Supreme Court to Decide Whether Parent Company Potentially “Exposed” to Asbestos Liability for Bankrupt Subsidiary

Pfizer, Inc. petitioned the Supreme Court to reverse a Second Circuit decision that the ban on asbestos litigation of a subsidiary company does not apply to a claims against a parent company.  In an amicus brief, the U.S. Solicitor General argued that the Second Circuit decision should be upheld.  The plaintiff’s theory against Pfizer is that it authorized the use of its name and trademark to be used on its subsidiary’s products that allegedly contained asbestos.  The plaintiff argues that this conduct gives rise to a cause of action under Pennsylvania law.

From a risk analysis perspective, this gives rise to two issues. The first relates to how companies structure and operate parent and subsidiary companies.  This case highlights the fact that otherwise innocuous business conduct may lead to potential liability both in and out of the asbestos context.  A corollary theory of pursuing a parent for the subsidiary’s conduct is when the two companies are operated as one business.  Failure to follow corporate formalities can lead to a parent’s liability for a subsidiary’s past conduct (even when it was not a subsidiary) on the theory that the parent is responsible for the subsidiary’s debts.  The second risk analysis issue relates to apportionment of responsibility in an asbestos case.  A ruling that a parent company may be held liable for a bankrupt subsidiary’s conduct opens the door to more sharing of the litigation exposure and enables a company defending such a case to add more responsible parties to the verdict sheet. Typically, if a company is bankrupt they get on the verdict sheet and, in some jurisdictions, may reduce another defendant’s potential responsibility.

However, to include parent companies in the mix may lead to a real contribution and not simply a theoretical offset for the bankrupt company.   The end result should, in theory, reduce each defendant’s relative contribution to an overall resolution of a case.  Therefore, any apportionment workup should currently include an assessment of parent companies, at least until the Supreme Court tells us otherwise.

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