Enterprise liability: Reviewing and revitalizing liability for corporate groups

California Law Review

Volumn 97, Issue 1, 2009, Pages 195-261

  Dearborn, Meredith ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

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EID: 62249182317     PISSN: 00081221     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Note

References (367)

1. In 1989, the Burmese military junta officially changed the country's English name from "Burma" to "Myanmar." Some opposition groups, several countries (including the United States), and many news outlets continue to use the name "Burma." See Should it be Burma or Myanmar?, BBC NEWS MAGAZINE, Sept. 26, 2007, available at http://news.bbc.co.uk/2/hi/uk-news/magazine /7013943.stm (last visited Nov. 11, 2008). I use "Myanmar" because the courts in the cases to which I will refer frequently use "Myanmar," as does the United Nations. Id. I do not convey any political sentiment through its usage.
2. See Armin Rosencranz & David Louk, Doe v. Unocal: Holding Corporations Liable for Human Rights Abuses on Their Watch, 8 CHAP. L. REV. 135 (2005); see also Unocal Defendants' Phase 1 Trial Brief at 5, Doe v. Unocal, Nos. BC 237980 & BC 237679 (Cal. App. Dep't Super. Ct. Dec. 9, 2003).
3. See The Foreign & Commonwealth Office Country Profiles: Burma, http://www.fco.gov.uk/en/about-the-fco/country-profiles/asia- oceania/burma?profile=history&pg=3. In 1997, the SLORC renamed itself the State Peace and Development Council. Id.
4. Doe v. Unocal Corp., 395 F.3d 932, 937 (9th Cir. 2002), appeal dismissed per stipulation en banc, 403 F.3d 708 (9th Cir. 2005) [hereinafter Unocal II].
5. Id. at 938. Even without a formal contract or employment agreement, the military undisputedly increased its presence along the route and Unocal was aware that the state forces in the region were providing security and other services for the Yadana pipeline. "A Unocal memorandum . . . reflects Unocal's understanding that '[f]our battalions of 600 men each will protect the [pipeline] corridor' and '[f]ifty soldiers will be assigned to guard each survey team.' .. . In addition, the Military built helipads and cleared roads along the proposed pipeline route for the benefit of the Project." Id.
6. Doe v. Unocal Corp., 963 F. Supp. 880, 883 (CD. Cal. 1997) aff'd in part, rev'd in part, 395 F.3d 932 (9th Cir. 2002) [hereinafter Unocal I].
7. Unocal I, 963 F. Supp. at 883.
8. Unocal Defendants' Phase 1 Trial Brief, supra note 3, at 26 passim.
9. Unocal II, 395 F.3d at 939-42.
10. Unocal Defendants' Phase 1 Trial Brief, supra note 3, at 30.
11. The federal case settled and the parties stipulated to a judgment. See Unocal I, 963 F. Supp. 880; Rosencranz & Louk, supra note 3, at 135.
12. quot;Piercing the corporate veil" is a term of art that is interchangeable with other names for the doctrine, including "alter ego" liability. California courts, as well as other state courts, use these terms interchangeably; I will do so as well. See, e.g., Bowoto v. Chevron Texaco Corp., 312 F. Supp. 2d 1229, 1235 (N.D. Cal. 2004).
13. See, e.g., Apex Oil Co. v. DiMauro, 744 F. Supp. 53, 57 (S.D.N.Y. 1990).
14. Christopher P. Hall & David B. Gordon, Enforcement of Foreign Judgments in the United States, 10 INT'L L. PRACTICUM 57, 57 (1997).
15. In California, the oft-cited case of Associated Vendors v. Oakland Meat Co., 26 Cal. Rptr. 806, 813 (Cal. Dist. Ct. App. 1963) sets forth the test: "The two requirements are (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow." I will discuss piercing in greater detail below. Although Associated Vendors is a contract case, piercing the corporate veil does not doctrinally differentiate between tort and contract creditors. See Minton v. Cavaney, 364 P.2d 473, 476 (Cal. 1961) ("There is no merit in defendant's contentions that the 'alter ego' doctrine applies only to contractual debts and not to tort claims ....").
16. See Unocal Defendants' Phase 1 Trial Brief, supra note 3, at 3.
17. Statement of Decision Regarding the Phase I Trial, Doe v. Unocal, Superior Court of the State of California, County of Los Angeles, Case Nos. BC 237980 & BC 237679, April 14, 2004, at 31 (on file with author) [hereinafter Statement of Decision].
18. Id. at 12-31.
19. Id. at 31.
20. Id. at 28.
21. See JOSE ENGRACIA ANTUNES, LIABILITY OF CORPORATE GROUPS (1994); Mark J. Roe, Corporate Strategic Reaction to Mass Tort, 72 VA. L. REV. 1, 39 (1986). I do not wish to minimize the dramatic harms that are often at issue in these cases by using the dry term "externalize risk." The suffering in these cases is significant and real. In the words of one plaintiffs' lawyer, "Decades of development and technological advances have brought great improvements and conveniences but at a significant cost in human life and health. Our industry has left a trail of human misery, diseases, birth defects and cancers which afflict workers, their families, consumers of the products and even innocent bystanders." Stanley J. Levy, Toxic Tort and Product Liability Litigation, in TOXIC TORT CASE ESSENTIALS: STRATEGIES, EXPERTS, MOTIONS, AND ADR, 21, 23 (P.L.I. Litigation and Administrative Practice Course Handbook Series 1992).
22. See Henry Hansmann & Reihier Kraakman, Toward Unlimited Shareholder Liability for Corporate Torts, 100 YALE L.J. 1879, 1881 & n.4 (1991).
23. See ANTUNES, supra note 22, at 6; see also The Castan Centre for Human Rights Law, Transnational Human Rights Litigation against Companies, http://www.law.monash.edu.au/ castancentre/projects/mchr/ trans-hr-litigation.html (last visited Sept. 5, 2008) (listing cases involving human rights litigation abroad). Many of these cases now involve the Alien Tort Claims Act. 28 U.S.C. § 1350. For a factual description of the Bhopal disaster, see text infra accompanying notes 192-205. The Amoco Cadiz was a crude carrier owned by Amoco Corporation through a filter of subsidiaries; the ship split in two off the coast of Brittany, France, and the resulting oil spill was one of the largest in history. Matter of Oil Spill by Amoco Cadiz Off Coast of France on March 16, 1978, 954 F.2d 1279, 1285 (7th Cir. 1992).
24. Roe, supra note 22, at 39-40.
25. Id. Philip Morris actually conceded that it created holding companies in order to "better insulate each business from obligations and liabilities incurred in unrelated activities." Hansmann & Kraakman, supra note 23, at 1881 n.3 (internal citations omitted).
26. See Hansmann & Kraakman, supra note 23, at 1881 & n.5 (internal citations omitted). Hansmann and Kraakman conclude that "corporate subsidiaries are among the firms that are most likely to employ limited liability today to externalize tort damages." Id. at 1926.
27. Id. at 1895.
28. See, e.g., Adolf A. Berle, Jr., The Theory of Enterprise Entity, 47 COLUM. L. REV. 343, 343 (1947) (arguing that "[a corporation's] primary business advantage, of course, was insulation of individual stockholders composing the corporation from liability for the debts of the corporate enterprise.") Others have disagreed that this was the primary purpose of the corporation at its conception. See David L. Cohen, Theories of the Corporation and the Limited Liability Company: How Should Courts and Legislatures Articulate Rules for Piercing the Veil, Fiduciary Responsibility and Securities Regulation for the Limited Liability Company? 51 OKLA. L. REV. 427, 435-38 (1998) (discussing managerial centralization and aggregation of contracts, as well as the role of state regulation).
29. See, e.g., Dole Food Co. v. Patrickson, 538 U.S. 468, 474-75 (2003) ("A basic tenet of American corporate law is that the corporation and its shareholders are distinct entities .... A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary."). See also 18 AM. JUR. 2D Corporations § 65 (1996).
30. Dole Food Co., 538 U.S. at 474-75.
31. See, e.g., Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1042 n.54 (2006) (citing increasing criticism of the practice, including Benjamin Cardozo in Berkey, infra note 53; Stephen Bainbridge, infra note 51; Robert Thompson, infra note 55; Frank Easterbrook & Daniel Fischel, infra note 52, and others).
32. See Berle, supra note 29.
33. See id. at 344.
34. See Maurice J. Dix, The Economic Entity, 22 FORDHAM L. REV. 254, 255 (1953); William O. Douglas & Carrol M. Shanks, Insulation from Liability Through Subsidiary Corporations, 39 YALE L.J. 193 (1929); Daniel W. Leebron, Limited Liability, Tort Victims, and Creditors, 91 COLUM. L. REV. 1565 (1991).
