Facts:

A Big Company (ABC) is one of several corporations owned entirely by XYZ corporation. XYZ is publicly traded on a stock exchange. ABC makes an over-the-counter vitamin pill that has been very popular for many years.

ABC engaged the services of a marketing firm, SellALot, LLC, to market this diet pill. Mr. Bragger, the member of the LLC with whom the CEO of ABC directly dealt, had previously told many of SellALots clients that he worked for ABC. SellALot was the exclusive distributor for this vitamin pill in the US. Mr. Bragger is also a member of the Board of Directors of XYZ. SellALot has 4 other members of this LLC.

The CEO of ABC, Mr.Successful, was also on the board of XYZ. He and his partner, Counts Fingers (who was also Mr. Successfuls CPA) owned approximately 25% of the outstanding stock of XYZ. The general partnership was known as S and C Partnership (a limited partnership with Mr. Bragger as the only limited partner and the partner who provided the funds to buy the stock from Mr. Successful and Counts Fingers) actually owned this stock after Mr. Successful and Counts Fingers transferred the stock to the partnership.

Counts Fingers is also the Chief Financial Officer for Mega Bucks Bank which made the loan to Mr. Bragger- he used those loan proceeds to contribute to the S and C Partnership to buy the XYZ stock from Mr. Successful and Counts Fingers. Mr. Bragger is a member of the Board of Directors of Mega Bucks Bank.

ABCs vitamin pill has recently been the subject of much attention and litigation. The pill has apparently caused many health problems with those who have taken it for more than a couple of weeks. Over 1,000 of those who took the pill for more than 4 weeks at a time have had heart valve replacement surgery and it appears that this surgery was necessitated by the vitamin pill which ABC makes. There is a class action lawsuit with more than one million class members who have been harmed in some fashion by this vitamin pill. The class action lawsuit filings have demanded 5 billion dollars in damages for all of these litigants.

XYZ is currently considering selling ABC to an investor (Private Equity, LLC.). You have been hired to determine how much money ABC might be worth and to assess the litigation exposure of ABC for this vitamin pill made by ABC.

Question:

Explain the legal theory that would make XYZ liable for the ABC lawsuit. Would there be any viable defense to this liability claim against XYZ?