USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

____________________

No. 97-1133

SANDRA CRANE, FUND MANAGER,

Plaintiff, Appellant,

v.

GREEN & FREEDMAN BAKING COMPANY, INC., ET AL.,

Defendants, Appellees.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington, U.S. District Judge]

___________________

____________________

Before

Selya, Circuit Judge,

_____________

Coffin and Campbell, Senior Circuit Judges.

_____________________

____________________

David C. Jenkins,
__________________

with

whom

Matthew E. Dwyer,
_________________

Christine
__________

Nickerson and Dwyer & Jenkins, P.C. were on brief for appellant.
_________
_____________________
Adam S. Elman for appellees.
_____________
____________________

January 20, 1998

____________________

CAMPBELL, Senior Circuit Judge.

_____________________

The

terms of

collective

bargaining agreement

required

Green &

Freedman

Baking Company, a Massachusetts corporation, to make periodic

payments

on

behalf of

England Teamsters

Insurance Fund.

its

unionized

and Baking

drivers to

Industry

the

New

Health Benefits

and

After experiencing financial

difficulties,

Green & Freedman ceased to make the agreed-upon contributions

and

transferred all remaining

named Boston

Bakers, Inc.

Benefits and Insurance

assets to a

The Fund

successor entity

Manager of

the Health

Fund (referred to hereinafter

as the

"Health Fund") thereupon sued Green & Freedman, Boston Bakers

and the

two

corporations'

principals,

Stanley Elman, in the district

Richard

Elman

and

court to recover the payments

owed by Green & Freedman with interest, costs

and penalties.

Both

the delinquent

Health

Fund.

corporate defendants

conceded liability

for

contributions owed by Green & Freedman to the

The

Elmans,

however,

denied

they

were

personally liable for these corporate debts, and a jury trial

took place to

determine that issue.

After the presentation

of evidence, and before submission to the jury, the

court entered judgment

Elmans,

as a matter

pursuant to Federal

The Health Fund appeals.

of law

Rule of Civil

We affirm in

part.

-2-

district

in favor of

the

Procedure 50(a).

part and reverse

in

I.

Background
__________

Defendant-Appellee Green &

("Green

&

Freedman")

was

Freedman Baking Company

family-owned

Massachusetts

corporation formed in 1934 that produced and sold baked goods

until,

on

January

15,

1993,

its

remaining

assets

were

transferred

in bulk to Appellee Boston Bakers, Inc. ("Boston

Bakers").

Boston

Bakers

operated

essentially

the

business as Green & Freedman until its demise in 1995.

same

Starting

in

1975,

responsibility

Freedman's affairs

rested with

Elman

Elman, grandsons

and Richard

founders.

in

and

by 1969

&

Defendants-Appellees Stanley

became its

he occupied through

its successor's

Green &

Green

of one

of the

company

Stanley Elman started working for Green & Freedman

1959 and

positions

for

the end of

existence.

Freedman in 1964 and

treasurer and

Richard

a director,

the corporation's

Elman began

served as its President

with

and a

director from 1975.

Prior to

transferring its assets

as of January 15, 1993,

and 18 truck

Green & Freedman employed between 12

drivers who were members of

and Helpers Local 494.

to Boston Bakers

the Bakery Drivers

The union drivers' wages, hours, and

conditions

of

employment

bargaining

agreement between the Union and Green & Freedman,

effective from May 5,

required Green

&

were

governed

1991 to May 1,

Freedman to

by

1994.

contribute $88

That

collective

agreement

per week

for

-3-

every

covered worker to the New England Teamsters and Baking

Industry

Fund's

Health Benefits

contractual

protected by

and Insurance

right to

Fund.

contribution

The

Health

was additionally

515 of the Employee Retirement Income Security

Act ("ERISA"),

29 U.S.C.

obligation

any

of

1145 (1985),

employer who

which doubles

promises

in

the

a collective

bargaining agreement to make contributions to a multiemployer

benefits or pension plan.

From

the

Elmans

1991, Green &

described

irreversible, decline

April

in

as

Freedman began to

in sales

serious,

and

and profits.

suffer what

ultimately

Beginning

in

1992, and continuing until its business was terminated

January 15,

required

Freedman's

1993, Green

contributions

unpaid

to

& Freedman

the

stopped making

Health

contributions for

this

Fund.

Green

its

&

period, totaling

$39,776, are

the

basis for

the liability

the Health

Fund

seeks to impose in this action.

By

December

transfer all of

1992,

the

Elmans

had

Green & Freedman's assets to

decided

to

a newly-formed

corporate shell entitled Boston Bakers, Inc., pursuant to the

bulk

transfer

provisions

Commercial Code.

of

the

Massachusetts

See Mass. Gen. Laws ch. 106,

___

110 (1990), repealed,

________

Mass. Acts 1996 ch. 160,

Uniform

6-101 to 6-

3 (1996).1

____________________

1.

Although

repealed

U.C.C. Article 6
the

in

1996,

the

still applies to bulk

former

Massachusetts

transfers that, like

Boston Bakers transaction, occurred prior to the repeal.

-4-

Boston

Freedman's

Claire

by

the

Bakers was simply a continuation of Green &

business.

