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Craig v. Lake Asbestos of Quebec

filed: March 31, 1988.

CLARENCE CRAIG AND DUVEEN A. CRAIG
v.
LAKE ASBESTOS OF QUEBEC, LTD., ET AL. V. CHARTER CONSOLIDATED, P.L.C., CHARTER CONSOLIDATED INVESTMENTS P.L.C., CENTRAL MINING FINANCE LTD., CHARTER CONSOLIDATED SERVICES LTD., BRITISH SOUTH AFRICA COMPANY, CONSOLIDATED MINES SELECTION CO., LTD. CHARTER CONSOLIDATED, P.L.C., CHARTER CONSOLIDATED INVESTMENTS P.L.C., CENTRAL MINING FINANCE LIMITED, BRITISH SOUTH AFRICA COMPANY, AND CONSOLIDATED MINES SELECTION COMMITTEE LIMITED (COLLECTIVELY "CHARTER"), APPELLANTS



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 82-0321.

Sloviter, Becker and Cowen,*fn* Circuit Judges

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Circuit Judge.

I.

Issue

The district court held, following a trial on the issue, that appellant Charter Consolidated P.L.C. was liable under New Jersey law for the tort obligations of its subsidiary Cape Industries, P.L.C. on an "alter ego" or "piercing the corporate veil" theory. Because we conclude that New Jersey law does not allow for piercing the corporate veil absent a greater degree of domination of the subsidiary by its parent than that found here by the district court, we will reverse.

II.

Procedural and Factual Background

The original plaintiffs, Clarence and Duveen Craig, New Jersey citizens, brought suit in a Pennsylvania state court to recover damages for personal injuries suffered by Clarence Craig as a result of his exposure to asbestos fibers while employed at the Owens-Corning plant in Berlin, New Jersey. Ten of the eleven defendants named were companies which manufactured, sold or supplied asbestos to Owens-Corning. Included among the defendants were appellee Lake Asbestos of Quebec, Ltd. (LAQ), North American Asbestos Corporation (NAAC) (a subsidiary of Cape Industries), and Continental Products Corporation (CPC), allegedly the "successor in interest" to NAAC. After the action was removed to federal court on the basis of diversity jurisdiction, defendant LAQ impleaded Charter Consolidated and five of its wholly-owned subsidiaries (hereinafter jointly "Charter") as third-party defendants, alleging that they were the "alter ego entities" of certain of the suppliers of asbestos to Owens-Corning, specifically Cape Industries and several subsidiaries of Cape (hereinafter jointly "Cape"), and therefore jointly and/or severally liable with LAQ for plaintiff's injuries or liable over to LAQ for contribution or indemnity. Cape itself was not made a defendant either by the Craigs or by LAQ.

All the original defendants settled with plaintiffs,*fn1 including LAQ which settled conditionally so as to maintain its third-party action against Charter. LAQ and Charter stipulated that the third-party action would be tried by the court without a jury, and that the sole issue tried would be whether Charter was responsible for the liability share of Cape as though Cape had been found to be liable to Craig. If the district court determined that Charter had such responsibility, the parties agreed that Charter's liability would be $40,000. The parties also stipulated to many of the facts.

The following relevant facts are not disputed: Charter is a publicly held investment holding and finance company; Cape also is a publicly owned holding company. Both are incorporated under the laws of the United Kingdom and have their principal places of business in England. Through its subsidiaries, Cape engaged until 1979 in the mining of asbestos in South Africa and the distribution of that product to the industrial market. Between 1953 and 1978, Cape's wholly-owned subsidiary NAAC sold asbestos fiber in the United States.

Charter, through a subsidiary, acquired a 16% interest in Cape in 1965, which it expanded by gradual purchases and a 1969 tender offer until, by 1978, it held 67.3% of Cape's outstanding shares. From 1965 to 1969 Charter placed two of its own executives on Cape's Board of Directors. In 1969, after Charter acquired a majority of Cape's shares, Charter nominated a third director onto that Board, and has since that time, except for a brief period, maintained three directors on Cape's Board. During these years, Cape's Board consisted of between ten and fourteen directors. The majority were Cape employees, but there were two and sometimes three outside directors connected with neither Cape nor Charter. The managing director of Cape, originally R.H. Dent and later G.A. Higham, sat on the Board of Charter.

In 1973, Cape and its wholly-owned subsidiary NAAC were named as defendants in two asbestos injury suits filed in Texas. Cape unsuccessfully challenged jurisdiction. Ultimately, these cases were settled for $20 million, with Cape and NAAC responsible for $5.2 million. Thereafter, Cape declined to defend other asbestos litigation in the ...


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