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American Protein Corp. v. Volvo

decided: April 8, 1988.


Appeal by AB Volvo, Volvo Lastvagnar AB, and Bo Lycke from an amended judgment entered in the United States District Court for the Southern District of New York by Judge Howard B. Turrentine on June 16, 1987 that awarded American Protein Corporation $3 million in damages assessed in varying amounts against the three appellants for breach of contract, tortious interference with contract, and negligent misrepresentation.

Newman, Cardamone, and Pierce, Circuit Judges.

Author: Cardamone

CARDAMONE, Circuit Judge:

We are presented on this appeal with the issue of when the contractual default of a subsidiary corporation may be visited upon its parents. The question takes on added importance because the parents are Swedish corporations without a presence in New York but nonetheless were held liable for the obligations of their New York subsidiary. Legal liability was fastened on one foreign parent in part because the corporate veil between it and its subsidiary was pierced. The primary liability of the parents was based on the fact that two of one parent's officers and directors -- also directors of the subsidiary -- came to New York and voted at the subsidiary's Board of Directors meeting to "wind down" the subsidiary's affairs, resulting in the subsidiary's default on a contract. Of course, it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary's acts. Here, other facts in addition to interlocking directorates are alleged.


A. Facts

This diversity case arises from the breach of a contract for the sale of edible dried blood derived from the slaughter of cattle and pork. Plaintiff, American Protein Corporation (American Protein), brought the instant action in the Southern District of New York against the defendants AB Volvo and Volvo Lastvagnar AB (Lastvagnar) (formerly Beijerinvest AB), Beijer Industries, Inc., and Bo Lycke.

American Protein is an Iowa corporation with its principal place of business at Lytton, Iowa. Defendant Volvo is Sweden's largest corporation, with its principal place of business in Gothenburg, Sweden. In May 1982 Volvo acquired Beijerinvest AB and changed its name to Volvo Lastvagnar AB which, operating as a wholly-owned subsidiary of Volvo, is located in Stockholm. Lastvagnar (f/k/a Beijerinvest) owns 100 percent of the stock of Beijer, Handel & Industri, a Swedish corporation which owns 100 percent of the stock of defendant Beijer Industries, Inc., a New York corporation. Beijer, Inc. -- also a New York corporation -- was, in turn, a wholly-owned subsidiary of Beijer Industries. Volvo is therefore the parent of all the members of the Beijer family of corporations.

Walter Lauridsen, an agronomist living in Iowa, had for 20 years been interested in utilizing the blood run-off from the slaughter of cattle and pork as a source of protein for humans. Over the years he had developed a concept of spray-drying the blood into a powdered form which, when combined with water, creates a bouillon-like food fit for human consumption. To effectuate his ideas, Mr. Lauridsen organized American Protein. In 1980 he contacted Beijer, Inc. with his idea. The principals of that company expressed interest in his project and invited him to New York City to discuss it further. There he met with defendant Lycke, president of Beijer, Inc., who, according to Lauridsen, told him that Beijer's Swedish parent would back a contract, take all of his output, and use its world-wide marketing capacity to distribute the dried blood product.

Prior to signing a contract Lauridsen asked for a written guarantee from Beijer, Inc.'s (great grand)parent corporation, Beijerinvest, for the performance of Beijer, Inc.'s obligation. Lycke told Lauridsen that no such guarantee could be given. Subsequently, on March 2, 1982 American Protein and Beijer, Inc. entered into a three-year, fixed price, outputs contract for the sale of edible dried blood. The agreement provided practically all of American Protein's business as Beijer, Inc. was to purchase the entire output of blood products from American Protein's Lytton, Iowa plant. Lauridsen put up his own and borrowed funds -- totalling nearly $1 million -- to convert an old dairy into a sanitary spray-drying plant capable of producing a product fit for human consumption and made commitments to buy the blood run-off from a slaughterhouse. The March 2d contract forms the basis of the instant action.

About two months after Beijer, Inc. contracted with American Protein -- on May 11, 1982 --Volvo purchased Beijerinvest and, therefore, the Beijer family of companies. After a number of months of performing the contract -- and continuously losing money -- Beijer, Inc. ran out of cash and stopped buying and paying for the dried blood product. On October 19, 1982 the Board of Directors of Beijer, Inc. met in New York and discussed the corporation's finances and business prospects. At the same meeting, the status of the dried blood project and Beijer, Inc.'s general marketing efforts were reviewed. As a result, the Board decided not to take on any new business, but instead voted to "wind down" Beijer, Inc.'s activities. All of the members of the Board -- Bo Lycke, as Beijer, Inc.'s president; Pehr Gyllenhammar, chief executive officer of Volvo; and Ulf Linden, another high ranking officer of Volvo -- were present.

On December 31, 1982 Lycke sold Beijer, Inc. to a company controlled by Lyster Carney, a former employee of Beijer, Inc. for $1,000 plus a $2 million note. Carney, in turn, went to Lauridsen and told him that if he would not renegotiate the blood products contract and take over the marketing function Carney would have to declare bankruptcy. Lauridsen attempted without success to obtain redress in Iowa against Carney's company.

B. Proceedings Below

American Protein then sued Volvo, Lastvagnar, and Lycke in the instant action. In a seven-count complaint filed in 1984 plaintiff sought recovery of damages from defendants Volvo, Lastvagnar, and Beijer Industries for breach of express written contract (Count I), from Volvo and Lastvagnar for breach of express oral contract (Count II), for breach of implied contract (Count III), for breach of an alleged quasi-contract (Count IV), and for tortious interference with contractual relations (Count V), and from defendant Lycke for fraud (Count VI) and negligent misrepresentation (Count VII).

The case was tried before district court Judge Howard B. Turrentine (formerly Chief Judge for the Southern District of California) and a jury from May 21 to May 26, 1987. At the close of the evidence the trial court dismissed the claim for quasi-contract (Count IV). It also dismissed the contract claims alleged in Counts I, II and III against Volvo. No cross-appeal has been taken by plaintiff from those dismissals. All the other claims were submitted to the jury. The jury returned a $3 million verdict for the plaintiff against Volvo for tortious interference with the contract (Count V), against Lastvagnar for breach of contract (Counts I, II and III) and for tortious interference (Count V), and against Lycke for negligent misrepresentation (Count VII), but not for fraud (Count VI). Beijer Industries, the parent of Beijer, Inc. was charged only in Count I and none of the damages awarded plaintiff were assessed against Beijer Industries. Compensatory damages were awarded plaintiff in the amount of $1 million against Volvo, $1.8 million against Lastvagnar and $200,000 against Lycke.

On May 29, 1987 all defendants moved unsuccessfully for judgment n.o.v. or, in the alternative, for a new trial. A judgment was entered on June 1, 1987 and an amended judgment was entered on June 16, 1987 that computed prejudgment interest in accordance with ...

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