Its

nominal and sole

shareholder was

Lank, a long-time Green & Freedman employee installed

Elmans.

corporation's

directors.

The

Elmans

were

officers and, along

A voting trust

continue exercising

designated as

the

with their wives,

with Lank enabled the

complete control

of Green

new

as its

Elmans to

& Freedman's

assets, once transferred, in the form of Boston Bakers.

The bulk transfer shifted all of Green & Freedman's

assets,

$500,000,

which were then worth somewhere between $480,000 and

to

Boston

assumed Green

Bakers.

In

exchange,

& Freedman's secured debt.

Boston Bakers

The secured debt,

which totaled $498,498.17, was owed to two secured creditors:

U.S.

Old

Trust, the company's

institutional lender, and

Colony Avenue Realty Trust

estate trust that owned the

of the Elmans.

Green &

the 75

(the "Realty Trust"), a real

company's plant for the

benefit

U.S. Trust held a security interest in all of

Freedman's property, both

acquired, while

the

Realty Trust

then-owned and thereafter

held

a mortgage

on

the

plant.

As

part of the

bulk transfer, Boston

Bakers gave

Green & Freedman a promissory

for

worth

the benefit of

$32,798.99.

note, which Boston Bakers held

Green & Freedman's

unsecured creditors,

That amount left the unsecured creditors,

____________________

See 1996 Mass. Acts ch. 160,

___

5.

-5-

including the

Health Fund,

with claims

worth roughly

five

cents on the dollar.

As

hesitation,

required by law,

after some

announced the bulk transfer to creditors in late

December 1992 and

Gen. Laws

Green & Freedman,

provided a list of its assets.

See Mass.
___

6-104 to 6-106, repealed,

________

Mass. Acts

ch. 106,

1996

ch. 160,

3.

The Health Fund

this

action in

the

federal district

initial form, sought,

against the transfer

the transfer to

inter alia,
_____ ____

court

the

515,

district

which, in

a preliminary

of Green & Freedman's

violate ERISA

1993,

responded by bringing

injunction

assets, alleging

29 U.S.C.

court

its

denied

1145.

On

January

12,

injunctive

relief.

Three days later, the bulk transfer was consummated.

Boston Bakers thereafter carried on business in the

same manner as Green &

and equipment at

Freedman.

Employing the same workers

the same plant, it produced

of baked goods for the same customers.

unprofitable as Green & Freedman.

of

Boston

the same kinds

Bakers was as

After two-and-a-half years

continued difficulties, U.S. Trust foreclosed, and Boston

Bakers closed its doors in August 1995.

Elman's

testimony, which

was not

According to Richard

contradicted, the

Elmans

personally received no distribution in settling the company's

affairs.

-6-

Following the liquidation of Boston Bakers' assets,

the

of

Health Fund filed an amended complaint2 seeking recovery

the delinquent contributions

from Richard

Freedman

liability

make

had

Elman and Stanley

done

previously,

for the contributions

to the

Health

Fund

from both corporations, and

Elman as well.

Boston

As Green

&

Bakers

conceded

Green & Freedman

failed to

from April

1992

until the

bulk

transfer on January 15, 1993.

&

Freedman

and

Boston

Health Fund looked

With the assets of both Green

Bakers completely

liquidated,

to the Elmans personally for

Green & Freedman's delinquent contributions.

Health Fund's

Second

Amended

Elmans were personally

and

Freedman."

Complaint

premised

liability

on their

disregard for

identity,

alleging

that

recovery of

Count 3 of the

alleged

liable as the "'alter

Count

the

that

the

egos' of Green

Elmans'

personal

Boston Bakers'

the Elmans

the

completely

corporate

controlled

____________________

2.
by a

An

amended complaint dated March 1, 1995, was superseded

Second Amended Complaint dated July

complaints,

the

Health

Fund sought

Freedman's

defaulted

payments

bargaining

agreement

for

the

due
period

14, 1995.

recovery
under
April

for

the

In both
Green &

collective

1992

through

January 15, 1993,

totaling $39,770,

exclusive of

interest,

costs and liquidated damages.

Recovery from Green & Freedman

was sought under the contract,

and from Boston Bakers on the

theory

that, as

successor entity

Boston

Bakers was obligated to remit the latter's delinquent

contributions.

Recovery

sought because

they were allegedly

Freedman,

because

Bakers
over

and

with
it

Green &

from the two Elmans

they

owning no

corporate identity.

-7-

Freedman,

personally was

"alter egos" of

allegedly

fraudulent intent,

(although

to

established

exercised
stock),

and

Green &
Boston

complete control
disregarded its

Boston

Bakers and created

it with fraudulent

intent.

Both

parties requested a trial by jury.

At trial,

Richard

Elman,

witnesses.

at

the

and

Health Fund

Richard's

Barbara

Elman,

Elman

as

Counsel for the Elmans declined cross-examination

the time, planning to call

witnesses.

testimony

wife,

called Stanley

The Health

of

Claire

the Elmans later as their own

Fund also introduced

Lank,

who

had

the deposition

served

as

Green

&

Freedman's secretary before being installed as Boston Bakers'

nominal

the

shareholder.

admission of

bargaining

many

In addition, the parties stipulated to

documents recording

the

collective

agreement, the creation of Boston Bakers, and the

operation of Green & Freedman.

