CAN A BREACH OF CONTRACT JUSTIFY CORPORATE VEIL PIERCING?
CAN A BREACH OF
CONTRACT JUSTIFY CORPORATE VEIL PIERCING?
In a recent North Carolina Business Court decision, the court
reviewed whether a breach of contract itself was sufficient to pierce the
corporate veil.
Plaintiff Kerry Bodenhamer Farms (KB Farms) and Defendant
Nature’s Pearl entered into a written supply agreement for Plaintiff to supply
grapes to Nature’s Pearl, a juice manufacturer[1].
The turning point in the relationship was when Nature’s Pearl received a load
of grapes which revealed after processing that the alcohol content of the
grapes was too high. Nature’s Pearl
notified KB Farms that it was not willing to pay for the grapes because they
were not of suitable quality. The
relationship between the parties worsened and Nature’s Pearl notified KB Farms
that it was terminating the supply agreement.
KB Farms did not acknowledge the termination and instead continued to
supply grapes to Nature’s Pearl. Nature’s
Pearl owner Jerry Smith sent a check for the previous load of grapes using the
bank account of Le Bleu, another company owned by Smith. KB Farms rejected
the check and soon after filed a lawsuit against Nature’s Pearl, Le Bleu, and
Smith for breach of contract. KB Farms alleged that Le Bleu and Smith should
also be liable because they got involved in the breach of contract when Smith
used Le Bleu’s check to pay for the grapes.
In North Carolina,
the test for piercing the corporate veil is called the “instrumentality rule.”
To pierce the corporate veil the plaintiff must demonstrate that (1) the
defendant (either an entity or person) dominated and controlled a corporation;
(2) the defendant used that domination and control to perpetrate a fraud or
wrong; (3) the defendant’s domination and control was the proximate cause
of the wrong. The court held that there was insufficient evidence to pierce the
corporate veil under the instrumentality test. In the past, the court only
pierced the corporate veil when there were other compelling factors aside from
the breach of contract. Typically, there must be some evidence of fraudulent or
inequitable conduct; for example, evidence that the entity was created only as
a puppet entity to limit its liability or for the purpose of entering into the
relevant contract. Another common example would be if all of the entity’s
assets have been transferred to render it judgment-proof. Here, KB Farms was
unable to demonstrate that either Le Bleu or Smith were otherwise engaged in
wrongful conduct that would give rise to liability under the Instrumentality
Rule. Thus, the court dismissed Le Bleu and Smith from the case.
What are the takeaways from this case?
Generally,
business owners who operate several companies should take special care to
observe corporate formalities. Commingling
one entity’s assets with another entity’s assets is a significant factor in
favor of veil piercing. Here, Le Bleu and Smith narrowly avoided this fate
based upon a detailed review of the surrounding facts. A mere breach of contract was not enough to
justify piercing the corporate veil, and Smith’s use of another company’s check
did not rise to the level of “commingling” in light of all the evidence
presented.
The College Admissions Scandal – Can Money Buy Everything?
On March 12, 2019, fifty people were charged in federal court by the U.S. Attorney for the District of Massachusetts for illicitly gaining admission for their children to highly selective universities, including Georgetown, the University of Southern California, Stanford and Wake Forest. Among these fifty people are high profile individuals like actresses Lori Loughlin and Felicity Huffman, CEOs, as well as executives from a major asset manager, an investment firm, and a prestigious law firm.
Their goal was to get their children admitted to prestigious colleges across the U.S. The parents allegedly paid between $200,000 and $6.5 million each for an approximate total amount of $25 million.
The main character in this alleged scheme is William Singer, a college counselor based in Newport Beach, California. He operated The Edge College & Career Network, a for-profit counseling and admissions company, and The Key World Foundation, a nonprofit organization.
To get the children admitted, Mr. Singer would bribe college entrance exam officials, who would either help the kids or change their answers at the end. In other cases, he bribed university coaches, to have applicants recruited as athletes when in reality they had never played or participated in the sport. There are also allegations of third parties taking classes and exams in place of the children, and submission of falsified applications.
