M E D I C A L L I A B I L I T Y A N D H E A LT H C A R E L A Wthe “David and Goliath” battle betweenthe plaintiff and the many-headed corporategiant.<strong>The</strong> mere right or powerto control a subsidiarydoes not give rise to aduty to third parties.Responding to a Claim ofDirect Participant Liability<strong>For</strong>tunately, there are strategies for limitingor preventing the problems associatedwith the assertion of claims against corporateparents under a direct liability theory.<strong>The</strong>se include motions to dismiss theparent for failure to state a claim against it,and discovery requests directed at developinga case for an early motion for summaryjudgment. Such discovery requestsmay include a set of contention interrogatories,a request for documents or requeststo admit which, collectively or individually,seek to reveal or highlight the absenceof sufficient facts in support of plaintiff’sallegations of parental liability. <strong>The</strong>se discoverytools can also be useful in seekingprotective orders against over burdensomediscovery directed to multiple corporateentities or to officers and directors.<strong>The</strong> New Pleading Standards<strong>The</strong> new pleading standards articulatedby the Supreme Court in Bell Atlantic v.Twombly, 550 U.S. 544 (2007) and Ashcroftv. Iqbal, 556 U.S. , 129 S. Ct. 1937 (2009),have greatly enhanced defense attorneys’ability to secure dismissal before a singlediscovery request is served. Under thenew standards, claims against parents on adirect participant liability theory are nowexcellent candidates for dismissal.Prior to Twombly and Iqbal, a complaintcould not be dismissed “for failure to statea claim unless it appears beyond doubtthat the plaintiff can prove no set of factsin support of his claim which would entitlehim to relief.” Conley v. Gibson, 351 U.S.41, 45 (1957). Under this standard, it was20 n <strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>July</strong> <strong>2010</strong>very easy to state a claim against a corporateparent, even if the complaint did nothingother than name the parent and makeconclusory allegations of liability. Oftentimes,a plaintiff would have little reasonto believe that the parent had actual liabilityand sued it as a matter of course inan effort to ensnare a deep- pocketed corporatedefendant. <strong>The</strong> strategy was to suefirst, ask questions later, and extract whateverleverage could be had by having theparent in the case.<strong>The</strong> old, permissive pleading standard,however, has been cast aside in the last fewyears. Under the new pleading standardsset forth in Twombly and Iqbal, to survivea motion to dismiss, it is not enough for acomplaint to allege facts that are merelycompatible with relief; instead, what isrequired “at the pleading stage [are] factualallegations plausibly suggesting (not merelyconsistent with)” an entitlement to relief.Twombly, 550 U.S. at 557 (emphasis supplied).Where a complaint only pleads factsthat are “‘merely consistent with’” liability,it “‘stops short of the line between possibilityand plausibility of entitlement to relief.’”Iqbal, 129 S. Ct. at 1949 (quoting Twombly,550 U.S. at 557). Under Twombly and Iqbal,if “the well-pleaded facts do not permit thecourt to infer more than the mere possibilityof misconduct, the complaint hasalleged—but it has not ‘show[n]’—‘that thepleader is entitled to relief’” and must bedismissed. Id. at 1950 (quotation omitted).In determining whether a complaintmeets this “plausibility standard,” Iqbal,129 S. Ct. at 1949, a court must disregard“‘legal conclusion[s] couched as factualallegation[s].’” Twombly, 550 U.S. at 555(quoting Papasan v. Allain, 478 U.S. 265,286 (1986)). Pleadings that “are no morethan mere conclusions [] are not entitled tothe assumption of truth.” Iqbal, 129 S. Ct. at1950. Under the old pleading regime, plaintiffscould file their complaint first andonly determine later in discovery whetherthey in fact had a claim against the defendants;now, under Twombly and Iqbal,“a plaintiff armed with nothing more thanconclusions” cannot “unlock the doors todiscovery.” Id.Application of Iqbal/Twomblyto Direct Participant ClaimsTo allege a non- conclusory claim of directparticipant liability in the context of anegligent care claim against a health careprovider, a plaintiff must assert specificfacts plausibly suggesting that (1) the parentowed a duty of care to the plaintiff; (2)the parent breached its duty by exertingan unusual or “eccentric” level of controlover its subsidiary; and (3) the parent specificallyauthorized or directed the conductthat allegedly caused harm or injuryto the plaintiff. Additionally the plaintiffmust plead facts plausibly suggesting thatthe alleged wrongful conduct proximatelycaused injury to the plaintiff.In addressing the issue of duty, defensecounsel should bear in mind the generalprinciple that a parent company does notowe a