Plaintiffs argue that because GMI assumed liability for FBI's obligations to plaintiffs, the MMAR Defendants must share this liability as single employers with GHI. This argument, however, misapprehends the nature of the single employer doctrine.
As plaintiffs concede, the doctrine applies to claims that fundamentally implicate employer-employee relationships. See, e.g., Armbruster, 711 F.2d at 1338 (applying doctrine to Title VII claims); Carpenters Local Union No. 1846 of the United Brotherhood of Carpenters & Joiners of America v. Pratt-Farnsworth, Inc., 690 F.2d 489, 507 (5th Cir. Unit B 1982), cert. denied, 464 U.S. 932, 78 L. Ed. 2d 305, 104 S. Ct. 335 (1983) (applying doctrine to NLRA claims). In such contexts, the doctrine enables a wronged employee to impose liability on an entity that, although not his employer of record, exercises sufficient control over employment decisions to bear responsibility for the wrong in question. In order for the doctrine to apply, therefore, the two entities must share control at the time of the alleged wrong. See, e.g., Parliament House Motor Hotel v. EEOC, 444 F.2d 1335, 1340-41 (5th Cir. 1971) (allowing discovery against former corporate owner of hotel where "the two may well have constituted a single employer at the time the alleged act of discrimination occurred") (emphasis added); EEOC v. McLemore Food Stores, Inc., 25 Fair Employment Practice Cases (BNA) 1356, 1359-60 (W.D. Ten. 1977) (dispositive issue is relation among entities at time of alleged discriminatory act).
Here, the wrongs alleged in the complaint all occurred between 1987 and 1989, long before GHI's acquisition of FBI in February 1991. Accepting the complaint's allegations as true, the alleged wrongs all occurred at a time when GHI itself had no employment relationship with plaintiffs as employees, or any responsibility for FBI's acts as employer. A fortiori, the MMAR Defendants had no employment relationship with plaintiffs at the time of the alleged wrong. Plaintiffs' allegations therefore lack the necessary prerequisite for imposing liability on the MMAR Defendants under the single employer doctrine.
In sum, the complaint alleges that GHI's liability to plaintiffs rests solely on its alleged contractual assumption of FBI's obligations.
The complaint does not allege any employer-employee relationship between either GHI or the MMAR Defendants and plaintiffs that gave rise to the alleged wrong. Hence the complaint provides no basis for holding the MMAR defendants jointly liable with GHI as a "single employer" of plaintiffs.
Therefore, the complaint must be dismissed.
B. Plaintiffs' Motion to Amend the Complaint
Plaintiffs' third and fourth causes of action added in their proposed amended complaint are predicated on their standing to pierce the corporate veil between GHI and its controlling shareholders, the MMAR Defendants.
Plaintiffs' motion to amend must be denied if the proposed amendment "could not withstand a motion to dismiss." Journal Publishing Co. v. American Home Assurance Co., 771 F. Supp. 632, 635 (S.D.N.Y. 1991).
The dispositive issue is whether plaintiffs have standing to raise an alter ego claim against the MMAR Defendants. Plaintiffs lack such standing if the claim belongs to the trustee in bankruptcy. Kalb, Voorhis & Co. v. American Financial Corp., 8 F.3d 130, 132 (2d Cir. 1993). The claim belongs to the trustee if (1) "under governing state law the debtor could have asserted an alter ego claim to pierce its own corporate veil," id., and (2) plaintiffs' claim "is a general one," of the type that "could be brought by any creditor of the debtor," St. Paul Fire & Marine Insurance Co. v. Pepsico, Inc., 884 F.2d 688, 701 (2d Cir. 1989). If the trustee can bring such a claim, plaintiffs "are bound by the outcome of the trustee's action." Id. This rule ensures that all of a debtor's creditors receive equal treatment: otherwise, those who asserted alter ego claims first "would obtain payment of the claims in preference to and to the detriment of other creditors," id. (citation omitted), despite having no greater claim on the alter ego's assets.
