I. Fact: (1) The plaintiff was seriously injured in an automobile accident in 1984. The plaintiff was on a motorcycle and was struck by a truck driven by an employee of Contrux, Inc. The plaintiff wants to pierce the corporate veil and hold Telecom, the parent company of Contrux Inc., liable for the conduct of its subsidiary and employee of the subsidiary.
II. Issue: Whether a parent corporation is liable for the damage caused by an employee of its wholly owned subsidiary.
III. Reasoning:
a) Rules
i) A tripartite test has been developed for analysis of the question. To "pierce the corporate veil," one must show; (1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. Collet v. American National Stores, Inc., 708 S.W.2d 273 (Mo.App. 1986).
b) Application
i) The court first examined the reasoning of the District Court. The District Court dismissed the motion on the ground that the first element of the Collet test was not met. The court disagreed with the reasoning. The court argued that the second element, the dishonesty test, had been tested by looking into whether a subsidiary was undercapitalized. Making a corporation a supplemental part of an economic unit and operating it without sufficient funds to meet obligations to those who must deal with it would be circumstantial evidence tending to show improper purpose or reckless disregard of the rights of the others. Even though the district court held that Contrux was undercapitalized and Telecom conceded it, the court found that Contrux did have $1,000,000 in basic liability coverage by insurance. Referring to the federal regulation, the court concluded that Contrux was properly capitalized in the sense that its financial responsibility was proved by the insurance. Even though the insurance company is insolvent, it was not expected by Contrux. Thus, the court concluded that the plaintiff failed to show any genuine issue of material fact with respect to the dishonesty(second element) element of the Collet test although the district court held the opposite.
IV. Holdings: Affirmed the judgment of the District Court dismissing the complaint for want of jurisdiction.