Forsythe v. Clark USA Inc.

Docket No. 101570.

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

MARGUERITE FORSYTHE et al., Appellees, v. CLARK

USA, INC., Appellant.

Opinion filed February 16, 2007.

JUSTICE GARMAN delivered the judgment of the court, with

opinion.

Justices Fitzgerald and Karmeier concurred in the judgment and

opinion.

Justice Freeman specially concurred, with opinion, joined by

Justice Burke.

Chief Justice Thomas and Justice Kilbride took no part in the

decision.

OPINION

On March 13, 1995, Michael F. Forsythe and Gary Szabla,

mechanics at a refinery owned and operated by Clark Refining and

Marketing (Clark Refining), were killed. The estate of each decedent

received payment from Clark Refining pursuant to the Workers’

Compensation Act (820 ILCS 305/1 et seq. (West 2002)). In 1996

and 1997, plaintiffs Marguerite Forsythe and Elizabeth Szabla, as

special administrators of the estates of their late husbands, filed suits

against Clark Refining and other defendants. Subsequently, plaintiffs

added Clark Refining’s parent company, Clark USA, as a defendant.

Clark USA is the only defendant involved in this appeal. At the

close of discovery, the trial court granted Clark USA’s motion for

summary judgment pursuant to section 2–1005 of the Code of Civil

Procedure (735 ILCS 5/2–1005 (West 2002)). The trial court did not

state its reasoning. Plaintiffs appealed, and the appellate court

reversed and remanded. 361 Ill. App. 3d 642. Following that decision,

defendant petitioned this court for leave to appeal pursuant to

Supreme Court Rule 315 (177 Ill. 2d R. 315).

We granted defendant’s petition to consider two issues: first,

whether a parent company can be held liable under a theory of direct

participant liability for controlling its subsidiary’s budget in a way

that led to a workplace accident; second, if such a theory is

recognized, whether the exclusive-remedy provision of the Workers’

Compensation Act (820 ILCS 305/5 (West 2002)) immunizes a

parent company from liability.

BACKGROUND

Clark Refining operated an oil refinery in Blue Island, Illinois.

Defendant is Clark Refining’s parent company and sole shareholder.

On March 13, 1995, decedents were on their lunch break when a fire

broke out at the refinery, killing them both. The fire was apparently

caused when other Clark Refining employees attempted to replace a

valve on a pipe without ensuring that flammable materials within the

pipe had been depressurized. Plaintiffs claim that those employees

were not maintenance mechanics and were not trained or qualified to

perform the work they were attempting.

Plaintiffs’ allegations of liability center around defendant’s

overall budgetary strategy. Specifically, plaintiffs allege that

defendant breached a duty to use reasonable care in imposing its

business strategy on Clark Refining by (1) “requiring [Clark

Refining] to minimize operating costs including costs for training,

maintenance, supervision and safety,” (2) “requiring [Clark Refining]

to limit capital investments to those which would generate cash for

the refinery thereby preventing [Clark Refining] from adequately

reinforcing the walls of the lunchroom or relocating the lunchroom to

a safe position within the refinery,” and (3) “failing to adequately

-2-

evaluate the safety and training procedures in place at the Blue Island

Refinery.” Moreover, plaintiffs allege that defendant’s strategy of

capital cutbacks forced Clark Refining to have unqualified employees

act as maintenance mechanics which, in turn, led to the fire that killed

the decedents. This, plaintiffs argue, constitutes proximate cause.

In support of its motion for summary judgment, defendant

contended that it owed no duty to either decedent by virtue of its

status as a mere holding company, which was connected to Clark

Refining only as a shareholder. Defendant submitted evidence to

prove that Clark Refining owned and operated the refinery while

defendant itself had no control over the day-to-day operations.

Plaintiffs countered that defendant was directly responsible for

creating conditions that precipitated the accident.

In support of their argument, plaintiffs cited evidence that

defendant’s directors created and approved Clark Refining’s budget,

striving to “position itself as a low cost refiner and marketer” with the

goal of replenishing defendant’s cash reserve by “decreas[ing] capital

spending *** to minimum sustainable levels” through the institution

of a “survival mode” business plan. Plaintiffs also produced evidence

that the boards of directors of Clark Refining and defendant met

simultaneously. Moreover, plaintiffs relied upon evidence that the

belt-tightening budget created by Clark Refining was overseen by

Paul Melnuk, who served as defendant’s president as well as chief

executive officer of Clark Refining.

The trial court granted summary judgment without explanation.

Subsequently, plaintiffs appealed and the appellate court reversed and

remanded, rejecting a claim by defendant that it was entitled to

immunity under the Workers’ Compensation Act. The appellate court

held that “plaintiffs presented sufficient evidence to raise an issue of

material fact as to whether defendant directly participated in creating

conditions within the refinery which led to the deadly fire.” 361 Ill.

App. 3d at 655. One justice dissented, finding that plaintiffs presented

no evidence of separate acts, attributable solely to defendant, by

which defendant directly caused the injuries in this case. 361 Ill. App.

3d at 658 (McNulty, J., dissenting).

-3-

ANALYSIS

Section 2–1005 of the Code of Civil Procedure provides for

summary judgment when the pleadings, depositions, and admissions

on file, together with any affidavits, show that there is no genuine

issue as to any material fact such that the moving party is entitled to

a judgment as a matter of law. 735 ILCS 5/2–1005 (West 2002). The

purpose of summary judgment is not to try a question of fact but

simply to determine if one exists. Robidoux v. Oliphant, 201 Ill. 2d

324, 335 (2002). In reviewing a summary judgment disposition, this

court will construe the record strictly against the movant and liberally

in favor of the nonmoving party. Jackson v. TLC Associates, Inc., 185

Ill. 2d 418, 423-24 (1998). Moreover, it must be noted that summary

judgment dispositions “should not be allowed unless the moving

party’s right to judgment is clear and free from doubt.” Jackson, 185

Ill. 2d at 424. If the undisputed material facts could lead reasonable

observers to divergent inferences, or where there is a dispute as to a

material fact, summary judgment should be denied and the issue

decided by the trier of fact. Jackson, 185 Ill. 2d at 424. This court

reviews a grant of summary judgment de novo. Roth v. Opiela, 211

Ill. 2d 536, 542 (2004).

I. Direct Participant Liability

To state a cause of action for negligence, plaintiffs must show that

defendant owed and breached a duty of care, proximately causing the

plaintiffs injury. Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill.

2d 107, 114 (1995). The threshold issue in this case is the existence

of a duty, which is a question of law for the court to decide. Chandler

v. Illinois Central R.R. Co., 207 Ill. 2d 331, 340 (2003). As we have

recently stated, the “touchstone of this court’s duty analysis is to ask

whether a plaintiff and a defendant stood in such a relationship to one

another that the law imposed upon the defendant an obligation of

reasonable conduct for the benefit of the plaintiff.” Marshall v.

Burger King Corp., 222 Ill. 2d 422, 436 (2006), citing Happel v. Wal-

Mart Stores, Inc., 199 Ill. 2d 179, 186 (2002). Four factors inform

this inquiry: (1) the reasonable foreseeability of injury, (2) the

likelihood of injury, (3) the magnitude of the burden of guarding

against the injury, and (4) the consequences of placing the burden

upon the defendant. Marshall, 222 Ill. 2d at 436-37.

-4-

Before undertaking our analysis, we note, as did the parties and

the appellate court, that the theory of direct participant liability

presented here has not previously been addressed in Illinois. It has

been addressed in other states and throughout the federal courts,

however. We will consider this authority where appropriate in our

analysis.

