Litigation can be an aggravating process that at times may be the only remedy available when parties cannot agree or amicably resolve the issues at hand. And, even if done properly litigation can become both, time consuming and expensive. Having your entire case dismissed on the eve of trial after weeks, maybe even years, of discovery because you improperly named one or more defendants is one of the biggest mistakes you can make. It is important to know what entity or entities you must name to cover your bases. You may have to name both a corporation and its parent company, as both are culpable. If you fail to name the right entity you run the risk of finger pointing by both companies with you as the plaintiff stuck in the middle with more questions than answers.

What is a corporation?

A corporation is a business entity that receives many, and in some cases more, of the legal rights of the individual. Corporations exist as virtual or fictitious persons under the doctrine of "legal fiction", shielding the officers of the corporation to a limited extent from litigation and creditors. Corporations further enjoy the rights and obligations of the individual, such as the ability to own property, sign binding contracts, pay taxes, sue and be sued, and exercise constitutionally protected rights.

How are corporations formed?

Historically, the state government used a special charter to create a corporation. Today a corporation is an entity created by the state through the filing of bylaws in that state and the issuance of stock. Companies typically incorporate in Delaware since the state has the most favorable rules. Nevada is another favorable state. The state of incorporation will only be relevant if the defendant corporation does not conduct business in the jurisdiction where you want to bring your suit.

Under what laws are corporations held accountable?

The law of the state in which the corporation is incorporated will regulate most of its internal activities, as well as its finances. "Internal affairs" include the relationship between shareholders, creditors, the corporation, officers, directors and the promoters. If a corporation conducts business in another state it must register in that state and be subject to the laws of that state for employment, criminal, workers compensation, contract and civil actions. For example, if a Delaware corporation opens an office in Florida and hires residents of Florida the corporation is subject to Florida employment law and any income derived in Florida will be subject to Florida tax code. The corporation will be identified as a foreign corporation (incorporated outside the state).

Why sue the corporation and not the officers of the corporation?

A corporation has no mind of its own any more than it has a physical body. On the contrary, by law it is conferred a status similar to a human being capable of suing and being sued. Typically, a board of directors governs a corporation on behalf of the stockholders. The board has a fiduciary duty to look after the interests of the corporation. The corporate officers such as the Chief Operating Officer (CEO), President, Treasurer, and other titled officers are chosen by the board to manage the affairs of the corporation. It would be pointless to name all the officers as defendants to an action against a corporation because these officers are being elected by the stockholders' and may be replaced at anytime. Suing them as a corporation is suing them collectively including all stockholders. However, when there is intentional wrongdoing or violation of the law that can be tied to the individual, it may be in your interest to name the individual.

What is a subsidiary versus a wholly owned subsidiary?

A subsidiary is a company controlled by a parent corporation or holding company, When control or ownership is not shared with another corporation or individual, it is termed a wholly-owned subsidiary. Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. They are distinct from divisions, which are entities fully integrated within the main company, and not legally or otherwise distinct from it.

When is a parent/holding company liable for the acts of its subsidiary?

It is a general principle of corporate law that a parent corporation is not liable for the acts of its subsidiaries. Moreover, unless there is a unity of interest and ownership between the individual shareholders and the corporation the shareholders are insulated from the liability of the corporation. Such includes a failure to observe corporate formalities, such as shareholder meetings, commingling of funds or assets, undercapitalization of the company, appropriation of company property by the individual. The primary reason for forming a corporate entity is to limit the shareholders' risk and exposure to the capital contributed. Shareholders are willing to take the risk that the value of the stock they purchase is subject to market fluctuations secure in their knowledge that they will not be held personally liable for the actions of the company in which they have invested.

What is the extent of the parent/holding company's liability?

A corporation may be held liable for the actions or omissions of its directors, officers, employees, and agents under the "doctrine of respondeat superior". To be held liable under this doctrine you must establish that the acts or omissions in question were: 1) intentional misconduct, a knowing violation of the law, or intended to benefit, at least in part, the corporation and 2) within the scope of employment or agency representation. In all cases involving wrongdoing by corporate agents, a plaintiff should consider the corporation, as well as the responsible individuals, as potential defendants. For example, if an employee of the corporation physically injures you while using company property or while on duty, the corporation will be liable.