35. Berle, supra note 29, at 344; Dix, supra note 35, at 255.
36. By distinguishing between direct and indirect profit, I mean to draw a distinction between shareholders that are holding shares in a corporation for investment purposes alone, and parent companies, who generally profit from a subsidiary's actions in more and different ways than a simple pro rata share. See Nina A. Mendelson, A Control-Based Approach to Shareholder Liability for Corporate Torts, 102 COLUM. L. REV. 1203, 1252 (2002) (describing controlling shareholders' advantages over passive shareholders). Unocal, for example, was not merely investing in the pipeline project as a passive shareholder; it had an active business interest in transporting oil, and could feasibly direct the execution of the project, through either direct control over the instrumentalities involved or through indirect allocation of resources and promulgation of basic policies. The distinction between these latter two types of control is nuanced; I will discuss it further in Part V, infra.
37. I note that there may be more than one understanding of this term. Some commentators use "enterprise" liability to refer to horizontal piercing claims-where the assets of one subsidiary are accessed to pay the debts of a sister subsidiary. Accord John H. Matheson, The Limits of Business Limited Liability: Entity Veil Piercing and Successor Liability Doctrines, 31 WM. MITCHELL L. REV. 411, 422 (2004). However, most commentators agree that "enterprise" refers to the unified economic group of corporations, and "entity" refers to the single, legal form of the corporation. Accord ANTUNES, supra note 22, at 231. I also use the term in order to differentiate it from "unlimited liability," which abolishes the limited liability principle for all shareholders, whether they are corporate or individual. See Leebron, supra note 35, at 1568. In addition, "enterprise liability" has connotations in the employment context that do not concern us here; certain commentators use it to connote a more generalized type of respondeat superior, or vicarious, liability where the employer is held liable for the acts of the employee. See, e.g., Harvard Law Review Association, Fixing Medical Malpractice Through Health Insurer Enterprise Liability, 121 HARV. L. REV. 1192 (2008). This idea is obviously related to the concept of enterprise liability between parent and subsidiary corporations. However, since I will focus on enterprise liability with respect to parent corporations and their subsidiaries, the employer-employee branch of the concept will not be discussed further in this Comment.
38. Professor Blumberg's multi-volume treatise on corporate groups, along with his extensive writings on the subject, comprise an essential body of work in this area. See PHILIP I. BLUMBERG, THE LAW OF CORPORATE GROUPS: PROCEDURAL PROBLEMS IN THE SUBSTANTIVE LAW OF PARENT AND SUBSIDIARY CORPORATIONS (1983) [hereinafter BLUMBERG, PROCEDURAL LAW]; PHILLIP I. BLUMBERG, THE LAW OF CORPORATE GROUPS: PROBLEMS OF PARENT AND SUBSIDIARY CORPORATIONS UNDER STATUTORY LAW OF GENERAL APPLICATION (1989) [hereinafter BLUMBERG, STATUTORY LAW: GENERAL]; PHILLIP I. BLUMBERG & KURT A. STRASSER, THE LAW OF CORPORATE GROUPS: PROBLEMS OF PARENT AND SUBSIDIARY CORPORATIONS UNDER STATUTORY LAW SPECIFICALLY APPLYING ENTERPRISE PRINCIPLES (1992) [hereinafter BLUMBERG & STRASSER, STATUTORY LAW: SPECIFIC]; PHILLIP I. BLUMBERG & KURT A. STRASSER, THE LAW OF CORPORATE GROUPS: PROBLEMS OF PARENT AND SUBSIDIARY CORPORATIONS UNDER STATE STATUTORY LAW (1995) [hereinafter BLUMBERG & STRASSER, STATUTORY LAW: STATE]; see also PHILIP I. BLUMBERG, THE M ULTINATIONAL CHALLENGE TO CORPORATION LAW: THE SEARCH FOR A NEW CORPORATE PERSONALITY (1993) [hereinafter BLUMBERG, THE MULTINATIONAL CHALLENGE]; Philip I. Blumberg, Limited Liability and Corporate Groups, 11 J. CORP. L. 573 [hereinafter Blumberg, Limited Liability]; Philip I. Blumberg, The Law of Corporate Groups, 37 CONN. L. REV. 605, 607 (2005) [hereinafter Blumberg, Corporate Groups].
39. ANTUNES, supra note 22, at 33.
40. Leebron, supra note 35, at 1566. See also Christopher D. Stone, The Place of Enterprise Liability in the Control of Corporate Conduct, 90 YALE L.J. 1, 70 (1980) ("[N]o one would have expected the doctrine to entail any more than protecting investors from unsatisfied claims of the corporation's voluntary creditors, and perhaps from judgments arising from the agents' ordinary negligence within the scope of employment.").
41. Sandra K. Miller, Piercing the Corporate Veil Among Affiliated Companies in the European Community and in the U.S.: A Comparative Analysis of U.S., German and U.K. Veil-Piercing Approaches, 36 AM. BUS. L.J. 73, 84-85 (1998).
42. ANTUNES, supra note 22, at 33; Lonny Sheinkopf Hoffman, The Case Against Vicarious Jurisdiction, 152 U. PA. L, REV. 1023, 1051 (2004). New Jersey actually earned the dubious appellation "The Traitor State" for this legislation. Blumberg, Corporate Groups, supra note 39, at 607. Nonetheless, New York, Connecticut, Pennsylvania, and Delaware all had enacted similar laws within ten years. ANTUNES, supra note 22, at 33.
43. New York, for example, had legislation against intercorporate ownership. See Act of 3.22.1811, ch. 67, sec. 7 (N. Y. Laws 111). In the absence of express legislation, however, it was unanimously prohibited by the courts in other states. In the words of Justice Brandeis, "[T]he power to hold stock in other corporations was not conferred or implied. The holding company was impossible." Louis K. Ligget Co. v. Lee, 288 U.S. 517, 541 (1933). The few exceptions to the general rule that corporations could not hold stock in another corporation were granted by the state to particular corporations. See ANTUNES, supra note 22, at 31.
44. Leebron, supra note 35, at 1566.
45. See Robert W. Hamilton, The Corporate Entity, 49 TEX. L. REV. 979, 981 (1970) ("It should be emphasized, however, that a corporation possesses [personhood], not because it is an entity, but because the business corporation acts so provide.").
46. Leebron, supra note 35, at 1567.
47. Richard S. Farmer, Parent Corporation Responsibility for the Environmental Liabilities of the Subsidiary: A Search for the Appropriate Standard, 19 J. CORP. L. 769, 773 (1994).
48. See In re Silicone Breast Implants Prods. Liab. Litig., 887 F. Supp. 1447, 1452 (N.D. Ala. 1995) ("So far as this court has been able to determine, some variation of this theory of liability is recognized in all jurisdictions."); Christopher P. Hall & David B. Gordon, Enforcement of Foreign Judgments in the United States, 10 INT'L L. PRACTICUM 57, 57 (1997) ("Virtually every state in the U.S. recognizes the concept of piercing the corporate veil.").
49. See Miller, supra note 42, at 88-90. I will refer to these steps as prong one and prong two, or the first prong and the second prong.
50. See Stephen M. Bainbridge, Abolishing Veil Piercing, 26 J. CORP. L. 479, 481 (2001). Bainbridge advocates abolishing the doctrine altogether due to this inherent vagueness. See id.
51. Frank H. Easterbrook & Daniel R. Fischel, Limited Liability and the Corporation, 52 U. CHI. L. REV. 89, 89(1985).
52. Berkey v. Third Ave. Ry. Co., 155 N.E. 58, 61 (N.Y. 1926).
53. Easterbrook & Fischel, supra note 52, at 89.
54. See Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 CORNELL L. REV. 1036, 1036 (1991).
55. See, e.g., Easterbrook & Fischel, supra note 52, at 110-11.
56. Thompson, supra note 55, at 1056 ("When potential defendants against whom liability is sought are grouped as either individuals or corporations, courts pierce the veil to get at individual defendants more often than they pierce to reach corporations. This result is contrary to what some commentators have suggested."). Thompson did find, however, that when close corporations with one, two or three shareholders are omitted, piercing does seem to happen more often when the owner is a corporation. See id.
57. Thomas J. Heiden, The New Limits of Limited Liability: Differing Standards and Theories for Measuring a Parent/Shareholder's Responsibility for the Operations of Its Subsidiary, 823 PRACTICING L. INST. 7, 17 (1993) (quoting Professor Blumberg). For a review of recent commentary, see Kurt A. Strasser, Piercing the Veil in Corporate Groups, 37 CONN. L. REV. 637, 637 n.1 (2005) (listing articles).
