Why it matters. Plaintiffs sometimes try to reach a parent company or affiliated entity by arguing that a subsidiary or joint venture is its alter ego. Courts treat veil piercing as exceptional and apply it case‑by‑case to prevent fraud or manifest injustice; mere ownership and control do not suffice.
Delaware law. Delaware requires proof that the entities operated as a single economic entity and that an element of injustice or unfairness would result if the corporate form were respected. Factors include capitalization, solvency, observance of corporate formalities, siphoning of funds, whether the subsidiary is a façade, and overall fairness considerations. Delaware courts are particularly reluctant to pierce absent egregious misuse of the corporate form.
Illinois law. Illinois applies a two‑part test: (1) unity of interest and ownership such that separate corporate personalities no longer exist, and (2) circumstances indicating that respecting the corporate fiction would sanction fraud or promote injustice. Courts weigh factors such as inadequate capitalization, failure to observe formalities, commingling of funds, failure to maintain arm’s‑length intercompany relationships, and whether the company is a mere instrumentality. Dominant stock ownership alone is not enough. Courts will honor separateness when formal distinctions, books and records, bank accounts, and tax returns are genuinely maintained, and intercompany transactions are documented.
Practical structuring (corporate‑separateness hygiene). The following practices—distilled from the case law and reflected in your memo’s practical guidance—reduce veil‑piercing risk in parent/JV arrangements: maintain separate capitalization, bank accounts, books, records, tax returns, and financial statements; scrupulously observe corporate formalities (boards, minutes, resolutions, approvals); document arm’s‑length intercompany dealings in written service or supply agreements (including any sharing of personnel, space, equipment, or IP, with appropriate transfer‑pricing and cost allocation); avoid commingling assets or operations; allow the JV or subsidiary to make and document its own decisions under its governing documents; recognize that titles (e.g., a parent executive serving as JV president) do not by themselves compel piercing; and understand that consolidated financial reporting or a 50/50 equity split, standing alone, does not create alter‑ego exposure.
Series Wrap‑Up (Key Takeaways) — Claims. Plaintiffs may proceed under negligence, warranty, fraud, and strict‑liability theories; strict liability typically focuses on manufacturing, design, and warning defects under Restatement (Third) § 2, with comment k qualifying design‑defect exposure for properly warned therapeutic products. U.C.C. § 2‑314; Caronia, 703 F.3d at 166. Defenses. In device cases, preemption dominates: § 360k(a) express preemption; implied preemption under Buckman; and the PMA vs. 510(k) divide under Riegel and Lohr. True parallel claims can survive. Corporate structure. Delaware and Illinois reserve veil piercing for exceptional circumstances; rigorous corporate formalities and arm’s‑length intercompany arrangements substantially reduce risk.