At the

close of

the Health

Fund's case-in-chief,

the Elmans moved for

law pursuant to

motion

judgment in their favor as

Rule 50(a).

The district

with respect to Count 3

stated in

Alman v.
_____

Fund had failed to meet the

Danin,
_____

1986), for

corporate veil-piercing

court left

open for the

that the

Elmans were

court granted the

and the liability of Green &

Freedman, ruling that the Health

criteria

a matter of

801 F.2d

in an

1 (1st

Cir.

ERISA case.

The

time being the Health

personally liable

Fund's claim

for Boston

Bakers'

liability.

The defense then called as its only witness Richard

Elman,

who testified

about the

-8-

creation

and operation

of

Boston

Bakers.

as a matter

The Elmans renewed their motion for judgment

of law.

Again relying

on Alman, the
_____

district

court allowed the motion.

The

Health

Fund

now

appeals

from

court's grant of judgment as a matter of law.

II.

Standard of Review
__________________

the district

To review a

grant of judgment as a

matter of law,

we stand in the district court's shoes and may affirm only if

the evidence did not furnish a

"legally sufficient basis for

a reasonable jury to find" for the non-moving party.

Civ.

P. 50(a)(1);

Auth.,
_____

105 F.3d

see also Coyante

_________ _______

17,

21

(1st Cir.

v.

Fed. R.

Puerto Rico Ports

__________________

1997).

This

standard

requires more than "a mere scintilla" of evidence in the non-

moving party's favor.

892 F.2d

1076,

1088

Fashion House, Inc. v.

___________________

(1st Cir.

1989).

inference, however, must be drawn in favor

party.

See Favorito v. Pannell,

___ ________
_______

K Mart Corp.,
____________

Every

reasonable

of the non-moving

27 F.3d 716, 719 (1st Cir.

1994).

In the instant appeal, we must decide whether there

was a legally sufficient basis

a reasonable jury to have

have imposed

in the evidence presented for

pierced the corporate veils and to

personal liability

on the

two Elmans

for the

conceded indebtedness to the Health Fund of both companies.

The legal standard

the corporate

for when it is proper to pierce

veil is notably

-9-

imprecise and fact-intensive.

Leading commentators state that "no

the

conditions under

disregarded

can

circumstances

which the

be stated

as

hard and fast rule as to

[corporate]

they vary

ed.),

consensus

and,

that

conversely of

according

be

to the

of each case," William M. Fletcher, 1 Fletcher

________

Cyclopedia of the Law of Private Corps.

_______________________________________

rev.

entity may

the

more

skeptically,

whole area

of

41.30, at 662 (1990

that

limited

"[t]here

is

liability, and

piercing the corporate veil, is among the most

confusing in corporate law," Frank H. Easterbrook & Daniel R.

Fischel, Limited Liability and the Corporation, 52 U. Chi. L.

_____________________________________

Rev. 89, 89 (1985).

Because a rigid test could not account for all

the

factual variety, the

federal common law standard

our Circuit for measuring

claim is somewhat

should

consider

an ERISA plaintiff's veil-piercing

open-ended.

"the

respect

[the]

separate

themselves

to

fraudulent

intent of

the

adopted in

We said in

paid

by

corporate

Alman that courts

_____

the

shareholders

identity;

[individual defendants];

the

and the

degree of injustice that would be visited on the litigants by

recognizing the corporate

identity."

Alman, 801
_____

F.2d at 4.

Of these three elements, "a finding of some fraudulent intent

is a sine qua non to the

remedy's availability."

Elec., Radio and Machine Workers

___________________________________

v.

See United
___ ______

163 Pleasant Street

____________________

Corp., 960 F.2d 1080, 1093 (1st Cir. 1992).

_____

-10-

Before

ruling in

light of these

another problem.

Health

examining the

district court's

criteria, we need to

The ERISA cause of action

Fund sued here, ERISA

Rule 50(a)

consider yet

under which the

515(a)(1)(3), authorizes only

injunctive or

U.S.C.

"other

appropriate

1132(a)(1)(3)

interpreted this cause

jury trial,

proceedings in

the

facts.

added).

Courts

have

See,
____

F.3d 853, 855 (9th Cir. 1993).

and other federal

consideration

responsibilities of judge

right to a

relief sought is monetary.

which the judge

No

29

of action as providing no

even when the

result, Alman
_____

relief."

(emphasis

e.g., Spinelli v. Gaughan, 12

____ ________
_______

As a

equitable
_________

precedent were

determined both the

was

given to

and jury in the

the

bench

law and

separate

applying of veil-

piercing criteria.

The

undertaken

jury trial

by the judge

here,

with the

not

being

consent of

of

right,

was

both parties.

Federal Rule

order a

of Civil

consensual jury trial

right by a

jury.

In such

effect as if trial by

Accordingly,

as if the jury

however,

allows

a judge

in actions not triable

cases, the "verdict has

the district

court's Rule

supposed to apply the

trial had been one

without

the

of right.

benefit

instructing on whether, and to

what

-11-

of

to

as of

the same

jury had been a matter of right."

in reviewing

determination, we are

here,

Procedure 39(c),

Id.
___

50(a)

same principles

We must

ERISA

do so

precedent

degree, the jury rather

than

the judge is

responsible for applying

the Alman veil_____

piercing factors.

