The Appellate Division unanimously reversed the Order which granted plaintiff's cross motion for leave to amend its complaint to assert a claim of alter ego liability against defendant TPR Holdings, LLC, and denied the cross motion. In New York, a parent corporation generally cannot be held liable for the debts of its wholly owned subsidiary, nor can it be bound by the contract of that subsidiary. There are two circumstances under which a parent will be held liable as a party to its subsidiary's contract: (1) if the parent manifests an intent to be bound by the contract; or (2) if there are the elements of a claim for piercing the corporate veil. Here, the Appellate Division found neither. An intent to be bound can be inferred from the parent's participation in the negotiations of the contract, but the amended complaint is silent on how the business relationship between plaintiff and the subsidiary defendants had evolved. It appears that TPR Holdings initially approached plaintiff about three separate credit accounts for its three subsidiaries. However, there is no allegation about who negotiated the pricing or the general terms of each transaction. Plaintiff acknowledged that the purchase orders were issued separately by the subsidiary defendants. While it appears that TPR Holdings' employees were frequently, but not always, involved in the transactions' creative aspect by approving the order designs, there is no allegation that TPR Holdings directly participated or micro-managed each transaction underlying the purchase orders or acknowledged that it was the actual party in interest. In addition, the complaint is silent on who paid for plaintiff's services. The Appellate Division also found the claim for piercing corporate veils insufficient. Even if TPR Holdings exercised complete domination of the subsidiary defendants, plaintiff failed to allege that the abuse of the corporate form was for the purpose of defrauding plaintiff and causing it an injury. Specifically, plaintiff did not allege that the subsidiary defendants were not legitimate businesses or that they were created for an improper purpose of cutting off plaintiff's ability to collect on the contract, or that corporate funds were purposefully diverted to make any of the three companies judgment proof. The allegation that TPR Holdings caused the subsidiary defendants to breach a contract is not enough to show the requisite wrongdoing.
World Wide Packaging, LLC v. Cargo Cosmetics, LLC, NY Slip Op 02088 (1st Dep't April 1, 2021)
