The doctrine of limited liability of shareholders often prevents victims harmed by a corporation’s foreign subsidiary’s violation of international human rights norms from obtaining a remedy when that subsidiary operates in a country that has a weak or ineffective judicial system. This is because victims are often unable to obtain a remedy in these countries, and the doctrine almost always prevents victims from seeking a remedy from the parent corporation. Given this problem, in what situations should parent corporations be liable for the tortious activities of their foreign subsidiaries? This Article discusses the circumstances where imposing liability on parent corporations is justified and provides a specific statutory recommendation for such liability. The Article outlines the three primary solutions various authors and practitioners have advocated thus far to address the problem—the enterprise liability approach, the due diligence approach, and the direct parental duty-of-care approach—and addresses the limitations of each of these proposed solutions. The Article then recommends a different, primarily statutory, approach: that Congress or states (or both) should enact legislation disregarding limited liability of parent corporations for claims of customary international human rights violations and serious environmental torts where a parent corporation takes a majority interest or creates a subsidiary as part of unified economic enterprise that operates in a “high-risk host country,” i.e., one that has a weak, ineffective, or corrupt judicial system, and victims cannot obtain an adequate judicial remedy for such harms in the host country. This proposed solution moves away from the current notion that a parent corporation should only be liable where it has some actual control over the subsidiary, toward parent corporate liability where the parent benefits financially from the subsidiary’s actions at the expense of unconsenting, third parties—typically members of the community where the subsidiary operates.
Rethinking Limited Liability of Parent Corporations for Foreign Subsidiaries’ Violations of International Human Rights Law
January 6, 2016