Unity Of Purpose Saves Parent Company From A Verdict Of Conspiracy With Subsidiaries

In Princeton Insurance Agency Inc. et al. v. Erie Insurance Co. et al., West Virgina Supreme Court of Appeals overturned a $4.2 million jury verdict against Erie Indemnity Co., ruling that the decision by Erie and its subsidiaries to terminate a contract with Princeton Insurance Agency did not constitute restraint of trade under the Sherman Act.  The only parties Erie conspired with were its own subsidiaries, which are considered by common law to be part of the same entity.  The court held that “when presented with cases in which there is less than 100 percent control over a subsidiary, federal courts have looked to the amount of control the parent company has over its subsidiary, examining … whether there is a unity of purpose which essentially forecloses the risk of anticompetitive conspiracy.”  As an indication of the unity of purpose of itself and its subsidiary, Erie cited: 1) the fact that all of its corporate employees are employed by Erie Indemnity; 2) the issuance of a single termination letter to Princeton to end their relationship, indicating that a “unitary corporate decision was made”; and 3) that none of its companies compete with each other concerning sales.  The high court held that the trial court erred by not examining Erie’s corporate structure.  The court further held that Princeton would not have been able to prove sufficient injury under the antitrust laws because even though it can show that it was injured by Erie’s conduct, it would not have been able to show injury to competition as a whole. 

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