Berkey v. Third Avenue Railway
Encyclopedia
Berkey v. Third Avenue Railway Co 244 N.Y. 602 (1927) is a classic veil piercing case by Judge Benjamin N. Cardozo
in corporation law.
line operated by the Forty-second Street, etc., Railway Company. She suffered personal injury. The Third Avenue Railway Co owned it, along with another two corporations with street railways on different routes. Third Avenue not only owned nearly all the stock, the board of directors
and executive officers were also nearly the same. Ms Berkey sued the parent, Third Avenue Railway Co, to compensate her for personal injury.
However, it was contrary to New York law at the time for one street railway company to assign its franchise to another without the Railway Commission's approval. So it was argued that a transfer in any liabilities from one to the other was an illegal contract, and therefore transfer of tort liability for Ms Berkey's personal injury was also illegal.
of the parent, or that the subsidiary be thinly capitalized, so as to perpetrate a fraud on the creditors.
Cardozo J said the following.
Benjamin N. Cardozo
Benjamin Nathan Cardozo was a well-known American lawyer and associate Supreme Court Justice. Cardozo is remembered for his significant influence on the development of American common law in the 20th century, in addition to his modesty, philosophy, and vivid prose style...
in corporation law.
Facts
Minnie Berkey had an accident on a tramTram
A tram is a passenger rail vehicle which runs on tracks along public urban streets and also sometimes on separate rights of way. It may also run between cities and/or towns , and/or partially grade separated even in the cities...
line operated by the Forty-second Street, etc., Railway Company. She suffered personal injury. The Third Avenue Railway Co owned it, along with another two corporations with street railways on different routes. Third Avenue not only owned nearly all the stock, the board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
and executive officers were also nearly the same. Ms Berkey sued the parent, Third Avenue Railway Co, to compensate her for personal injury.
However, it was contrary to New York law at the time for one street railway company to assign its franchise to another without the Railway Commission's approval. So it was argued that a transfer in any liabilities from one to the other was an illegal contract, and therefore transfer of tort liability for Ms Berkey's personal injury was also illegal.
Judgment
The New York Court of Appeals held that the Third Avenue Railway Co was not liable for the debts of the subsidiary. It was necessary that the domination of the parent company over the subsidiary was required to be complete, in order for the parent company to be treated as liable for the debts of the subsidiary. It was needed that the subsidiary be merely the alter egoAlter ego
An alter ego is a second self, which is believe to be distinct from a person's normal or original personality. The term was coined in the early nineteenth century when dissociative identity disorder was first described by psychologists...
of the parent, or that the subsidiary be thinly capitalized, so as to perpetrate a fraud on the creditors.
Cardozo J said the following.
See also
- US corporate law
- Walkovszky v. CarltonWalkovszky v. CarltonWalkovszky v. Carlton, 223 N.E.2d 6 , is a leading decision on the conditions under which Courts may pierce the corporate veil. A cab company had shielded themselves from liability by incorporating each cab as its own corporation...
, 223 N.E.2d 6 (NY 1966) - Salomon v A Salomon & Co Ltd
- Adams v Cape Industries plcAdams v Cape Industries plcAdams v Cape Industries plc [1990] Ch 433 is the leading UK company law case on separate legal personality and limited liability of shareholders...
, two UK law cases which took a much more restricted approach - DHN Food Distributors Ltd v Tower Hamlets LBC, a less restrictive UK case by Lord Denning MR.