58. Strasser, supra note 58, at 637.
59. Bainbridge, supra note 51, at 481.
60. See, e.g., Bainbridge, supra note 51 (advocating abolishing veil piercing altogether); Leebron, supra note 35 (advocating unlimited liability).
61. I focus mainly on catastrophic harms such as environmental and human rights disasters both because these are the most troubling and also generally the most expensive. The logic I outline may extend to these areas as well. For further discussion, see text infra accompanying notes 342-346.
62. In addition to the authorities cited in this section, a wealth of commentators has exhaustively examined both sides of this issue. See, e.g., Janet Cooper Alexander, Unlimited Shareholder Liability Through a Procedural Lens, 106 HARV. L. REV. 387 (1992); Hansmann & Kraakman, supra note 23; S. Shavell, The Judgment Proof Problem, 6 INT'L REV. L. & ECON. 45 (1986); Robert B. Thompson, Unpacking Limited Liability: Direct and Vicarious Liability of Corporate Participants for Torts of the Enterprise, 47 VAND. L. REV. 1 (1994) [hereinafter Thompson, Unpacking]; see also Stone, supra note 41, at 39 (noting that preventative laws are appropriate where society has a deep aversion to the harm).
63. See Hamilton, supra note 46, at 984. Though this represents a romanticized view of freedom of contract, the theoretical idea remains canonical.
64. Easterbrook & Fischel, supra note 52, at 103; Leebron, supra note 35, at 1568.
65. Easterbrook & Fischel, supra note 52, at 106.
66. Id. at 107.
67. See id. at 106.
68. Id. at 111 ("[T]he moral-hazard problem is probably greater in parent-subsidiary situations because subsidiaries have less incentive to insure.").
69. See Hansmann & Kraakman, supra note 23, at 1882.
70. Id. at 1889. Although many firms currently do purchase general liability insurance Hansmann and Kraakman suggest that the coverage limit selected by these firms is generally low. See id.
71. See id. at 1883.
72. See id. at 1916-19.
73. See id. at 1917. Moreover, turning the shareholder into an insurer creates pressures for the party that is in the best position to assess and guard against its tort liabilities and purchase insurance. If the shareholder corporation is fully insured-as most corporations are today, and as many more would be if enterprise liability for corporate torts were accepted as a general principle-the "argument for unlimited liability is further strengthened." Id. at 1888.
74. This category includes not only hazardous industries-which are some of the clearest examples of the problem-but also integrated foreign suppliers or manufacturers of unsafe products, such as those responsible for dangerous toys coming out of China, and sometimes even franchises.
75. This area of heightened concern necessarily spurs a number of observations. First, a cautious observer might wonder whether adequate capitalization or insurance would preclude the need for expanded liability, as the harmed party could recover fully from the subsidiary. Because I am concerned most with preventing catastrophes, rather than compensating victims for them, I will not further address whether adequate capitalization should be sufficient to avoid liability. I do this in part because there is a normative claim that forcing a corporation to internalize its reputational harms as well as its fiscal ones, which would require a parent corporation to absorb the damage to its branding that its subsidiary corporations cause, creates an incentive for parent corporations to influence the activities of their subsidiaries to minimize hazardous risks. Similarly, some might observe that these massive torts are ordinarily perpetrated by a subsidiary outside the direct control of the parent. Rather than focusing on control, I argue that imposing corporate-group liability may be enough to cause the parent corporation to allocate resources, create oversight structures, and refrain from embarking on certain risky projects, that would prevent catastrophic accidents in the first place. See infra Part V. Finally, I have excluded from this area of heightened concern economic damage torts, such as accounting fraud. With some notable exceptions (Enron being the primary one), these torts do not generate the same animated argument as catastrophic personal injury or environmental torts do, and might be better addressed under a separate regime. Enterprise principles, however, may play a role in consideration of how best to address and prevent these harms.
76. See PETER T. MUCHLINSKI, MULTINATIONAL ENTERPRISES AND THE LAW 77 (Oxford University Press 2007) (1995). ("It is clear that existing legal forms of business organization . . . were simply not designed to correspond with such extensive business structures as [multinational enterprises].").
77. Blumberg, Corporate Groups, supra note 39, at 608.
78. See, e.g., d'Elia v. Rice Dev., Inc., 147 P.3d 515, 522-23 (Utah Ct. App. 2006) (finding that adequate maintenance of corporate formalities dictated upholding the trial court's refusal to pierce the corporate veil despite the corporation's numerous problematic practices such as siphoning funds and misreporting income); see also Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 n.2 (2d Cir. 1997) (noting that the trial court mistakenly found the test to be disjunctive; in New York, the test is conjunctive.)
79. See, e.g., Sea-Land Servs., Inc. v. Pepper Source, 941 F.2d 519 (7th Cir. 1991).
80. See, e.g., Sayers v. Navillus Oil Co., 41 S.W.2d 506 (Tex. Civ. App. 1931).
81. Roe, supra note 22, at 40.
82. Note that courts have looked a bit deeper in mass tort cases, and that occasionally a parent corporation exercises such pervasive control over a subsidiary that a court will find this prong satisfied. Cf. In re Silicone Gel Breast Implants Prods. Liab. Litig., 887 F. Supp. 1447, 1453 (N.D. Ala. 1995) (finding that Delaware courts do not necessarily require a showing of fraud if the "subsidiary is found to be the mere instrumentality or alter ego of its sole stockholder"). I view this outcome as less an indication of the adequacy of the test in the parent-subsidiary context and more a function of the flexibility of the doctrine.
83. See Berle, supra note 29, at 343; see also text infra accompanying notes 88-92.
84. Miller, supra note 42, at 131 (paraphrasing Easterbrook & Fischel) (emphasis in original).
85. See Thompson, Unpacking, supra note 63, at 23 & nn.101-02; Thompson, supra note 55, at 1048 tb1.1.
86. I note before concluding that I have not here examined the potential benefits of subsidiarization. There are myriad legitimate, efficient, and normatively unproblematic reasons why a company may want to create a subsidiary that do not relate to the externalization of excessive risk. See Douglas & Shanks, supra note 35, at 193 (listing as advantages "[t]he increased facility in financing; the desire to escape the difficulty, if not the impossibility, of qualifying the parent company as a foreign corporation in a particular state; the avoidance of complications involved in the purchase of physical assets; the retention of the good will of an established business unit; the avoidance of taxation; [and] the avoidance of cumbersome management structures"). There also may be other efficiency reasons indicating that, on balance, subsidiaries add more to the global economy than they detract through risk externalization and moral hazard. I merely wish to problematize the doctrine in order to contrast some of its shortcomings with subsequent observations about enterprise liability, and to provide context for a proposed solution.
87. Dix, supra note 35, at 255.
88. L.C.B. GOWER, THE PRINCIPLES OF MODERN COMPANY LAW 213 (K.W. Wedderburn & O. Weaver eds., 3d ed. 1969).
89. See generally Strasser, supra note 58, at 638-39.
90. See ANTUNES, supra note 22, at 8 (noting that in reimagining the corporate group, the central question focuses on the circumstances under which a parent corporation can be held liable for the debts and liabilities of its subsidiary).
91. Several authors have discussed how liability should be imagined, and what factors should play into the analysis. In particular, two authors have discussed whether the liability of the parent for torts of the subsidiary should be strict, pro rata, or joint and several. See TIMO RAPAKKO, UNLIMITED SHAREHOLDER LIABILITY IN MULTINATIONALS 342-43 (1997) (arguing that unlimited shareholder liability, if imposed, would necessarily be a form of strict liability); Leebron, supra note 35, at 1569, 1578. While both of these authors discuss "unlimited liability," which would not differentiate between corporate and individual shareholders, I only advocate for corporate shareholder liability. Additionally, Professor Blumberg argues that enterprise liability should analyze whether treating the corporate group as a singular economic unit makes sense from a policy standpoint, given the issues at stake in a particular case. See BLUMBERG, THE MULTINATIONAL CHALLENGE, supra note 39, at 93. Some of the factors that Blumberg identifies as part of his proposed analysis include "control, economic integration, financial and administrative interdependence, overlapping employment structures, and a common group persona." Book Note, Applying Enterprise Principles to Corporate Groups, 107 HARV. L. REV. 1455, 1456 (reviewing BLUMBERG, THE MULTINATIONAL CHALLENGE, supra note 39, 93-96). As I will discuss later in this Comment, I will disagree that true enterprise liability follows modes of control, so I do not adopt Professor Blumberg's factored analysis wholesale. See infra Part VI.
92. See Leebron, supra note 35, at 1614 (advocating abolishing limited liability for wholly owned subsidiaries under some circumstances); Thompson, Unpacking, supra note 63, at 35-40 (advocating extending liability in the context of the corporate family). See also Roe, supra note 22.
