texas parent company, alleging that it was negligent in not providing him with
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