Sea-Land Services v. Pepper Source

Name:Sea-Land Services v. Pepper Source

Cite:941 F.2d 519 (7th Cir. 1991).

• Procedural Posture:

District court filed a default judgment for Sea-Land in the amount of $86,767.70.

• Background and Description:

Sea-Land shipped peppers for Pepper Source (PS). PS then failed to pay the freight bill. At the time of the judgment, PS had been dissolved for failure to pay the annual state franchise tax and had no assets at the time of dissolution. Sea-Land brought this action against PS's former owner, Gerald Marchese, hoping to pierce its corporate veil and then "reverse pierce to hold Marchese's other corporations liable. Sea-Land alleged that each corporation is an alter-ego of the rest, and of Marchese, to defraud creditors. Immediately after filing, PS took the necessary steps to be reincorporated in the state in issue, Illinois.

• Issues:

Can Sea-Land pierce the corporate veil and hold Marchese and his other corporations liable?

• Holding:

Yes. Marchese totally controls all but one of the business and all of them from the same office, same phone line, same expense accounts, etc. Marchese also "borrows" substantial sums from the corporations at his whim, interest free; the corporations also "borrow" money from each from time to time. Marchese also uses the corporate accounts to pay many of his personal expenses, including alimony, child support, car maintenance, health-care for his pets, etc.

A corporate entity will be disregarded and the veil of limited liability pierced when 2 requirements are met:
1. There must be such unity of interest and ownership that the separate personalities of the corporation and the individual or other corporation no longer exist, and

2. Circumstances must be such that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice.

• Other Discusion:

The case was remanded to trial court on the 2nd point of the holding. On remand, the court found tax fraud thus establishing the 2nd requirement.