Plaintiffs argue that defendant demanded Clark Refining operate

its refinery pursuant to an overall business strategy that it knew would

adversely affect safety by forcing reductions in training and

maintenance. Indeed, plaintiffs contend that defendant actively and

directly mandated unreasonable cuts in Clark Refining’s budget in

order to carry out its strategy. This strategy was outlined in Clark

USA business records calling for a “survival mode” business

philosophy accomplished through “reduced capital spending,”

“reduced working capital investment,” and “reduced operating

expense level.” Plaintiffs allege that this “survival mode” strategy

was mandated, despite the fact that defendant knew or should have

known that the only feasible budget cuts would come from safety,

maintenance, and training expenses. This, plaintiffs’ conclude,

constitutes direct participation by defendant in the harm caused. As

such, plaintiffs contend the appellate court correctly found that

defendant owed them a duty based on the direct participant theory and

not on the legal relationship of defendant to its subsidiary.

Defendant contends that unless the standards for piercing the

corporate veil are met, a parent company cannot be held liable for the

negligence of its subsidiary. Attendant to that rule is the principle that

a parent company does not owe a duty to third parties to supervise or

control the conduct of its subsidiary to ensure that the subsidiary acts

with reasonable care. Clark Refining owed a nondelegable duty to its

employees to provide them with a safe workplace while defendant, as

a parent, owed no duty whatsoever to ensure that Clark Refining met

its obligations.

Additionally, even if direct liability is a recognized theory of

recovery, defendant argues that the simple task of setting financial

goals and employing an overall strategy to meet those goals is not

improper but, instead, is “consistent with the parent’s investor status”

and thus “should not give rise to direct liability.” United States v.

Bestfoods, 524 U.S. 51, 69, 141 L. Ed. 2d 43, 62, 118 S. Ct. 1876,

-5-

1889 (1998). Because its conduct was always consistent with its

investor status, defendant claims, there is no basis to treat it as a

direct participant in the negligence alleged herein.

While the Supreme Court has held that “[i]t is a general principle

*** deeply ‘ingrained in our economic and legal systems’ that a

parent corporation *** is not liable for the acts of its subsidiaries”

(Bestfoods, 524 U.S. at 61, 141 L. Ed. 2d at 55-56, 118 S. Ct. at 1884,

quoting W.O. Douglas & C. Shanks, Insulation from Liability

Through Subsidiary Corporations, 39 Yale L.J. 193 (1929)), a

significant body of case law supports the direct participant theory of

liability urged by the plaintiffs. Some of that authority relies on the

1929 article quoted above and written, in relevant part, by then-

Professor William O. Douglas.

Douglas noted that liability has been imposed in “instances where

the parent is directly a participant in the wrong complained of.” 39

Yale L.J. at 208. In such instances, “the use of the latent power

incident to stock ownership to accomplish a specific result made the

parent a participator in or doer of the act,” specifically evident where

“there was interference in the internal management of the subsidiary;

an overriding of the discretion of the managers of the subsidiary.” 39

Yale L.J. at 209. Douglas stated further that “direct intervention or

intermeddling by the parent in the affairs of the subsidiary and more

particularly in the transaction involved, to the disregard of the normal

and orderly procedure of corporate control carried out through the

election of the desired directors and officers of the subsidiary and the

handling by them of the direction of its affairs, seems to have been

determinative in some cases to holding the parent liable.” 39 Yale L.J.

at 218.

The United States Supreme Court quoted the Douglas & Shanks

article approvingly in Bestfoods, 524 U.S. at 64-65, 141 L. Ed. 2d at

58, 118 S. Ct. at 1886 (“As Justice (then-Professor) Douglas noted

almost 70 years ago, derivative liability cases are to be distinguished

from those in which ‘the alleged wrong can seemingly be traced to the

parent through the conduit of its own personnel and management’ and

‘the parent is directly a participant in the wrong complained of.’

[Citation.] In such instances, the parent is directly liable for its own

actions”). The Court noted that the simple fact that directors of a

parent corporation serve as directors of its subsidiary does not,

-6-

standing alone, expose the parent corporation to liability for its

subsidiary’s acts. Bestfoods, 524 U.S. at 69-70, 141 L. Ed. 2d at 60-

61, 118 S. Ct. at 1888. The Court went on to state, however, that “the

acts of direct operation that give rise to parental liability must

necessarily be distinguished from the interference that stems from the

normal relationship between parent and subsidiary,” and “[t]he

critical question is whether, in degree and detail, actions directed to

the facility by an agent of the parent alone are eccentric under

accepted norms of parental oversight of a subsidiary’s facility.”

Bestfoods, 524 U.S. at 71-72, 141 L. Ed. 2d at 62, 118 S. Ct. at 1889.

Similarly, in Esmark, Inc. v. National Labor Relations Board, 887

F.2d 739 (7th Cir. 1989), the Seventh Circuit, in a case dealing with

a potential violation of the National Labor Relations Act, cited

Douglas & Shanks’ article extensively and noted that Judge Learned

Hand also recognized that a parent corporation could be held liable

for the actions of its subsidiaries if the parent directly supervised the

conduct of a specific transaction. In Kingston Dry Dock Co. v. Lake

Champlain Transportation Co., 31 F.2d 265, 267 (2d Cir. 1929),

Judge Hand wrote that such liability “normally must depend upon the

parent’s direct intervention in the transaction, ignoring the

subsidiary’s paraphernalia of incorporation, directors and officers.”

Relying on that authority, the Seventh Circuit held that “a parent

corporation may be held liable for the wrongdoing of a subsidiary

where the parent directly participated in the subsidiary’s unlawful

actions.” Esmark, 887 F.2d at 756.

Moreover, the court held that “[w]here the parent specifically

directs the actions of its subsidiary, using its ownership interest to

command rather than merely cajole” the possibility of direct liability

is present and will be imposed “where a parent disregards the separate

legal personality of its subsidiary (and the subsidiary’s own

decisionmaking ‘paraphernalia’), and exercises direct control over a

specific transaction.” Esmark, 887 F.2d at 757. The court described

this as a “transaction-specific” theory of direct participation, citing

numerous cases where parent companies have been held liable for

misconduct by their subsidiaries. Esmark, 887 F.2d at 756 (collecting

cases); see, e.g., L.B. Industries, Inc. v. Smith, 817 F.2d 69, 71 (9th

Cir. 1987) (per curiam); United States v. Sutton, 795 F.2d 1040, 1060

(Temp. Emer. Ct. App. 1986) (“A shareholder may be liable if he is

-7-

a ‘central figure’ in a corporation’s tortious conduct”); Cher v. Forum

International, Ltd., 692 F.2d 634, 640 (9th Cir. 1982); D.L. Auld Co.

v. Park Electrochemical Corp., 553 F. Supp. 804, 808 (E.D.N.Y.

1982) (denying summary judgment in favor of the defendant where

the plaintiff presented a claim that the defendant participated in the

patent infringement perpetrated by its subsidiary); International

Union, United Auto Workers v. Cardwell Manufacturing Co., 416 F.

