The Business Court provided a thorough discussion today on whether a subsidiary and its parent can conspire with one another, in BHB Enterprises, Inc. v. Waste Management of Carolinas, Inc.
Judge Diaz rejected Defendants’ argument that a parent can never be liable for the actions of its subsidiary under a conspiracy theory. But he dismissed the claim anyway, in the absence of any assertion that the subsidiary had been rendered unable to pay its debts by the action of the parent.
The Court also rejected Plaintiff’s attempt to bring an unfair and deceptive practices claim based on what was essentially a breach of contract, notwithstanding what the Court called "artful pleading."
Plaintiff runs a restaurant in Charlotte called Vinnie’s Sardine and Raw Bar. It had contracted with Waste Management of Carolinas, Inc. ("WMC"), a subsidiary of Waste Management, Inc., for waste collection and disposal services.
WMC had unilaterally increased its monthly charges to Vinnie’s, relying on contract provisions that permitted such increases under certain circumstances. Vinnie’s contested WMC’s right to raise the charges and sought to represent a class of WMC customers. Among other claims, Plaintiff asserted one for civil conspiracy, alleging that WMC and its parent were in cahoots on the unauthorized price increases.
WMC responded that that it was not possible for a parent to conspire with a wholly owned subsidiary. Judge Diaz disagreed. He stated that "the Court’s research discloses only six (6) cases addressing the doctrine of intracorporate immunity in the context of a claim for civil conspiracy under North Carolina law," and summarized all six of them. He observed that none of these cases dealt with the point "whether a parent and its wholly owned subsidiary are capable of committing a civil conspiracy under the doctrine."
Judge Diaz looked to Delaware law. Relying on Allied Capital Corp. v. GC-Sun Holdings, LP, 910 A.2d 1020 (Del. Ch. 2006), he concluded that such a claim could be made, although he reiterated the concern raised by the Allied case in permitting such claims:
"if plaintiffs were allowed to sue parent entities whenever the decision to cause a subsidiary to act in a certain manner originated with the parent, it ‘would increase litigation costs and deter the use of subsidiaries, even when there is a legitimate purpose for doing so and there is no wrong to others in being forced to look only to the subsidiary for relief.’"
The Court dismissed the claim made by Vinnie’s, stating that there was no allegation that WMC would be unable to satisfy a judgment if Plaintiff were to prevail, concluding that the civil conspiracy claim was barred by the intracorporate immunity doctrine.Continue Reading Business Court Rejects Bright Line Rule That A Subsidiary Cannot Conspire With Its Parent