§37.2 Parent Inducing Wholly-Owned Subsidiary

§37.2 Parent Inducing Wholly-Owned Subsidiary

The Case: Waste Conversion Systems v. Greenstone Industries , Inc., 33 S.W.3d 779 (Tenn. 2000).

The Basic Facts: Plaintiff, the seller of waste paper, brought a federal claim against a buyer's parent corporation asserting the parent corporation willfully and maliciously induced the subsidiary to breach a contract between Plaintiff and the subsidiary.

The Bottom Line:

• "(1) Can a parent corporation be held liable under Tenn. Code Ann. § 47‑50‑109 or under Tennessee law for inducing a subsidiary to breach a contract with another party?
  
  (2) Can a parent corporation be held liable for inducing its subsidiary to breach a contract when the parent was acting on behalf of the subsidiary or acting to further the subsidiary's interests? If so, which party bears the burden of pleading and proving whether the parent was acting on behalf of, or to further the interests of, the subsidiary?
  
  (3) For a parent corporation to be held liable for inducing its subsidiary to breach a contract, must the parent induce the breach by wrongful means? If so, what constitutes wrongful means, and which party has the burden of pleading and proving existence of wrongful means?" 33 S.W.3d at 781.
• "Based on the certified questions posed to this Court, we hold that a parent corporation is privileged to interfere in the contractual relations of a wholly-owned subsidiary and that it is immune from liability for inducing to breach a contract with another party. This privilege, however, can be lost either by acting contrary to such subsidiary's economic interests or by using wrongful means. For this purpose, the definition of wrongful means includes fraud, misrepresentation, threats, violence, defamation, trespass, restraint of trade, intimidation, molestation, or any other wrongful act recognized by statute or common law. Once it is established that the defendant corporation owns 100 percent of the stock of the subsidiary in question, the plaintiff bears the burden of proof to demonstrate that the defendant has lost its privilege by acting contrary to its wholly-owned subsidiary's economic interests or by employing wrongful means in inducing its wholly-owned subsidiary to breach a contract." Id.at 784.

Other Sources of Note: Freeman Management Corp. v. Shurgard Storage Centers, LLC , 461 F.Supp.2d 629, 638 (M.D. Tenn. 2006) (holding that a parent company did not demonstrate a sufficient unity of interest under Waste Conversion to warrant the parent-subsidiary privilege); Cambio Health Solutions, LLC v. Reardon, 213 S.W.3d 785, 792 (Tenn. 2006) (declining to extend Waste Conversion and holding that "the privilege of a parent corporation to interfere with the contractual relations of a subsidiary corporation does not apply when the parent owns less than 100% of its subsidiary.").

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