Supp. 1267, 1283-84, 1287-89 (D. Kan. 1976) (court found a parent

liable for breach of bargaining agreement by subsidiary where parent

specifically directed the subsidiary to disregard obligations under the

NLRA); State v. Ole Olsen, Ltd., 35 N.Y.2d 979, 980, 365 N.Y.S.2d

528, 528-29, 324 N.E.2d 886, 886 (1975) (holding a corporate officer

liable not on account of his being an officer of the corporate

defendant but as an active individual participant in the wrongdoing);

Cooper v. Cordova Sand & Gravel Co., 485 S.W.2d 261, 271-72

(Tenn. App. 1971); My Bread Baking Co. v. Cumberland Farms, Inc.,

353 Mass. 614, 619, 233 N.E.2d 748, 752 (1968) (holding that while

common ownership and management will not ordinarily give rise to

liability, liability may be imposed where there is active and direct

participation by one corporation in the affairs of another or where

there is “confused intermingling” of the activities of the two

corporations); Crescent Manufacturing Co. v. Hansen, 174 Wash.

193, 198, 24 P.2d 604, 606 (1933). Under this “transaction-specific”

theory, shareholders or parent corporations are not held directly liable

for their own independently wrongful acts but, instead, for their

actions against third-party interests through the agency of

subsidiaries. Esmark, 887 F.2d at 756. Accordingly, the court held

that a parent corporation can be liable for interposing a guiding hand

in the transactions of its subsidiary. Esmark, 887 F.2d at 756.

Plaintiffs also cite other cases approving of direct liability. In

Papa v. Katy Industries, Inc., 166 F.3d 937, 941 (7th Cir. 1999), the

Seventh Circuit, again interpreting the National Labor Relations Act,

evinced its continuing support for direct participant liability when it

cited Esmark, Bestfoods, and Kingston Dry Dock to state “that limited

liability does not protect a parent corporation when the parent is

sought to be held liable for its own act, rather than merely as the

owner of the subsidiary that acted.” Similarly, in Pearson v.

Component Technology Corp., the Third Circuit, interpreting federal

-8-

law, stated that “[a]lthough not often employed *** it has long been

acknowledged that parents may be ‘directly’ liable for their

subsidiaries’ actions when the ‘alleged wrong can seemingly be

traced to the parent through the conduit of its own personnel and

management,’ and the parent has interfered with the subsidiary’s

operations in a way that surpasses the control exercised by a parent as

an incident of ownership.” Pearson, 247 F.3d 471, 486-87 (3d Cir.

2001), citing Bestfoods, 524 U.S. at 64, 141 L. Ed. 2d at 58, 118 S.

Ct. at 1886, quoting 39 Yale L.J. at 207. Likewise, in Boggs v. Blue

Diamond Coal Co., 590 F.2d 655, 663 (6th Cir. 1979), the Sixth

Circuit, interpreting Kentucky law, implicitly indicated its recognition

of direct liability when it stated that “a parent is not immune from tort

liability to its subsidiary employees for its own, independent acts of

negligence.”

The Indiana Supreme Court, in Commissioner of Department of

Environmental Management v. RLG, Inc., 755 N.E.2d 556, 559, 563

(Ind. 2001), also accepted direct participant liability when it held a

defendant’s sole officer and shareholder liable for violations of

Indiana environmental laws and stated that “an individual, though

acting in a corporate capacity *** may be individually liable *** as

a direct participant under general legal principles.” Additionally, the

Iowa Supreme Court accepted a direct participant theory of liability

when it held that a member of a limited liability corporation could be

sued because it had undertaken to perform management services for

the corporation and allegedly performed those services negligently.

Estate of Countryman v. Farmers Cooperative Ass’n, 679 N.W.2d

598, 605 (Iowa 2004). Other courts have also accepted the theory of

direct participant liability. See, e.g., United States v. TIC Investment

Corp., 68 F.3d 1082, 1091 n.9 (8th Cir. 1995) (interpreting the

Comprehensive Environmental Response, Compensation, and

Liability Act, the court held that “a parent corporation may be directly

liable for activities carried out ostensibly by its subsidiary if the

parent corporation, in effect, actually operated the subsidiary’s facility

by having the authority to control and actually or substantially

controlling the facility”); United States v. Kayser-Roth Corp., 910

F.2d 24, 27 (1st Cir. 1990) (parent corporation can be held directly

liable if actively involved in the affairs of its subsidiary); Dassault

Falcon Jet Corp. v. Oberflex, Inc., 909 F. Supp. 345, 347, 354

-9-

(M.D.N.C. 1995) (direct participant liability could be maintained

against a parent company for breach of warranty). Taken together,

these cases make evident the substantial weight of authority

supporting recognition of this theory of liability.

In opposition to plaintiffs’ theory, defendant contends that a

parent corporation owes no duty to supervise its subsidiary’s conduct

for the benefit of third parties. Defendant cites Young v. Bryco Arms,

213 Ill. 2d 433, 452 (2004), where this court noted its recognition of

the general rule that “one has no duty to control the conduct of

another to prevent him from causing harm to a third party, absent a

special relationship with either the person causing the harm or the

injured party.” Building on that point, defendant argues that courts

have uniformly rejected the argument that the parent-subsidiary

relationship qualifies as the kind of “special relationship” necessary

to give rise to a duty to supervise or control the conduct of the

subsidiary. In re Birmingham Asbestos Litigation, 619 So. 2d 1360

(Ala. 1993). Supporting this contention, defendant cites Joiner v.

Ryder System Inc., 966 F. Supp. 1478 (C.D. Ill. 1996), where the

district court applied Illinois law and concluded that a duty could not

be predicated either on the parent’s ability to control its subsidiary or

on its actual exercise of control:

“RSI–as every parent corporation does–obviously has the

power to control its subsidiaries. In fact, RSI owns them and

RSI can ‘force’ them to do anything it wants. That power, by

itself, however, does not impose a duty upon RSI. Only if RSI

abused the power–by exerting too much control–could it be

held liable for the conduct of its subsidiaries as an alter ego.”

Joiner, 966 F. Supp. at 1490.

Additionally, defendant contends that direct participant claims

virtually identical to those raised here were rejected by two state

appellate decisions, one from Texas and one from California. In

Coastal Corp. v. Torres, 133 S.W.3d 776 (Tex. App. 2004), refinery

employees injured in an explosion brought a negligence action against

the refinery’s parent company. The employees alleged that “ ‘through

central budgetary authority exercised by Coastal’s corporate officers

*** Coastal *** assumed control over maintenance, turnaround, and

inspection matters at the plant,’ ” limited expenditures, and

“controlled and influenced its subsidiary in a way that directly

-10-

resulted in appellees’ injuries.” Coastal Corp., 133 S.W.3d at 777,

779. The Coastal Corp. court noted that the plaintiffs in that case

alleged “negligent control of the budget, not negligent control over

details of specific operational activities,” and eventually found that

the parent company had no duty as a matter of Texas law to “approve

budgets for its subsidiaries in order to assure that the subsidiaries

repair defects on their premises.” Coastal Corp., 133 S.W.3d at 779,

782.

Similarly, in Waste Management Inc. v. Superior Court of San

Diego, 69 Cal. Comp. Cas. 759 (2004), plaintiffs brought an action

against a parent company for negligently controlling its subsidiary’s

budget such that the subsidiary was prevented from replacing and

repairing trash trucks. The court recognized direct participant liability

and stated that “the parent may owe a duty arising out of obligations

independent of the parent subsidiary relationship.” Waste

Management., 69 Cal. Comp. Cas. at 762. The court went on to hold,

however, that “[n]egligently controlling or intentionally mismanaging

a subsidiary’s budget does not create a duty on the part of the parent

corporation to ensure safety or prevent injuries to the subsidiary’s

employees.” Waste Management, 69 Cal. Comp. Cas. at 763.