What is piercing the corporate veil?

When the notion of a separate "legal fiction or personality" is used to defeat public convenience, justify a wrong, protect a fraud or defend a crime, or in general used as a device to defeat the law, the veil of corporate fiction may be pierced. This will occur when a parent company's involvement with its subsidiary is inconsistent with its status as a mere investor as the parent involves itself in the daily management of the subsidiary. Thus the parent company acts as an "alter ego" of the subsidiary, i.e., it dominates and controls its subsidiary to the extent that the subsidiary has no separate existence. Alternatively, a parent company can be directly liable for its subsidiary's actions when the parent interferes with the subsidiary's operations to the extent that the "alleged wrong" can seemingly be traced to the parent company through the conduit of its own personnel and management. Factors used to established that the subsidiary is not a separate entity include whether: 1) common directors and officers between the parent and subsidiary; 2) consolidated statements and officers; 3) parent finances the subsidiary; 4) parent caused the incorporation of the subsidiary; 5) subsidiary grossly undercapitalized; 6) subsidiary receives only parent's business; 7) parent uses the subsidiary's property as its own; 8) daily operations are not separate (i.e. same buildings, same equipment); 8) both corporations fail to kept corporate formalities (i.e. required shareholder meetings).

Naming your corporate defendant?

When filing a suit you must properly name the airline defendant. It is up to you to do the research to find the defendant's true name, not just the fictitious name it uses to conduct business. The following are appropriate ways to name a defendant:

  • Use the full corporate name if the company is incorporated in the state
    in which you are filing:
    ABC Airlines Holdings Inc.
  • If the corporation is a foreign corporation, identify the state it was incorporated in.
    ABC Airlines Holdings, Inc., a Delaware Corporation
  • If an international corporation, refer to the business as a foreign corporation:
    ABC Airlines Holdings, Inc., a foreign corporation
  • If the corporation is doing business in the state under a fictitious business name,
    identify both names:
    ABC Airlines Holdings, Inc. d/b/a ABC Airlines
  • If the corporation is a foreign corporation and using a fictitious name:
    ABC Airlines Holdings, Inc., a Delaware Corporation d/b/a ABC Airlines

To confirm the correct name check with the Secretary of State, the tax office or licensing department of the City or County where the principal place of business is located. You can also access this information online in most states through the Secretary of State Corporations Division that provides a business entity search. Be careful that you select the proper defendant, as there may be several listing of companies with similar names.

What is and why you need to know the registered agent?

Although a corporation is a separate legal entity, it cannot physically receive documents, and therefore needs a real person to receive them on its behalf. A registered agent, resident agent or a statutory agent is needed to make sure that the corporation will have an assigned representative at a known address in the state to receive all legal documents for the corporation. The registered agent will forward these documents to the corporation at its principal place of business. Corporations that operate in different states, but don't maintain offices in these states use agent service companies to act as registered agents for them. Check the Secretary of State office in the jurisdiction where you intend to file for the corporation's registered agent.

While it is true that you mustn't take lightly the task of trampling Goliath, it doesn't mean you should easily be intimidated either. The challenge of running after a corporation for what you believe is rightfully yours is an arduous one, full of hurdles not the least of which is naming precisely who you are pursuing to begin with. However, it is not an impossible task either. Goliath can be defeated. You can win against a giant corporation. You only need to be prepared. Hopefully, this guide has helped give you a proper perspective and a better grasp of what you need to know before meeting the enemy head on.

Remember: Competent research is vital to any endeavor and key to your victory.

NOTE: This information is for educational purposes only and is not intended as legal advice, interpretation of law or legal authority. Information distributed herein is accurate to the best of the author's knowledge at the time of publication on this site in January 2006. Laws may change frequently and will vary from state-to-state. You should always check with the court clerk for the most up-to-date information to ensure that you follow all procedures accurately. It is your responsibility to make sure the facts and information provided are up-to-date in your state and applicable to your situation. Information contained herein is a general guide to the legal procedures for filing a claim in Small Claims Court and applicable law should be thoroughly researched before engaging in any form of litigation. Use common sense to determine whether you require the advice of an attorney. Legal advice is always advised in important matters.