New York Law Review

Tag: corporate veil

  • Finerty v. Ford Motor Co., 30 N.Y.3d 238 (2017): Strict Products Liability and the Limits of a Parent Company’s Liability

    Finerty v. Ford Motor Co., 30 N.Y.3d 238 (2017)

    A parent corporation cannot be held strictly liable for the defective products of its subsidiary unless the parent “disregarded the separate identity” of the subsidiary to such an extent that the corporate veil should be pierced or if the parent acted as a manufacturer, retailer or distributor itself.

    Summary

    The plaintiff, who developed mesothelioma from asbestos exposure while working on Ford vehicles, sued Ford Motor Company (Ford USA), claiming strict products liability for defective design and failure to warn. The products, however, were manufactured and distributed by Ford’s UK subsidiary. The New York Court of Appeals reversed the Appellate Division, holding that Ford USA could not be held liable under a strict products liability theory simply because it exercised control over its subsidiary. The court emphasized that strict liability applies to those who manufacture, sell, or distribute products, or those who disregard corporate formalities; the parent company was not engaged in any of those activities, so it could not be held responsible for the subsidiary’s products unless the corporate veil should be pierced. The Court rejected the idea that a parent company’s general oversight of a subsidiary’s product design is enough to create liability under the law of strict products liability.

    Facts

    An individual contracted peritoneal mesothelioma after being exposed to asbestos while working on Ford tractors and vehicles. The plaintiff sued Ford Motor Company (Ford USA), and its wholly-owned subsidiaries Ford UK and Ford Ireland, alleging strict products liability based on defective design and failure to warn. Ford USA moved for summary judgment, arguing that it did not manufacture, produce, distribute, or sell the parts in question, which were manufactured by Ford UK. The lower court, while declining to pierce the corporate veil, concluded that because Ford USA “exercised significant control over Ford [UK] and Ford Ireland and had a direct role in placing the asbestos-containing products to which [plaintiff] was exposed into the stream of commerce,” a question of fact existed regarding its liability. The Appellate Division affirmed but held that Ford USA acted as a “global guardian of the Ford brand” and had a “substantial role in the design, development, and use of the auto parts distributed by Ford UK,” potentially making it directly liable for distributing the parts. The Appellate Division certified a question to the Court of Appeals.

    Procedural History

    The trial court denied Ford USA’s motion for summary judgment. The Appellate Division affirmed the trial court’s decision, holding that factual issues existed regarding Ford USA’s potential liability due to its role in the distribution chain, even if the corporate veil was not pierced. The Appellate Division granted Ford USA leave to appeal to the Court of Appeals and certified the question of whether its decision affirming the trial court was proper.

    Issue(s)

    Whether a parent corporation that does not itself manufacture, sell, or distribute a product can be held strictly liable for the product defects of its subsidiary because the parent company exerts a degree of control over the subsidiary’s design, production, and marketing.

    Holding

    No, because the court held that a parent company is not subject to strict products liability for its subsidiary’s products simply because the parent provides guidance or exercises control over the subsidiary. The parent company must be more directly involved in the manufacturing or distribution of the defective product, or the court must pierce the corporate veil to establish liability. The Court of Appeals answered the certified question in the negative.

    Court’s Reasoning

    The court relied on established principles of strict products liability, which apply to manufacturers, retailers, and distributors who place defective products into the stream of commerce. The court noted that these entities are in the best position to ensure product safety. However, the court held that a parent corporation is not automatically subject to strict liability for the acts of its subsidiary. Ford USA did not manufacture or sell the defective products and, as such, it could not be considered a manufacturer, seller, or distributor and could only be held responsible if the separate corporate identities of Ford USA and Ford UK were disregarded, but this had not been alleged. The court reasoned that while a parent company could exert pressure on its subsidiary to improve product safety, this did not create liability in the same way as the actions of a manufacturer or seller, and that such a rule would unfairly expand the scope of strict liability. The court distinguished prior cases, noting that they involved direct involvement in manufacturing or sales, and that such cases did not support the imposition of strict liability in the absence of evidence of disregard of the corporate form or direct participation in the manufacture or sale of the products.