As defendant points out, Coastal Corp. and Waste Management

stand for the proposition that mere budgetary mismanagement is not

enough to support direct participant liability. Additionally, however,

the Coastal Corp. court noted that “it is apparent that liability is

imposed when there is specific control over the activity that caused

the accident.” Coastal Corp., 133 S.W.3d at 779. Similarly, the Waste

Management court stated that the plaintiffs’ case failed because they

could not show that the parent company “directed and authorized the

manner in which the subsidiary conducted its business.” (Emphasis

in original). Waste Management, 69 Cal. Comp. Cas. at 763. In other

words, these courts found that a viable claim of liability under the

direct participant theory cannot rest solely upon budgetary

mismanagement, but budgetary mismanagement can make up one

part of a viable claim, in conjunction with the direction or

authorization of the manner in which an activity is undertaken. The

Joiner decision echoes this sentiment. There, the court granted

summary judgment in favor of the parent/defendant, noting

significantly that the parent/defendant did “not get involved in the

-11-

day-to-day activities or management of the subsidiaries.” Joiner, 966

F. Supp. at 1490. Based upon this analysis, we conclude that

budgetary mismanagement, accompanied by the parent’s negligent

direction or authorization of the manner in which the subsidiary

accomplishes that budget, can lead to a valid cause of action under

the direct participant theory of liability.

Considering the above, we hold that direct participant liability is

a valid theory of recovery under Illinois law. Where there is evidence

sufficient to prove that a parent company mandated an overall

business and budgetary strategy and carried that strategy out by its

own specific direction or authorization, surpassing the control

exercised as a normal incident of ownership in disregard for the

interests of the subsidiary, that parent company could face liability.

The key elements to the application of direct participant liability,

then, are a parent’s specific direction or authorization of the manner

in which an activity is undertaken and foreseeability. If a parent

company specifically directs an activity, where injury is foreseeable,

that parent could be held liable. Similarly, if a parent company

mandates an overall course of action and then authorizes the manner

in which specific activities contributing to that course of action are

undertaken, it can be liable for foreseeable injuries. We again stress,

though, that allegations of mere budgetary mismanagement alone do

not give rise to the application of direct participant liability.

Our finding is supported by the policy-based factors courts use to

determine whether a duty exists. Marshall v. Burger King Corp., 222

Ill. 2d at 436-37 (the factors are (1) the reasonable foreseeability of

injury, (2) the likelihood of injury, (3) the magnitude of the burden of

guarding against the injury, and (4) the consequences of placing the

burden upon the defendant). Certain heavy industries, like refining,

inherently involve a great amount of danger. It is conceivable that

severe cutbacks in staffing, safety, maintenance, and training in such

industries could lead, with reasonable foreseeability, to the injury of

others. The likelihood of injury in those circumstances would not be

remote and could be deadly. Additionally, the magnitude of the

burden of guarding against such injury would not be great. Parent

companies are free to craft overall business and budgetary strategies;

such companies simply must not interfere directly in the manner their

subsidiaries undertake certain activities such that the subsidiaries are

-12-

no longer free to utilize their own expertise. Alternatively, if parent

companies do interfere directly in the manner their subsidiaries

undertake certain activities, they must do so with reasonable care.

Finally, it is not an undue burden to require that parent corporations

engage in the considered exercise of due care in an already limited

role. As we have already acknowledged, parent corporations are

generally not liable for the acts of their subsidiaries. Bestfoods, 524

U.S. at 61, 141 L. Ed. 2d at 55-56, 118 S. Ct. at 1884, quoting 39

Yale L.J. 193 (1929). Moreover, the mere fact of a parent-subsidiary

relationship, without a great deal more, does not give rise to liability.

Bestfoods, 524 U.S. at 61, 141 L. Ed. 2d at 56, 118 S. Ct. at 1884,

quoting 1 W. Fletcher, Cyclopedia of Law of Private Corporations

§33, at 568 (rev. ed. 1990).

This court has repeatedly and consistently highlighted the point

that it is “axiomatic that every person owes to all others a duty to

exercise ordinary care to guard against injury which naturally flows

as a reasonably probable and foreseeable consequence of his act.”

Frye v. Medicare-Glaser Corp., 153 Ill. 2d 26, 32 (1992), quoting

Nelson v. Union Wire Rope Corp., 31 Ill. 2d 69, 86 (1964); see also

Mt. Zion State Bank & Trust v. Consolidated Communications, Inc.,

169 Ill. 2d 110, 124 (1995); Widlowski v. Durkee, 138 Ill. 2d 369, 373

(1990); Feldscher v. E & B, Inc., 95 Ill. 2d 360, 368-69 (1983).

Recognizing that a parent company may have a duty based upon

direct participant liability does not end the analysis though. Certain

facts must still be present to give rise to its application.

II. Direct Participant Liability Applied

Returning to the specific issue in this case, we must resolve

whether there exists a question of material fact such that the evidence

presented could lead a reasonable observer to believe that defendant’s

overall business and budgetary strategy involved the negligent

direction or authorization of the manner in which Clark Refining

conducted its business. If so, the trial court’s grant of summary

judgment was inappropriate.

Defendant’s overall business strategy at the time of the tragic

accident involved here mandated increased productivity driven, at

least in part, by budgetary cuts. The question remains, though,

-13-

whether those cuts were negligently directed by or conducted in a

manner authorized by defendant at the expense of Clark Refining.

Answering this question requires a close look at the role of

defendant’s president, Paul Melnuk, who also served as chief

executive officer of Clark Refining.

In Bestfoods, the Supreme Court pointed out that lower courts

must “recognize that ‘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.’ ” Bestfoods, 524 U.S. at 69, 141 L. Ed. 2d at 60,

118 S. Ct. at 1888, citing American Protein Corp. v. AB Volvo, 844

F.2d 56, 57 (2d Cir. 1988). The Court acknowledged the “ ‘well

established principle [of corporate law] that directors and officers

holding positions with a parent and its subsidiary can and do “change

hats” to represent the two corporations separately, despite their

common ownership.’ ” Bestfoods, 524 U.S. at 69, 141 L. Ed. 2d at 61,

118 S. Ct. at 1888, citing Lusk v. Foxmeyer Health Corp, 129 F.3d

773, 779 (5th Cir. 1997). Further, the Court noted that it should be

presumed that directors are wearing their “subsidiary hats,” rather

than their “parent hats,” when acting for the subsidiary. Bestfoods,

524 U.S. at 69, 141 L. Ed. 2d at 61, 118 S. Ct. at 1888.

Accordingly, to establish liability, plaintiffs must establish more

than the fact that Paul Melnuk made policy decisions and supervised

subsidiary activities. Bestfoods, 524 U.S. at 69, 141 L. Ed. 2d at 61,

118 S. Ct. at 1888. Instead, plaintiffs must show that the conduct

complained of occurred while Paul Melnuk was acting in his capacity

as an officer of Clark USA, rather than as an officer of Clark

Refining. Bestfoods, 524 U.S. at 69, 141 L. Ed. 2d at 61, 118 S. Ct.

at 1888. In attempting to do so, plaintiffs point to additional language

from Bestfoods, where the Court stated that “the presumption that an

act is taken on behalf of the corporation for whom the officer claims

to act is strongest when the act is perfectly consistent with the norms

of corporate behavior, but wanes as the distance from those accepted

norms approaches the point of action by a dual officer plainly

contrary to the interests of the subsidiary yet nonetheless

advantageous to the parent.” Bestfoods, 524 U.S. at 70 n.13, 141 L.

