Marchan vs. John Miller Farms, Inc. (D. N.D.) – Corporate Veil-Piercing Issue is For Jury, Not Judge to Decide

The following is a case update prepared by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, analyzing a recent decision of interest.

SUMMARY:

A district court in North Dakota has held that under the Seventh Amendment, a plaintiff’s corporate veil-piercing claim was for the jury to decide, rather than for the judge.  [Marchan vs. John Miller Farms, Inc., 2018 Westlaw 6518660 (D. N.D.).]

Facts: Two consumers brought a product liability action against a group of companies that manufactured an allegedly defective conveyor.  The plaintiffs asserted a veil-piercing claim against the manufacturer’s parent company and sought to have that issue decided by the jury, rather than the judge.

Reasoning: Noting a split of authority among the circuits and a lack of Supreme Court guidance, the court ruled that under the Seventh Amendment of the United States Constitution, jurors were fully competent to decide the veil-piercing issue, despite its complexity: “It takes a special type of arrogance simply to conclude that American jurors cannot handle the veil-piercing issues presented here.”

Perhaps in dicta, the court decried the decreasing number of cases decided by jury trial, resulting in part from mandatory arbitration clauses contained in contractual agreements:

It is not too much to say that a courthouse without jurors is a building without a purpose . . . . It is a quiet government museum to what was once the most extensive and robust expression of direct democracy the world has ever seen.

Come in. Look around. It’s quiet . . . . Go into a courtroom. There will be an American flag, limp upon its staff. Along one wall is the jury box. There decent, common-sense Americans with an overarching sense of duty have sat for years. Again and again, the courtroom has heard the clerk intone the familiar cry, “Ladies and gentlemen, please stand and harken to your verdict as the Court records it.” No more.

In this courtroom, the chairs in the jury box are empty, mute testimony to the consistent derision of self-interested corporations, shallow stereotyping by lawyers and scholars who do not know their way around a courtroom, and the virtual abandonment of the civil jury by those judicial officers most charged with keeping our jury system vital and flourishing.

In a footnote, the court blamed the use of arbitration clauses on seemingly-corrupt practices on the part of arbitrators:

While corporations primarily use forced arbitration to bar access to our justice system altogether, . . . data support their self-interested decision even in those few cases that are actually heard. As one would expect, in state courts, corporations win somewhat less than half the time . . . . In the more rules-bound federal courts, they win 63% of the time. . . . In arbitration, where the corporation is a repeat player, i.e., is active in the market hiring arbitrators, it wins a whopping 83% of the time.

Author’s Comment: If the numbers cited by the court are accurate, is it any wonder that corporations insist on arbitration and avoid jury trials whenever possible?  I found it interesting that the court was so dismayed by the diversion of litigation into the arbitration system.  I know for a fact that many other judges are delighted by the concomitant reduction in their overcrowded dockets.

Having litigated veil-piercing issues in front of a lay jury (both as a practicing lawyer and an expert witness), I am not optimistic about a typical juror’s ability to understand the difference between (1) a parent entity’s ownership and control of an operating subsidiary and (2) the abuse of that control sufficient to justify the imposition of alter ego liability.  Most nonlawyers believe (erroneously) that a parent entity is automatically liable for the debts and torts of its subsidiaries.  I have no faith that carefully-crafted jury instructions can overcome that simplistic prejudice.  My skepticism is not “a special type of arrogance,” in the court’s words.  It is borne of experience. 

These materials were written by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw.  Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.