Recent Developments in Kansas Regarding Ascending Liability

The Kansas Supreme Court ruled that a parent corporation was not liable for injuries suffered by an employee of a subsidiary corporation, since the two entities were not sufficiently interrelated.

Church Law and Tax1998-01-01

Ascending Liability

The Kansas Supreme Court ruled that a parent corporation was not liable for injuries suffered by an employee of a subsidiary corporation, since the two entities were not sufficiently interrelated. The court listed 10 factors to be considered in deciding whether a subsidiary corporation is an “instrumentality” of a parent corporation (making the parent liable for the obligations and activities of the subsidiary). These 10 factors were essentially the same as the 12 factors mentioned in the previous case. The court also stressed that liability ordinarily will be imposed on a parent for a subsidiary’s liabilities only if the separate incorporation of the subsidiary was done to “permit one of the corporations to evade its just obligations; to promote fraud, illegality, or injustice; or to defend crime.” However, “the mere fact that a subsidiary corporation was organized for the avowed purpose of avoiding liability on the part of the [parent] company does not in itself constitute fraud justifying disregard of the corporate entity of the subsidiary.” Rather, “the courts will disregard the fiction of a separate legal entity when there is such domination of finances, policy, and practices that the controlled corporation has no separate mind, will, or existence of its own and is but a business conduit for its principal.”

Application. Like the previous case, this ruling demonstrates the difficulty that plaintiffs experience when attempting to impute liability to a “parent” organization for the liabilities of a “subsidiary.” Perhaps most importantly, the court noted that the parent will not be liable for the obligations of a subsidiary even if the subsidiary was incorporated for the sole purpose of insulating the parent from liability. Doughty v. CSX Transportation, Inc., 905 P.2d 106 (Kan. 1996).[ Denominational Liability]

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