Ed. 2d at 61 n.13, 118 S. Ct. at 1888 n.13.

Seizing upon that language, plaintiffs point to the April 1995

-14-

“Memorandum to the Executive Committee,” prepared by Paul

Melnuk, completed on Clark USA letterhead, and including a

document entitled “1995 Economic Imperatives.” Moreover,

plaintiffs point to another Clark USA business record, the agenda for

the February 15, 1995, board of directors meeting, which includes a

section entitled “Clark USA Liquidity Overview.” That document

lays out a “survival mode” business philosophy marked by “reduced

capital spending,” “reduced working capital investment,” and

“reduced operating expense level.” The document further states that

the “goal is to replenish [defendant’s] strategic cash reserve to $200

million.” Defendant’s continued emphasis on this goal is supported

by the “1995 Economic Imperatives,” one of which was to

“[r]eplenish cash balance to 200 million” by reducing capital

spending to “minimum sustainable levels.” Relying on this, plaintiffs

contend that the business and budgetary strategy defendant mandated

in this case was carried out for its own benefit at the foreseeable

expense of safety and spending at Clark Refining and at the direction

of Paul Melnuk. As such, the only benefit of the business and

budgetary strategy involved in this case ran to defendant and not

Clark Refining. This, plaintiffs argue, proves that Paul Melnuk was

acting not on behalf of Clark Refining but, instead, on behalf of Clark

USA.

In opposition, defendant cites the testimony of Paul Melnuk

himself where he claims that the 1995 Imperatives, though completed

on defendant’s letterhead, were actually carried out for Clark

Refining. Additionally, defendant notes that the 1995 Imperatives

include discussion of the continuing need to spend on necessary

health and safety as well as ensure that all existing environmental,

health, and safety needs are fully supported.

At the very least, there is a genuine issue of material fact as to

whose “hat” Melnuk was wearing when he completed the 1995

memorandum. If the fact-finder concludes that Melnuk was acting on

behalf of defendant and thus wearing his Clark USA “hat,” there is

some evidence that he was directing or authorizing the manner in

which Clark Refining’s budget was implemented such that he had a

duty, under the direct participant theory of liability, to do so with

reasonable care. The additional evidence produced by plaintiffs

indicating that Melnuk knew both that the budgetary reductions

-15-

involved here had to come in large part from controllable costs such

as education, training, repairs, and equipment maintenance, and that

these reductions were compromising safety at the refinery raises an

issue of material fact as to whether or not defendant breached that

duty. The trial court’s grant of summary judgment was therefore

inappropriate.

If Paul Melnuk, acting on behalf of defendant, directed or

authorized the manner in which the budget cuts in this case were

taken, he had a duty to do so in a nonnegligent way. If Melnuk

directed or authorized the manner in which the budget cuts at issues

were taken, knowing that safety at the Blue Island refinery would be

compromised, and did so superseding the discretion and interest of

Clark Refining, direct participant liability could attach. Determining

whether this duty applies to the facts of this case, and whether

defendant is liable, involves factual inquiry. See, e.g., O’Hara v. Holy

Cross Hospital, 137 Ill. 2d 332, 342-44 (1990) (this court held that

whether or not a hospital had a duty to protect a nonpatient invited

into an emergency room involved a factual inquiry into whether the

nonpatient was invited to participate in the care and treatment of the

patient and thus summary judgment in favor of hospital was

inappropriate). This inquiry is not suitable for this court on review

and not appropriate for disposition at summary judgment, especially

considering that this court must interpret the record strictly against the

moving party and liberally in favor of the nonmoving party. Jackson,

185 Ill. 2d at 423-24.

III. Immunity Under the Illinois Workers’ Compensation Act

Having found that direct participant liability is a potentially valid

theory of recovery in this case, and that a genuine issue of material

fact exists as to its application, we still must analyze the exclusive

remedy provision of the Workers’ Compensation Act (820 ILCS

305/5(a) (West 2002)). Defendant claims that, even if it were found

liable under the direct participant theory, the exclusivity provision

renders it immune. The provision, found in section 5(a) of the Act,

provides:

“No common law or statutory right to recover damages

from the employer *** for injury or death sustained by any

-16-

employee while engaged in the line of his duty as such

employee, other than the compensation herein provided, is

available to any employee who is covered by the provisions

of this Act ***.” 820 ILCS 305/5(a) (West 2002).

This provision serves a balancing function. On the one hand, the Act

establishes a new “system of liability without fault, designed to

distribute the cost of industrial injuries without regard to common-

law doctrines of negligence, contributory negligence, assumption of

risk, and the like.” Gannon v. Chicago, Milwaukee, St. Paul & Pacific

Ry. Co., 13 Ill. 2d 460, 463 (1958). On the other hand, the Act

imposes “statutory limitations upon the amount of the employee’s

recovery, depending upon the character and the extent of the injury”

and provides “that the statutory remedies under it shall serve as the

employee’s exclusive remedy if he sustains a compensable injury.”

McCormick v. Caterpillar Tractor Co., 85 Ill. 2d 352, 356 (1981).

Defendant asserts that plaintiffs’ theory of liability in this case

should be treated no differently than a conventional veil-piercing

theory, contending that plaintiffs’ claim has to be that the parent

company interfered to such an extent in the subsidiary’s business that

it should be treated as if it were the subsidiary. In that situation,

defendant continues, the parent company has become the

subsidiary/employer and should be subject to the same burdens and

entitled to the same protections a subsidiary/employer would have

under the Workers’ Compensation Act. See Kotecki v. Cyclops

Welding Corp., 146 Ill. 2d 155 (1991) (holding that a third party sued

by an employee injured in a workplace accident can bring a

contribution claim against the employer, but that the employer’s

liability is limited to the amount it would be required to pay under the

Workers’ Compensation Act).

We reject this argument. Direct participant liability, as we now

recognize it, does not rest on piercing the corporate veil such that the

liability of the subsidiary is the liability of the parent. On the contrary,

this form of liability is asserted, as its name suggests, for a parent’s

direct participation, superseding the discretion and interest of the

subsidiary, and creating conditions leading to the activity complained

of. Here, plaintiffs claim that defendant directly participated in

creating conditions within the Blue Island refinery that led to the fire

by directing or authorizing the manner in which Clark Refining’s

-17-

cost-cutting budget was instituted with no regard for the discretion

and interest of Clark Refining itself.

In essence, defendant is requesting that it be allowed to pierce its

own corporate veil in order to avoid liability. Illinois courts have

consistently expressed reluctance for allowing such a practice. See In

re Rehabilitation of Centaur Insurance Co., 158 Ill. 2d 166, 173-74

(1994) (citing with approval the principle that the general law

mandates that piercing must never be made in favor of a corporation

or its shareholders); Main Bank of Chicago v. Baker, 86 Ill. 2d 188,

206 (1981) (stating that a party “cannot assert the equitable doctrine

of piercing the corporate veil to disregard the separate corporate

existence of a corporation he himself created to gain an advantage

which would be lost under his present contention”); see Hughey v.

Hoffman Rosner Corp., 109 Ill. App. 3d 633, 636 (1982); Schmidt v.

Milburn Brothers, Inc., 296 Ill. App. 3d 260, 267 (1998). The

appellate court in this case recognized this point when it rejected

defendant’s attempt “to have its cake and eat it too: asserting, on the

one hand, that it was merely a shareholder in arguing that it owed no

duty to the decedents, while, at the same time, attempting to invoke

the Act’s grant of immunity by characterizing itself as the decedents’

employer.” 361 Ill. App. 3d at 651-52.