While the absence of ERISA precedent on this aspect

is somewhat troubling, we conclude that, in a consensual jury

trial, it

court's, to

standards

is principally the

decide whether

were

met.

individual

liability

sufficient

to

do

The

only

so under

jury's function,

or not

jury,

if

the

Alman
_____

the Alman
_____

to

be

and not

veil-piercing

sure,

evidence

criteria.

the

is

can

find

minimally

Whether

the

evidence reaches

that threshold is

a question of law.

given the issue's fact-intensive nature, the legal

But

threshold

of evidentiary sufficiency is a relatively low one.

In reaching the above conclusion, we are influenced

by

have

the fact that federal courts,

held that veil-piercing

outside the ERISA context,

"is the sort

of determination

usually made by a jury because it is so fact specific."

Passalacqua Builders, Inc. v.

___________________________

933 F.2d

Wm.
___

Resnick Developers S., Inc.,

____________________________

131, 137 (2d Cir. 1991); see also FMC Finance Corp.
________ _________________

v. Murphree, 632 F.2d 413, 421 & n.5 (5th Cir. 1980) (holding
________

that, as

"the

a matter of

issue

federal procedure in

of corporate

entity

diversity cases,

disregard is

one

for the

jury").

Most state courts

adopt a similar approach.

See,
____

e.g., Pepsi-Cola Metropolitan Bottling Co. v. Checkers, Inc.,

____ ____________________________________
______________

754

F.2d 10, 14 (1st Cir. 1985)(applying Massachusetts law);

Castleberry
___________

v. Branscum,
________

721 S.W.2d

270,

277 (Tex.

1986)

and,

therefore,

jury

-12-

(treating

veil-piercing

as

factual

question).

that

Courts in

these jurisdictions

have emphasized

"[t]he conditions under which the corporate entity will

be disregarded vary according to the circumstances present in

each

case."

Electric Power Bd.

____________________

Structural Steel Corp., 691

_______________________

Even

jury,

where veil-piercing

the

courts

have

judge

decides

whether

reviewed the

526 (Tenn.

1985).

by

judge rather

than

held

the

question,

while

that

See, e.g., Smetherman v. Wilson,

_________ __________
______

73 (La. Ct. App. 1993)

examining the "totality

Alman we
_____

S.W.2d 522,

St. Joseph Valley

___________________

is decided

equitable, is one of fact.

626 So.2d 71,

v.

to

pierce

(explaining that trial

corporate

of the circumstances").

veil

after

Indeed, in

district court's determinations

that

the

individual defendants "had acted in

not

respected

minimally" as

[corporation's]

separate

"inferences" subject to

review accorded issues of fact.

bad faith" and "had

existence

even

the clearly-erroneous

801 F.2d at 4; see also Pipe

________ ____

Fitters Health and Welfare Trust v. Waldo, R., Inc., 969 F.2d
________________________________
_______________

718, 721

(8th

Cir.

1992)

(reviewing

ERISA

veil-piercing

decision for clear error).

In

jury,

assigning

we are

entitled

to a

before a jury.

we

now to

also

bench

veil-piercing

influenced by

trial, the

here

the

largely to

fact that,

parties agreed

the

although

to proceed

This choice would be next to meaningless were

hold that

the principal

contested issue

-- the

-13-

Elmans' personal liability

determine.

trial,

Given a Rule

other courts

relegate all factual

normally

-- remained one for the

court to

39(c) election to proceed

by jury

have held that

the district

determinations to the jury,

treated as equitable.

Grain Prods., Inc., 72

____________________

F.3d

court may

even those

See, e.g., Gloria v. Valley

__________ ______
______

497,

499

(5th

Cir.

1996);

Thompson v.
________

Parkes, 963 F.2d

______

McCain Foods, Inc.

___________________

885, 888 (6th Cir.

v. St. Pierre, 463

___________

1983)(holding that veil-piercing,

matter for the court, was

state rule parallel

1992); cf.
___

A.2d 785,

787 (Me.

while normally in Maine

properly submitted to jury under a

to Fed. R. Civ. P. 39(c)).

The point of

Rule 39(c)'s jury-by-consent provision has been said to be to

allow parties who

so wish to have

ultimate facts, resolved by a

A. Wright &

jury.

disputed facts, including

See generally 9 Charles

_____________

Arthur R. Miller, Federal Practice and Procedure

______________________________

2333 (1995).

As the

for the

veil-piercing determination

jury to make,

we shall affirm the

is principally

district court's

grant

of judgment

for the

previously

noted,

if

sufficient

basis

for a

plaintiff

Health Fund.

be different

individual

we determine

reasonable

defendants only,

there

jury to

was

as

no "legally

find"

for the

(Our review standard would obviously

were veil-piercing

regarded as

relegated to the judge even in a jury trial.)

-14-

a legal

issue

We

turn

now

inquiring whether jury

Elmans' personal

to

the

evidence

presented

below,

issues were presented concerning

liability,

first, for

Green &

the

Freedman's

obligations to the Health Fund, and, second for Boston Bakers

responsibility for those same obligations.

