A corporate entity will be disregarded and the veil of limited liability pierced when two requirements are met: First, there must be such unity of interest and ownership that the separate personalities of the corporation and the individual or other corporation no longer exist; and second, circumstances must be such that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice.
Appellee Sea-Land Services, Inc. ("Sea-Land"), an ocean carrier, shipped the peppers on behalf of The Pepper Source ("PS"), one of the appellants here. PS then stiffed Sea-Land on the freight bill, which was rather substantial. Sea-Land filed a federal diversity action for the money it was owed. The district court entered a default judgment in favor of Sea-Land and against PS in the amount of $ 86,767.70. However, had been PS had been dissolved and even if it had not been dissolved, PS apparently had no assets. Sea-Land brought this action against Gerald J. Marchese and five business entities he owns. to pierce PS's corporate veil and render Marchese personally liable for the judgment owed to Sea-Land, and then "reverse pierce" Marchese's other corporations so that they, too, would be on the hook for the $ 87,000. Thus, Sea-Land alleged in its complaint that all of these corporations are alter egos of each other and hide behind the veils of alleged separate corporate existence for the purpose of defrauding plaintiff and other creditors. Acting on a motion for summary judgment filed by Sea-Land, the district court, granted the said motion and applied the Van Dorn test for corporate veil-piercing. Marchese and his corporations appealed
Is Sea-Land entitled to summary judgment as a matter of law, basing from the Van Dorn Test?
The court found the record insufficient to uphold the summary judgment. The court applied the Van Dorn test to determine whether a corporation was so controlled by another to justify disregarding their separate entities. Although the shared unity of interest and ownership part was met, the judgment creditor failed to show that honoring the corporate separate existences would sanction a fraud or promote injustice. The judgment creditor alleged the individual debtor intentionally shifted assets and liability among his corporations, but failed to produce evidence similar to the wrongs found in other cases where the court properly pierced the corporate veil to avoid promoting injustice. On remand, the judgment creditor could try to show the individual debtor used corporate facades to avoid responsibility to creditors or one corporation would be enriched unless liability was shared by all.