In Schmidt, this point was made particularly clear. That case

involved a plaintiff injured in a collision with a driver who worked

for a company loosely affiliated with the defendant, plaintiff’s own

employer. The defendant in the case asserted the protection of the

exclusive remedy provision of the Workers’ Compensation Act. The

court was not persuaded, stating that:

“[I]f defendants are right, [defendant] pays nothing for the

negligence of its driver– no workers’ compensation

premiums, no workers’ compensation benefits, no tort

liability. That would turn the exclusive remedy provision of

the [Workers’ Compensation Act] into a sword, instead of a

shield. No useful societal purpose would be served.

[Defendant] would receive all the benefits the law provides to

a separate and distinct corporate body with none of the usual

detriments ***.” Schmidt, 296 Ill. App. 3d at 269.

We agree with this analysis. It was Clark Refining, not defendant,

who paid workers’ compensation benefits to the decedents’ families.

-18-

It was Clark Refining, not defendant, who actually employed the

decedents. As such it is Clark Refining, not Clark USA, that should

enjoy the exclusive remedy provision of the Workers’ Compensation

Act. We decline to allow Clark USA to pierce its own corporate veil.

Accordingly, the Workers’ Compensation Act does not immunize

defendant from liability.

CONCLUSION

Drawing no ultimate conclusions on the merits of plaintiffs’ case

and mindful that summary judgment is an extraordinary remedy,

summary judgment was inappropriate in this matter. We recognize

the direct participant theory of liability. We note, however, that this

theory of liability gives rise to a duty only in limited circumstances.

Budgetary oversight alone is insufficient, as is a parent company’s

commission of acts consistent with its investor status.

If there is sufficient evidence to show that a parent corporation

directed or authorized the manner in which an activity is undertaken,

however, a duty arises. Specifically, the duty to utilize reasonable care

in directing or authorizing the manner in which that activity is

undertaken. Accordingly, a parent corporation can be held liable if,

for its own benefit, it directs or authorizes the manner in which its

subsidiary’s budget is implemented, disregarding the discretion and

interests of the subsidiary, and thereby creating dangerous conditions.

In such situations, parent-defendants will not be protected by the

exclusive remedy provision of the Workers’ Compensation Act.

For these reasons, we affirm the appellate court’s reversal of the

trial court’s grant of summary judgment and its remand of the cause

to the circuit court for further proceedings.

Affirmed.

CHIEF JUSTICE THOMAS and JUSTICE KILBRIDE took no

part in the consideration or decision of this case.

JUSTICE FREEMAN, specially concurring:

Our ruling today, for the first time, recognizes that direct

-19-

participant liability is a valid theory of recovery under Illinois law.

We also find that, on the specific record presented in this case, the

trial court erred in granting defendant, Clark USA, Inc., summary

judgment on plaintiffs’ direct participant liability claims. I am in

agreement with the ultimate result reached by the majority opinion.

I write separately, however, to offer additional reasons in support of

the reversal of summary judgment in this matter.

In March 1995, plaintiffs’ decedents were killed in a fire which

followed an explosion occurring at their workplace, a refinery located

in Blue Island. The refinery is owned and operated by decedents’

employer, Clark Refining & Marketing, Inc. (Clark Refining).

Defendant, Clark USA, Inc., owns 100% of the stock of Clark

Refining. Plaintiffs allege that the fatal fire started when untrained

operators, who were not maintenance mechanics, performed

maintenance tasks and disassembled a valve which, instead of being

drained of flammable materials, was still pressurized. As a result,

these materials escaped and burst into flames. Decedents were eating

in a lunchroom located in the maintenance building at the refinery

across an access road from the maintenance work, and the explosion

and subsequent fire trapped and killed them before they could escape

the building.

Subsequent to the accident, plaintiffs filed suit, naming Clark

Refining’s parent company, Clark USA, Inc., as a defendant based

upon the theory of direct participant liability for controlling the

budget of its subsidiary in such a way that directly led to the

workplace accident and, ultimately, to the death of decedents.

Plaintiffs alleged that defendant negligently imposed an “overall

business strategy” directing the subsidiary to minimize costs and

capital investments, which allegedly caused the subsidiary to engage

in the dangerous practice of reducing training and maintenance.

According to plaintiffs, as a result of this direct interference by the

parent company, untrained operators were assigned to perform

dangerous maintenance tasks at the plant. This occurred, plaintiffs

contend, because there was a large maintenance backlog caused by

economic cutbacks specifically dictated and directed by defendant in

order to increase its own profits.

During the course of this lengthy litigation, the parties have

engaged in an extensive amount of discovery, including the exchange

-20-

of countless business records as well as the taking of depositions of

numerous individuals with knowledge of the events that occurred

prior, during and after the time of the accident. Indeed, the appellate

record in the instant matter exceeds 60 volumes and reaches nearly

15,000 pages. Two weeks before this cause was set for jury trial, the

circuit court of Cook County granted defendant summary judgment

pursuant to section 2–1005 of the Code of Civil Procedure (735 ILCS

5/2–1005 (West 2002)). The trial court’s order granting summary

judgment, however, stated only that defendant’s motion was granted

and contained no specific findings by the trial court to indicate the

basis for its ruling.

It is in this procedural posture that the instant cause comes to us

on appeal. We must, therefore, review the ruling of the circuit court

to determine whether, under the specific facts and circumstances of

this case, the circuit court erred in granting defendant summary

judgment. The standards used to determine the propriety of a grant of

summary judgment are familiar and well settled. The purpose of

summary judgment is not to try a question of fact but, rather, to

determine whether a genuine issue of material fact exists. Adams v.

Northern Illinois Gas Co., 211 Ill. 2d 32, 42-43 (2004). The entry of

summary judgement is appropriate only where “the pleadings,

depositions, and admissions on file, together with the affidavits, if

any, show that there is no genuine issue as to any material fact and

that the moving party is entitled to a judgment as a matter of law.”

735 ILCS 5/2–1005(c) (West 2004).

In determining whether a genuine issue of material fact exists, a

court must construe the pleadings, depositions, admissions, and

affidavits strictly against the movant and liberally in favor of the

opponent. Bagent v. Blessing Care Corp., No. 102430, slip op. at 6

(January 19, 2007). A triable issue precluding the entry of summary

judgment exists where the material facts are disputed or where, the

material facts being undisputed, reasonable persons might draw

different inferences from the undisputed facts. Bagent, slip op. at 6.

Although summary judgment can aid in the expeditious disposition

of a lawsuit, it is nevertheless a drastic means of disposing of

litigation and, therefore, should be allowed only where the right of the

moving party is clear and free from doubt. Adams, 211 Ill. 2d at 43

(and cases cited therein).

-21-

It is with these standards in mind that we hold today that the trial

court improvidently granted defendant summary judgment. We have

carefully reviewed the vast amount of evidence adduced by plaintiffs

in opposition to defendant’s motion for summary judgment. Various

business documents generated by defendant and/or its subsidiary,

coupled with the deposition testimony of several individuals familiar

with events transpiring prior, during and subsequent to the accident,

raise numerous genuine issues of material fact as to whether

defendant, through its direct control of Clark Refining, negligently

caused the maintenance and training of employees at the Blue Island

facility to degrade to such a level that safe operation of the plant

became impossible, ultimately leading to the fatal accident in this

case.