III.

Piercing the Corporate Veil: Green & Freedman

_____________________________________________

We hold

court

Elmans'

the record

before the

district

its decision to take from the jury the question of the

liability

contributions was

ample

that, on

evidence to

for

Green

erroneous and

afford a

&

Freedman's

must be vacated.

reasonable

delinquent

We

jury, applying

find

the

Alman
_____

criteria,

authority

over

801 F.2d

the

at

4, and

exercising

veil-piercing issue,

supra,
_____

its broad

a legally

sufficient basis to reach beyond Green & Freedman's corporate

identity and

hold the

Elmans liable

for the

corporation's

unpaid contributions.

A.

Fraudulent Intent
_________________

As previously

noted, "the cases

piercing in the ERISA milieu

some

fraudulent intent

availability."

F.2d at

1093.

veil-piercing

for

is a

that permit

veil

all emphasize that a finding of

sine qua

non to

the remedy's

United Elec., Radio and Machine Workers, 960

_______________________________________

We explained in that

sense, fraud need

criminal or even

case that, in the ERISA

not reach the

level needed

independently actionable

civil fraud.

Still, it has to be more than "invisible."

Id.
___

-15-

There was

domination of

make

Green &

payments to

when the

evidence that the Elmans,

Freedman, caused

themselves and their

corporation was

known to be

through their

the corporation

relatives at

failing and

to

a time

could be

expected to

default,

obligations

to the

found

to lack

any

routinely viewed

to

or

for

corporation

justify

or

was

already in

Health Fund.

business

These

default,

payments

justification.

the wrongful diversion of

controlling

is in

individuals

financial distress

piercing the corporate

veil.

at

its

could be

Courts

have

corporate assets

as

on

time

a fraud

when

the

that can

See, e.g., Laborers'

__________ _________

Pension Trust Fund v. Sidney Weinberger Homes, Inc., 872 F.2d

__________________
_____________________________

702, 705

(6th Cir.

1988) (per

curiam)(piercing veil

where

shareholder withdrew corporate funds at time of dissolution);

Lowen v. Tower Asset Management, Inc.,

_____
_____________________________

(2d

Cir.

1987)

(holding

829 F.2d 1209,

individuals

responsible

1221

for

fiduciary's

ERISA

intermixing

of

individual

92,

violations

assets

. .

on

evidence

among

of

"extensive

the corporations

defendants"); Labadie Coal Co. v. Black, 672 F.2d

________________
_____

98-99 (D.C.

Cir.

1982)

(instructing

diversion

defendants'

personal

uses); I.A.M. National Pension Fund v.

______________________________

Indus., Inc., 14 Employee

_____________

in

of

trial

consider

1991)

and

Benefits Cas. (BNA)

(piercing employer's corporate

part on "selective

corporate

assets

to

to

Wakefield
_________

1890 (D.D.C.

veil under ERISA based

diversion of corporate

-16-

court

assets"); see
___

generally 1
_________

William M.

Corporations
____________

"siphoning

Fletcher, Cyclopedia of the Law of

__________________________

41.30, at 663 (listing among relevant factors

of corporate funds

"the use of corporate funds

by dominant stockholders" and

to pay personal expenses without

proper accounting").

The

the

Health Fund introduced a series of checks that

Elmans made out

corporate accounts.

to themselves

from Green

& Freedman's

These checks dated from January 1991 to

January 1993,

Elman,

Green &

money,"

In the

a period

during which,

Freedman "was

and experiencing a

last few

ceased to

to pay its

period,

It then

some

and sales."

Green &

debts including

the Health Fund.

Richard

trouble," "los[ing]

"decline in profits

months of this

be able

contributions to

in

according to

Freedman

its required

transferred its

assets to Boston Bakers.

Meanwhile, the

Elmans had been

and their relatives checks

Elmans could adequately

of

these

payments,

corporation was

evidence

for no business purpose that

explain.

Richard

repaying him

weighing in favor

see United States v.

___ _____________

writing themselves

When questioned

Elman

testified

an unrecorded

of piercing the

the

about one

that

loan --

the

itself

corporate veil,

Pisani, 646 F.2d 83, 88 (3d

______

Cir. 1981)

(piercing

corporate

shareholders' loan at

veil

on

basis

of

time when corporation was

repayment

of

failing) --

-17-

before stating that he could

payment.

not remember the purpose of the

Particularly

personal

funds.

vacation that

In

flagrant

the

was

the

evidence

Elmans financed

January 1991, the Elmans caused

of

with corporate

Green & Freedman

to pay for them to travel to New Orleans, where they attended

the

Super

Bowl.

testified that

On

direct

the checks

examination,

in question

for expenses and conducting business."

however,

Stanley

Elman

represented "payment

On cross-examination,

Stanley Elman admitted that Green & Freedman had no

customers in Louisiana and did no business in connection with

the

Super

Bowl.

Nothing

in

Stanley

Elman's

testimony

rehabilitated his initial claim that he conducted business on

the Super Bowl trip.

