Parent Corporation Is Not Bound by Subsidiary’s Agreement

Parent Corporation Is Not Bound by Subsidiary’s Agreement

      In a decision from the Sixth Circuit Court of Appeals, there was an affirmed the principle that a parent corporation is not subject to the obligations of its subsidiary. In this instance, the subsidiary entered into a nondisclosure agreement; the parent was not a party to that agreement. As such, there could be no claim that the parent subsequently violated that agreement.  Knight Capital Partners Corporation v. Henkel AG & Company, KGaA, 930 F.3d 775 (6^th Cir. July 16, 2019).

      Knight Capital Partners Corp. (“KCP”) and Henkel Corporation entered into a non-disclosure agreement (the “NDA”) as part of their negotiations with respect to a potential distribution deal of a product that KCP hoped to bring to market. Henkel’s parent company, Henkel AG & Company, KGaA (“Henkel KGaA”), was not a party to the NDA.

      As recounted by the court, “Following a year of exchanging information and engaging in negotiations, the NDA lapsed, no deal was consummated, and the parties discontinued commercial communications. KCP asserts that Henkel Corporation’s parent company, Henkel KGaA, used confidential information it acquire through the NDA to develop the product on its own and also interfered with the potential distribution deal.” 930 F.3d at 778.  KCP brought this action alleging that Henkel KGaA had breached the NDA and for tortious interference in its prospective contractual relationship with Henkel Corporation.

       The court made short shrift of the breach of contract action, noting that as Henkel KGaA was not a party to the NDA, it could not be bound by its terms. The court as well reviewed and rejected claims that Henkel KGaA agreed to be bound by the terms of the NDA.

      As for the claim with tortious interference with business expectancy, and applying Michigan law, the rule was repeated that “a parent company cannot tortuously interfere with the affairs of its wholly-owned subsidiary.” 930 F.3d at 783. On that basis, the claim for interference was likewise rejected.