At this juncture, I underscore that our opinion today does not alter

the bedrock principle of limited liability for corporate shareholders,1

and that direct participant liability is a very narrow exception to this

general principle. Today’s decision stands for the proposition that if

a parent company merely articulates general policies and supervises

a subsidiary’s budgeting decisions, such conduct alone is not enough

to give rise to direct liability on the part of the parent. In other words,

conduct that is entirely “consistent with the parent’s investor status”

does not pose a problem. United States v. Bestfoods, 524 U.S. 51, 69,

141 L. Ed. 2d 43, 62, 118 S. Ct. 1876, 1889 (1998). Thus, activities

by the parent company that involve the subsidiary, such as

“monitoring of the subsidiary’s performance, supervision of the

subsidiary’s finance and capital budget decisions, and articulation of

general policies and procedures,” will, generally, not give rise to

direct liability. Bestfoods, 524 U.S. at 72, 141 L. Ed. 2d at 62, 118 S.

Ct. at 1889. The “critical question” in deciding whether the parent

company can be held liable under a theory of direct participant

liability is “whether, in degree and detail, actions directed to the

1

As the United States Supreme Court observed in United States v.

Bestfoods, “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.’ ” Bestfoods, 524 U.S. at 61-62, 141 L. Ed. 2d

at 56, 118 S. Ct. at 1884, quoting W.O. Douglas & C. Shanks, Insulation

from Liability Through Subsidiary Corporations, 39 Yale L.J. 193 (1929).

-22-

[subsidiary] by an agent of the parent alone are eccentric under

accepted norms of parental oversight of a subsidiary’s facility.”

Bestfoods, 524 U.S. at 72, 61-62, 141 L. Ed. 2d at 62, 118 S. Ct. at

1889. Throughout these proceedings, defendant has voiced the valid

concern that the direct participation liability theory of recovery must

not be stretched to such an extent that it encompasses routine and

proper exercises of shareholder control, lest the exception swallows

the general rule and serves to spawn a flood of lawsuits against parent

companies. I agree with defendant on this point, and our opinion

today preserves the proper balance between the general rule and this

narrow exception.

In addition, defendant has voiced concern that it could be held

liable under the direct participant theory simply because it shares its

officers and directors with its subsidiary. Our opinion today guards

against such a result, as it recognizes the principle that “it cannot be

enough to establish liability [under a direct participation theory] that

dual officers and directors made policy decisions and supervised

activities at the facility.” Bestfoods, 524 U.S. at 69-70, 141 L. Ed. 2d

at 61, 118 S. Ct. at 1888. This is true because when an individual

wears two “hats”–i.e., as an officer and/or director of both the parent

and the subsidiary companies–a court will “generally presume ‘that

the directors are wearing their “subsidiary hats” and not their “parent

hats” when acting for the subsidiary.’ ” Bestfoods, 524 U.S. at 69, 141

L. Ed. 2d at 61, 118 S. Ct. at 1888, quoting P. Blumberg, Law of

Corporate Groups: Procedural Problems in the Law of Parent &

Subsidiary Corporations §1.02.1, at 12 (1983). In other words, a

parent company will generally not be found liable for decisions made

by a subsidiary’s board and/or officers simply because these

individuals are also officers or directors of the parent company.

Rather, liability will result only in instances where the conduct

complained of occurred while the officers/directors were acting in

their capacity as officers/directors of the parent, rather than of the

subsidiary. As the court in Bestfoods explained: “the presumption that

an act is taken on behalf of the corporation for whom the officer

claims to act is strongest when the act is perfectly consistent with the

norms of corporate behavior, but wanes as the distance from those

accepted norms approaches the point of action by a dual officer

plainly contrary to the interests of the subsidiary yet nonetheless

-23-

advantageous to the parent.” Bestfoods, 524 U.S. at 70 n. 13, 141 L.

Ed. 2d at 61 n.3, 118 S. Ct. at 1888 n.3.

It should be emphasized that rarely will a parent company that

generally observes corporate formalities step outside the proper role

of a parent to so pervasively interfere with the operations of the

subsidiary that it can be viewed as directly inflicting harm on the

subsidiary’s employees or third parties doing business with the

subsidiary. In the matter before us, however, plaintiffs have presented

sufficient evidence of conduct by defendant to create a genuine issue

of material fact as to whether that conduct could not only be deemed

“eccentric under accepted norms of parental oversight” of a

subsidiary’s business (Bestfoods, 524 U.S. at 72, 141 L. Ed. 2d at 62,

118 S. Ct. at 1889), but also “plainly contrary to the interests of the

subsidiary yet nonetheless advantageous to the parent” (Bestfoods,

524 U.S. at 70 n.13, 141 L. Ed. 2d at 61 n.13, 118 S. Ct. at 1888

n.13), to the extent that it could serve as a predicate for direct

participant liability on the part of defendant.

First, the record contains several business documents which raise

a genuine issue of material fact with respect to the nature and extent

of direct involvement by defendant in the affairs of its subsidiary,

Clark Refining. As background, I note that throughout the time period

at issue in this matter, defendant and Clark Refining had largely

(although not entirely) overlapping boards of directors, which often

held joint meetings. In addition, the President and Chief Executive

Officer of defendant, Paul Melnuck, was also the President, Chief

Executive Officer (CEO) and Chief Operating Officer (COO) of

Clark Refining. As further background information, I note that, in his

deposition, Melnuk testified that he had no previous experience in the

oil refining business, and that he concentrated on the financial aspects

of the business. Melnuck further stated in his deposition that

defendant had no operations personnel, and that its function was to

simply serve as a holding company.

It is against this background that we have reviewed the following

business records. For example, plaintiffs point to a business record

entitled “Clark USA Liquidity Overview.” This document is part of

the agenda for the Clark USA, Inc., February 15, 1995, board of

directors meeting, and commands that the “1995 philosophy is

survival mode,” and that the “goal is to replenish the strategic cash

-24-

reserve to $200 million.” This goal was to be accomplished through

“reduced capital spending,” “reduced working capital investment,”

and “reduced operating expense level.”

Defendant’s continued focus on this financial goal is reflected in

a document entitled “Interoffice Memorandum,” which is dated April

19, 1995, from Paul Melnuk to the “Executive Committee” regarding

an “EC Meeting” to be held the following week. As part of this

memo, Melnuk included as attachments documents entitled “Clark

USA, Inc. 1995 Imperatives April 1995,” “Clark USA, Inc. 1994

Performance Distribution Grade Level 13 and Above,” and “Clark

USA, Inc. Scorecard First Quarter, 1995.” In the 1995 “Imperatives”

document, focus was placed upon replenishing Clark USA Inc.’s

strategic cash reserve of $200 million by reducing the capital

spending at the Blue Island refinery to the “minimum sustainable

level.” In the “Scorecard” document, “key achievements” were listed

to include “cash balance” and “1995 Imperatives,” whereas key

disappointments were listed to include “performance management,”

“employee morale/lack of leadership,” “short-term thinking,” and

“Blue Island tragedy.”

These documents create, in several respects, genuine issues of

material fact that preclude entry of summary judgment. First,

although defendant has asserted that it is a mere holding company, the

“Interoffice Memo” contains documents which, on their face, deal

with Clark USA, Inc., matters, and the memo itself is directed to the

“Executive Committee.” The existence of an executive committee

for Clark USA, Inc., however, would run counter to defendant’s

argument that it is merely a holding company and has no operating

personnel. During his deposition, Melnuk acknowledged the words

as they are written in the memo, and specifically, in the attachment

entitled “Clark USA, Inc. 1995 Imperatives.” Melnuck, however,

offered another, alternative reading of these words, stating: “The

words on this page as you read them are the words as you read them.

