Court Decides Business Tort Case

The Tennessee Supreme Court has ruled that a parent corporation may be sued for intentional interference with a contractual relationship between a partially owned subsidiary and a third party.

The Court had ruled in an earlier case that " a parent corporation has a privilege pursuant to which it can cause a wholly-owned subsidiary to breach a contract without becoming liable for tortiously interfering with a contractual relationship.”  However, in this case the Court said that "[w]e conclude that the privilege does not extend when a parent owns less than 100% of a subsidiary.  The foundation of [our prior decision in] Waste Conversion and the reasoning upon which it rests is that the qualified  privilege should be extended when there is a full and complete identity of interest between a parent  corporation and its subsidiary. When there exists such an identity of interest, courts are justified in  treating two legally separate entities as one and in extending the immunity from tortious interference  that is normally enjoyed only by the parties to a contract. However, courts are not justified in  extending the privilege when the interests of the parent and the subsidiary are not identical."

The Court said this as well:  "Having availed themselves of the benefits of separate corporations, the [defendant] Companies argue that we should now disregard their corporate structure in order to shield them from liability. … Because we respect the separate legal status of a corporation and its shareholders, we are equally reluctant to disregard corporateness to create liability as we are to disregard corporateness to remove liability."

The case is Cambio Health Solutions, LLC v. Reardon, No. M2006-00007-SC-R23-CQ (December 14, 2006); read the opinion here.