The parties agree, applying the law of New York, that the law of Gnubrokers Companies' place of incorporation, Delaware, is the governing state law. See Kalb, Voorhis & Co., 8 F.3d at 132. Although no cases have been found holding that a trustee of a debtor corporation in bankruptcy may bring such a claim, several cases make clear that under Delaware law, a subsidiary may maintain an action against its corporate parent or controlling shareholder. See Sinclair Oil Corp. v. Levien, 280 A.2d 717 (Del. 1971); Leibert v. Grinnell Corp., 41 Del. Ch. 340, 194 A.2d 846 (Del. Ch. 1963); Marks v. Wolfson, 41 Del. Ch. 115, 188 A.2d 680 (Del. Ch. 1963). Thus, the first test, the right of the debtor to sue its corporate parent or controlling shareholder, is met.
In Sinclair, a minority shareholder of a corporate subsidiary brought a derivative action against the parent corporation. The shareholder claimed that the parent corporation had acted to the detriment of the subsidiary by (1) causing the subsidiary to make an improper distribution of dividends, and (2) causing another party to breach various contracts with the subsidiary. The Delaware Supreme Court upheld the latter claim, demonstrating the right of the subsidiary to sue its parent for breach of fiduciary duties.
Similarly, in Liebert, shareholders of the parent corporation brought a double derivative claim, on behalf of the subsidiary, against the parent corporation itself.
The shareholders requested the Chancellor's Court to compel the parent corporation "to cause [the subsidiary] to distribute to its stockholders . . . all of its earned surplus in excess of an amount the Court determines is necessary to retain for the proper conduct of the business affairs (of the subsidiary)." Liebert, 194 A.2d at 847. Although the Chancellor concluded that the claim lacked merit, implicit in that conclusion is the determination that under Delaware law, the shareholders had the right, on behalf of the subsidiary, to assert the subsidiary's claim against the parent corporation.
Finally, in Marks, a minority shareholder, challenging a corporate subsidiary's sale of assets, alleged that a controlling shareholder of the parent company had conspired with the buyer to purchase the assets at an inadequate price to the seller. Although the shareholder's claim was dismissed on the merits, the court accepted the precept of the shareholder's right to assert such a claim on behalf of the subsidiary, against the controlling shareholder of the parent corporation.
These cases indicate that under Delaware law, because of a corporate parent's fiduciary duties to a subsidiary, the subsidiary may institute proceedings against the parent if it has sustained liability to third parties as a result of the parent's control. One can only conclude that for purposes of applying federal bankruptcy law, Delaware courts would permit a debtor corporation to "assert an alter ego claim to pierce its own corporate veil," Kalb, Voorhis & Co., 8 F.2d at 132. Consequently, in the present action, the trustee has sole standing to raise all alter ego claims of a general nature asserted by the Gnubrokers Companies' creditors.
Since only the trustee may raise general alter ego claims, the claims in the amended complaint must fall outside this category to be properly asserted in this action. Plaintiffs aver no particularized injury flowing from MMAR's acts that are distinct from those suffered by other Gnubrokers Companies creditors. The amended complaint avers only that MMAR wasted the Gnubrokers Companies assets, and impaired GHI's ability to meet obligations the latter assumed in acquiring FBI. Such wrongful acts equally injure any other creditors of FBI and the Gnubrokers' Companies. Because plaintiffs' claims are general, therefore, they are bound by the outcome of the trustee's actions.
Under such circumstances, plaintiffs may assert a veil-piercing claim only if the claim has been abandoned by the trustee. St. Paul, 884 F.2d at 706. Plaintiffs make no allegation in their amended complaint that the trustee has abandoned the claim. To the contrary, the affidavit attached to plaintiffs' amended complaint represents that a settlement entered between the trustee and the MAAR Defendants incorporated the alter ego claims of the Gnubrokers Companies' creditors and that the settlement has been approved by the bankruptcy court.
Because plaintiffs' are bound by this settlement, their amended complaint could not survive a motion to dismiss.
For the reasons set forth, the MMAR Defendants' motion to dismiss is hereby granted, and plaintiffs' motion to amend their complaint is hereby denied.
IT IS SO ORDERED.
Dated: New York, New York
January 30, 1995
Robert P. Patterson, Jr.