Collecting From Related Companies - The Two Prongs Of Indiana’s Alter Ego Doctrine
November 28, 2022
Lesson. The alter ego doctrine requires a causal connection between the misuse of the corporate form and an injustice.
Case cite. Perez v. Reitz, 2022 U.S. Dist. LEXIS 177250 (N.D. Ind. 2022)
Legal issue. Whether two companies acted as alter egos such that the corporate veil could be pierced to hold both liable for damages.
Vital facts. Perez stems from a wrongful death action following a fatal truck accident. “Driver” of a tractor-trailer struck the decedent’s vehicle. Defendant “Transfer Co” owned the tractor-trailer and employed Driver. Two brothers started the company in 2010 to haul certain construction materials. Transfer Co owned trucks/trailers and employed 12 drivers. “Farm Co,” also named as a defendant, was created in 1991 and specialized in the transportation of certain farm products. Farm Co had about 47 trucks and 62 employees. The two brothers that owned Transfer Co also owned Farm Co.
Procedural history. The Plaintiff estate, after settling with Transfer Co, sought to hold Farm Co liable for the accident. Farm Co filed a motion for summary judgment.
Key rules. Generally, in Indiana, the “alter ego doctrine” provides that one corporation can be liable for another corporation’s actions “when the one so organizes or controls the other's affairs as to use it as a mere instrumentality or adjunct, often with the goal of shielding itself from liability.” The fact-intensive, two-pronged analysis must establish that the two corporations “are acting as the same entity” and that the “misuse of the corporate form would constitute a fraud or promote injustice.” However, Indiana is “reluctant to disregard the corporate form.”
Prong one looks to many factors, including the “intermingling of business transactions, functions, property, employees, funds, records, and corporate names in dealing with the public.” Further, courts look to whether “(1) similar corporate names were used; (2) the corporations shared common principal corporate officers, directors, and employees; (3) the business purposes of the corporations were similar; and (4) the corporations were located in the same offices and used the same telephone numbers and business cards.”
Prong two (fraud/injustice) must result from the misuse of the corporate form. “Only when the corporations ‘disregard the separateness of [their] corporate identity and when that act of disregard causes the injustice or inequity or constitutes the fraud that the corporate veil may be pierced.’”
Holding. The U.S. District Court for the Northern District of Indiana granted the motion for summary judgment and dismissed Farm Co from the case.
Policy/rationale. The Court reasoned that, while there was evidence Transfer Co and Farm Co may have acted as alter egos (prong one), the misuse of the corporate form did not cause an inequity or injustice (prong two). There was no nexus between acts of the alter egos and the alleged injustice, which was that Plaintiff could not fully collect on the judgment. In fact, the Plaintiff offered no evidence of inequity or injustice at all, “much less a causative link back to the alleged acts of a merged identity.” The Court reasoned:
Nothing on this record indicates that [Transfer Co] has proven defunct, insolvent, or incapable of financing a settlement or judgment to make the estate whole. Nothing on this record indicates that [Farms Co] erected or used [Transfer Co] as a shield (or vice versa) to evade liability or that the estate would be inequitably foreclosed from recovery.
Please review the opinion for more details applicable to the fact-sensitive analysis of the Court. Perez is an example of the challenges facing litigants who are trying to pierce the corporate veil, particularly where, as here, the alter ego nature of the business relationship may not have been designed to harm, or otherwise avoid liability to, the Plaintiff.
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