with the plaintiff "effective June 30, 1976," in violation of the sixty-day notice provision, "thereby wrongfully preventing [the plaintiff] from approaching prospective new customers and earning additional commissions and rights to commissions . .. for the full 60 days after notice of termination." Id. P 5. The next day, again by letter, defendant Camp Trails modified the termination by agreeing to pay commissions to the plaintiff on orders that Camp Trails received by August 31, 1976. Exhibit C to Complaint. This arrangement "[terminated] effective August 31, 1976 [the plaintiff's] right to commissions on all orders from the customers procured by" it for Camp Trails. Complaint para. 6. After August 31, 1976, defendant Camp Trails and Johnson Wax wrongfully "refused to pay to [the plaintiff] commissions on orders taken by [defendant Camp Trails] from those customers originally procured by [the plaintiff]," and "refused to compensate [the plaintiff] for the value of [its] efforts and [its] success in building up the Camp Trails product line in [its] territory." Id. pp. 9, 10.
Count II of the complaint, which also sounds in contract, is based on the failure of defendants Camp Trails and Johnson Wax to pay to the plaintiff "commissions due from sales made in the State of New Jersey by one Mel Mittler, the New York City Representative, during the period beginning the summer of 1972 and continuing through and beyond January 1, 1973 when Camp Trails did unilaterally reform [the plaintiff's] territorial privileges." Id. P 12.
Count III of the complaint, which sounds in tort, is based on a letter circulated in June of 1976 by defendants Camp Trails and Johnson Wax that was "understood by members of the trade to imply false and defamatory judgments concerning an unsatisfactory change in the quality of services performed by [the plaintiff]." Id. P 14. This letter, in conjunction with false statements made by defendants to Camp Trails' customers, caused the plaintiff "to suffer damage to [its] business reputation among these many firms of the trade and loss of goodwill." Id. P 15.
Count IV of the complaint, which also sounds in tort, is the only count that also runs against defendant Maguire/Lemay Associates, Inc., the firm that succeeded the plaintiff as Camp Trails' agent and representative. The complaint alleges that the three defendants maliciously performed certain acts in furtherance of a conspiracy to deprive the plaintiff of its employment with Camp Trails and to cause Maguire/Lemay Associates to succeed the plaintiff in that capacity.
COUNTS I AND II
With respect to counts I and II of the complaint, which sound in contract, Camp Trails initially argued that the plaintiff contracted in 1966 with the Camp Trails division of Mechanical Products Company, rather than with defendant Camp Trails Company, which was formed in 1972. Joint Memorandum of Law (Document No. 5) at 5-6. "Without some allegation tying defendant Camp Trails . . . to the earlier agreement, no claim can be sustained against it on either Count I or Count II . . ., both of which allege breach of the 1966 agreement." Id. 6. However, the plaintiff has since filed an amended complaint that explicitly alleges that defendant Camp Trails assumed "all obligations" under the contract. Complaint para. 3. The argument is thus unavailing.
Defendant Johnson Wax further argues, with respect to counts I and II, that it entered into no contract with the plaintiff and that it cannot be held liable for any breach of contract committed by its wholly-owned subsidiary, defendant Camp Trails. Joint Memorandum of Law (Document No. 5) at 3-5. The plaintiff, conceding that Johnson Wax was not a party to the contract in issue, nevertheless urges that defendant Camp Trails was and is a "mere instrumentality" of its parent corporation, Johnson Wax, and that Johnson Wax therefore may properly be held liable on that contract. Memorandum of Law in Opposition to Defendants' Joint Motion (Document No. 12) at 2-4.
Ordinarily, of course, a stockholder is not liable on contracts entered into by the corporation, even where that stockholder is the parent corporation and owns all outstanding shares in the subsidiary that entered into the contract. See 13A W. Fletcher, Cyclopedia of the Law of Private Corporations §§ 6213, 6222 at 33 (1961 ed.). The plaintiff contends, however, that the so-called "instrumentality rule," often traced to Lowendahl v. Baltimore & O.R.R., 247 App. Div. 144, 287 N.Y.S. 62, aff'd, 272 N.Y. 360, 6 N.E.2d 56, 290 N.Y.S. (1936), permits a court to pierce the corporate veil and impose liability on the parent corporation for the debts of a subsidiary that is a "mere instrumentality" of the parent. Johnson Wax, by way of response, argues that the "instrumentality rule" applies only where the subsidiary corporation has engaged in fraudulent, tortious, or criminal conduct, as distinguished from simple breach of contract.
In resolving this issue, I "start from the general rule that the corporate entity should be recognized and upheld, unless specific unusual circumstances call for an exception." Zubik v. Zubik, 384 F.2d 267, 273 (3d Cir.) (citation omitted), cert. denied, 390 U.S. 988, 19 L. Ed. 2d 1291, 88 S. Ct. 1183 (1967); see Technograph Printed Circuits, Ltd. v. Epsco, Inc., 224 F. Supp. 260, 263-64 (E.D. Pa. 1963). Thus, absent a compelling basis for departing from the general rule, Camp Trails, the corporation, rather than Johnson Wax, the sole shareholder, is liable for any breach of contract. In the Third Circuit's formulation, "the appropriate occasion for disregarding the corporate existence occurs when the court must prevent fraud, illegality, or injustice, or when recognition of the corporate entity would defeat public policy or shield someone from liability for a crime." Zubik v. Zubik, supra, 384 F.2d at 272 (citations omitted).
The plaintiff, however, does not attempt to bring the present action within this formulation; it alleges no fraud, no illegality, no undercapitalization, nor anything else to distinguish this case from the garden-variety contract case. Nor does the plaintiff cite a single decision in which, despite the absence of fraud or illegality, the "instrumentality rule" was applied to allow recovery against the parent corporation on a contract entered into by the subsidiary.
Under the circumstances, this case is controlled by Chengelis v. Cenco Instruments Corp., 386 F. Supp. 862 (W.D. Pa.), aff'd mem., 523 F.2d 1050 (3d Cir. 1975). The plaintiffs in Chengelis entered into three contracts, including a royalty agreement, with Chemlime Corporation, which they knew to be a wholly-owned subsidiary of Cenco Instruments Corp. Following an alleged breach of the royalty agreement, they brought a diversity action against Cenco, the parent corporation, arguing that Chemlime was merely Cenco's "alter ego." Judge Weber, apparently applying Pennsylvania law, wrote:
"There is abundant evidence in the record to show a close relationship between Cenco and Chemlime. We do not reach the question of whether the evidence is sufficient to establish the 'alter ego' relationship argued for by plaintiffs, however, because there is no proof that the corporate form of the subsidiary was used by the defendant to perpetrate a fraud or promote an injustice akin to fraud. Absent the element of fraud or injustice akin to fraud, we cannot disregard the corporate structure of Chemlime and impose liability on its parent, Cenco . . ..
There is no allegation in the instant case that Chemlime was acquired by Cenco with the intention of its misuse to plaintiffs' detriment. There is no proof that at the time Chemlime executed its agreements with plaintiffs Cenco concealed its relationship with Chemlime or used its control over Chemlime to defraud or deceive plaintiffs. There is no evidence that Cenco had any specific corporate opportunities in mind which dictated the form of Chemlime's agreements with plaintiffs. Conversely, the evidence shows that plaintiffs executed a contract which bound only the subsidiary and not the parent corporation notwithstanding plaintiffs' knowledge of the interrelation of the two. We can find no obligation of Cenco . . . to insure plaintiffs' receipt of royalty payments under their agreement with Chemlime."