In

addition, the Elmans caused Green & Freedman to

pay Eleanor Elman, Stanley Elman's

total of

$4,500.

payments as wages.

amount on

Green &

their tax

Stanley Elman

wife, three checks for

initially explained

However, the Elmans did

return and there

Freedman reported

Freedman's receptionist, Claire Lank,

these

not report this

was no

it as wages.

evidence that

Moreover,

Green &

testified that Eleanor

Elman did not work at Green & Freedman during 1992.

Finally, just days before Green & Freedman executed

the bulk transfer to

company had

ceased

Boston Bakers, and at

to meet

its obligations

-18-

a time when

to the

the

Health

Fund,

the

Elmans

unexplained check

caused

the

for cash in

corporation

to

write

the amount of $10,000,

an

and a

second check payable to Stanley Elman for $2,500.

The payments made by Green & Freedman to the Elmans

and their

relatives during 1991

and 1992

business justification amounted to $30,109.

with no

apparent

In ruling on the

Elmans' Rule 50(a) motion, the district court was required to

draw all reasonable inferences and resolve credibility issues

in favor of

the non-movant Health

Fund.

Looked at

in this

light,

the

determination

personal

evidence

was

sufficient

that the Elmans

purposes at

to

support

had used corporate

times when they

jury

funds for

knew either

that the

company was inadequately capitalized to meet its obligations,

or

that,

in

particular,

We add

fact,

it had

had ceased to

that the jury's

had acted

the payments,

doing

pay its Health

so

--

the Elmans

fraudulent manner would

inconsistencies in the

particularly their

and, in

Fund obligations.

ability to conclude that

in a knowingly

bolstered by

stopped

have been

Elmans' testimony about

testimony

that the

Super

Bowl trip and Eleanor Elman's "wages" had business purposes.

The

Elmans protest

self-dealing evidenced

that

at trial

the

was too

amount of

little to

arguable

justify

sending the Health Fund's case to the jury.

out

that the payments described

The Elmans point

above amounted to less than

one percent of the corporation's gross annual sales, and that

-19-

the trip to New Orleans was, after all, only one trip.

While

it

fraud

is

difficult to

quantify

nicely

the amount

of

required,

the

occasions,

at

straits.

Elmans's

a time

We cannot

involved were

self-dealing

when

the

say that this

de minimis,

to the

occurred

company was

on

in

several

financial

conduct and

the amounts

point that no

reasonable

jury could find that the fraudulent intent prong of the Alman
_____

standard was established.

B.

Disregard of Corporate Identity

_______________________________

The

fraudulent

probative not only

Alman
_____

latter

element,

self-dealing

just

of fraudulent intent but

disregard

score, there was

of corporate

discussed

also of another

identity.

additional evidence.

was

On the

For example,

the Elmans appear to have mixed their own finances with those

of Green &

Freedman's.

At a

time that the Elmans

owed the

corporation $141,000 in

through

their real estate trust.

suggest that money

regard for

the

to

the purported

Undocumented

show a

free loans from

little or no

There was no

loans nor

of any

record of

agreement to

and interest-free loans could

disregard for

Uriarte, 736 F.2d

_______

it $170,000

These unexplained dealings

was being moved around with

the corporate identity.

terms of

repay.

loans, they also loaned

the

corporate form.

at 524 (treating unrecorded

shareholders to the corporation

of shareholders' disrespect for corporate form).

-20-

be found

See, e.g.,
__________

and interest-

as evidence

Beyond the

of

undocumented loans, there

inadequate and, indeed,

fraudulent record keeping.

Elmans admittedly

falsified

Green &

state

wives, who

served

that their

attended and

was evidence

authorized corporate

Freedman's minutes

as nominal

borrowing,

The

to

directors,

when in

fact

their wives did neither.

We accept

the Elmans'

contention that

a closely-

held corporation need not hew to every corporate formality in

order

to

maintain

its

corporation's debts.

prevail

if the

defendant

shareholders'

immunity

from

the

A veil-piercing

plaintiff

will

not

evidence shows

counterpart.

at trial, viewed most favorably

transactions

controlling

added

closely-held

But the

evidence adduced

to the Health Fund, could be

to show practices that went beyond mere informalities.

Important

appear

that the

corporation was run without the strict formalities

of its publicly-held

found

only

to

shareholders

have created

to the

between

went

the

corporation

undefined,

false minutes.

financial self-dealing

and

and

These

and

the

its

Elmans

facts, when

when viewed

in a

light most favorable to the Health Fund, support a reasonable

inference by a

jury that the Elmans, in the two years before

Green & Freedman's demise, did

not treat Green & Freedman as

a separate entity.

C.

Manifest Injustice
__________________

-21-

The

evidence just

described under

the first

two

Alman factors could also allow

_____

that

to

a reasonable jury to conclude

sheltering the Elmans from Green & Freedman's liability

the Health

Fund

would

commentator has explained,

when "a corporation

be manifestly

unjust.

courts have found this

As

one

prong met

is so undercapitalized that it is unable

to meet debts that may reasonably be expected to arise in the

normal course of business."

Note, Piercing the Corporate Law

__________________________

Veil:
The Alter Ego Doctrine Under Federal Common Law, 95
_________________________________________________________

Harv.

