In re Silicone Gel Breast Implants Products Liability Litigation
887 F.Supp. 1447 (N.D.Ala.1995).

This was a products liability action against Bristol Myers Squibb Co. Bristol was the sole shareholder of Medical Engineering Corporation (MEC), a major supplier of breast implants. Bristol moved for summary judgment on the grounds that the evidence is insufficient for plaintiffs’ claims to proceed against it, whether through:

(1) Piercing the corporate veil; or
(2) Under a theory of direct liability.

Side Notes:

  • Piercing the corporate veil is a means to abrogate limited liability and hold Bristol responsible for the actions of MEC.
  • Direct liability refers to strict products liability, negligence, etc.

Was there enough evidence for plaintiffs’ claims to proceed against Bristol under a theory of piercing the corporate veil?

Yes. Summary judgment denied.

(1) Piercing the corporate veil.

The court held that the totality of circumstances must be evaluated in determining whether a subsidiary may be found to be the alter ego or mere instrumentality of the parent corporation. Among the factors to be considered are whether:

  • Common directors or officers.
  • Common business departments.
  • Consolidated financial statements and tax returns.
  • If the parent finances the subsidiary.
  • If the parent caused the incorporation of the subsidiary.
  • If the subsidiary operates with grossly inadequate capital.
  • If the parent pays the salaries and other expenses of the subsidiary.
  • If the subsidiary receives no business except that given to it by the parent.
  • If the parent uses the subsidiary’s property as its own.
  • If the daily operations of the two corporations are not kept separate.
  • If the subsidiary does not observe the basic corporate formalities, such as keeping separate books and records and holding shareholder and board meetings.

Here, the court held that the fact-finder at a trial could find that the evidence supports the conclusion that many of these factors have been proven:

  • two of MEC’s three directors were Bristol directors;
  • MEC was part of Bristol’s Health Care group and used Bristol’s legal, auditing, and communications departments;
  • MEC and Bristol filed consolidated federal tax returns and Bristol prepared consolidated financial reports;
  • Bristol operated as MEC’s finance company, providing loans for the purchase of Aesthetech and Natural Y, receiving interest on MEC’s funds, and requiring MEC to make requests for capital appropriations;
  • Bristol effectively used MEC’s resources as its own by obtaining interest on MEC’s money and requiring MEC to make requests for capital appropriations to obtain its own funds;
  • some members of MEC’s board were not aware that MEC had a board of directors, let alone that they were members; and
  • the senior Bristol member of MEC’s board could not be out-voted by the other two directors.

Usually, piercing the corporate veil has two elements: (1) unity of interest and ownership and (2) sanctioning a fraud or promoting injustice. The first part of the test was met (above) and Bristol argued that the second element still needed to be present. However, this court held that a distinction is to be made in tort cases versus contract cases:

  • In tort actions against corporations, a plaintiff needs to show that the corporation is an instrument of the stockholder, but there is no burden to prove fraud, injustice, or inequity.

The rationale for the distinction:

  • “In actions based on contract, the creditor has willingly transacted business with the subsidiary although it could have insisted on assurances that would make the parent also responsible. In a tort situation, however, the injured party had no such choice; the limitations on corporate liability were, from its standpoint, fortuitous and non-consensual.”