Liability based on an alter ego or agency theory is an inherently factual investigation that requires the court to examine the facts of each case. To establish this relationship, “the controlling entity must have used the business unit to commit fraud or have dominated and ignored the form of the business entity in such a way that the entity primarily conducted the personal affairs of the [submitted] entity and not its own business.” 5 The plaintiff must do more than simply claim that the alter-ego relationship exists, he must describe in detail the role and control that the parent company played over the subsidiary.6 This is a high standard that requires proof of essential “complete control”. DISCUSSION: Rule 1.13 of the Alabama Rules of Business Conduct recognizes that an organizational client is a legal entity and, therefore, the company is the client as opposed to its officers, directors, employees, shareholders or other components. Therefore, even if the parent company owns 100% of the shares of the subsidiary, it remains a shareholder and is part of the subsidiary. See California State Bar Ethics Opinion 1989-113 (7/6/90). Apart from the above rules, a parent company may be held liable for the actions of its subsidiary according to the principles of veil penetration or alter-ego liability. A separation of liability between subsidiaries and parent companies is not always possible. If one of the parent members is involved in illegal activities or if it is not possible to separate the business practices, the responsibility of the parent company may also be engaged. This is called piercing the veil.

This is an immersion in the assets of the parent company in order to obtain compensation for a legal dispute. This article discusses the circumstances in which you may be able to take legal action against the parent company of your client`s employer under the direct liability theory for negligent action. The corporate veil is violated (1) to obtain equity, even without fraud, when the officers and employees of a parent company exercise control over the day-to-day operations of a subsidiary and act as the actual principal actors behind the shares of the subsidiary, and/or (2) when a parent company carries on activities through a subsidiary that serves solely to serve the parent company. The relationship between a company and its subsidiary depends on certain important conditions: in the United States, the general rule is that parent companies are generally not responsible for the actions of their subsidiaries unless the plaintiff can prove an agency or alter-ego relationship. In the absence of such a relationship, the foreign subsidiary must be affiliated with the action so that the court can order a full remedy. If the foreign subsidiary is a necessary and indispensable party for the plaintiff to obtain legal protection, the plaintiff must prove that the court has personal jurisdiction over that foreign subsidiary. The doctrine of alter ego has been used to break through the veil between companies when subsidiaries are used by a dominant parent company to commit fraudulent or illegal behavior. Under New York law, a company is considered a “mere alter ego” if it has been dominated by. another company. and ignored his distinct identity in such a way that he managed the affairs of the Dominator in the first place, not his own.

Trabucco v. Intesa Sanpaolo, S.P.A., 695 F. Supp. 2d 98, 107 (S.D.N.Y. 2010). When this happens, “the dominant company will be held liable for the actions of its subsidiary… You`ll want to look for evidence that can support a negligent attempt by the parent company: The court said that “the complaint about TPR`s involvement in negotiating the credit accounts that the plaintiff created with the defendants was silent.” Slip op. to *1. In fact, the court stated, although “it does not appear that TPR Holdings initially approached the plaintiff about three separate credit accounts for its three subsidiaries.

There were no claims about who negotiated the prices or terms and conditions of each transaction. And, according to the court: “The plaintiff acknowledged that the orders were placed separately by the defendant girls.” Can a lawyer represent a wholly-owned subsidiary of a publicly traded parent company and then initiate separate proceedings against the parent company? For the purposes of this question, the parent company and the wholly-owned subsidiary are separate entities.