The unanimous Supreme Court of Texas yesterday booted "single business enterprise" as a way to pierce a corporation's corporate veil under state law. SSP Partners v. Gladstrong Investments (USA) Corp., No. 05-0721 (Tex. Nov. 14, 2008).
The case arose from a house fire that killed a five year-old boy. The boy's parents alleged that the fire resulted from a defective child-resistant mechanism on a disposable butane lighter. The seller of the lighter, SSP Partners, and the U.S. importer and distributor, Gladstrong Investments (USA), settled for $1.6 million each. SSP recovered $800,000 in indemnity payments from an intermediate seller, Metro Novelties. SSP and Metro then sought indemnity on a variety of grounds from Gladstrong Investments (USA). The trial court granted Gladstrong Investments (USA) summary judgment on the indemnity claims, and the court of appeals affirmed in part and reversed in part. That left only a common law indemnity claim.
The Supreme Court affirmed. It agreed that chapter 82 of the Texas Civil Practices and Remedies Code allowed indemnity from a "manufacturer" or "producer" but that Gladstrong Investments (USA) didn't qualify as either. Gladstrong Investments (USA), the court noted, merely distributed the lighters after acquiring them from its parent, Gladstrong Hong Kong, in China.
Turning to the "single business enterprise" theory for extending to Gladstrong Investments (USA) the indemnity obligation of Gladstrong Hong Kong as manufacturer or producer of the lighters, the court said:
Creation of affiliated corporations to limit liability while pursuing common goals lies firmly within the law and is commonplace. We have never held corporations liable for each other’s obligations merely because of centralized control, mutual purposes, and shared finances. There must also be evidence of abuse, or as we said in Castleberry[ v. Branscum, 721 S.W.2d 270 (Tex. 1986)], injustice and inequity. By “injustice” and “inequity” we do not mean a subjective perception of unfairness by an individual judge or juror; rather, these words are used in Castleberry as shorthand references for the kinds of abuse, specifically identified, that the corporate structure should not shield — fraud, evasion of existing obligations, circumvention of statutes, monopolization, criminal conduct, and the like. Such abuse is necessary before disregarding the existence of a corporation as a separate entity. Any other rule would seriously compromise what we have called a “bedrock principle of corporate law” — that a legitimate purpose for forming a corporation is to limit individual liability for the corporation’s obligations.
SSP Partners, slip op. at 14 (footnotes omitted). The court nonetheless remanded the case to the trial court to consider whether common law indemnity applied, observing that Gladstrong Investments (USA) failed to seek summary judgment on that theory.
Blawgletter would express surprise at the fate of single business enterprise if we could muster it. But the court's rejection of it accords with a 20-year or so trend towards curtailing grounds for imposition of liability in the Lone Star State.
And the decision seems hardly radical on that point. "Single business enterprise" posited a loosey-goosey standard; the corporations need only have "'integrate[d] their resources to achieve a common business purpose'". SSP Partners, slip op. at 7-8 (quoting Paramount Petroleum Corp. v. Taylor Rental Center, 712 S.W.2d 534, 536 (Tex. App. -- Houston [14th Dist.] 1986, writ ref'd n.r.e.)) (footnote omitted). That standard fit with the let-the-jury-decide conception that prevailed in the 1980s, but the jury-friendly view has long since faded.
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