Radaszewski v. Telecom Corp.
981 F.2d 305 (8th Cir. 1992)

  • Radaszewski was run over by a truck belonging to a corporation called Contrux.
    • Contrux used to have insurance, but their insurance company went out of business a few months before the accident.
    • Contrux was a subsidiary of Telecom.
  • Unable to get money for his injuries from Contrux, Radaszewski went to court and asked them to pierce the corporate veil so he could get to Telecom’s assets.
    • Normally, shareholders cannot be held liable for claims against the corporation, but sometimes courts with pierce the corporate veil and hold shareholders liable.
  • The Trial Court found for Radaszewski and said that he could hold Telecom liable for his injuries. Telecom appealed.
    • The Trial Court found that Contrux was undercapitalized.
      • The idea of undercapitalization is that the subsidiary corporation was purposely not provided with enough assets to be able to legitimately do business in order to limit the amount of assets the parent corporation had at risk if someone made a claim against the subsidiary.
    • The Trial Court found that undercapitalization should be defined as having less than what would constitute an appropriate level of financial responsibility.
  • The Appellate Court reversed.
    • The Appellate Court found that courts can only pierce the corporate veil if the parent corporation:
      • Has complete control of the subsidiary,
      • The control was used to commit a fraud or wrong, or to avoid a positive legal duty, (aka improper motivation) and
      • The control and breach of duty must be the proximate cause of the injury or unjust loss.
    • Radaszewski argued that Contrux’s undercapitalization was evidence of improper motivation. However, the Court found that Contrux was not undercapitialized because it had a lot of insurance that could be used to pay claims. Therefore they were being financially responsible.
      • The Court found that it wasn’t Telecom’s fault that the insurance company was insolvent and couldn’t pay claims. Even though the insurance company was also a wholly-owned subsidiary of Telecom!