conduct. See Elph's Response Brief, at 16-24. However, a fair reading of this testimony demonstrates that it concerns J. Peter Graeffe's calculation of damages accruing after 1987. Since Elph released all claims arising before 1987, any damages which might have arisen after 1987 as a result of pre-1987 conduct are also released. See Bernstein v. Kapneck, 430 A.2d at 605 (clear and unambiguous release for consideration bars claims for unanticipated injuries which surface subsequent to the contract's execution).
Elph has failed to demonstrate any evidence that the conduct of which Elph is complaining occurred after the 1987 Asset Transfer Agreement. In the face of the compelling deposition testimony of J. Peter Graeffe presented by Movants, we find Elph's counterclaims are barred against all signatories of the release and their successors.
B. "Alter-Ego" Liability of Pennzoil
Pennzoil is the only non-signatory to the 1987 Asset Transfer Agreement. The release, therefore, does not absolve Pennzoil of liability in this matter. Nonetheless, many of Elph's claims are directed at Pennzoil as the "alter-ego" of JLI. We now address whether Elph has put forth "alter-ego" evidence sufficient to withstand Movants' motion for summary judgment.
As a preliminary matter, we must determine which of Elph's claims require a showing that Pennzoil is the alter-ego of JLI. Movants assert that all of Elph's claims, with the exception of its RICO claims, require as a prerequisite the showing of alter-ego liability. They point to the following paragraphs in Elph's First Amended Counterclaim and Third Party Complaint: PP 106, 114, 115, 117, 120, 122, 127, 128, 132, 133, 135, and 137. Movants argue that these paragraphs demonstrate that Counts One through Six require a showing of alter-ego liability. Count Seven, Movants assert, does not seek relief from Pennzoil or Pennzoil Products. Count Seven seeks an injunction prohibiting JLI and its related entities from declaring Elph in default of any payment obligations to JLI and its related entities. Movants argue that nowhere in the Amended Counterclaim and Third Party Complaint is there any allegation that Elph has any payment obligations to Pennzoil or Pennzoil Products that could be declared in default. Counts Eight, Nine and Eleven do not specifically concern Pennzoil. Finally, Count Ten (RICO) is treated separately in Movants' brief.
Elph argues that Counts Five, Six and Seven do not necessitate a finding of alter-ego liability in order for Elph to recover against Pennzoil and Pennzoil Products.
See Elph's Response Brief, at 31. Instead, Elph asserts that it seeks relief from Pennzoil for wrongs committed by Pennzoil and Pennzoil Products themselves. While we agree with Movants that Counts Five, Six and Seven do make reference to Pennzoil's alleged scheme to influence or control the planning and operational decisions of JLI, we read these Counts as seeking to impose liability directly on Pennzoil for its individual actions. For example, P 139 of Count Five alleges that Pennzoil "intentionally, improperly and unjustifiably induced or caused JLI to breach its agreements with Elph." And Count Six alleges that Pennzoil conspired with JLI to, among other things, "build the Jiffy Lube system for their own benefit and to the detriment of Elph." These claims for intentional interference with contractual relations and conspiracy do not require a finding of Pennzoil's alter-ego relationship with JLI in order to create liability for Pennzoil. Count Seven's equity claim similarly does not require a showing of alter-ego liability.
We will accept Elph's interpretation of its own counterclaim and third-party complaint as asserting direct liability against Pennzoil in these Counts. Thus, we analyze the sufficiency of proof with respect to Counts One through Four only.
Pennsylvania requires a very high showing of domination and control in order to establish "alter-ego" liability. To begin with, courts "start from the general rule that the corporate entity should be recognized and upheld, unless specific, unusual circumstances call for an exception." First Realvest Inc. v. Avery Builders, Inc., 410 Pa. Super. 572, 600 A.2d 601, 604 (Pa.Super. 1991).
