By John Alan Cohan, Attorney at Law

There is a conflict in the law concerning the liability of co-owners of aircraft for operational negligence. The question of liability of one co-owner for the negligence of another depends on the state law that applies to the situation. The situation can arise where one co-owner is in operational control of the aircraft and commits an act of negligence, causing damages. Other situations can involve tort liability of non-operating lessor, co-owners engaged in joint ventures, flight training school operators, and employers of operating pilots.

A related area of concern involves the liability of a parent corporation for the torts of a subsidiary entity that operates the aircraft. A parent corporation can be liable for torts of a subsidiary if the parent corporation controls the subsidiary. This can be shown if the parent company owns most or all of the stock of the subsidiary, if there are common directors and officers, if the parent corporation funds the subsidiary, if the subsidiary has grossly inadequate capital, if the parent entity pays the salaries and expenses or losses of the subsidiary, if the parent entity treats the property of the subsidiary as its own, and other elements.

Many closely held companies create a wholly-owned subsidiary which in turn owns and operates aircraft. This situation is sometimes used to insulate the owners of the parent company from liability, and as part of a tax planning program. In a major case, Allegheny Airline, Inc. v. U.S. (504 F.2d 104), a subsidiary owned a Piper Cherokee and operated a flight training school. A student pilot was involved in a mid-air collision with another aircraft. In an action for damages, the court held that the parent corporation was not liable for the claimed tort of the subsidiary. The evidence indicated that the subsidiary was adequately capitalized, that the parent company was engaged in an entirely different business, and that corporate formalities were observed. Other cases have gone the other way, however, such as Momen v. United States (946 F.Supp. 196). The latter case involved a commuter carrier affiliated with USAir. The commuter displayed the insignia and logo of USAir, the tickets were issued by USAir, and the entities used their names together in advertisements.

The Texas Supreme Court dealt with the issue of liability of co-owners for pilot negligence in Shoemaker v. Estate of Whistler (513 S.W.2d 10). One co-owner was piloting an aircraft on a voluntary search and rescue mission, and other co-owners were passengers. The plane crashed in bad weather, and there was evidence of pilot error.

The court held that liability against the co-owners would depend on whether they were engaged in a joint enterprise. The theory of joint enterprise is that each party is the agent of the other and therefore responsible for the negligent act of the other. The court said that the co-owners had a joint interest in the purpose of the enterprise and an equal right to direct and control the conduct of each other. However, the court said that since the venture was not for a pecuniary or financial purpose, it would not impose vicarious liability in this instance. Other states take a more expansive view of the joint enterprise doctrine, and would impose joint liability in these facts.

A California case, Ayer v. Boyle (37 Cal. App. 3d 822), held that a co-owner was not liable for the negligence of his fellow co-owner who piloted the aircraft. The co-owner was not present when the pilot crashed their jointly owned antique aircraft, which had not yet passed inspection for federal licensing, killing a passenger. The court said that there was no evidence that the co-owner knew or should have known that the other co-owner might fly the airplane with a passenger. Subsequently, California enacted an ownership liability statute, making owners of aircraft liable for negligence of those who operate the aircraft with the express or implied permission of the owners. About thirty other states, including New York, have similar laws.

As mentioned, the liability of co-owners depends on the jurisdiction involved, and there are many other cases dealing with this issue. A separate basis of liability of co-owners can be on the theory of negligent entrustment. For example, in a California case, White v. Inbound Aviation (69 Cal. App. 4th 910), a plane was leased to an inexperienced pilot who intended to fly to Lake Tahoe’s high-altitude airport surrounded by mountains. The defendant had reason to know that the pilot lacked the ability to safely use the aircrat for this particular trip.

FMI: JohnAlanCohan@aol.com