93. Kurt Strasser has put it thus: "While traditional corporate law has not articulated different rules for a parent company in its role as a shareholder than for individual investor shareholders, parent companies in fact present different policy issues and their limited liability should be determined by a different analysis. The core idea is that a parent company as a shareholder in its subsidiary companies is in quite a different economic role and performs quite a different management function than individual investor shareholders .... A parent company creates, operates and dissolves subsidiaries primarily as part of a business strategy in pursuit of the business goals of the larger enterprise, which the parent and all the subsidiaries are pursuing together. The parent is not an independent investor." Strasser, supra note 58, at 638.
94. See text supra accompanying notes 40-46. There are many variations on this thesis. Some commentators have advocated unlimited liability for all shareholders in the tort context. See Hansmann & Kraakman, supra note 23, at 1880. Others have suggested that controlling shareholders, whatever their form, should bear the risks and costs of the corporations they control. See, e.g., Nina A. Mendelson, A Control-Based Approach to Shareholder Liability for Corporate Torts, 102 COLUM. L. REV. 1203 (2002). I take a more limited approach than either of these proposals and advocate for enterprise liability only in the context of the corporate family. See Part VI, infra.
95. Easterbrook & Fischel, supra note 52, at 111; Hansmann & Kraakman, supra note 23, at 1889.
96. Leebron, supra note 35, at 1577.
97. Leebron, supra note 35, at 1577-78. Though governmental regulation, and the subsequent lobbying that may privilege certain businesses and industries over others, is an imperfect locus for remedying these harms, shifting decision-making to publicly accountable individuals at least represents a step toward more transparency.
98. Id.
99. Stone, supra note 41, at 8.
100. See SEC filings of Unocal Corporation, Form 10-K of 12/31/04, http://www.secinfo.com/d14D5a.z1BK7.v.htm.
101. Branding severs here merely as an example where enterprise theory allocates risks and benefits to the same party and more closely mirrors what seems intuitive from the public's perspective.
102. Stone, supra note 41, at 8.
103. Thompson, Unpacking, supra note 63, at 40.
104. See Strasser, supra note 58, at 637.
105. See Blumberg, Corporate Groups, supra note 39, at 607.
106. Mary Elizabeth Kors, Altered Egos: Deciphering Substantive Consolidation, 59 U. PITT. L. REV. 381, 438 (1998). Professor Blumberg has also argued that enterprise liability exists in various areas of U.S. law. I have listed many of the sources in which he has embarked on this project supra in note 39.
107. See ANTUNES, supra note 22, at 314.
108. See Wahid Shetewy, A Preferable Approach Toward the Parent-Subsidiary Relationship (1984) (unpublished S.J.D. dissertation, University of California, Berkeley, School of Law) (on file with Law Library, University of California, Berkeley).
109. See GERHARD WIRTH & MICHAEL ARNOLD, CORPORATE LAW IN GERMANY 181 (2004).
110. See id. Notably, this is even more the case now than in 1965.
111. See id.
112. The singular of "Konzerne" is "Konzern."
113. See id.
114. Miller, supra note 42, at 95.
115. See WIRTH & ARNOLD, supra note 110, at 181.
116. See HANNES SCHNEIDER & MARTIN HEIDENHAIN, THE GERMAN STOCK CORPORATION ACT 3 (1998).
117. See id. at 3-4.
118. See id. at 3.
119. See id.
120. WIRTH & ARNOLD, supra note 110, at 181-82. As a general matter, most German practitioners and businesspeople understand that contractual groups, or Konzerne, may be created with GmbH subsidiaries as well. See id. at 188. In fact, in the famous Autokran case, the German Federal Supreme Court directly analogized to the contractual group, or Konzern, in a case where the dominated company was a GmbH. Bundesgerichtshof [BGH] [Federal Court of Justice] Sept. 9, 1985, 95 Entscheidungen des Bundesgerichtshofes in Zivilsachen [BGHZ] 330 (F.R.G). (hereinafter Autokran). The contract at issue in Autorkan gave the parent company the right to all amounts receivable and profits from the customers of the subsidiary GmbHs in exchange for assuming all the debts of the GmbHs. The Court ordered that the parent company reimburse unsatisfied contract creditors of the bankrupt GmbHs when they defaulted on lease payments. Id. Courts have looked in these cases not to a specific detrimental transaction that the parent caused the subsidiary to undertake, but rather to the subsidiary's transactions as a whole in order to determine whether the parent exerted any material influence on the subsidiary. If the parent can influence the subsidiary, the courts have presumed that the exercise of this control was detrimental and require the dominant corporation to compensate the subsidiary for its losses. Moreover, in general, the majority shareholder of the GmbH cannot compete with the subsidiary, and the dominant corporation has a fiduciary duty not to issue detrimental orders to the controlled GmbH. More recent cases have suggested that the control over the subsidiary must be "abusive." Miller, supra note 42, at 105-06, 113.
121. See SCHNEIDER & HEIDENHAIN, supra note 117, at 17.
122. See WIRTH & ARNOLD, supra note 110, at 183.
123. German Stock Corporation Act §90, ¶, c1. 3.
124. German Stock Corporation Act § 131, ¶1.
125. German Stock Corporation Act §319, ¶2, no. 3.
126. German Stock Corporation Act §16, ¶1, §17, ¶2.
127. WIRTH & ARNOLD, supra note 110, at 183-84.
128. See Bundesgerichtshof [BGH] [Federal Court of Justice] Oct. 13, 1977, 69 Entscheidungen des Bundesgerichtshofes in Zivilsachen [BGHZ] 334 (F.R.G). The Federal Supreme Court found control despite a 43.7% shareholding because ordinarily low attendance at shareholder meetings made this number sufficient for majority decisions. See WIRTH & ARNOLD, supra note 110, at 184.
129. German Stock Corporation Act §18, ¶1, cl. 3.
130. German Stock Corporation Act §311. Note that the parent compensates the actual subsidiary itself and not the outside creditors; liability is an internal and intergroup provision.
131. See WIRTH & ARNOLD, supra note 110, at 184.
132. Id. at 185.
133. German Stock Corporation Act §18, ¶1.
134. German Stock Corporation Act §293, ¶1.
135. See German Stock Corporation Act §302; Miller, supra note 42, at 103.
136. This is in contrast to controlling-controlled Konzerne, where the losses must have been caused or ordered by the dominant company.
137. See German Stock Corporation Act §319. 139 See German Stock Corporation Act §323.
138. See German Stock Corporation Act §322.
139. See WIRTH & ARNOLD, supra note 110, at 187.
140. See id. at 185.
141. See id. at 186.
142. German Stock Corporation Act §311.
143. See Miller, supra note 42, at 105.
144. See id. at 164.
145. Id. at 149.
146. Thomas W. Wälde, Parent-Subsidiary Relations in the Integrated Corporate System: A Comparison of American and German Law, 9 J. INT'L L. & ECON. 454, 492-93 (1974).
147. See ANTUNES, supra note 22, at 324-25.
148. Id. at 325.
149. See id. at 325-26.
150. Id. at 325 n.293 (translation presumably belongs to the authors).
151. See id. at 325.
152. Id. at 290.
153. See id. at 290 & n.211.
154. See id. at 290.
155. See id. at 291.
156. See id. at 326-27.
157. See id.
158. See Marco Ventoruzzo, Experiments in Comparative Corporate Law: The Recent Italian Reform and the Dubious Virtues of a Market for Rules in the Absence of Effective Regulatory Competition, 40 TEX. INT'L L.J. 113, 143 & n.122 (2004).
159. See id. at 143 n.122.
160. See ANTUNES, supra note 22, at 277 et. seq. (grouping the EC proposals among enterprise theories). I generally disagree with Antunes' focus on control factors as indicative of the existence of an enterprise relationship, and therefore disagree that the EC proposals enact
161. See id. at 278-79.
162. The first draft appeared in 1970 when the European Economic Community-now known as the European Union-was just beginning as a formal international governance body, and amendments circulated in 1975, 1989, and 1991. See id. at 279.
163. See id. at 278 n.174 (citing sources).
164. See id. at 279.
165. Id. at 281 (quoting art. 223, no. 1 of the Statutes for a European Company).
166. See id. (citing Art. 6, no. 1 of the Statutes for a European Company).
167. See id.
168. See id.
169. See id. at 282 (quoting art. 239 of the Statutes for a European Company).
170. See id. at 286-87; Miller, supra note 42, at 76.
171. See ANTUNES, supra note 22, at 285-89.
172. See id. at 288; Miller, supra note 42, at 76.
173. ANTUNES, supra note 22, at 287-88.
174. The Ninth Directive has not been officially rejected by the Commission, but there is no projected movement on reviving its consideration, as the Commission has indicated that it is prioritizing work on the European Company Statute. See ALEX RONEY, EC/EU FACT BOOK: A COMPLETE GUIDE 148-49 (6th ed. 2000).
