In a recent opinion, the New Mexico Court of Appeals refused to affirm a jury verdict finding that several affiliated entities qualified as either “joint venturers” or “joint employers.” See Wirth v. Sun Healthcare Grp., Inc., 2017-NMCA-007, 2016 N.M. App. LEXIS 94. The court’s analysis provides insight concerning a parent corporation’s exposure to liability under New Mexico law for the actions of a subsidiary entity’s employees.
Wirth involved a wrongful death suit, which arose from the death of a nursing home resident. The defendants in the case consisted of Peak Medical Assisted Living, LLC (“PMAL”) and three “upstream entities in its ownership chain.” Id., ¶ 1. PMAL was the wholly owned subsidiary of Peak Medical, LLC, which was the wholly owned subsidiary of SunBridge Healthcare, LLC, which was wholly owned by Sun Healthcare Group, Inc. After a six-day trial in the case, the jury concluded that all four entities were joint venturers and co-employers of the staff at the facility where the death occurred. Id., ¶ 2.
The upstream entities had apparently drafted policies for the staff at PMAL concerning employee conduct, patient care, and regulatory compliance. Id., ¶ 34. The Court of Appeals found nothing particularly troublesome about this course of conduct, and noted that “in New Mexico, limited liability is the rule and not the exception.” Id., ¶ 35. The court explained that “[s]tock ownership, as a matter of course, allows a parent to choose its subsidiary’s board of directors, make bylaws, and vote on general matters of corporate governance put forth by the board[;]” and that “it is hornbook law that the exercise of the control which stock ownership gives to the stockholders will not create liability beyond the assets of the subsidiary.” Id., ¶ 35.
In determining whether a joint venture existed between the companies, the Court of Appeals looked at whether there was an agreement in place to share profits and losses. Id., ¶¶ 36-37. The court found that it was not enough for a plaintiff to merely show that profits are later captured by parent corporations on the parent’s income statement. Id. Instead, there must be evidence that the parent corporation has also agreed to share in the subsidiary’s losses as well. The court found that the purpose of creating separate entities was to shelter the parent corporation from such losses. Id. As a result, an express joint venture agreement that shows that there is intent to share losses will likely be needed to establish liability for a parent corporation under a joint venture theory.
Similarly, the court refused to find that the defendants qualified as co-employers. In doing so, the court explained that while joint employment theories are recognized by some federal employment and labor statutes, even cases interpreting those statutes apply “a strong presumption that a parent company is not the employer of its subsidiary’s employees[.]” Id., ¶ 42 (citing Frank v. U.S. West, Inc., 3 F.3d 1357, 1362 (10th Cir. 1993)). Accordingly, it is clear that the Court of Appeals is giving credence to the purpose of the corporate structure.
This decision provides a ray of hope to corporations doing business in the state. The decision was issued in the wake of several attempts by federal administrative agencies in 2016 to expand the scope of liability for “joint employers” under various federal employment laws.