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Depending on your age, today’s title may evoke images of Hayley Mills or Lindsay Lohan.  We won’t ask you which.  It can be your secret.  But in an industry where remakes are rarely worth the price of admission, the Parent Trap is a rare exception, and we won’t fault you for liking both.  Today’s parent trap is slightly different, and not just because it does not involve an adorable teen playing twins to trick their parents into getting back together.  No, our parent trap is about plaintiffs from 18 different states thinking they could sue both the manufacturer and its parent company and one MDL court who saw through the ruse.

Plaintiffs in the Exactech MDL allege that they were injured by defective hip, knee, and ankle implants manufactured by a Florida-based medical device company.  In re: Exactech Polyethylene Orthopedic Products Liability Litigation, 2024 U.S. Dist. LEXIS 40439, *87 (E.D.N.Y Mar. 7, 2024).  However, they did not just sue the manufacturer, but also its ultimate parent corporation as well as several of its subsidiaries in the ownership chain.  Id. at *90.  The group of parent companies moved to dismiss for failure to sufficiently plead facts that support corporate veil-piercing to hold a corporate parent liable for the conduct of a subsidiary.  Id. at *93.  Plaintiffs’ opening gambit was to try to convince the court that the motion was premature because the choice of law questions were “fact-intensive” and required discovery.  But that theory didn’t really hold water.

As with many MDLs, the court ordered the filing of a Master Complaint and individual short form complaints.  The court also allowed direct filing into the MDL, provided that plaintiffs identify on their short form complaint the district where the case would have been properly filed.  Apparently not all plaintiffs complied with that last step, meaning defendants had to make assumptions about original courts in addressing choice of law issues.  But determining where plaintiffs would have filed their complaints is not up to defendants or the court and it does not require discovery.  It simply requires plaintiffs to cure their deficient pleadings.  Id. at *96-97.  For purposes of deciding the current motion, the court looked to just those cases with properly filed short form complaints and put off those that were deficient.  That resulted in 18 states’ laws being at issue—which turned out not to be all that complicated.

That is because the majority of states follow the “internal affairs” doctrine which means you apply the law of the state of incorporation to questions like shareholder liability.  What follows next is an analysis of all 18 states’ laws, with a conclusion that even those states that take a flexible approach to the internal affairs doctrine (New York, South Carolina, and Tennessee) would apply the law of Florida, the state of incorporation, in this instance because Florida has stronger interests than any other state.  Id. at *100-108.  So choice of law turned out to be less “fact-intensive” and burdensome than plaintiffs made out. 

Under Florida law, to pierce the corporate veil, plaintiffs must show that the parent “dominated and controlled the corporation;” “the corporate form was used fraudulently or for an improper purpose;” and “the fraudulent or improper use” caused injury to the plaintiff.  Id. at *108-109.  As to domination, complete ownership is not enough.  Control over policy and business practices is also required.  Here, the parent company filled three of nine seats on the manufacturer’s board—a minority position which did not demonstrate the requisite complete control.  Id. at *110-11.  Nor did plaintiffs allege any type of coercion or pressure by the minority board members or any disregard for corporate formalities.  The court also took note of the fact the manufacturer’s policies regarding selling its orthopedic implants did not change once it became a subsidiary of the parent.  A change in policy “may provide support for an inference that the daily operations of the two corporations are not kept separate.” *111.  But that did not happen here. 

Nor did plaintiff allege any improper use of defendant’s corporate form.  Corporations exist for the very reason of protecting assets and limiting liability.  So, the fact that a corporation’s tort liabilities may exceed its assets does not rise to deliberate improper use of the corporate form without more.  Id. at *112-13.  Such as knowingly accruing debt while continuing to disperse payments to shareholders.  That type of siphoning of funds leaving a subsidiary unable to repay its liabilities would be enough.  But again, that did not happen here. 

Without adequately pleading both requisite control by the parent and abuse of that control, plaintiffs failed to pierce the corporate veil and therefore, the court dismissed the parent companies.  It’s not a rom-com happy ending, but we give it two thumbs up or 80% on the Tomatometer.  Again, you pick your generation.