UNITED STATES DISTRICT COURT NOT FOR PUBLICATION EASTERN DISTRICT OF NEW YORK
August 13, 2012
PRECISION ASSOCIATES, INC.; ANYTHING GOES LLC D/B/A MAIL BOXES ETC., AND JCK INDUSTRIES, INC., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
PANALPINA WORLD TRANSPORT (HOLDING) LTD., ET AL., DEFENDANT.
The opinion of the court was delivered by: John Gleeson, United States District Judge:
In a 106-page Report and Recommendation filed on January 4, 2011 (the "R & R") (ECF No. 468), Judge Viktor Pohorelsky recommended that all of the claims in the Second Amended Complaint (ECF No. 460), except those asserted in Claim 1 as against ABX Logistics Group, Exel Global Logistics Inc., DHL Danzas, and Geo-Logistics, be dismissed without prejudice and with leave to replead.*fn1 Numerous objections have been made to the R & R*fn2 (a few of which have been withdrawn in light of intervening proposed settlements*fn3 ). I find no merit in any of those objections, and I therefore adopt Judge Pohorelsky's masterful R & R in its entirety.
In my view only one objection warrants mention here. The plaintiffs object to the discussion at pages 28-41 of the R & R regarding their "group pleading" tactic, by which allegations are made against "families" of affiliated companies. See ECF No. 483. Among other things, the R & R states that the plaintiffs "need not couch their allegations defendant-by-defendant, but they do need to allege that each individual defendant joined the conspiracy and played some role in it," R & R at 30, and that a pleading convention that seeks to allege claims against "dozens of defendants based on corporate affiliation alone" cannot satisfy the pleading requirements of Ashcroft v. Iqbal, 556 U.S. 662 (2009),and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). See R & R at 34. Based on this reasoning, Judge Pohorelsky recommended the dismissal (with leave to replead) of various claims against various defendants. See id. at 39-40.
The plaintiffs' objection promises an amended pleading with more facts but challenges Judge Pohorelsky's analysis, urging that it "should not be accepted with respect to the existing complaint nor [as] the method of analysis of the re-pleaded complaint." ECF No. 483, at 7. Otherwise, the plaintiffs' contend, they and antitrust plaintiffs generally "may fall into a catch-22": a foreign corporation implements an antitrust conspiracy through its unaware U.S. subsidiaries; the former company violates the law but can't be sued, while the latter companies can be sued but committed no antitrust violation. Id. The answer to this alleged "catch-22," the plaintiffs' argument concludes, is that the entire corporate family can properly be sued, and allegations that sufficiently state a conspiracy claim against the foreign parent also state a claim against any U.S. subsidiary that was "a critical and necessary part of the effectuation of" the conspiracy. Id.
I disagree. "It is a general principle of corporate law deeply 'ingrained in our economic and legal systems' that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiaries." United States v. Bestfoods, 524 U.S. 51, 61 (1998) (quoting William O. Douglas & Carrol M. Shanks, Insulation from Liability through Subsidiary Corporations, 39 Yale L.J. 193, 193 (1929)). The reverse is true as well; that is, as a general rule, a subsidiary corporation is not liable for the acts of its parent.
That principle has caveats on which the plaintiffs may rely if their
future amended pleading is challenged. For example, a parent that uses
its subsidiary as its agent or alter ego may be held liable along with
the subsidiary. See Bestfoods, 524 U.S. at 62-63 (noting that the
"corporate veil may be pierced" when the subsidiary company is "used
as a mere agency or instrumentality of the owning company" (quoting
Chicago, Milwaukee & St. Paul Ry. v. Minneapolis Civic & Commerce
Ass'n, 247 U.S. 490, 501 (1918))); Geyer v. Ingersoll Publ'ns Co., 621
A.2d 784, 793 (Del. Ch. 1992) ("[A] court can pierce the corporate
veil of an entity where there is fraud or where a subsidiary is in
fact a mere instrumentality or alter ego of its owner."). Also, if
only "slight evidence" is necessary to connect a defendant to an
antitrust conspiracy once the conspiracy is established,*fn4
it follows that the pleading burden may be more easily
satisfied where, as here, there have been guilty pleas to criminal
charges arising out of the same events. But none of these caveats
alters the rule Judge Pohorelsky articulated and applied to the Second
Amended Complaint: The plaintiffs must allege facts -- not legal
conclusions couched as factual allegations -- that nudge their claims
against each defendant across the line from conceivable to plausible,
and the bare allegation that one defendant is the subsidiary of
another fails to satisfy that requirement. This creates no "catch-22";
the plaintiffs are not being required as a condition of making their
claims to do something that necessarily defeats them.*fn5
Rather, "it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence" that each defendant participated in an illegal agreement. Twombly, 550 U.S. at 556.
I hereby adopt Judge Pohorelsky's extraordinarily thorough and well-reasoned R & R. Accordingly, all of the claims in the Second Amended Complaint, except those asserted in Claim 1 as against ABX Logistics Group, Exel Global Logistics Inc., DHL Danzas, and GeoLogistics, are dismissed without prejudice and with leave to replead.
John Gleeson, U.S.D.J.