"Reverse" Piercing The Corporate Veil Claim Rejected Based On Judicial Estoppel

You don't see a "reverse" piercing the corporate veil case very often, but the Business Court decided one yesterday in Health Management Associates, Inc. v. Yerby, 2009 NCBC 14 (N.C. Super. Ct. June 1, 2009).  The Court rejected a Plaintiff's argument that its own corporate veil should be pierced, and granted summary judgment in favor of the Defendants.

Why was the Plaintiff Health Management Associates, Inc.,  taking the position that the Court should disregard the corporate separateness between it and its wholly owned subsidiary, Louisburg H.M.A., Inc?

The parent and the subsidiary had settled a medical malpractice case brought against them and the doctors that had been involved in a surgical procedure that went very badly.  The surgery had taken place at the facility operated by the subsidiary.  The surgeon and his practice refused to participate in the settlement, but the parent (not the subsidiary) paid the settlement and obtained a release for everyone involved in the procedure, including the surgeon.

The parent and the subsidiary then sued the surgeon and his practice for contribution.  The problem for the parent was that it was simply the owner of the allegedly negligent facility operated by its subsidiary, and it therefore wasn't a joint tortfeasor entitled to contribution.  So the parent argued that the Court should pierce its own corporate veil and find it the alter ego of its subsidiary, which had been alleged to be a joint tortfeasor.

But the parent had taken a completely different position in the underlying malpractice lawsuit, responding to discovery and asserting that its subsidiary was not a "mere instrumentality," and that it did not dominate its subsidiary's finances or policies.  It had also taken the position that the subsidiary was adequately capitalized and did have its own independent corporate identity.  

Judge Jolly, relying on the doctrine of judicial estoppel, held that:

[e]ven if there was evidence of record that would support an inference that the corporate veil between HMA and Louisburg HMA could be pierced, under the facts of this action, the Plaintiffs are estopped from making such an argument by virtue of their knowingly having taken diametrically opposed positions on the corporate veil issues in the [earlier lawsuit] and in the instant action.

The Court rejected an alternative theory posited by the parent which was that it should be treated as an insurer subrogated to the claim of its "insured," the subsidiary.  Relying on N.C. Gen. Stat. §58-28-15, the Court held that an unlicensed insurance carrier was not entitled to maintain an action in the Courts of North Carolina. 

The car at the top?  It's a 1948 Tucker.  The prototype was built without a reverse gear.

Here's a link to the only brief available:

Brief in Opposition to Motion for Summary Judgment

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