The Supreme Court of Texas announced that a direct or indirect owner of a company is not liable for the company’s actions as long as the company is a properly created business organization (corporation, limited liability company, or limited partnership) and the owner’s actions are “consistent with its investor status.”
Claims that Investors Could Have Prevented the Explosion
Lawyers for plaintiffs allegedly injured by a chemical plant explosion claimed the company’s direct and indirect owners (Investors) controlled the company’s board, provided input and expertise to the company, and required the Investors’ preapproval of expenses of $5 million or more. The plaintiffs alleged that the Investors failed to approve an extensive maintenance procedure (a “turnaround”) that would have prevented the explosion.
Case Against Investors Should Have Been Dismissed
The Court announced that the trial court should have dismissed the case as to the Investors. Specifically, relying on US Supreme Court analysis, “monitoring of the subsidiary’s performance, supervision of the subsidiary’s finance and capital budget decisions, and articulation of general policies and procedures” are “consistent with the parent’s investor status” and “should not give rise to direct liability.”
Investor Actions Do Not Constitute Control
The plaintiffs argued that the Investors had direct liability, not based on the concept of “piercing the corporate veil,” but because the Investors exerted “direct operational control” of the company. The Court said the plaintiffs failed to allege facts other than actions consistent with investor status, actions that do not constitute direct control.
To see the Court’s opinion https://www.txcourts.gov/media/1456700/220227.pdf