Happy Valentine’s Day. Today’s decision is about a rather un-romantic topic—holding companies.  But that got us thinking about a lesser-known band out of San Francisco called Big Brother and the Holding Company. One of America’s most iconic vocalists got her start with the band. Big Brother and the Holding Company’s second album, Cheap Thrills, reached number one on the Billboard charts in 1968 (we won’t go into the full name of the album – which was considered too controversial back then). More importantly, it was Janis Joplin’s break-out album and launched her successful but short-lived solo career. And, although a little edgy, the song “Piece of My Heart” from the album would certainly qualify as appropriate for Valentine’s Day.  Even if not your cup of romantic tea, it’s certainly a great example of Joplin’s powerful and heart wrenching vocals (the album also contains a nice version of Summertime—popularized by Ella Fitzgerald and Louis Armstrong, who are some real romantic crooners).  So, Valentine’s Day and holding companies? You bet. Now on to today’s decision.

We’ve all handled litigation in which complaints name incorrect corporate defendants. Usually that involves the inclusion of parent or subsidiary companies that have no involvement with the case. Often this can be addressed through conversations and agreements with plaintiffs’ counsel. But sometimes plaintiffs won’t agree to dismiss an improperly named defendant.  Today’s decision from Delaware – traditionally the jurisdiction of choice for corporate law and the state in which many of our clients are incorporated – is a helpful reminder that parent holding companies are almost always improper defendants.  While not a product liability case, NuVasive, Inc. v. Miles, 2025 Del. Ch. LEXIS 25 (Del. Ch. Jan. 31, 2025) is helpful for defense lawyers trying to extricate these sorts of entities from litigation.

The case followed the typical fact pattern for breach of employment agreement claims. A high-level employee left one company, joined a competitor, and the competitor started purloining the  former employer’s sales network.  Both of the companies focused on the development of technologies to treat spinal disease. The twist is that the plaintiff sued the former employee, the operating company and a parent holding company.  The operating entity did not conduct business in Delaware, so the case proceeded only against the former employee and the holding company (there was a separate, similar lawsuit in California that proceeded against the operating entity without the holding company).  The holding company moved to dismiss, contending that it did not conduct any business activities that could render it liable for plaintiff’s claims. The court denied the motion, and the case ultimately proceeded to a bench trial on plaintiff’s tortious interference and unfair business practices claims (in a separate opinion the court found for the former employee on the plaintiff’s breach of fiduciary claim. NuVasive, Inc. v. Miles, 2024 Del. Ch. LEXIS 294 (Del. Ch. Aug. 16, 2024)).  The holding company filed a post-trial motion raising the same defenses it raised in its motion to dismiss.

The court first provided a summary of the facts shown at trial.  After leaving employment with the plaintiff, the former employee became the president and CEO of the competing operating entity and its holding company. The plaintiff alleged that the now-CEO then recruited and hired its exclusive sales representatives and distributors in at least four states. Those distributors stopped carrying the plaintiff’s devices and began selling and distributing the operating entity’s devices. The court found that all of these activities were undertaken by the operating entity rather than the holding company.

The court did recognize some sloppiness in the activities of the holding company, as its former 10-Ks noted employment agreements showing that it directly employed the sales representatives and distributors who committed the alleged tortious activities. However, there was credible trial testimony that (1) the employment agreements were mistakenly drafted under the holding company’s name, and (2) to the extent individuals employed by the holding company recruited the sales representatives and distributors, those actions were taken on behalf of the operating entity – as it was the entity with commercial operations and marketed products.

The court concluded that the holding company was a passive entity that did nothing more than own and hold subsidiaries, including the operating entity that employed the plaintiff’s former employee.  The court recited some core precepts of Delaware corporation law, which is “largely built on the idea that the existence of separate legal entities should be respected.” NuVasive, 2025 Del. Ch. LEXIS 25, * 7.  “[C]ontrol and even total ownership of one corporation by another is not sufficient to warrant the disregard of a separate corporate entity.” Id.  In other words, the court was going to respect the form and separateness of the holding company, and unless there was evidence that the holding company was separately liable for the plaintiff’s claims, it could not be liable for the actions of the operating entity.

Plaintiff also argued that the operating entity and holding company acted in concert, as they conducted joint board meetings, and executives did not formally distinguish between the two entities.  The court found that these sorts of facts would be of much greater relevance if the plaintiff was attempting to pierce the corporate veil between the operating entity and holding company.  But the plaintiff did not include any claims of veil piercing, and the court found no basis to hold that the holding company was a sham entity or that it used its corporate form to defraud the plaintiff. The court held that the holding company did not make or sell medical devices, did not engage in the spine medical device business, and that it did not conduct any business operations whatsoever. The court accordingly ruled in favor of the holding company on all claims.