175. These are merely doctrinal, and not empirical, observations. As I make clear at the end of this section, I have chosen to sketch only the contours of these doctrines for the purpose of investigating various means to re-imagine the regulation of the parent-subsidiary relationship.
176. I focus on the Konzernrecht because there is far more available literature discussing it, particularly literature in English.
177. See ANTUNES, supra note 22, at 330 (quoting KLAUS-PETER MARTENS, DAS KONZERNRECHT NACH DEM REFERENTENTWURF EINES GMBH-GESETZES 813 (1970)).
178. See id. at 331.
179. See id. at 330-332 (paraphrasing the debate).
180. The qualified de facto Konzern addresses at least one way in which corporations may attempt to evade the Konzernrecht, representing a broader regulatory reach than the four corners of the statute.
181. See Bernd Singhof, Equity Holders' Liability for Limited Liability Companies' Unrecoverable Debts- Reflections on Piercing the Corporate Veil Under German Law, 22 LOY. L.A. INT'L & COMP. L. Rev. 166, 169 (1999).
182. See id. at 169. Accord Carsten Alting, Piercing the Corporate Veil in American and German Law- Liabilities of Individuals and Entities: A Comparative View, 2 TULSA J. COMP. & INT'L. L. 187, 237-38 (1995).
183. See Singhof, supra note 183, at 166.
184. See Alting, supra note 184, at 238.
185. See id.
186. It is worthwhile to note, however, that German courts have imposed external liability in the Autokran case-involving a qualified de facto Konzern-but at least one commentator has noted that this was a doctrinal shift. See id. at 244-45. There is not, however, total accord on this point. Commentators generally agree that "a subsidiary's creditor is a creditor of the Konzern, [and] its only concern has to be whether the Konzern is able to meet the subsidiary's obligations." Id. at 237. Standing arises from bankruptcy. Id. Mainly, the advantage to a parent in externalizing risk to a subsidiary will be in the reputational harms that may incur should the subsidiary cause major torts; cost externalization may not occur in practice.
187. One commentator disagrees with the observation that the German system uniformly depends on control in both de facto and contractual Konzerne. See ANTUNES, supra note 22, at 322-24. Antunes argues that de facto groups err on the side of corporate autonomy, while contractual groups err on the side of centralization. Thus, he thinks that the de facto groups adhere to traditional modes of liability in corporate law, preserving the autonomy of the subsidiary, while corporations are alternatively able to bring themselves under the regulatory umbrella for predictability's sake through contract, in which the parent is assumed to control the subsidiary. I agree that some strange incongruities between the contractual and de facto Konzerne persist-for example, proof of detriment is required in the latter, while it is presumed in the former-however, this is simply a difference in burden of proof. Assuming a plaintiff can carry her burden on this matter, control is assumed, and in both cases control is a determinative factor for liability. For this reason, I categorize Germany's system as a "control" one.
188. Bundesgerichtshof [BGH] [Federal Court of Justice] 122 Entscheidungen des Bundesgerichtshofes in Zivilsachen [BGHZ] 123 (130) (F.R.G).
189. See EUROPEAN BUSINESS LAW: LEGAL AND ECONOMIC ANALYSES ON INTEGRATION AND HARMONIZATION 239 (Richard M. Buxbaum et. al. eds., 1991).
190. See Upendra Baxi, Mass Torts, Multinational Enterprise Liability and Private International Law, 276 REC. DES COURS 297, 354-55 (1999).
191. See id. at 354-55.
192. See id. at 355.
193. See id.
194. Parens patriae actions give a sovereign state standing to prosecute a lawsuit on behalf of one or more of its citizens. BLACK'S LAW DICTIONARY 1144 (8th ed. 2004).
195. Brief of the Plaintiffs, Union of India v. Union Carbide Corp., reprinted in THE INDIAN LAW INST., MASS DISASTERS AND MULTINATIONAL LIABILITY: THE BHOPAL CASE 4-5 (1986).
196. Id.
197. Charles C. Hileman, Multinational Enterprise Liability for Ultrahazardous Activities, 15 INT'L BUS. LAW. 66, 67 (1987) ("[I]t appears that both New York and India apply traditional concepts to the question whether a parent corporation will be held liable for the acts of a subsidiary.").
198. Baxi, supra note 192, at 356. Baxi's piece in general explores jurisdictional challenges to multinational mass tort cases; he explores the jurisdictional consequences and arguments in the Bhopal case in particular at pages 356-63.
199. Id. at 400.
200. Id.
201. A.I.R. 1987 S.C. 1086, as reprinted in Baxi, supra note 192, at 400-01.
202. See Baxi, supra note 192, at 400-01; Usha Ramanathan, Business and Human Rights: The Indian Paper, Indian Environmental Law Research Centre, at 12, available at http://www.ielrc.org/content/w0102. pdf (last visited Aug. 15, 2008). The principles in Shriram were affirmed in another toxic tort case in 1996. See Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 S.C.C. 212, 242-43. See also Ramanathan, supra, at 12. But see MUCHLINSKI, supra note 77, at 318 (questioning whether the Mehta doctrine truly goes beyond the logic of separate corporate personhood).
203. Generally, this is due to the liberalization of other investment rules. See Foreign Direct Investment into India Nearly Tripled to $16 Billon Last Fiscal Year, INT'L HERALD TRIB., Apr. 19. 2007, available at http://www.iht.com/articles/2007/04/19/news/fdi.php; see also the International Monetary Fund, World Economic Outlook Database, http://www.imf.org/external/ pubs/ft/weo/2006/01/data/dbcselm.cfm?G= 2001&Error=l (last visited Oct. 20, 2008) (describing India's economic state).
204. U.N. Econ. & Soc. Council (ECOSOC), Sub-Comm. on Promotion & Protection of Human Rights, Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/Sub.2/2003/L.8 (Aug. 7, 2003) (prepared by Alfonso Martinez et. al.) [hereinafter Norms].
205. See Larry Catá Backer, Multinational Corporations, Transnational Law: The United Nations' Norms on the Responsibilities of Transnational Corporations as a Harbinger of Corporate Social Responsibility in International Law, 37 COLUM. HUM. RTS. L. REV. 287, 288 (2006).
206. See Norms, supra note 206, ¶ 72-85.
207. Id. ¶ 20.
208. See Backer, supra note 207, at 325. In general, European companies have observed this "race of laxity" in U.S. jurisdictions among states, and have attempted to model their corporate laws as a reaction against the "Delaware effect." See Friedrich Kübler, A Shifting Paradigm of European Company Law? 11 COLUM. J. EUR. L. 219, 220-21 (2005).
209. See Backer, supra note 207, at 357, 363-74. (discussing difficulties in compatibility).
210. See id. at 288 n.2; see also David Kinley, Justine Nolan & Natalie Zerial, The Politics of Corporate Social Responsibility: Reflections on the United Nations Human Rights Norms for Corporations, 25 Company & Sec. L.J. 30, 31 (2007) (discussing criticisms of the norms, though not on enterprise liability grounds).
211. See id. at 332.
212. Professor Blumberg's work is seminal in identifying areas of law in which U.S. courts impose liability upon members of corporate groups. For a selected list of Blumberg's work in this area, see supra note 39. While I remain indebted to Professor Blumberg, I respectfully disagree with some of his contentions. First, I think he tends to conflate ordinary but aggressive instances of piercing the corporate veil with enterprise liability. See RAPAKKO, supra note 92, at 5 n.7; Wilson McLeod, Shareholders' Liability and Workers' Rights: Piercing the Corporate Veil Under Federal Labor Law, 9 HOFSTRA LAB. L.J. 115, 139 n.100 (1991). Second, he advocates for a control-based form of enterprise liability, while I will align my proposed reforms in this area along the lines of "true" enterprise liability that follows only the economic fact of the enterprise. Thus, I have attempted to embark on a similar project as he has undertaken, but with a more constrained view; this Part will investigate areas of corporate law where courts have explicitly stated that they will not comply with ordinary standards of piercing the corporate veil and imposed enterprise liability due to a particular regulatory or statutory scheme.
213. Hamilton, supra note 46, at 985 (citing cases).
214. Michael K. Addo, Human Rights Perspectives of Corporate Groups, 37 CONN. L. REV. 667, 668 (2005) ("[A] speedily converging world economic system necessitates a re-evaluation of its working premises to take account of emerging challenges .... In these formative years . .. enterprise law maintains its sturdy drift as an exceptional legal regime currently floating at the margins of the law of corporate groups towards the legal mainstream.").
