Forsythe v. Clark Usa, Inc.

• Decision Date: 29 September 2005
• Docket Number: No. 1-04-0450.,No. 1-04-0448.,1-04-0448.,1-04-0450.
• Citation: 836 N.E.2d 850
• Parties: Marguerite FORSYTHE, Individually and as Special Administrator of the Estate of Michael F. Forsythe, Deceased, Plaintiff-Appellant, v. CLARK USA, INC., a Delaware Corporation, Defendant-Appellee. Elizabeth M. Szabla, as Special Administrator of the Estate of Gary Szabala, Deceased, Plaintiff-Appellant, v. Clark USA, Inc., a Delaware Corporation, Defendant-Appellee.
• Court: Illinois Supreme Court

Page 850

836 N.E.2d 850

Marguerite FORSYTHE, Individually and as Special Administrator of the Estate of Michael F. Forsythe, Deceased, Plaintiff-Appellant, v. CLARK USA, INC., a Delaware Corporation, Defendant-Appellee.

Elizabeth M. Szabla, as Special Administrator of the Estate of Gary Szabala, Deceased, Plaintiff-Appellant, v. Clark USA, Inc., a Delaware Corporation, Defendant-Appellee.

No. 1-04-0448.

No. 1-04-0450.

Appellate Court of Illinois, First District, Fourth Division.

September 29, 2005.

The Healy Law Firm (Martin J. Healy, Jr. and David P. Huber, of counsel) and Corboy & Demetrio, P.C. (Philip H. Corboy and Edward G. Willer, of counsel), Chicago, for Appellants.

Mayer, Brown, Rowe & Maw, LLP, Chicago (John C. Berghoff, Jr. and Susan Cowell, of counsel), for Appellee.

Presiding Justice QUINN delivered the opinion of the court:

Plaintiffs Marguerite Forsythe, individually and as special administrator to the estate of her late husband, Michael F. Forsythe, and Elizabeth M. Szabala, special administrator of the estate of Gary Szabala, appeal from the judgement of the circuit court granting summary judgment to defendant Clark USA, Inc., pursuant to section 2-1005 of the Code of Civil Procedure (735 ILCS 5/2-1005 (West 2002)). On appeal, plaintiffs argue that because defendant owed a duty to the deceased, and because genuine issues exist as to whether defendant breached that duty and proximately caused their deaths, the circuit court erred in granting summary judgment for defendant. For the following reasons, we reverse the judgment of the circuit court and remand this cause for further proceedings.

BACKGROUND

Decedents Michael F. Forsythe and Gary Szabala were employed as maintenance mechanics for Clark Refining & Marketing, Inc. (Clark Refining), which operated an oil refinery in Blue Island, Illinois. On March 13, 1995, the decedents were killed when a fire erupted at the refinery while they were on their lunch break. The fire was apparently caused by other Clark Refining employees who attempted to replace a four-inch valve on an operating unit known as the Isomax without ensuring that flammable materials within the pipe had been depressurized. According to plaintiffs, those employees were not maintenance mechanics and not trained or qualified to work on the Isomax. After Clark Refining paid the estate of each decedent pursuant to the Workers' Compensation Act (820 ILCS 305/1 et seq. (2002)), plaintiffs brought a wrongful death suit against defendant, Clark Refining's sole shareholder.¹

According to their complaints, plaintiffs alleged that defendant had developed an "overall business strategy" for Clark Refining which "focused on minimizing operating costs and limiting capital expenditures" in order to increase revenue for its parent corporation, the Horsham Corporation. Plaintiffs alleged that defendant "had a duty to use reasonable care in imposing its overall business strategy on [Clark Refining] so as not to create an unreasonable risk of harm to others," but breached that duty 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 lunch room or relocating the lunch room to a safe position within the refinery," and (3) "failing to adequately evaluate the safety and training procedures in place at the Blue Island Refinery." As a result of defendant's overall business strategy of capital cutbacks, Clark Refining was required to have unqualified employees act as maintenance mechanics, whose inexperience resulted in the refinery fire which killed the decedents. Thus, plaintiffs alleged that defendant's overall business strategy was a proximate cause of the fire.

Filing a motion for summary judgment, defendant argued that, as a mere holding company whose only connection to Clark Refining was its status as sole shareholder, it owed no duty to either deceased. In support of its motion, defendant submitted numerous depositions and documents showing that its subsidiary Clark Refining owned and operated the refinery, and that it had no control over the day-to-day operations.

Plaintiffs responded that despite defendant's legal status in relation to Clark Refining, defendant was directly responsible for creating conditions in which such a fire could occur. Specifically, plaintiffs alleged that defendant's "overall business strategy" for Clark Refining resulted in a series of cutbacks at the Blue Island refinery that undermined safety, training, and maintenance there and, in turn, created an unreasonable risk of harm to others including the employees of Clark Refining.

