What Happens in Ireland Stays in Ireland | Practical Law

What Happens in Ireland Stays in Ireland | Practical Law

The New York Court of Appeals recently issued an important decision affirming long-standing principles of corporate separateness. In a product liability action, the court held that a parent corporation cannot be held liable for the tortious acts of its wholly owned subsidiary, despite allegations that the parent was actively involved in the design and sale of the product at issue. This decision is likely to assume greater influence as plaintiffs attempt to push the boundaries of product liability law.

What Happens in Ireland Stays in Ireland

Practical Law Legal Update w-002-3659 (Approx. 3 pages)

What Happens in Ireland Stays in Ireland

by Practical Law Litigation
Published on 28 Jun 2016 • New York, USA (National/Federal)
The New York Court of Appeals recently issued an important decision affirming long-standing principles of corporate separateness. In a product liability action, the court held that a parent corporation cannot be held liable for the tortious acts of its wholly owned subsidiary, despite allegations that the parent was actively involved in the design and sale of the product at issue. This decision is likely to assume greater influence as plaintiffs attempt to push the boundaries of product liability law.
In Finerty v. Abex Corp., 27 N.Y.3d 236 (N.Y. 2016), the plaintiff sought to recover damages for personal injuries allegedly resulting from exposure to asbestos. The plaintiff claimed he was exposed to asbestos while replacing asbestos-containing car parts in Ireland in the 1970s and 1980s. The plaintiff immigrated to New York in 1985 and years later was diagnosed with mesothelioma. In 2010, he commenced an action in New York state court against Ford Motor Company (Ford USA) and Ford Motor Company, Ltd. (Ford UK).
The plaintiff alleged that the defendants were strictly liable under theories of failure to warn and defective design.
After discovery, Ford USA moved for summary judgment on the ground that it did not manufacture, produce, distribute, or sell the car parts at issue. Rather, they were manufactured, produced, distributed, and sold by its wholly owned subsidiary, Ford UK.
The plaintiff argued that Ford USA was liable because it was actively involved in the design and production of the products. The trial court denied Ford USA's motion and the appellate division affirmed. The appellate division found a question of fact as to whether Ford USA could be found directly liable on the grounds that it:
  • Facilitated the distribution of the car parts.
  • Was in the best position to exert pressure on the subsidiary to improve the warnings and safety of the parts.
Both the trial court and the appellate division held that there was no basis to hold Ford USA derivatively liable for the acts of Ford UK by piercing the corporate veil.
The Court of Appeals reversed and rejected both grounds as potential bases for strict product liability. The court held that only manufacturers, retailers, and distributors can be held strictly liable for injury caused by a defect in a product. The court made clear that the mere ability to "exert pressure" on a manufacturer to improve product safety is insufficient to impose liability on the manufacturer's parent company. Absent proof that the parent corporation should be held derivatively liable by piercing the corporate veil, or that the parent and subsidiary corporations had a principal/agent relationship, a parent corporation is not strictly liable for its subsidiary's defective products.
This decision re-affirms long-standing principles limiting the liability of parent corporations and will be an important precedent as plaintiffs' counsel attempt to expand liability beyond well settled boundaries.
For more information on product liability actions, see the resources in Practical Law's Product Liability Litigation Toolkit and for more information on piercing the corporate veil, see Practice Note, Piercing the Corporate Veil.