duty to third parties to superviseor control the conduct of its subsidiary toensure that the subsidiary acts with reasonablecare. See <strong>For</strong>syth, 864 N.E.2d at 236.In other words, the mere right or power tocontrol a subsidiary does not give rise to aduty to third parties. Id. In the health carecontext, a parent that has no involvementin the day-to-day operations of a subsidiary’shealth care facility, the provision ofcare to patients, or the control of medicalstaff generally owes no duty to patients atthe facility. Likewise, a holding companythat owns a facility or the real estate uponwhich a facility is located, without more,does not owe a duty of care to patients toensure that medical staff provides appropriatecare.Generic allegations that the parent exercisedbudgetary or financial control overa subsidiary or that dual officers directedpolicy or supervised the operations of afacility are also insufficient, without more,to state a viable cause of action againsta parent for direct participant liability.As noted in Bestfoods, such activities arewithin the norms of accepted corporatebehavior. Bestfoods, 524 U.S. at 71–72 (“[I]tcannot be enough to establish liability herethat dual officers and directors made policydecisions and supervised activities atthe facility.”). Instead, plaintiffs would haveto assert factual allegations demonstratingthat, with respect to the specific conduct atissue, a dual officer was in fact acting onbehalf of the parent and not on behalf ofthe subsidiary, in connection with the actor conduct alleged. While plaintiffs mayattempt to characterize customary bud-
getary or financial control, dual officer ordirector status, or supervision of operationsas somehow improper or part of anefarious plot by the defendants, defensecounsel should emphasize that such activitiesare within accepted corporate normsand are “consistent with the parent’s investorstatus.” Bestfoods, 524 U.S. at 72.Furthermore, in the context of claimsinvolving allegations that the parent exercisedcontrol over the business decisions orbudgetary strategy of a subsidiary, it shouldbe remembered that “mere budgetary mismanagementalone does not give rise to theapplication of direct participant liability.”<strong>For</strong>syth, 864 N.E.2d at 237. Accordingly,a plaintiff must allege that the parent specificallydirected or authorized budgetarydecisions in a manner inconsistent withthe normal parent/subsidiary relationship.Typically, complaints alleging direct participantliability against parents springingfrom budgetary oversight lack the requiredelements of both specificity and eccentricityof parental control required by the caselaw.More often, the complaint will simplyallege in conclusory fashion that the parentmade budgetary decisions that resultedin reductions in staff or in supervision ofpatients resulting in harm. Counsel shouldargue that such bald allegations are insufficientas a matter of law to state a claim fordirect participant liability because they donot describe an abnormal or eccentric levelof budgetary oversight specifically directedby the parent.Finally, in attacking the sufficiency of acomplaint alleging direct participant liability,defense counsel should pay specialattention to the required element of proximatecause. It is one thing for a plaintiffto generally allege that a parent corporationmade budgetary decisions, exercisedcontrol over policies and procedures, ortook other actions which, in the abstract,might potentially lead to understaffing, inadequateequipment, or the like. However,such generalized allegations of potentialharm are inadequate unless they are tiedto the specific incident or injury alleged.<strong>For</strong> example, where a patient suffers an unwitnessedfall, it is conceivable that the fallresulted from a lack of adequate staffing.Under the old pleading standard, a simpleconclusory allegation that the plaintiff felldue to inadequate staffing, and that the inadequatestaffing was related to the parent’sbudgetary decisions, would probably beenough to state a claim against a parent asa direct participant. However, under Iqbaland Twombly, such an allegation would be<strong>The</strong> Most Timesaving,plainly insufficient. At a minimum, thecomplaint would have to allege facts plausiblysuggesting that (1) a staffing shortageactually existed at the time of the accident;(2) the fall would not have occurred but forCost-Effective Source<strong>For</strong> <strong>The</strong> Best ExpertsExpert referralsin virtually allfields, includingunique specialtiesMost referrals madewithin 24 hoursIndependent Consultingand Testifying Expertsfor any stage of your caseFlexibility for budgetsof all sizesTechnical Advisory Service for Attorneys800-523-2319experts@tasanet.comwww.TASAnet.com<strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>July</strong> <strong>2010</strong> n 21
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