In order to recover, the party seeking to pierce the corporate veil on an alter-ego theory must establish "that the controlling corporation wholly ignored the separate status of the controlled corporation and so dominated and controlled its affairs that its separate existence was a mere sham." Culbreth v. Amosa (Pty) Ltd., 898 F.2d 13, 14 (3d Cir. 1990). Alternatively, it is necessary to show that "the controlled corporation acted robot- or puppet-like in mechanical response to the controller's tugs on its strings or pressure on its buttons." Id., at 15. The relevant facts for piercing under an alter ego theory include:
(a) insufficient capitalization; (b) intermingling of funds; (c) other officers and directors were not functioning; (d) failure to observe corporate formalities; (e) failure to pay dividends; the fact that the corporation is a facade for the operations of the dominant shareholder.
Thompson v. Glenmede Trust Company, 1993 U.S. Dist. LEXIS 7677 at *31 (E.D.Pa. June 8, 1993); see also Village at Camelback v. Carr, 371 Pa. Super. 452, 538 A.2d 528, 535 (Pa. Super. 1988); aff'd, 524 Pa. 330, 572 A.2d 1 (1990).
Elph presents five types of evidence which it claims demonstrates Pennzoil's alter-ego liability for the actions of JLI: (i) the participation of Pennzoil and Pennzoil Products employees on JLI's Board of Directors; (ii) Pennzoil's and Pennzoil Products participation in JLI's strategic planning; (iii) Pennzoil's and Pennzoil Products' rights over the common stock of JLI; (iv) JLI's dependency and reliance on Pennzoil's and Pennzoil Products' financial resources in connection with real estate development, acquisition of operating quick lube centers, and working capital loans to franchisees; and (v) agreements between Pennzoil, Pennzoil Products and JLI intended to control JLI's ability to negotiate alternative sources of funding.
While this evidence shows varying degrees of cooperation, coordination and even interdependence between Pennzoil and JLI, we find insufficient evidence of Pennzoil's domination and control of JLI to withstand summary judgment. We cannot say that JLI's existence constituted a mere sham. What's more, Elph has failed to demonstrate evidence of a single one of the Thompson factors listed above.
Each category of Elph's evidence lacks indicia of domination and control. First, Elph's evidence of Pennzoil employees on JLI's board of directors falls outside of the time periods relevant to Elph's claims. The first period of time during which Pennzoil and Pennzoil Products employees sat on JLI's board ended over a year and a half before Elph first had any contact with JLI in October, 1984. (See Exhibit "E" of Elph's Appendix; Exhibit "A" to Movants' Surreply Brief). The second period of time that Pennzoil employees sat on JLI's board, after January 8, 1990, began only after JLI's allegedly wrongful conduct towards Elph occurred.
Thus, Pennzoil representation on JLI's board of directors did not occur during the relevant period. Furthermore, even if the two corporations had shared some directors and officers, this alone is not evidence of alter-ego liability if corporate formalities continue to be observed. Iron Worker's Savings and Loan Ass'n v. IWS, Inc., 424 Pa. Super. 255, 622 A.2d 367, 376 (Pa. Super. 1993).
Elph points to the fact that on January 8, 1990, Pennzoil acquired 80% of the common stock of JLI.
We have already found, however, that all of the damages Elph seeks to recover were allegedly suffered as a result of JLI's actions before October 26, 1987. Thus, Pennzoil's 1990 80% acquisition of JLI took place after the occurrence of JLI's allegedly wrongful behavior. In addition, without a showing of control, "subsidiaries, even if wholly-owned, are presumed separate and distinct entities from their parent corporations." Clark v. Matsushita Electric Industrial Company, 811 F. Supp. 1061, 1067 (M.D.Pa. 1993).
Elph next presents evidence of alleged control of JLI's strategic planning. This evidence consists of the following: a letter from W.E. Welcher of Pennzoil Products to W.J. Hindman of JLI, in which Mr. Welcher offers comments on JLI's business plan in connection with a financing transaction that Pennzoil Products was negotiating with JLI; a letter from Arnold Janofsky of JLI to Paul Siegel of Pennzoil which led to Pennzoil's October, 1981 purchase of 10,000 shares of preferred stock of JLI;
and a letter from W.J. Hindman of JLI to William E. Welcher of Pennzoil in which JLI proposed a strategic business plan to Pennzoil to make Pennzoil JLI's preferred oil and lubrication supplier in 20 markets over five years.