To support their arguments, plaintiffs relied on evidence that defendant's directors drew up and approved Clark Refining's budget; the boards of both defendant and Clark Refining often met simultaneously; according to defendant's 1995 strategic business plan, defendant mandated that Clark Refining "position itself as a low cost refiner and marketer"; and defendant strove to "replenish the strategic cash reserve [of defendant] to $200 million" by "decreas[ing] capital spending * * * to minimum sustainable levels" and instituting a "survival mode" philosophy to its 1995 business plan.

Plaintiffs further relied on evidence that while Clark Refining employees prepared its budget for 1995 expenditures, Paul Melnuk, who was both president of defendant and chief executive officer of Clark Refining, instructed those employees to reduce the budget by 25%. As a result, Clark Refining was forced to cut back on its maintenance department staff and cancel its training program for new operators, causing both a deterioration of the infrastructure at the refinery (as evidenced by a number of citations from the Occupational Safety and Health Administration for rules infractions including several related to the maintenance of the Isomax) and an overload of work on the undermanned maintenance staff.

Without explaining its reasoning, the circuit court granted summary judgment to defendant. Plaintiffs then filed separate notices of appeal, which we consolidated for review.

ANALYSIS

We begin our analysis by noting that summary judgement is appropriate when "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 2002). The purpose of summary judgment is not to try a question of fact, but to determine if one exists (Golden Rule Insurance Co. v. Schwartz, 203 Ill.2d 456, 462, 272 Ill.Dec. 176, 786 N.E.2d 1010 (2003)), and we review an order granting summary judgment de novo (Morris v. Margulis, 197 Ill.2d 28, 35, 257 Ill.Dec. 656, 754 N.E.2d 314 (2001)).

I. PLAINTIFFS' NEGLIGENCE CLAIM

In order to sustain a cause of action for negligence, a plaintiff must show that the defendant owed him a duty of care, breached that duty, and proximately caused his injuries. See Bonner v. City of Chicago, 334 Ill.App.3d 481, 268 Ill.Dec. 299, 778 N.E.2d 285 (2002). Unless a plaintiff demonstrates that a duty is owed, there can be no negligence imposed upon the defendant. American National Bank & Trust Co. of Chicago v. National Advertising Co., 149 Ill.2d 14, 26, 171 Ill.Dec. 461, 594 N.E.2d 313 (1992). There are four factors courts use to determine whether a duty exists: (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. See Sollami v. Eaton, 201 Ill.2d 1, 17, 265 Ill.Dec. 177, 772 N.E.2d 215 (2002); Jones v. Chicago HMO Ltd. of Illinois, 191 Ill.2d 278, 303, 246 Ill.Dec. 654, 730 N.E.2d 1119 (2000). Whether a duty exists is a question of law that may be decided on a motion for summary judgment. See Sandoval v. City of Chicago, 357 Ill.App.3d 1023, 1027, 294 Ill.Dec. 310, 830 N.E.2d 722 (2005).

Under Illinois law, a corporation is deemed a distinct legal entity, separate from other corporations with which it may be affiliated. See Daley v. American Drug Stores, Inc., 294 Ill.App.3d 1024, 1027, 229 Ill.Dec. 373, 691 N.E.2d 846 (1998). Generally, a corporation as a legal entity exists separately from its shareholders, directors, and officers, who are not ordinarily liable for the corporations's liabilities. Jacobson v. Buffalo Rock Shooters Supply, Inc., 278 Ill.App.3d 1084, 1088, 215 Ill.Dec. 931, 664 N.E.2d 328 (1996). Where a corporation is the sole shareholder of another corporation (as defendant was here), the general rule is that the shareholder-corporation is not liable for the conduct of its subsidiary unless the corporate veil can be pierced. See Esmark, Inc. v. National Labor Relations Board, 887 F.2d 739, 753 (7th Cir.1989) ("[T]he general rule is that a shareholder is not liable for the obligations of a corporation unless the shareholder exercised `complete domination' over the corporation's decisionmaking, treating the corporation as a `mere instrumentality' or `alter ego' to advance the shareholder's personal interests. [Citations]. Thus, in general, a parent corporation may not be held to account for the liabilities of a subsidiary unless the legal separateness of parent and subsidiary has been disregarded in a wide range of corporate matters"); see also Cosgrove Distributors, Inc. v. Haff, 343 Ill.App.3d 426, 428-29, 278 Ill.Dec. 292, 798 N.E.2d 139 (2003) (discussing the factors courts use to determine whether to pierce the corporate veil).

Defendant rests its "no duty owed" argument solely upon its status "as [Clark Refining's] sole shareholder, or on its status as intermediate holding company between [Clark Refining] and the ultimate...