Effective Use of Subsidiaries

Cornerstone Healthcare Group Holding, Inc., a provider of post acute care hospital services, was pursuing acquisition opportunities of rehabilitation facilities in Texas.  In the midst of these efforts, several of its executives left the company.  Around the same time, New Reliant, a Delaware limited liability company, acquired a rehabilitation hospital in Texas called “Old Reliant.”  Cornerstone filed suit against New Reliant and a few other entities that had indirect ownership stakes in New Reliant via a chain of subsidiaries, alleging that several of Cornerstone’s recently-departed executives had usurped a corporate opportunity from Cornerstone.

The entities with ownership stakes in New Reliant filed special appearances, asserting that the court lacked personal jurisdiction over them.  Cornerstone argued that the entities were subject to jurisdiction in Texas based on their indirect ownership interest in New Reliant–a company doing business in Texas–and the fact that they held 100% of the stock of every entity involved in the purchase of the hospitals.  The entities argued that they were separate companies (based in Delaware) and that their only contact with Texas was their passive, indirect ownership interests in New Reliant. The trial court granted the entities’ special appearances, and Cornerstone appealed. The Court of Appeals affirmed, rejecting Cornerstone’s argument that the subsidiaries in between the entity defendants and New Reliant should be ignored.  The Court further explained that nothing in the record suggested “that the degree of control exercised by appellees is greater than that normally associated with with common ownership and directorship.”

Cornerstone Healthcare Group Holding, Inc. v. Reliant Splitter, L.P. et al., No. 05-11-01730-CV