The investigation is ongoing but Yale University already took some measures. The University is the first to officially rescind the admission of a student linked to the Admissions Scandal. The student’s parents allegedly paid $1.2 million to get their child into Yale.
On March 25, 2019, the first 12 defendants appeared in a Boston federal courtroom and pleaded not guilty to charges of racketeering conspiracy. More hearings with other defendants are scheduled for the end of March and the beginning of April.
ALDI vs LIDL – Go cheap or go home
Nachdem Aldi schon seit Jahrzehnten gut etabliert im US –Markt für
Lebensmitteldiscounter ist, zog Lidl 2017 nach und versuchte ebenfalls im Land
der unbegrenzten Möglichkeiten wirtschaftlich Fuß zu fassen. Dass die
Möglichkeiten tatsächlich, vor allem in wettbewerbs – und arbeitsrechtlicher
Hinsicht, doch nicht so ganz unbegrenzt sind, musste Lidl jetzt schmerzhaft
feststellen:
Nach gerade einmal 2 Jahren gemischt erfolgreicher Geschäftstätigkeit in
den USA muss Lidl sich nun gegen eine Klage des altbekannten Erzrivalen Aldi
wehren. Gegenstand der Klage sind Verschwiegenheitserklärungen,
Wettbewerbssperren und das unerlaubte Abwerben von Mitarbeitern. Im Mittelpunkt
der Vorwürfe steht eine ehemalige Aldi Bezirksleiterin und Immobilienmanagerin,
sowie eine ehemalige Immobilienassistentin, die beide zu Lidl gewechselt sind und
dabei angeblich besagte Pflichtverletzungen begangen haben. Anders als in
Europa, wo beide Konzerne erhebliche Marktpositionen inne haben, stellt sich
die Klage
in Amerika allerdings als Kampf von David gegen Goliath dar.
Aldi ist bereits seit den 70er Jahren in den USA aktiv und macht mit seinen
über 1800 Filialen, verteilt über 35 Staaten, einen Jahresumsatz von mehr als
13,5 Milliarden Euro. Zudem befindet sich Aldi USA gerade mitten in einem Expansionsprozess,
dessen Ziel 2500 Filialen bis 2022 und dementsprechende Umsätze sind.
Lidl hingegen konnte seine 2017 mit Markteintritt gefassten
Etablierungs-und Expansionsziele zunächst nicht erreichen und hat derzeit statt
geplanter 100, nur 65 Filialen entlang der Ostküste.
Aldi klagt vor dem zuständigen U.S.
District Court im Osten von North Carolina unter anderem auf Unterlassung und
Schadensersatz. In einem Statement äußerte Aldi, dass fairer Wettbewerb
durchaus willkommen geheißen werde, jegliche Versuche solch fairen Wettbewerb
zu untergraben, allerdings nicht toleriert werden könnten. Beanstandet wird
insbesondere der Verstoß der Ex-Mitarbeiter gegen ein Wettbewerbsverbot und die
Weitergabe vertraulicher, interner Handelsinformationen an den neuen
Arbeitgeber Lidl. Darüber hinaus wird Lidl selbst beschuldigt, sowohl
Arbeitnehmer, als auch Informationen in Kenntnis der entgegenstehenden
Vereinbarungen zwischen den Arbeitnehmern und Aldi angenommen zu haben.
Gerade vor dem Hintergrund des in den
USA viel weniger ausgeprägtem Arbeitnehmerschutzes und dem daraus
resultierenden größerem Spielraum bezüglich Wettbewerbsverboten und dem
Arbeitsverhältnis nachfolgenden, zulässigen Restriktionen kann der Ausgang
dieser Klage mit Spannung erwartet werden. Interessant ist auch die Frage,
inwieweit sich die Klage auf den ohnehin nicht planmäßig verlaufenen
Markteintritt von Lidl auswirken wird und wie der Konkurrenzkampf der beiden
Discounter dadurch beeinflusst wird.
References:
http://www.spiegel.de/wirtschaft/unternehmen/aldi-verklagt-lidl-in-den-usa-a-1256767.html
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