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Indiana Federal Court Dismisses Alter Ego Claim Against Affiliated Company

Lesson. Common presidents and physical locations alone is insufficient evidence to render two companies one enterprise in disguise.

Case cite. Vasquez v. Steiner Enters. 2021 U.S. Dist. LEXIS 211903 (N.D. Ind. Nov. 2 2021)

Legal issue. Whether Company A was the “alter ego” of Company B so as to be liable for claim against Company B.

Vital facts. Plaintiff named Company A in his lawsuit against Company B that sought damages for discrimination. Company B was a wholesale jobber of fabrics and textiles. Company A was an engineering firm. Although separate corporate entities, the two businesses occupied two halves of a single building. Also, the president of both companies was the same.

Procedural history. Company A filed a motion for summary judgment on Plaintiff’s alter ego claim.

Key rules. In the Seventh Circuit, “where two companies are alter egos, ‘a parent (or other affiliate) would be liable for the torts...of its subsidiary….’” Under Indiana state law, which applied to Vasquez:

… the focus is on whether the corporate form was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the misuse of the corporate form would constitute a fraud or promote injustice. Courts are reluctant to disregard corporate identity, and [Plaintiff] has the burden on what is described as a "highly fact-sensitive question."

The court noted that evidence of such misuse of the corporate form “might include circumstances such as undercapitalization, the absence of corporate records, fraud by corporate shareholders or directors, use of the corporation to ‘promote fraud, injustice, or illegal activities,’ commingling of the companies' assets and affairs, and conduct by the corporations ignoring corporate formalities.”

Holding. The U.S. District Court for the Northern District of Indiana granted Company A’s motion and dismissed it from the case.

Policy/rationale. Vasquez was a federal employment discrimination case, but its principles apply equally to post-judgment collection actions where a borrower or a judgment debtor may be trying to avoid payment of a debt. One of the main policies behind the alter ego theory is to protect creditors from being confused about whom they can look to for the payment of their claims.

Plaintiff contended that Companies A and B were alter egos of a single business entity. The primary basis of this contention was the allegation that both entities were fully owned and controlled by the same individual, who was president of both. However, Plaintiff offered no evidence of any misuse of the corporate form. In rejecting the claim, the court in Vasquez reasoned that companies can do “a fair amount of sharing” and have a “degree of integration” without misuse of the corporate form.

Under Indiana law, "separate corporate identity" can only "be disregarded where one corporation is so organized and controlled and its affairs are so conducted by another corporation that it is a mere instrumentality or adjunct of the other corporation." The fact that Companies A and B shared the same president and the same building was insufficient to support such a conclusion. The court declared: “[n]o reasonable fact finder could conclude that [Company A and Company B] were one enterprise in disguise….”

Related posts.

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Part of my practice is to represent parties involved in post-judgment collection proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


No Surprise: Report Concludes That Nation's Foreclosure Activity Dropped To All-Time Low In 2021

From IT News Online:

IRVINE, Calif., Jan. 13, 2022 /PRNewswire/ -- ATTOM, licensor of the nation's most comprehensive foreclosure data and parent company to RealtyTrac, the largest online marketplace for foreclosure and distressed properties, today released its Year-End 2021 U.S. Foreclosure Market Report, which shows foreclosure filings— default notices, scheduled auctions and bank repossessions — were reported on 151,153 U.S. properties in 2021, down 29 percent from 2020 and down 95 percent from a peak of nearly 2.9 million in 2010, to the lowest level since tracking began in 2005.  Click here for the rest of the article.  


Indianapolis Bar Association COVID Update: Marion County Courts

Courtesy of the IBA today:

Updated COVID Marion Superior and Circuit Court Measures regarding Facial Coverings and Suspension of Jury Trials

The Executive Committee of the Marion Superior Court and the Judge of the Circuit Court have continued to monitor local numbers regarding increase in COVID positive cases.

The statewide Resuming Court Operations Task Force has continued to provide guidance to courts across the state on how to maintain court operations in light of the ongoing public health emergency. As of November 10, 2020, the Indiana Supreme Court, in 20S-CB-123, provided guidance to trial courts on minimizing the risk of exposure to COVID to court staff, litigants, attorneys and members of the public. In the Order, the Indiana Supreme Court reiterated that trial courts have inherent authority to suspend and/or reschedule criminal or civil jury trials for a limited time.

At this time, all jury trials in Marion County will be continued and reset after January 21, 2022. Additionally, facial coverings will be required and occupancy capacity will be limited in all areas of the courthouse. The proper use of facial coverings will be strictly enforced.

Click here to view the order regarding facial coverings.
Click here to view the order regarding the continuance of jury trials.

It's currently unclear whether there will be a ripple effect from the continuances this month, which is to say we don't know for certain whether jury trials currently set after the 21st will be impacted.  This likely will unfold on a case-by-case basis.  

John