These are actually, in fact, the 1995 Imperatives of Clark Refining

and Marketing, Inc., and in this regard the title on this page is

incorrect.” (Emphasis added.) Similarly, with respect to the

attachment to the memo entitled “Clark USA, Inc. Scorecard First

Quarter, 1995,” Melnuk testified in his deposition that although the

title states “Clark USA,” this document “is in fact a score card of the

-25-

business of Clark R[efining] and M[arketing],” again contending that

the title of the document was “incorrect.” At a minimum, these

differing interpretations of the language of these documents and their

contents create a genuine issue of material fact precluding entry of

summary judgment.

In addition, plaintiffs assert that these documents create a genuine

issue of material fact as to whether defendant’s mandated budget cuts

were targeted to reduce Clark Refining’s capital spending on essential

items such as safety training and maintenance. Plaintiffs contend that

such commands are especially egregious and inappropriate in a

refinery setting dealing with highly explosive materials, where an

accident such as occurred here is foreseeable. According to plaintiff,

the actions of defendant constitute precisely the type of conduct on

the part of a parent company that may be considered “eccentric under

accepted norms of parental oversight” (Bestfoods, 524 U.S. at 72, 141

L. Ed. 2d at 62, 118 S. Ct. at 1889) and “plainly contrary to the

interests of the subsidiary yet nonetheless advantageous to the parent”

(Bestfoods, 524 U.S. at 70 n.13, 141 L. Ed. 2d at 61 n.13, 118 S. Ct.

at 1888 n.13), to the extent that it could serve as a predicate for direct

participant liability on the part of defendant.

In support of this theory, plaintiffs point to evidence that they

assert shows that although defendant, through Melnuk, was aware of

the negative effects of the mandated cuts on the safety, training, and

maintenance at the Blue Island refinery, it nevertheless continued to

require Clark Refining to comply with its dictates. For example,

Ronald Anderson, a former union president at the refinery, stated in

his deposition testimony that the issue of the lack of preventative

maintenance at the refinery–including that employees were forced to

“cut[ ] corners” with respect to maintenance and safety–was sent up

the corporate chain of command, all the way to Melnuk. According

to Anderson, under the direction of the “corporate office,” members

of the refinery’s safety and environmental department worked only a

daytime shift, even though the plant operated on a 24-hour basis. This

meant that untrained operators were left to perform these specialized

jobs during the off-shifts. In his deposition, Anderson described the

situation at the plant as being one of “continuous deterioration” with

respect to maintenance, safety, and training, and stated that the

refinery was “falling apart.” According to Anderson, Melnuck would

-26-

not provide authorization to remedy the situation, despite the fact

that, as union president, he directly discussed these issues with

Melnuk. Anderson also stated that flyers were posted around the

refinery which discussed the financial status and competitiveness of

the company, which asked for increases in production, and which

pointed out that other refineries had entered into bankruptcy.

Anderson testified that this created a “fear factor” at the plant, in that

“people *** who generally would not compromise situations,

compromised their job, were placed in a position through fear to be

tempted to compromise things,” meaning that they “cut corners”

because they believed that otherwise “the place was going to shut

down and everybody was going to lose their jobs.”

Based upon this evidence, a genuine issue of material fact was

raised as to whether defendant’s extreme cost-cutting

requirements–dictated to the subsidiary despite the knowledge that its

measures resulted in a dangerous reduction in training and

maintenance which adversely affected safety at the refinery–may be

considered “eccentric under accepted norms of parental oversight”

(Bestfoods, 524 U.S. at 72, 141 L. Ed. 2d at 62, 118 S. Ct. at 1889)

and “plainly contrary to the interests of the subsidiary yet nonetheless

advantageous to the parent” (Bestfoods, 524 U.S. at 70 n.13, 141 L.

Ed. 2d at 61 n.13, 118 S. Ct. at 1888 n.13), to the extent that it could

serve as a basis for direct participant liability on the part of defendant.

In addition, there is clearly a genuine issue of material fact with

respect to what “hat” Melnuck was wearing during this time period

when he was apprised of these safety concerns but nevertheless

dictated budget cuts. I also note that, during these proceedings,

defendant has not challenged plaintiffs’ assertion that it knew of the

potential danger at the refinery due to its business plan.

In addition, plaintiffs also rely upon the deposition testimony of

Terence Quirke, an economics planning engineer at the Blue Island

refinery, to withstand defendant’s summary judgment motion. Quirke

testified with respect to the development and implementation of

operating budgets at the Blue Island facility. According to Quirke,

Melnuk–the president, CEO and COO of both defendant and its

subsidiary–was personally and actively involved in creating and

implementing operating budgets at the plant. According to Quirke,

starting in 1993 management implemented a “zero based budget”

-27-

approach that took into account the actual costs of each item and

operation in detail.

According to Quirke, he and colleagues at the refinery established

a working budget and assumed that it would be approved by

management. Quirke testified, however, that he was informed that

“Paul Melnuck had said that the budget was too much.” Quirke then

inquired about what items needed to be cut, and he was told that the

budget had to be reduced by 25%. In response, Quirke compiled a list

of items that could and could not be cut. The bulk of the expenditures

at the refinery were nondiscretionary–including raw materials and

utilities that were necessary to operate the plant. The remaining 20%

of the costs were controllable, including employee wages, benefits,

education, training, repairs, and equipment maintenance. According

to Quirke, the only choice in complying with the requirement to

reduce costs by 25% was to cut the controllable costs within the

budget. According to Quirks’s deposition testimony, this was

explained to Melnuk, and, eventually, the budget with these

reductions was approved. Quirke testified that, as a result of the

mandated budget cuts, several troubling events occurred at the

refinery, including 20 workers being replaced with 6 in one

department, and new operator training and refresher training being

entirely eliminated.

According to plaintiffs, when defendant ordered the budget cuts

at the Blue Island refinery, it knew that safety, training, staffing,

education and maintenance would all be compromised, and,

accordingly, it was foreseeable that injury would occur as a result.

Plaintiffs further contend that the record reflects that the subsidiary

had no decision in this reduction. Finally, plaintiffs point to Clark

Refining’s own internal investigation of the accident, which cited a

lack of training, maintenance and safety as having played a causative

role.

Accordingly, in light of the evidence presented by plaintiffs, a

genuine issue of material fact has been raised with respect to whether

defendant merely established parameters or financial goals for its

subsidiary. The evidence raises a question as to whether defendant

actively mandated aggressive cuts in its subsidiary’s budget knowing

that these cuts could only be accomplished by dramatic reductions in

maintenance, training and safety. Moreover, the evidence raises a

-28-

question with respect to the forseeability of injury, as it appears that

defendant had several opportunities, after ordering drastic budget

reductions and observing their negative effects, to change course but

did not. This conduct raises material questions of fact as to whether

defendant’s actions fall within the direct participant liability doctrine.

In sum, our opinion today recognizes a very narrow exception to

the general rule. I underscore the procedural posture of this case: it is

here on a review of a grant of defendant’s motion for summary

judgment. In assessing the circuit court’s ruling, we construe, as we

must, all evidence strictly against the movant–defendant–and liberally

in favor of the opponent–plaintiffs. With our opinion today, this court

only determines that plaintiff adduced sufficient evidence to

withstand defendant’s motion for summary judgment. The decision

today should not be interpreted as indicating or telegraphing whether

plaintiffs will ultimately succeed on the merits of this cause of action.

That is a question for the trier of fact to decide at trial.

JUSTICE BURKE joins in this special concurrence.

-29-