Evaluating Separateness of Parent and Subsidiary

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A Fortune 500 company’s subsidiary was sued for allegedly contaminating the groundwater near one of its factory locations, thus causing property values to fall in nearby residential areas.

A Fortune 500 company’s subsidiary was sued for allegedly contaminating the groundwater near one of its factory locations, thus causing property values to fall in nearby residential areas. The plaintiffs named the parent company as a defendant in their suit on the theory that its wholly owned operating subsidiary was acting as an “alter ego” of its parent at the time of the alleged wrongdoing. Counsel for the parent company retained Cornerstone Research and a former business school dean to examine the issue of separateness between the parent and subsidiary.

He concluded that, while this subsidiary was wholly owned by its parent, it had its own governance processes in place and employed a great deal of autonomy in numerous aspects of its operational, financial, and marketing activities.

The expert submitted an expert report detailing the results of his analysis of corporate records and deposition testimony of executives. He concluded that, while this subsidiary was wholly owned by its parent, it had its own governance processes in place and employed a great deal of autonomy in numerous aspects of its operational, financial, and marketing activities. He also concluded that parent-subsidiary interactions in this matter occurred on an “arms’ length” basis and were within the norms for relationships between parent entities and their subsidiaries. The case settled.