This evidence does not rise to a level of domination or control of JLI's decision making. It merely suggests a degree of inter-firm cooperation that is consistent with a significant vendor-vendee relationship. Pennzoil, as a guarantor of a major JLI borrowing, was well within its rights to offer business advice to JLI. See Krivo Industrial Supply Co. v. National Distillers and Chemical Corp., 483 F.2d 1098, 1105 (5th Cir. 1973) (a creditor of a company is "largely interested in the prosperity of the company, and most naturally should desire to keep an oversight over its doings").
The remainder of Elph's evidence involves a number of contractual agreements between Pennzoil and JLI. As pointed out by Movants, Elph cites this evidence without explaining why these various agreements, negotiated at arm's length, result in a showing of domination and control. These contracts cover areas such as the creation of a limited partnership between JLI and Pennzoil and others to raise funds for the creation of new Jiffy Lube Service Centers, and Pennzoil's contribution to JLI's national advertising fund and discontinuance of its support of independent Pennzoil quick lube centers in exchange for designation of Pennzoil as the "oil of choice" in the Jiffy Lube system.
These many contractual relationships between JLI and Pennzoil are simply not probative of any day to day control of JLI's operating affairs by Pennzoil. See e.g. Krivo Industrial Supply, supra, at 1104-1105 (debtor-creditor relationship does not constitute control under an instrumentality theory). Elph has offered no evidence that corporate formalities were in any way disregarded or abused. Absent such evidence, Movants are entitled to summary judgment on Counts One through Four as against Pennzoil.
C. RICO Claims
Movants assert that there is a fatal failure of proof with respect to Elph's RICO claims in Count Ten of Elph's First Amended Counterclaim and Third Party Complaint. Elph is proceeding under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.A. §§ 1962(a), 1962(b) and 1962(d). We treat these three sections separately.
i. § 1962(a)
Section 1962(a) provides in pertinent part:
It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of any unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
18 U.S.C. § 1962(a). As the Third Circuit has stated, this "provision was primarily directed at halting the investment of racketeering proceeds into legitimate businesses, including the practice of money laundering." Brittingham v. Mobil Corp., 943 F.2d 297, 303 (3d Cir. 1991).
Under this section, a plaintiff must demonstrate that the defendant: (1) received money from a pattern of racketeering activity; (2) invested that money in an enterprise;
(3) that the enterprise affected interstate commerce. Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1188 (3d. Cir. 1993). "Furthermore, the plaintiff must allege an injury resulting from the investment of racketeering income distinct from an injury caused by the predicate acts themselves." Id. Section 1962(a) "is directed specifically at the use or investment of racketeering income, and requires that a plaintiff's injury be caused by the use or investment of income in the enterprise." Brittingham, supra, at 303.
Movants assert that Elph lacks any evidence of this latter requirement - that Elph was injured by Movants' use or investment of racketeering income. In response, Elph quotes at length from the allegations contained in its responses to Movants' RICO interrogatories. See Elph's Response Brief at pages 64-68. Movants argue that this evidence is insufficient for two reasons: first, that Elph has failed to show how its injuries were the result of the use and investment of racketeering income, rather than injuries caused by the predicate acts themselves; second, that Elph's answers to interrogatories are not evidence, but merely allegations and theories.
We agree. Elph's recitation of its responses to Movants' RICO interrogatories fails to demonstrate any harm incurred by Elph as a result of the use and investment of racketeering income. For example, Elph's RICO response no. 55, quoted in Elph's Response Brief at page 68, supposedly provides the "factual basis of the violation of 18 U.S.C. § 1962(a)." The Response reads, in pertinent part:
. . . Had Pennzoil and Pennzoil Products not used the income derived from the pattern of racketeering activity to financially prop up a nonviable JLI with the intent of acquiring, through the wrongful acts articulated herein, the largest distribution channel for motor oil in the country at a cost per distribution center believed to be a fraction of the investment for similar distribution channels made by competitors, Elph and other Jiffy Lube franchisees would not have elected to purchase and pursue the development of these franchise business opportunities as JLI and its franchise business concept would have appeared on their face to any prudent investor to be financially unsound.