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PA Supreme Court Finds that a Corporation’s Owners Can Be Liable for Conduct of Sister Corporation
July 29, 2021
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The Pennsylvania Supreme Court recently confronted a novel question: can a sister corporation’s owners be held personally liable for the actions of the corporation’s sister company?
In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2021/07/Mortimer-v.-McCool.pdf">Mortimer v. McCool</a>,</em> the plaintiff suffered severe and permanent injuries in a car collision after she had been struck by a drunk driver. She sued the restaurant that served the driver that struck her. Eventually, the jury awarded her a $6.8 million dollar judgment against the company that managed the restaurant that served the drunk driver, 340 Associates. However, 340 Associates did not have enough assets to satisfy the judgment. Mortimer then sought to satisfy her judgment by seeking the assets of 340 Associate’s sister company’s owners.
The doctrine Mortimer sought to avail herself of—known variously as “single entity,” “enterprise liability” or “horizontal liability”—is novel to Pennsylvania law. Essentially, the doctrine permits the corporate veil of a sister corporation be pierced, and allows the plaintiff to seek that corporation’s owners’ assets after its sister company is found liable. Ultimately, the court adopted a two-prong test to determine whether a corporation’s veil could be pierced to satisfy a judgment against its sister corporation. The court found that the two companies, and their owners, must have at least some common interest, and there must be some fraud or wrong committed.
Despite its recognition that the corporate veil of a sister company could be pierced to satisfy a judgment, the court did not find the circumstances present in <em>Mortimer</em> because the two owners of the sister company did not have an interest in both companies. The outcome in Mortimer still provides that there are only narrow circumstances where a sister company’s corporate veil will be pierced.
Thanks to John Lang for his contribution to this post. Should you have any questions, please feel free to contact <a href="mailto:tbracken@wcmlaw.com">Tom Bracken</a>.