Is Parent Company Liable for Torts of Its Subsidiaries In Texas ?
As a general rule, a parent corporation is not liable for the torts of its subsidiaries. See Lucas v. Texas Indust., Inc., 696 S.W.2d 372, 374 (Tex. 1984); Villanueva v. Astroworld, Inc., 866 S.W.2d 690, 695 (Tex. App.-Houston [1st Dist.] 1993, writ denied).
However, the protections afforded by the corporate form may be disregarded and the corporate veil pierced when, among other things, the corporate fiction is used as a means of perpetrating a fraud or a corporation is organized and operated as a mere tool or business conduit of another corporation. See Castleberry v. Branscum, 721 S.W.2d 270, 271-72 (Tex. 1986).
Stated otherwise, when the corporate privilege is abused, courts will pierce the corporate veil and hold the parent company liable. See id. at 271 ("We disregard the corporate fiction . . . when the corporate form has been used as part of a basically unfair device to achieve an inequitable result."); Harwood Tire-Arlington, Inc. v. Young, 963 S.W.2d 881, 885 (Tex. App.-Fort Worth 1998, writ dism'd by agr.).
Inadequate capitalization and alter ego are both bases for disregarding the corporate fiction. See Castleberry, 721 S.W.2d at 272 & n.3; see also Torregrossa v. Szelc, 603 S.W.2d 803, 804-05 (Tex. 1980).
Alter ego applies when such unity exists between the parent corporation and its subsidiary that the "separateness" of the entities no longer exists and holding only the subsidiary liable would result in an injustice. See Castleberry, 721 S.W.2d at 272 (noting that alter ego exists when corporation is organized and operated as mere tool or business conduit of another corporation); Young, 963 S.W.2d at 885.
Alter ego is shown from the total dealings of the parent and subsidiary. See Young, 963 S.W.2d at 885; see also Gentry v. Credit Plan Corp., 528 S.W.2d 571, 573-76 (Tex. 1975).
The determination of whether to disregard the corporate fiction is a fact question for the jury to decide. See Castleberry, 721 S.W.2d at 277 (noting that issue involves questions of fact and, except in special circumstances, should be determined by jury).
When considering whether to pierce the corporate veil, the fact finder may consider the following non-exclusive list of factors:
(1) unity of ownership;
(2) the degree to which corporate formalities have been followed and corporate and personal property kept separate, see Castleberry, 721 S.W.2d at 272;
(3) the amount of financial interest, ownership, and control one corporation maintains over the other corporation, see id.;
(4) whether the two entities file consolidated tax returns and the extent to which the books are separate. See Moffett v. Goodyear Tire & Rubber Co., 652 S.W.2d 609, 613 (Tex. App.-Austin 1983, writ ref'd n.r.e.).