CHAPTER 4 – Piercing the Corporate Veil
Minne B Berkey v Third Avenue Railway Company
This is a New York Court of Appeals decision in 1926 adjudicated by the legendary Justice Cardozo. In this seminal case on ‘piercing the corporate veil’, the Court of Appeals finds in favor of the Defendant, Third Avenue Railway Company. The Court holds that Third Avenue, the parent company of Forty-second Street Company, which operated a rail line upon which the Plaintiff was injured, was not liable for the torts of the subsidiary. Even though the defendant owned all the stock of the subsidiary and controlled its Board of Directors, the degree of domination over the subsidiary was not considered sufficient enough for Forty-second to be deemed an ‘alter ego’ of the parent, Third Avenue. Factual History:
Mrs. Bartle was injured while getting out of the railway car due to the negligence of the motorman. The franchise that operated a street railroad along this particular route was owned by Fort-second Street Company. All of the stock of this company was owned by Third Avenue Railway Company, which also had its own franchise along other streets and avenues. The Forty-second St Co was a functioning corporation that had been organized and been in existence long before the Defendant became the owner of substantially all of its stock. While the members of the two boards of directors were nearly identical, they were not quite the same. The key fact is that Forty-second was operating as a company that demonstrated, ‘separate life and operation’ from its parent, Third Avenue. Issue:
Does the relationship between Third Avenue Railway and Forty-second rise to the degree of agent and principal and not subsidiary and parent? Can Third Ave be held liable for the torts of its subsidiary, Forty-second? Holding:
The Court ruled in favor of the Defendant and found that even with complete stock ownership and similar boards, the relation of...