Commercial Litigation and Arbitration

Financial Condition of Parent Corporation Inadmissible on Issue of Punitive Damages Owed by Subsidiary

From St. Croix Renaissance Group, LLLP v. St. Croix Alumina, LLC, 2010 U.S. Dist. LEXIS 122611 (D.V.I. Nov. 18, 2010):

*** "It is a general principle of corporate law deeply ingrained in our economic and legal systems that a parent corporation ... is not liable for the acts of its subsidiaries." U.S. v. Bestfoods, 524 U.S. 51, 61 (1998). Specifically, the wealth of a parent corporation is irrelevant to the jury's assessment of the appropriateness of punitive damages [of a subsidiary]. See Herman v. Hess Oil, 379 F. Supp. 1268, 1276 (D.V.I. 1974), aff'd 524 F.2d 767, 772 (3d Cir. 1975).

Plaintiffs maintain that a parent company's financial condition may be relevant to a defendant's ability to pay punitive damages in certain cases, most notably when the court elects to pierce the corporate veil. While it is true that parent corporations can be held liable for the acts of their subsidiaries under certain circumstances, the parent corporation must at least be a party to the action. In fact, in each case plaintiffs cite in opposition to the pending motion, the parent corporation was a defendant. Here, Alcoa, Inc. is not a party and, as such, cannot be held liable in this lawsuit for the acts or omissions of defendants St. Croix Alumina LLC and Alcoa World Alumina.

The jury may not consider the wealth of Alcoa, Inc., a non-party, in assessing the defendants' ability to pay punitive damages.

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