215. S. 752 (1984).
216. Id. at 770-71 ("[T]here can be little doubt that the operations of a corporate enterprise organized into divisions must be judged as the conduct of a single actor .... Because coordination between a corporation and its division does not represent a sudden joining of two independent sources of economic power previously pursuing separate interests, it is not an activity that warrants §1 scrutiny.").
217. Id. at 771-72.
218. Id. at 771 (emphasis added).
219. See BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, §7.02.1.
220. See, e.g., Drinkwine v. Federated Pubs., Inc., 780 F.2d 735 (9th Cir. 1985) (holding that piercing principles still applied with regard to § 2 of the Sherman Act); Bell Atlantic Bus. Sys. Servs. v. Hitachi Data Sys. Corp., 849 F. Supp. 702 (N.D. Cal. 1994) (holding that the fact that parent and subsidiaries were legally incapable of conspiring in violation of federal antitrust laws did not require the court to pierce the corporate veil under California law). I note that Copperweld did not answer the question of whether similar unified treatment would apply in the case of a partially-owned, instead of a wholly-owned, subsidiary.
221. S. 425 (1980).
222. See id. at 441-49.
223. Id. at 438.
224. Id.
225. Id.
226. Mobil Oil Corp. v. Comm'r of Taxes of Vt, 445 U.S. 425, 440 (1980).
227. Id. at 441.
228. In re Oil Spill by the "Amoco Cadiz" off the Coast of France on Mar. 16, 1978, MDL Docket No. 376, 1984 U.S. Dist. LEXIS 17480, at *135-36 (N.D. Ill. Apr. 18, 1984) (finding No. 43), aff'd, 4 F.3d 997 (7th Cir. 1993).
229. See Cindy A. Schipani, The Changing Face of Parent and Subsidiary Corporations: Enterprise Theory and Federal Regulation, 37 CONN. L. REV. 691, 693 (2005) ("[I]t appears that the concept of enterprise liability has infiltrated federal regulation as applied by the courts, although it comes in through a notion of direct liability under the terms of the statute.").
230. See Miller, supra note 42, at 94 (citing Philip I. Blumberg, The Increasing Recognition of Enterprise Principles Determining Parent and Subsidiary Corporation Liabilities, 28 CONN. L. REV. 295, 304 (1996) [hereinafter Blumberg, Increasing Recognition]).
231. S.C. §§ 9601-9675 (2000).
232. See Comprehensive Environmental Response, Compensation and Liability Act of 1980, Pub. L. No. 96-510, 94 Stat. 2767 (codified as amended at 42 U.S.C. §§ 9601-9675 (2000)).
233. S.C. § 9607(a).
234. BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, § 18.02.1 (Supp. 2002) (internal citations omitted).
235. See, e.g., id §18.02.1.
236. See, e.g., William B. Johnson, Private Entity's Status as Owner or Operator Under § 107(a)(l, 2) of Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.A. § 9607(a)(l, 2)) (CERCLA), 140 A.L.R. Fed. 181 (1997) (listing cases where courts used statutory language to find liability for an owner or operator).
237. See Schipani, supra note 231, at 695.
238. See id. at 695-96.
239. 8, 253 (1996) (listing other cases following this line of reasoning).
240. Id. at 254 (citing cases).
241. Id. at 254-55.
242. See BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, § 18.02.1 (Supp. 2002). The Second, Third, Eighth, and Eleventh Circuits would classify a parent corporation as either an owner or an operator, with drastic consequences for liability; the Sixth Circuit, on the other hand, never eschewed piercing. Id.; see also United States v. Cordova Chem. Co., 113 F.3d 572 (6th Cir. 1997) (applying traditional piercing principles in lieu of control factors).
243. Hansmann & Kraakman, supra note 23, at 1928.
244. S. 51(1998).
245. Id. at 61-62.
246. Id. at 66-67.
247. See id. Professor Blumberg calls this direct operator liability and presumes that the inquiry still hinges on control factors. See BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, § 18.02.2 (Supp. 2002). In my view, however, the court actually focuses less on the parent's control over the subsidiary-and instead focuses on the parent's behavior, ascertaining whether the parent actually caused the environmental violation. I view this as a much more severe limitation on enterprise principles. Accord Schipani, supra note 231, at 701.
248. S.C. §§1251-1387; United States v. Ira S. Bushey & Sons, Inc., 363 F. Supp. 110, 119 (D. Vt. 1973), aff'd, 487 F.2d 1393 (2d Cir.), cert. denied, 417 U.S. 976 (1974) ("The public interest in preserving the environmental integrity of Lake Champlain, the sixth largest lake in the country and a jewel of nature, is sufficiently paramount that the parent corporation, Bushey, which profits from the operations of its alter-ego subsidiaries, should be accountable for any violation or continuing threat of violations to that integrity.").
249. S.C. §13 (1940); Reines Distribs., Inc. v. Admiral Corp., 256 F. Supp. 581, 585 (S.D.N.Y. 1966) ("[T]he corporate veil between parent and subsidiary distributor will be disregarded when control asserted by the parent is significant and they will be regarded as the same seller for Robinson-Patman purposes ... .").
250. S.C. §§ 41-58 (2000); P.F. Collier & Son Corp. v. F.T.C., 427 F.2d 261, 267 (6th Cir. 1970) ("Manifestly, where the public interest is involved, as it is in the enforcement of Section 5 of the Federal Trade Commission Act, a strict adherence to common law principles is not required in the determination of whether a parent should be held for the acts of its subsidiary, where strict adherence would enable the corporate device to be used to circumvent the policy of the statute.").
251. S.C. §§ 181-229 (2000); In re G & L Packing Co., 20 B.R. 789, 807 (Bankr. N.D.N.Y. 1982) ("The operational distinction between Orange as a slaughterer and the Debtor as a meat processing company is a mere fragmentation of today's predominantly integrated consumer meat processing industry .... In the case at bar, such planned corporate fragmentation should not defeat the strong protective policy of the P & S Act." (citation omitted)).
252. S.C. §§ 12-27 (2000); In re Sugar Indus. Antitrust Litig., 579 F.2d 13, 18-19 (3d Cir. 1978).
253. S.C. §§ 1-27 (2000); Corn Prods. Refining Co. v. Benson, 232 F.2d 554, 565 (2d Cir. 1956) ("Any profit earned by the subsidiary inures to petitioner, and likewise any loss incurred by the subsidiary is a loss to petitioner. By entering into these contracts, which are admittedly 'an attempt to find a form' coming within the hedging exemption of the Act, petitioner is not shifting the risk of loss, which we think is an essential attribute of hedging. If petitioner can engage in unlimited trading by means of contracts with a wholly-owned subsidiary, every other corporate trader can do likewise. The existence of a separate corporate entity should not be permitted to frustrate the purpose of a federal regulatory statute ... .").
254. See, e.g., Elec. Bond & Share Co. v. S.E.C., 303 U.S. 419, 440 (1938) (Public Utilities Holding Company Act); Ala. Power Co. v. McNinch, 94 F.2d 601, 618 (D.C. Cir. 1937) (Federal Power Act).
255. See First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 630 (1983) ("[T]he Court has consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies."); Bhd. of Locomotive Eng'rs v. Springfield Terminal Ry. Co., 210 F.3d 18, 27 (1st Cir. 2000) (finding veil piercing necessary to fulfill purposes of Railway Labor Act); Capital Tel. Co. v. F.C.C, 498 F.2d 734, 738 (D.C. Cir. 1974) (piercing the veil liberally to fulfill purposes of Communications Act of 1934); Kavanaugh v. Ford Motor Co., 353 F.2d 710, 716-17 (7th Cir. 1965) (finding veil piercing necessary to fulfill purposes of Dealers' Day in Court Act). Interestingly, the same logic can benefit corporations: in United States, v. J.B. Williams Co., Inc., Judge Friendly held that a parent and subsidiary corporation should only incur one penalty to the FTC for violation of a cease and desist order in a false advertising case because the two were, in reality, part of the same enterprise. See 498 F.2d 414, 436-37 (2d Cir. 1974). Of course, avoiding antitrust liability for intra-enterprise conspiracy is beneficial to corporations. See Copperweld Corp., 467 U.S. at 770-72.
256. See Strasser, supra note 58, at 642-45 (discussing single factor piercing); see also Coleman v. ANR-Advance Transp. Co., 34 F.App'x. 223, 225 (7th Cir. 2002) (finding that, in addition to piercing, liability to a parent corporation could ensue if the corporate group "split itself into a number of smaller corporations, for the express purpose of avoiding liability under the discrimination laws").
