Trebon Euro. Spec. U.S.A., Inc. v. Piedmont Provisions, Inc.

98-208 (U.S. Dist. Ct. D. N.J. 2000) (Unpublished)
  • Opinion Date: March 16, 2000

CORPORATIONS; VEIL PIERCING—Failure to observe corporate formalities, undercapitalization, non-payment of dividends, absence of corporate documents, and operating a corporation as a facade for the operations of the dominant shareholder are factors that can lead to piercing its corporate veil.

A manufacturer sold sausage to a retailer of food products. The retailer ordered and picked up sausage on thirteen different occasions, but failed to pay any amount for the products. It then declared bankruptcy. The manufacturer sought a judgment against both the retailer and its president. With respect to the company’s president, the manufacturer charged that he was the company’s alter ego. It reached this conclusion because the president “disregarded corporate formalities” in that the company had no corporate agent, stock certificates, bylaws, corporate minutes, or corporate books and accounts. It also claimed that the president failed to treat the company as a separate business entity. Further, the “corporation [had] no liability insurance, [had] not filed tax returns, [had] no bank statements, ledgers, or current corporate records.” Additionally, financial records indicated that the president used the company’s assets for his family’s personal use. Finally, the president’s own testimony indicated that the company was undercapitalized, in that it had no money in its capital account. The Court awarded summary judgment against the company’s president. “Courts may pierce the corporate veil where the corporation cannot be distinguished from its owner; the corporation serves as the owner’s alter-ego. Certain factors assist in this determination: A failure to observe corporate formalities, non-payment of dividends, insolvency of the debtor corporation at the time, siphoning of funds of the corporation by the dominant shareholder, non-functioning of other officers or directors, absence of corporate records, and the fact that the corporation is merely a facade for the operations of the dominant stockholder or stockholders.” Comparing the facts of this case to the standards, the Court felt it “appropriate to pierce the corporate veil” and hold the president responsible for the company’s wrongs.