31. MTS officers leased automobiles from T & L without formal lease agreements.
32. While out of the country Semack and Kavula left signed blank checks on MTS accounts to be used by Gelman to pay MTS bills.
33. The controller of Holt Hauling, John Evans, ("Evans") visited the MTS offices in New York on a weekly basis. Evans supervised MTS's accounts receivable and payable and assisted MTS in setting up accounting records. Evans took MTS accounts receivable freight checks and delivered them to First Pennsylvania Bank.
34. Employees of MTS were told by Thomas Holt not to communicate with the First Pennsylvania Bank regarding financing.
35. Evans prepared MTS's 1975 Federal Corporate Income Tax Return, as well as a formal request for an extension of time to file MTS's return. In doing so he signed his name as "controller" of MTS.
36. MTS's tax records, including various state income and city wage tax records, were kept at 701 North Broadway, Gloucester City, New Jersey, offices of Thomas Holt and some of the Holt corporate defendants.
37. Thomas J. Holt, Holt Cargo, Sobelman, T & L, and Waterside-Pennsylvania all maintained accounts at First Pennsylvania Bank. Along with MTS, they were considered one "account" by the officers of First Pennsylvania Bank.
38. Evans, Gelman, Lorraine Robins and other personnel of the Holt corporate defendants handled all MTS banking transactions with MTS's principal lender, First Pennsylvania Bank.
39. As of October 1, 1976 advances had been made to MTS by Holt-controlled companies in the amount of $ 1,936,327.94.
40. Financial statements prepared by Holt personnel showed MTS's capitalization as either $ 50.00 or $ 100.00.
41. New York attorneys for Thomas Holt and for certain Holt corporate defendants represented MTS in various legal matters.
42. On September 16, 1980, default judgment was entered against MTS for failure to appear, plead, or otherwise defend.
43. Credit inquiries about MTS were directed by all parties to Vincent DiPatre at First Pennsylvania Bank ("DiPatre").
44. DiPatre received credit inquiries from plaintiffs Realco, Interpool, CTI, SSI, Nippon and Gil-Flex. In response to those inquiries, DiPatre told plaintiffs that MTS was a "start-up operation" and that First Pennsylvania was not relying on the credit of MTS in advancing funds to MTS. DiPatre informed some people who inquired that the loans to MTS were guaranteed by certain Holt-controlled companies.
45. On January 1, 1976, Semack signed a "User Membership Agreement" with Realco, setting the conditions of MTS's use of Realco trailers, as President of and on behalf of MTS. On December 1, 1975, Jack Kavula signed a membership agreement with Interpool as "Sr. Vice President" of MTS and "for" MTS. On October 28, 1975 Semack signed an ICS "Master Lease Agreement" as "President" of "lessee", which was the designation given to MTS in the preamble. Plaintiffs have offered no evidence to show that Semack or Kavula signed any container leases in an individual capacity, or that Thomas Holt or any of his employees signed any lease agreements for containers.
46. Thomas Veljacic ("Veljacic") was traffic manager for MTS. He told George Basso ("Basso"), a representative of CTI, that Thomas Holt was a "backer" of MTS, a term he used after he was told by Kavula that Thomas Holt was a "backer". Veljacic understood the word "backer" to mean "investor". Veljacic directed Basso to MTS's accounting department for the necessary credit references.
47. Khalil El-Nahrawy ("Khalil") was an accountant at MTS for four or five months in 1977. Khalil directed MTS employees to forward incoming bills to Holt's offices in Gloucester City. Khalil testified that Evans, told him that Thomas Holt, John Kavula, and Paul Semack were partners in MTS. Khalil also testified that Evans drew for him a flow chart showing the "relationship" of Holt, his controlled companies and MTS. The chart, if it ever existed, did not show any percentages of ownership or control, but merely that Thomas Holt owned, concurrently, an interest in certain companies and in MTS.
II. Conclusions of Law
Plaintiffs contend that Thomas Holt, the corporate defendants, Semack, and Kavula should be held liable for the debts of MTS. Plaintiffs assert the following legal theories to support that contention:
1. Thomas Holt, the corporate defendants, Semack, and Kavula were engaged in a joint venture with one another and MTS; or
2. The same parties were engaged in a partnership;
3. MTS was an agent for Thomas Holt and the corporate defendants, who acted as MTS's undisclosed principal.
Plaintiffs assert that the corporate identity of MTS must be disregarded "in order to prevent the perpetration of fraud, injustice and inequity." (Plaintiff's trial brief at 3). The Court cannot, however, treat this last assertion as a separate theory of liability, except as to the shareholders of MTS: Semack, Kavula and Holt or Waterside-Pennsylvania. Instead, the "piercing" question is really the threshold over which plaintiffs must cross before they can assert that any of the defendants were actually a joint venture, a partnership, or principals.
A. Piercing the Corporate Veil, or Disregarding the Corporate Entity.
The vast majority of plaintiffs' case consisted of a showing that Thomas Holt and the Holt-controlled companies exercised "dominion and control of the operations of MTS." (Plaintiffs' trial brief at 2). This control, assert plaintiffs, yields responsibility for MTS's corporate actions, because "plaintiffs' damages are the result of that dominion and control." Id. Because of their responsibility, plaintiffs claim, the corporate form of MTS should be disregarded.
The generally accepted "classic statement"
of the prevailing legal standard for "piercing the corporate veil" is
that a corporation will be looked upon as a legal entity as a general rule and until sufficient reason to the contrary appears; but when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.
United States v. Milwaukee Refrigerator Trans. Co., 142 F. 247, 255 (E.D.Wis.1905).
Plaintiffs quote the analysis of a New York state court. The Court finds the analysis to be apposite and useful.
In Lowendahl v. B & O Railroad, 247 App.Div. 144, 287 N.Y.S. 62, aff'd 272 N.Y. 360, 6 N.E.2d 56 (1936), the court held that in order for a court to allow a piercing of the corporate veil, the facts must demonstrate:
(1) control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and
(2) such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and