L. Rev. 853,

855 (1982).

unreasonable

in viewing

decision

issue themselves

to

as

Thus, a jury

manifestly unjust

payments

would not be

the

Elmans'

for personal,

non-

corporate purposes, as well as other unexplained payments, at

a time when the corporation could not meet its obligations to

the

Health Fund.

not,

by itself,

veil.

of

Of course, the mere non-payment of debt is

enough to

justify

piercing the

corporate

However, a jury could reasonably conclude on the basis

the

evidence below

that

interests

ahead

personal

responsibilities

and

did

Freedman's corporate form.

manifestly

unjust

to

the Elmans

of

not

As

both

their

themselves

placed their

corporation's

honor

&

a result, it could be thought

insist

that

the

Health

restricted by the corporate form.

IV.

Green

Piercing the Corporate Veil: Boston Bakers

___________________________________________

-22-

Fund

be

Whether

the evidence sufficed

for a jury

to find

the Elmans personally liable for Boston Bakers' successorship

obligation

Fund

1993,

to pay Green & Freedman's indebtedness for Health

contributions missed

is

more

in

problematic.

April 1992,

Given

the

through

January

Elmans' potential

direct liability, supra, for Green & Freedman's debts on this

_____

score, the question of their tangential exposure for the same

debt via Boston Bakers

may seem more theoretical than

Still, the court's ruling on

real.

count 4 of the complaint raises

the issue, and we must address it.

For

the showing of

Bakers' corporate

upon the

Boston

veil, the

Elmans' transfer

Bakers,

fraudulent.

fraud needed to

Health Fund

of Green

transaction

Yet we can

relies inter

& Freedman's

said

to

see nothing in the

that further disadvantaged the Health Fund in

realize

its

claim

contributions.

down

the

operations of

for

Green

pierce Boston

&

be

alia

assets to

inherently

transfer itself

its ability to

Freedman's

unpaid

Had the Elmans chosen simply to shut

Green

instead of undertaking the bulk

&

Freedman

in early

1993,

transfer to Boston Bakers, a

jury would have

received nothing.

to conclude that the Health

At

undisputed that Green

cash

on

outweighed

hand,

the time of the bulk transfer,

& Freedman had no more

and liabilities

its assets.

Fund would have

to

secured
_______

it was

than $2,000 in

creditors that

The firm's primary secured creditor,

-23-

U.S.

Trust, held

Freedman's

security

are

security

assets.

Once

interest in

debtor

grants

interest, unsecured creditors

made no worse off

assets were already

by a bulk

all

of Green

an

&

all-assets

like the Health Fund

transfer:

encumbered and therefore

the transferred

unavailable to

the Health Fund regardless of the bulk transfer.

We

complaint

claimed

note

nor in

that

neither

arguments on

in

its

second

appeal, has the

amended

Health Fund

that Boston Bakers, as Green & Freedman's successor,

was liable under the latter's collective

bargaining contract

for

the

payments

after
_____

January

Freedman shut

down.

Rather

period from

April 1992,

15, 1993,

date

the damages sought are

until January

15, 1993,

Green

&

for the

being all

based on

defaulted contributions

while it was

still operating.

premised

solely

earlier

debts of

on its

have

been

concrete

theory

as

diminished

down on

its prospects

As said,

January 15,

how

the

Plaintiff

bulk

for recovering

had Green

&

Health

(It might,

propounds no

transfer

the

is

for these

1993, the

no better off.

worse off.)

to

Freedman

inherited responsibility

apparently have been

arguably,

Green &

Boston Bakers' liability

its predecessor.

Freedman simply shut

Fund would

owed by

further

sums owed

by

Green & Freedman between April 1992 and January 15, 1993.

It is

significant

Bakers continued openly

that, from

to carry on the

-24-

the outset,

Boston

business of Green &

Freedman.

Lank,

Boston Bakers'

receptionist, even continued

ERISA obligations

letterhead.

See
___

shareholder

to answer the phone

Freedman" after the bulk sale.

its

nominal

"Green and

A company does not extinguish

simply by

changing the

name on

Hawaii Carpenters Trust Funds v.

_______________________________

Carpenter Shop, Inc., 823

______________________

and

F.2d

289, 294

(9th

its

Waiola
______

Cir. 1987)

(holding

share a

409

that alter ego

test is

met when

two corporations

"substantial continuity"); cf. Guzman

___ ______

Mass. 563, 566

rule of

(1991) (explaining exception

successor non-liability

merely a

continuation of

Boston Bakers

was

v. MRM/ELGIN,
_________

for a

the seller

available

to general

transferee that

corporation").

throughout

its

"is

Thus,

existence

to

answer for the liabilities of its predecessor.

At trial, the

to

how the

Health Fund produced no

bulk transfer

worked to

its disadvantage.

Richard Elman's uncontradicted testimony put

1992,

Green & Freedman was in

latter

course,

through the bulk transfer.

and

As

it, by December

such dire straits that it had

to choose between liquidation and reorganization.

chose the

evidence as

undertook

The Elmans

reorganization

Further undercutting the

contention that the

mere

fact of the bulk transfer demonstrates the Elmans' fraudulent

intent is

As

the fact that

required

by

statute,

creditors, including

they did not conceal

Green

&

the Health Fund,

-25-

Freedman

the transfer.

notified

its

before executing

the

bulk

transfer.

