The Texas Supreme Court, in the case of SSP Partners v. Gladstone Investments, ___ S.W.3d ____, 2008 WL 4891733 (Tex. Nov. 14, 2008), determined that corporations cannot be liable for each other’s obligations merely because they are part of a single business enterprise. In SSP Partners,the court held that the single business enterprise theory set forth by the plaintiff could not be used to hold a California based corporation, Gladstone USA, liable for its parent company, Gladstone Hong Kong. In this case, a defective butane lighter resulted in the death of a five year old boy in a house fire. The lighters were tested by the Consumer Products Safety Commission and found to have violated federal regulations pertaining to child safety because the child safety mechanism was ineffective. The lighters were manufactured in China by Gladstone Hong Kong. The California corporation, Gladstone USA, marketed and distributed the lighters for sale in the United States. Plaintiffs argued the California corporation should have to indemnify its Hong Kong parent company under the theory of single business enterprise and the Texas Supreme Court disagreed.

      In reaching its decision, the Court abrogated the appellate court decision Paramount Petroleum Corp. v. Taylor Rental Center, 712 S.W.2d 534, 536 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.), which set forth factors to be considered when asserting the single business enterprise theory. The Texas Supreme Court stated that the theory put forth by the plaintiff’s, as set forth in Paramount Petroleum, applies whenever two corporations coordinate operations and combine resources in pursuit of the same business purpose. The court went on to state that it has "never approved of imposing joint liability on separate entities merely because they were part of a single business enterprise." SSP Partners, 2008 WL 4891733 at *4. The court also noted that it has never acknowledged the single business enterprise as a theory of liability for related corporations. The court then conducted in-depth review of the Paramount Petroleum decision and the basis for its holding and noted that elements of abuse and injustice are not components of the single business enterprise theory of liability, which is contrary to the Texas Supreme Court’s theories for disregarding the corporate fiction as set forth in Castleberry v. Branscom, 721 S.W.2d 271-272 (Tex. 1986). The court then went on to state that in order to disregard the corporate structure two considerations must be taken into account. The first is the relationship between the two entities, which can be addressed using the factors set forth in Paramount Petroleum. The second is whether the entities’ use of limited liability was illegitimate. The court went on to recognize that the purpose for forming a corporation is to limit individual liability for that corporation’s obligations. The court held that the single business enterprise liability theory set out in Paramount Petroleum did not support the imposition that Gladstone USA should be liable to indemnify its parent company, Gladstone Hong Kong, because the theory set forth in Paramount Petroleum failed to consider whether or not the use of corporate structures was illegitimate.