    Practical Implications

    The case clarifies that strict products liability does not extend to parent corporations solely because of their control over a subsidiary’s operations, if the parent is not in the product’s chain of distribution. It emphasizes that a plaintiff must demonstrate that the parent actually manufactured, sold, or distributed the defective product or that the corporate veil should be pierced. Attorneys should carefully examine the corporate structure and the specific role of the parent company in the design, manufacturing, and distribution processes when pursuing strict liability claims. The decision makes it more difficult to sue parent corporations in cases involving their subsidiaries’ defective products if there’s no evidence the parent was directly involved in the product’s creation or distribution. This case has been cited in subsequent product liability cases involving corporate parents and subsidiaries.

  • Public Administrator of the County of New York v. Royal Bank of Canada, 19 N.Y.2d 127 (1967): Establishing Jurisdiction Over Foreign Branches of a Bank

    Public Administrator of the County of New York v. Royal Bank of Canada, 19 N.Y.2d 127 (1967)

    A foreign bank’s branch operating in New York subjects the entire bank, including its separately incorporated foreign branches, to the jurisdiction of New York courts, provided the foreign branch is essentially an alter ego of the main bank.

    Summary

    The case addresses whether service of process on the New York branch of the Royal Bank of Canada (RBC) confers jurisdiction over its separately incorporated French branch, Royal Bank of Canada (France). The court held that it does. Given the high degree of operational integration between RBC and its French branch, including shared management, standardized banking practices, and consolidated financial reporting, RBC (France) was effectively doing business in New York through RBC’s presence. Therefore, service on the New York branch established jurisdiction over the entire entity, including its French branch.

    Facts

    The Royal Bank of Canada (RBC) operated a branch in New York. RBC also had a branch in France, the Royal Bank of Canada (France), which was separately incorporated. All stock in the French corporation was owned by RBC. The assets and liabilities of the French branch were carried on RBC’s books as part of its own. RBC advertised that France was one of many countries in which it had branches. The French branch was established “to conduct the business of the Bank in Paris.” The French branch’s staff were recruited and trained by RBC in Montreal, and personnel were frequently shifted between Paris and RBC’s home office. The French branch was merely notified and not consulted on accounts which were transferred to it from other RBC branches, and the moneys in those accounts were reflected only in bookkeeping entries rather than by an actual transfer of the funds to France.

    Procedural History

    The plaintiff served process on the New York branch of Royal Bank of Canada, attempting to establish jurisdiction over both Royal Bank of Canada and its French branch, Royal Bank of Canada (France). The lower courts held that jurisdiction was properly obtained over the French branch. The Appellate Division affirmed this decision and certified a question to the New York Court of Appeals. The Court of Appeals then reviewed the case.

    Issue(s)

    Whether service of process on the New York branch of a foreign (Canadian) bank suffices to give New York courts jurisdiction over an incorporated branch of the same bank located in France.

    Holding

    Yes, because the Royal Bank of Canada (France) was not merely a subsidiary of the Royal Bank of Canada but was, in fact, if not in name, the Royal Bank of Canada itself. Since the two defendants are one and the same corporation, there is realistically no basis for distinguishing between them for the purposes of this suit.

    Court’s Reasoning

    The court reasoned that the Royal Bank of Canada (France) was essentially the same entity as the Royal Bank of Canada, despite its separate incorporation. The court focused on the degree of control and integration between the two entities. The court noted that the French branch was wholly owned by the Royal Bank of Canada, operated under the bank’s name, and conducted the bank’s business in Paris. The staff were trained and transferred by the Royal Bank of Canada. Deposits and bookkeeping entries were standardized and controlled by the Royal Bank of Canada. "In short, then, the facts detailed tend to establish that the Royal Bank of Canada (France) is not merely a subsidiary of the Royal Bank of Canada but is, in fact, if not in name, the Royal Bank of Canada itself." Because the Royal Bank of Canada was doing business in New York, its French branch was also subject to jurisdiction there. The court distinguished between “doing business” jurisdiction under CPLR 301 and “long-arm” jurisdiction under CPLR 302. CPLR 301 allows jurisdiction over a foreign corporation doing business in New York for any cause of action, regardless of where it arose. CPLR 302, the long-arm statute, allows jurisdiction only if the cause of action arises from the defendant’s transaction of business in New York.