Opinion ID: 2528261
Heading Depth: 1
Heading Rank: 5

Heading: The District Court's Decision to Pierce the Corporate Veil to Support Section 1679b(a)(3) Liability

Text: The Puccios argue in the alternative that, if the district court did find them personally liable under Section 1679b(a)(3), the district court's veil piercing analysis does not support that determination. Again, that barely developed argument appears for the first time as a footnote in their reply brief. Ordinarily, such an undeveloped argument, raised for the first time in a footnote to the defendants' reply brief, would not suffice to raise an argument, see Waste Mgmt. Holdings, Inc., v. Mowbray, 208 F.3d 288, 299 (1st Cir.2000). Here, however, we see no meaningful difference between the Puccios' fully developed challenge to the veil piercing analysis of the district court under Section 1679b(a)(4) and the challenge to that analysis under Section 1679b(a)(3). We therefore choose to address the Section 1679b(a)(3) veil piercing argument of the Puccios on the merits. To be sure, we tread carefully when determining whether it is appropriate to put aside the basic tenet of corporate law that corporationsnotwithstanding relationships between or among themordinarily are regarded as separate and distinct entities, Scott v. NG U.S. 1, Inc., 450 Mass. 760, 881 N.E.2d 1125, 1131 (2008), and thereby to allow a plaintiff to pierce the corporate veil of limited liability. In re Ontos, Inc., 478 F.3d 427, 432 (1st Cir.2007). In Massachusetts, the corporate veil will only be pierced in rare situations. Birbara v. Locke, 99 F.3d 1233, 1239 (1st Cir.1996). [16] Such situations do occur, however, and Massachusetts has recognized that it is the right and the duty of courts to look beyond the corporate forms when necessary for the defeat of fraud or wrong, or the remedying of injustice. Hanson v. Bradley, 298 Mass. 371, 10 N.E.2d 259, 264 (1937) (quoted in Scott, 881 N.E.2d at 1132). Massachusetts has identified as relevant to the veil-piercing analysis a set of twelve factors. They are: (1) common ownership; (2) pervasive control; (3) confused intermingling of business assets; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the litigated transaction; (9) siphoning away of corporation's funds by dominant shareholder; (10) nonfunctioning of officers and directors; (11) use of the corporation for transactions of the dominant shareholders; and (12) use of the corporation in promoting fraud. [17] Att'y Gen. v. M.C.K., Inc., 432 Mass. 546, 736 N.E.2d 373, 381 n. 19 (2000). Looking to some of these factors, and to the guidance provided in the seminal Massachusetts case, My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614, 233 N.E.2d 748, 751-52 (1968), we find ourselves confronted with a textbook case for lifting the corporate veil. The undisputed evidence shows that the Puccios owned and had pervasive control over all of the entities involved in this litigation, including Cambridge. John Puccio set the terms of dealing among the Puccio companies, which functioned without clear boundaries or separate corporate structures. Those dealings were conducted without independent representatives to protect the interests of the individual corporations. Further, there was a total failure to make clear which corporation [was] taking action or to observe with care the corporate form. My Bread, 233 N.E.2d at 752. The Puccios did not delineate between their businesses, [18] channeling funds between them, using employees interchangeably and applying funds from one entity to pay the bills for another. [19] Corporate formalities of even the most basic nature were largely nonexistent, as when Cambridge purchased BCC and CCC's nonexistent intangible assets for over $14 million. The facts also show an obvious element of dubious manipulation and contrivance, finagling, such that corporate identities are confused and third parties [could not] be quite certain with what they [were] dealing. Evans v. Multicon Constr. Corp., 30 Mass.App.Ct. 728, 574 N.E.2d 395, 400 (1991), review denied, 410 Mass. 1104, 577 N.E.2d 309 (1991). When customers contracted with Cambridge, their accounts became wholly serviced by BC Mass. The plaintiffs were utterly misled about which corporate entity[Cambridge or BC Mass]was obligated to them or was dealing with them. Birbara, 99 F.3d at 1239 (refusing to pierce the corporate veil in the absence of any confusion about which corporate entity was in dealings with the plaintiffs). The Puccios also siphoned money from corporate accounts to pay for personal expenses such as adult entertainment and costs associated with a yacht. As the district court rightly emphasized, the money that was funneled from Cambridge into other Puccio entities and ultimately to the Puccios themselves cannot be reached by the settlement with Cambridge or the judgment against the other corporations. In order to obtain full relief, the plaintiffs must be able to reach the Puccios, who were the lead players in the scheme being carried out by their network of corporations. That logic is at the very heart of the alter ego doctrine. See 1 W.M. Fletcher, Cyclopedia of the Law of Corporations § 41.10 (2010) (One rationale behind the theory [of alter ego liability] is that if the shareholders or the corporations themselves disregard the proper formalities of a corporation, then the law will do likewise as necessary to protect individual and corporate creditors.). The corporate form should not bar the plaintiffs from seeking the full relief to which they are entitled when the defendants themselves treated Cambridge and their other companies as mere shells, ignoring financial, legal and practical formalities in furtherance of their own money-making enterprise. In short, we agree with the trenchant assessment of the district court: Defendants served as alter egos of the Puccios and thus may be held directly liable for [Cambridge's] actions by piercing [Cambridge's] corporate veil. Since funds were funneled out of [Cambridge] to other entities in the Puccios' network and ultimately to the Puccios themselves, the settlement with [Cambridge] could not provide the Zimmermans with full relief and they must now seek their remedy from these other defendants. The corporate form should not serve as an obstacle to that relief where, as here, it was a mere shell, ignored by the Puccios in their everyday business dealings. Zimmerman, 529 F.Supp.2d at 271-72. [20]