257. Reines Distribs., 256 F. Supp. at 585 ("[T]he corporate veil between parent and subsidiary distributor will be disregarded when control asserted by the parent is significant and they will be regarded as the same seller for Robinson-Patman purposes ....").
258. In re Oil Spill by the "Amoco Cadiz" off the Coast of France on Mar. 16, 1978, MDL Docket No. 376, 1984 U.S. Dist. LEXIS 17480, at *135-36 (N.D. Ill. Apr. 18, 1984) (finding No. 43), aff'd, 4 F.3d 997 (7th Cir. 1993).
259. See, e.g., Pearson v. Component Tech. Corp., 247 F.3d 471 (3d Cir. 2001) (examining Bestfoods in the context of the WARN act, and deciding that the Department of Labor's factors for determining control, instead of traditional veil-piercing principles, directs WARN Act liability). Some of the cases in which corporate group liability vindicates a federal regulatory purpose were also decided after Bestfoods. See, e.g., Bhd. of Locomotive Eng'rs, 210 F.3d at 27.
260. See generally Seth D. Amera, Substantive Consolidation: Getting Back to Basics, 14 AM. BANKR. INST. L. REV. 1, 10-12 (2006) (discussing traditional view that piercing and substantive consolidation are different); Blumberg, Increasing Recognition, supra note 232, at
261. Timothy E. Graulich, Substantive Consolidation-A Post-Modern Trend, 14 AM. BANKR. INST. L. REV. 527, 538 (2006) ("Substantive consolidation ... is the most dramatic and far-reaching exception to corporate separateness.").
262. See William H. Widen, Corporate Form and Substantive Consolidation, 75 GEO. WASH. L. REV. 237, 238 (2007).
263. See Graulich, supra note 262, at 527.
264. S. 215 (1941).
265. Id. at 219-220.
266. Soviero v. Franklin Nat'l Bank, 328 F.2d 446, 448-49 (2d Cir. 1964).
267. Id. at 448.
268. Maule Indus., Inc. v. L.M. Gerstel, 232 F.2d 294, 296 (5th Cir. 1956).
269. 5, 518 (2d Cir. 1988) (internal citations omitted).
270. See, e.g., In re Bonham, 229 F.3d 750, 771 (9th Cir. 2000) ("Our abecedarian prerequisite to ordering substantive consolidation is that the two factors set forth in Augie/Restivo must be satisfied."); In re Baker & Getty Fin. Serv., Inc., 974 F.2d 712, 720 (6th Cir. 1992) ("[T]he interrelationships of the debtors are hopelessly obscured and the time and expense necessary to attempt to unscramble them is so substantial as to threaten the realization of any net assets for all the creditors.").
271. See Graulich, supra note 262, at 547-52.
272. See Kors, supra note 107, at 409-10.
273. See Blumberg, Increasing Recognition, supra note 232, at 326; Strasser, supra note 58, at 663.
274. S.C. §79(1988).
275. See Blumberg, Increasing Recognition, supra note 232, at 307.
276. S.C. §§1001-1461 (2000).
277. See id. §1001(a).
278. BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, § 16.02 (Supp. 2002).
279. H.R. Rep. No. 779, 93rd Cong., 2d Sess. 491 (1974).
280. S.C. §1301(b)(l).
281. Temp. Treas. Reg. § 11.414(c)-2(b)(l) (1987).
282. Id. § 2(b)(2)(i)(A).
283. Pension Ben. Guar. Corp. v. Ouimet Corp., 711 F.2d 1085, 1093 (1st Cir. 1983) (citations omitted).
284. Id.
285. It is important to note that these enterprise principles only apply to multi-employer plans. Courts have explicitly followed entity law when determining liability for single-employer plans, and do not analogize to the statutory provisions. A few courts have noted that piercing standards should be "relaxed" in order to further the regulatory statutory goal. See Blumberg, Increasing Recognition, supra note 232, at 313.
286. See BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, § 13.02.
287. See 6 Fed. Reg. Empl. Serv. (Law Co-op) §§ 45:7, 45:93-94 (Supp. 1982); 21 NLRB Ann. Rep. 14 (1956).
288. Id.
289. d. Reg. Empl. Serv. (Law. Co-op) §§ 45:7 n.14, 46.23 (1977 & Supp. 1982); see also NLRB v. Marinor Inns, Inc., 445 F.2d 538 (5th Cir. 1971).
290. S. 255 (1965) (per curiam).
291. Carner v. MGS-576 5th Ave. Inc., 992 F. Supp. 340, 350 (S.D.N.Y. 1998) (quoting Murray v. Miner, 74 F.3d 402, 404 n.1 (2d Cir. 1996)).
292. See BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, § 13.04 & n.6-8 (citing cases and reviewing tests).
293. Id. §§ 13.04-05.
294. Id.
295. F. Supp. 610, 617 (D. Me. 1977).
296. Id. at 617.
297. See BLUMBERG, STATUTORY LAW: GENERAL, supra note 39, § 13.10.
298. See Blumberg, Increasing Recognition, supra note 232, at 308.
299. S.C. §§ 1841-1850. (1988).
300. Pub. L. 90-255, 82 Stat. 5. (1968).
301. See Blumberg, Increasing Recognition, supra note 232, at 305, 308; see also 12 U.S.C. § 1841(a)(2)(A-C)(1995).
302. S.C. §1842.
303. See, e.g., id. § 1848(a), § 1818.
304. See Blumberg, Increasing Recognition, supra note 232, at 305.
305. 3 (Or. 2007).
306. 5).
307. See Strasser, supra note 58, at 646-48.
308. Id. at 647.
309. Green v. Champion Ins. Co., 577 So. 2d 249 (La. Ct. App. 1991) (listing eighteen factors for consideration in determining whether the corporate group is a single business enterprise).
310. Pine Tree Assocs. v. Doctors' Assocs., Inc., 654 So. 2d 735, 738 (La. Ct. App. 1995) (noting in contract case that "[w]here two or more corporations operate a single business, the courts have been unwilling to allow affiliated corporations that are not directly involved to escape liability simply because of the business fragmentation"); see also Sarpy v. ESAD, Inc., 968 So. 2d 736 (La. Ct. App. 2007) (sublease contract); Thibodeaux v. Ferrellgas, Inc., 741 So. 2d 34, 35, 42-43 (La. Ct. App. 1999) (tort); Brown v. Auto. Cas. Ins. Co., 644 So. 2d 723 (La. Ct. App. 1994) (insurance rehabilitation).
311. Grayson v. R.B. Ammon & Assocs., Inc., 778 So. 2d 1, 14 (La. Ct. App. 2000).
312. Glenn v. Wagner, 313 S.E.2d 832, 844 (N.C. Ct. App. 1984), rev'd on other grounds, 329 S.E.2d 326 (N.C. 1985) ("The extension of liability for a corporation's obligations beyond the confines of its own separate corporate identity is appropriate in those cases where an essentially single business or economic enterprise is nevertheless conducted through several separate corporations.") (internal citations omitted).
313. Paramount Petroleum Co. v. Taylor Rental Ctr., 712 S.W.2d 534, 536 (Tex. Ct. App. 1986); see also George Grubbs Enters., Inc. v. Bien, 900 S.W.2d 337, 339 (Tex. 1995).
314. See, e.g., Paramount Petroleum Co., 712 S.W.2d at 536 (listing "common employees; common offices; centralized accounting; payment of wages by one corporation to another corporation's employees; common business name; services rendered by the employees of one corporation on behalf of another corporation; undocumented transfers of funds between corporations; and unclear allocation of profits and losses between corporations" as factors to be considered).
315. Strasser, supra note 58, at 646.
316. See, e.g., Dole Food Co. v. Patrickson, 538 U.S. 468, 476 (2003) (refusing to pierce the corporate veil between subsidiary corporations because the text of the Foreign Sovereign Immunities Act "gives no indication that Congress intended us to depart from the general rules regarding corporate formalities").
317. See generally Robert B. Thompson, Piercing the Corporate Veil: Is the Common Law the Problem?, 37 CONN. L. REV. 619, 624 (2005) (discussing the problems with common law piercing, including that the balancing involved "lack[s] a common metric").
318. See Strasser, supra note 58, at 642-45 (discussing single factor piercing).
319. See, e.g., ANTUNES, supra note 22, at 494; Blumberg, Corporate Groups, supra note 39, at 609; Philip I. Blumberg, The Corporate Entity in an Era of Multinational Corporations, 15 DEL. J. CORP. L. 283, 340 (1990) [hereinafter Blumberg, Corporate Entity] (advocating control factors as one among several other factors to be used in determining the existence of a corporate enterprise); Nina A. Mendelson, A Control-Based Approach to Shareholder Liability for Corporate Torts, 102 COLUM. L. REV. 1203, 1203 (2002); see also MUCHLINSKI, supra note 77, at 45-79 (defining corporate structures along control lines, and noting that the problem with most legal structures is that they fail to recognize the unique control structures of modern-day multinational enterprises).
