## Facts

- Clarence and Duveen Craig sued multiple asbestos entities for injuries allegedly caused by occupational exposure at an Owens-Corning plant in Berlin, New Jersey.
- Lake Asbestos of Quebec, Ltd. (LAQ), a defendant asbestos supplier, filed a third-party claim seeking contribution/indemnity against Charter Consolidated P.L.C. and its subsidiaries.
- LAQ alleged Charter was the alter ego of Cape Industries P.L.C., a U.K. holding company whose subsidiaries mined and distributed asbestos and used a U.S. distribution chain involving NAAC and later CPC.
- Charter, a U.K. investment holding company, acquired a majority interest in Cape, holding approximately 67.3% of Cape’s shares by 1978, and had several directors on Cape’s board.
- Cape and its U.S. distribution entities faced significant asbestos litigation in the United States; Cape later exited the asbestos business and sold asbestos subsidiaries in 1979 amid continuing litigation exposure.
- The Craigs’ claims settled; LAQ structured its settlement to preserve the third-party action.
- The parties tried the third-party action to the district court without a jury solely on whether Charter could be held liable for Cape’s tort obligations under an alter-ego/veil-piercing theory; if liable, damages were stipulated at $40,000.
- Applying New Jersey law, the district court pierced the corporate veil and held Charter liable, finding “actual, participatory and pervasive control” over Cape.

## Issues

1. Whether New Jersey law governed the veil-piercing question in this diversity action.
2. What New Jersey requires to pierce the corporate veil to hold a parent (or controlling shareholder) liable for a subsidiary’s tort obligations.
3. Whether the evidence showed the level of domination and misuse of the corporate form necessary to disregard separateness between Charter and Cape.

## Decision

- The Third Circuit held New Jersey law applied to the veil-piercing claim.
- The Third Circuit reversed the district court’s judgment imposing liability on Charter.
- The court concluded Charter’s ownership stake and influence did not amount to the “complete domination” New Jersey demands to treat the subsidiary as having no separate existence regarding the transaction attacked.
- The court found the record did not support a finding of constant or pervasive operational control by Charter over Cape.
- The court also found insufficient proof that Charter used Cape’s corporate form to perpetrate fraud or injustice that would justify veil piercing.

## Legal Principles

- Under New Jersey law, veil piercing is an exceptional remedy requiring proof that the parent so completely dominates the subsidiary’s finances, policy, and business practice as to the challenged transaction that the subsidiary has no separate mind, will, or existence.
- Majority stock ownership, interlocking directors, and approval of major corporate actions are ordinarily consistent with a conventional parent-subsidiary relationship and do not alone establish alter-ego liability.
- Evidence of separate offices, separate board meetings, and separate financial records supports respect for corporate separateness.
- New Jersey veil piercing generally also requires a showing that the corporate form was abused to accomplish fraud or injustice or to evade legal obligations; criticism of a subsidiary’s litigation posture does not, without more, establish that the parent engineered or exploited misuse of the form.

## Conclusion

The Third Circuit rejected imposing Cape’s asbestos-related tort obligations on Charter because the evidence showed conventional shareholder oversight rather than the complete domination and misuse of the corporate form required under New Jersey law to pierce the corporate veil.


Craig v. Lake Asbestos of Que., Ltd., 843 F.2d 145 (3d Cir. 1988)