Holding Company Liability for Asbestos-Related Claims Against a Subsidiary

In a case involving asbestos-related claims, Cornerstone Research assisted counsel for a holding company which had acquired a homebuilder two years prior to seeking bankruptcy protection.

In a case involving asbestos-related claims, Cornerstone Research assisted counsel for a holding company which had acquired a homebuilder two years prior to seeking bankruptcy protection. The plaintiffs sought to hold both the homebuilder and the holding company liable for asbestos claims against a former subsidiary of the homebuilder by piercing the corporate veil between the homebuilder and the subsidiary. Cornerstone Research worked with two experts, Professor William Beaver of Stanford University and Professor Robert Stobaugh of Harvard University, who addressed issues of cash management and accounting practices, capital structure, and corporate governance.

The Bankruptcy Court found in favor of the homebuilder.

In his testimony Professor Beaver demonstrated that neither the homebuilder’s cash management system nor its intercorporate assessments were improper and found that an intercompany payable owed by the subsidiary behaved like debt and was therefore not “equity in disguise,” as the plaintiffs claimed. The court agreed with Professor Stobaugh’s opinions on corporate governance issues, finding that the homebuilder’s line-of-business reporting framework was “a proper manner for a parent to oversee the operation of its subsidiaries and does not support the conclusion to pierce the corporate veil.”

The Bankruptcy Court found in favor of the homebuilder, stating “the proof presented in support of the veil piercing claim is a slender reed, indeed, upon which to hang a sword with sufficient strength required under the law to pierce the corporate veil.” The Bankruptcy Court’s findings were later affirmed by a U.S. District Court.