320. Bundesgerichtshof [BGH] [Federal Court of Justice] 122 Entscheidungen des Bundesgerichtshofes in Zivilsachen [BGHZ] 123 (130) (F.R.G).
321. See Reines Distribs., 256 F. Supp. at 585 (assessing whether control exerted was "significant" in order to find Robinson-Patman liability).
322. India, for example, merely stated that the economic enterprise should be treated as a single entity because of principles of strict liability for corporate torts in the Shriram case, and because plaintiffs could not differentiate among its structures in the Bhopal litigation. See text supra accompanying notes 201-205. Additionally, the U.N.'s definition of a transnational enterprise, as an "economic entity operating in more than one country or a cluster of economic entities operating in two or more countries-whatever their legal form, whether in their home country or country of activity, and whether taken individually or collectively," while doctrinally unproblematic, may be difficult to apply in practice because it affords very little direction beyond stating the goal of associating liability with the economic enterprise. Norms, supra note 206, ¶20; see also text supra accompanying notes 206-213.
323. In re Silicone Gel Breast Implants Prods. Liab. Litig., 887 F. Supp. 1447, 1452 (N.D. Ala. 1995).
324. See text supra accompanying notes 246-249.
325. An agency determination rests on similar grounds. Cf. A. Gay Jenson Farms Co. v. Cargill, Inc., 309 N.W.2d 285 (Minn. 1981) (finding Cargill liable for the acts of one of its contracting partners, Warren Grain & Seed Co., on the basis of Cargill's extensive financial control over Warren).
326. MERVYN KING, PUBLIC POLICY AND THE CORPORATION 1 (1977).
327. This is the "duty not to waste." Some commentators have even posited that laws authorizing corporate donations to charity, such as Del. Gen. Corp. Code §122(9), "can be read merely as an authorization to make charitable contributions that serve the basic purpose of business corporations, which is to maximize profit." WILLIAM A. KLINE, J. MARK RAMSEYER, & STEPHEN M. BAINBRIDGE, BUSINESS ASSOCIATIONS 286 (Foundation Press 2006). Even though courts are deferential to corporate directors in this regard, the directors must still argue to the court that the particular asset had as its goal not the maximization of the public welfare, but the maximization of corporate profits. Id. at 287.
328. See Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919) (ordering Henry Ford and Ford Motor Company to pay dividends when the corporation had withheld them to expand production and create jobs, which would benefit society at large).
329. See Blumberg, Increasing Recognition, supra note 232, at 305-06 (listing regulations that use stock ownership as either the decisive factor, or one among many factors, in determining the existence of an enterprise).
330. See Mendelson, supra note 37, at 1203.
331. See id. at 1251-58.
332. Id. at 1258.
333. Id. at 1248-49.
334. Of course, only some commentators and jurisdictions advocate for behavioral control factors alone as a test for imposing cross-corporate liability. See sources cited supra in note 320. For example, Professor Blumberg would primarily look to behavioral control factors, though he would look to non-control factors in a few exceptional circumstances, such as where an integrated enterprise spans a wide range of jurisdictions and markets and thus would be too decentralized for control factors alone to be sufficient.
335. See text supra accompanying notes 40-44.
336. Strasser, supra note 58, at 646; see Paramount Petroleum Co. v. Taylor Rental Ctr., 712 S.W.2d at 536 (providing the following as a nonexhaustive list of factors for determining the existence of an enterprise: "common employees; common offices; centralized accounting; payment of wages by one corporation to another corporation's employees; common business name; services rendered by the employees of one corporation on behalf of another corporation; undocumented transfers of funds between corporations; and unclear allocation of profits and losses between corporations").
337. Blumberg, Corporate Entity, supra note 320, at 340. Blumberg's test for such situations would include, inter alia, "economic integration of the business or businesses of the constituent companies; administrative interdependence of the constituent companies; financial interdependence of the constituent companies; and the use of a common public persona for the constituent companies of the group." Id.
338. The necessary versus sufficient distinction may help alleviate some concerns about over-deterrence. For example, branding is an imperfect proxy for enterprise in many instances, including areas where intellectual property intersects with mass torts and human rights. See supra note 347.
339. Brief of the Plaintiffs, Union of India v. Union Carbide Corp., reprinted in THE INDIAN LAW INST., MASS DISASTERS AND MULTINATIONAL LIABILITY: THE BHOPAL CASE 4-5 (1986).
340. See text supra accompanying note 114, and Part III.A.
341. See text supra accompanying notes 183-188.
342. See text supra accompanying note 157.
343. See text supra accompanying notes 63-64, and especially the sources cited in n.63.
344. See text supra in Part IV.A.
345. See text supra in Parts IV.A. and IV.B. Although there are many conundrums surrounding problems of the multinational corporation and the issue of jurisdiction and choice of law, these issues are beyond the scope of this Comment.
346. Concerns I do not address in this section include whether a broader system of liability for corporate groups would discourage certain types of beneficial economic projects, particularly in the developing world. I also do not discuss the ramifications of a system that imposes liabilities not just on parent corporations, but also on sister subsidiaries, and whether enterprise should cover both. Nor do I address enterprise liability's applications to particular industries-the standard might apply uneasily, for example, to the intersection of human rights torts and intellectual property. These topics would be rich fodder for further inquiry and research.
347. See Miller, supra note 42, at 131 ("Economists argue that limited liability is indispensable to the functioning of an efficient capital market. They maintain that limited liability facilitates business organization, promotes investment in capital, reduces the investor's need to monitor investments, makes it feasible to invest in multiple business ventures, and generally contains administrative costs associated with investments.") (citing sources).
348. See, e.g., Leebron, supra note 35, at 1577.
349. Id. at 1574.
350. Id. at 1573-74.
351. Hansmann & Kraakman, supra note 23, at 1895. Hansmann and Kraakman note that part of the reason why the securities market will not be "seriously damaged" by a move to unlimited liability for corporate torts is that courts may easily determine "which costs are efficiently and equitably borne by a corporation and its shareholders and which are not .... Shareholders who benefit, for example, from intentional dumping of toxic wastes, from marketing hazardous products without warnings, or from exposing employees without their knowledge and consent to working conditions known by the firm to pose substantial health risks, should not be able to avoid the resulting costs simply by limiting the capitalization of the firm." Id. at 1917. Of course, this kind of decision as to who is the most efficient cost-bearer is what tort law is all about. Moreover, Hansmann and Kraakman make an important observation that the damages imposed by courts could depend on whether the shareholder is a parent corporation, as "the prospect that a judgment might exceed the corporation's net assets and thus spill over onto its parent shareholder should generally not, in itself, affect the size of the judgment. When the firm's shareholders are individuals, however, the prospect of shareholder liability might sometimes be a reason to temper the amount of damages assessed." Id.
352. See id. at 1903.
353. Id. at 1925.
354. Id. at 1917 (discussing the difference in impact on individual versus corporate shareholders); Leebron, supra note 35, at 1569-87. (discussing limited and unlimited liability with no mention of the parent-subsidiary context).
355. Strasser, supra note 58, at 660.
356. Hansmann & Kraakman, supra note 23, at 1924.
357. See supra note 223.
358. See supra text accompanying notes 299-304.
359. See supra note 205.
360. See Mendelson, supra note 37, at 1255 (discussing majority shareholders' tax advantages); see also Douglas & Shanks, supra note 35, at 193 (listing as advantages "[t]he increased facility in financing; the desire to escape the difficulty, if not the impossibility, of qualifying the parent company as a foreign corporation in a particular state; the avoidance of complications involved in the purchase of physical assets; the retention of the good will of an established business unit; the avoidance of taxation; [and] the avoidance of cumbersome management structures," in addition to the limitation of liability, and noting that the latter is just one of many factors).
361. Hansmann & Kraakman, supra note 23, at 1931.
362. See id.
363. Id. at 1932.
364. See supra note 361.
365. Kors, supra note 107, at 437-38.
366. See Bainbridge, supra note 51, at 481.
367. Many are in disagreement with me on this point. See, e.g., Joseph H. Sommer, The Subsidiary: Doctrine Without A Cause? 59 FORDHAM L. REV. 227, 268-70 (1990) (arguing that the main problem with enterprise liability, despite being intellectually preferable, is that it "suffers from one enormous flaw: haziness of goals," and concluding that enterprise liability thus "goes both too far and not far enough").