The district

Health Fund's motion

court

thereafter denied

to enjoin the transfer,

the

an action from

which no appeal was taken.

We are

the

bulk

advantage,

Fund's

thus unable to

transfer

amounting

to

current claim.

necessary element in

do not think a jury

of

provided

by itself.

Workers,
_______

960

F.2d

the

a fraud,

Elmans

record, that

with

material

to

Under Alman, fraudulent

_____

order to piece the corporate

an

unfair

the Health

intent is a

veil.

We

could properly derive a relevant finding

fraudulent intent material

transfer

find, on this

See
___

at

to the harm

alleged from the

United Elec., Radio and Machine

_________________________________

1094

(approving

"good

faith

if

ultimately

unsuccessful

attempt

to

resurrect

moribund

company"); Laborers Clean-Up Contract Admin. Trust Fund v.

_______________________________________________

Uriarte Clean-Up Serv., Inc.,

_____________________________

1984)

(noting

unable

difference

736 F.2d

between

to pay its debts from

516, 525 (9th

a corporation

that

Cir.

was

the outset and one that simply

"fell upon bad times").

Besides the fact

of the bulk transfer,

the Health

Fund points to other factors as a supposed basis for piercing

Boston Bakers'

nominal and sole

her

veil.

In

its complaint it alleged

shareholder, Claire Lank, was

obligations and rights as a

following

her

instructions.

independent

that the

"unaware" of

shareholder and, instead of

judgment,

followed the

Elmans'

Also alleged was the Elmans' complete control

-26-

over

Boston Bakers,

Elmans'

disregard

even though

incorporation of Boston Bakers with fraudulent intent.

These

or

fall

on

to the extent

the

existence in

identity;

stock; the

the

stand

corporate

owned no

and

allegations, however,

of

they

legally material,

the

record

of

must

some

supporting

evidence.

Moreover,

informalities, standing

may

not prevail without

proof

of

corporate

alone, are insufficient.

Plaintiff

some evidence of

fraudulent intent

material to the harm suffered.

_____________________________

There

the

case of

Freedman.

as

Boston Bakers

None

payable to

is no evidence

of financial self-dealing in

such

as occurred

of the checks introduced by

or for

the Elmans

came from

with Green

&

the Health Fund

Boston Bakers'

accounts.

In respect to the

Boston

Bakers, all the

transfer; there was

more, nor

claimed "undercapitalization" of

latter's capital came

from the bulk

no unmet agreement by the

Elmans to add

evidence that,

after transfer

to Boston

Bakers,

they diverted the bulk transfer funds to personal objectives.

The mere

less

fact that

capital than

Boston Bakers

needed is

eventually failed

not a

basis for

or had

reaching the

Elmans personally, absent fraud.

Much

indicated

is

made

ignorance as

of

the

to how

-27-

fact

he was

that

named

Richard

Elman

president and

director of Boston

annual

Bakers3 or whether Boston Bakers

shareholders'

recognize

the firm's

shareholder, appears

meeting.

Stanley

stock

ledger.

to have

been a

Elman

held an

failed

And Lank,

straw for

the

to

sole

the Elmans,

allegedly so as to make it harder for creditors to reach them

personally.

None

together, provide

the

corporate

attention

to

how

plaintiff.

any

these

a sufficient

veil.

While

corporate

fraudulent intent

clear

of

even

however,

singly

evidentiary basis

they

may

formalities,

material to

of them,

items,

to pierce

suggest a

they do

the harm alleged,

slightly,

or

lack

not

of

reflect

nor is

it

disadvantaged the

There

not know

was also evidence that the Elmans' wives did

they were directors;

meetings, although corporate

did; and

But

did not

these

do

corporate informality.

concerning the wives'

characterized as a

in board

records falsely indicated

know that Lank

snippets

Fund knew or

did not participate

little

was the

to

sole stockholder.

demonstrate

Even if the false

more

than

corporate records

attendance at directors'

"fraud," there is no

they

meetings are

evidence the Health

relied on this information to

its detriment or

____________________

3.

Q:

And would you acknowledge, sir, that you don't know

by

what authority you

were elected a

director of

Boston Bakers?
A:

The attorneys set up the corporation.

the direction.
president.

know I

was

an

I don't know
officer,

the

-28-

sustained any injury

intent

of

the

whatever as a result.

individual

The "fraudulent

defendants" mentioned

requires some meaningful relationship between the

the harm visited upon plaintiff.

Fund

itself does

not

argue that

in

Alman
_____

intent and

We add that even the Health

the incorrect

records by

themselves show fraudulent intent sufficient under Alman.

_____

We

conclude that the district court was correct in

granting the Elmans'

motion for judgment as a

matter of law

with

Elmans' alleged personal

liability for

Boston

respect to the

Bakers' corporate

obligation to

make

good Green

&

Freedman's delinquent payments to the Health Fund.

V.

Conclusion
__________

The

district court's grant of judgment as a matter

of law is vacated with

vacated
_______

respect to Count 4.

respect to Count 3 and affirmed

affirmed

with

The case is remanded for a new trial and

other proceedings consistent herewith.

-29-