Opinion ID: 1805232
Heading Depth: 1
Heading Rank: 5

Heading: corporate veils

Text: As a general rule, a corporation will be looked upon as a legal entity separate and apart from its shareholders and officers unless and until sufficient reason to the contrary appears, but when the notion of a legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. Southern Lumber & Coal v. M.P. Olson Real Est., 229 Neb. 249, 426 N.W.2d 504 (1988); J.L. Brock Bldrs., Inc. v. Dahlbeck, 223 Neb. 493, 391 N.W.2d 110 (1986); ServiceMaster Indus. v. J.R.L. Enterprises, 223 Neb. 39, 388 N.W.2d 83 (1986); Scribner Grain & Lumber Co. v. Wortman, 204 Neb. 92, 281 N.W.2d 394 (1979). The corporate identity is disregarded only where the corporation has been used to commit fraud, violate a legal duty, or perpetrate a dishonest or unjust act in contravention of the rights of another. J.L. Brock Bldrs., Inc., supra ; Slusarski v. American Confinement Sys., 218 Neb. 576, 357 N.W.2d 450 (1984); George v. Board of Education, 210 Neb. 127, 313 N.W.2d 259 (1981). A plaintiff seeking to pierce the corporate veil must allege and prove that the corporation was under the actual control of the shareholder and that the shareholder exercised such control to commit a fraud or other wrong in contravention of the plaintiff's rights. See, Krivo Industrial Sup. Co. v. National Distill. & Chem. Corp., 483 F.2d 1098 (5th Cir.1973), reh'g denied 490 F.2d 916 (5th Cir.1974); Berger v. Columbia Broadcasting System, Inc., 453 F.2d 991 (5th Cir.1972), cert. denied 409 U.S. 848, 93 S.Ct. 54, 34 L.Ed.2d 89; Gatecliff v. Great Republic Life Ins., 170 Ariz. 34, 821 P.2d 725 (1991); Vuitch v. Furr, 482 A.2d 811 (D.C. 1984). Among the factors relevant in determining whether to disregard the corporate entity are grossly inadequate capitalization, insolvency of the debtor corporation at the time the debt is incurred, diversion by the shareholder or shareholders of corporate funds or assets to their own or other improper uses, that the corporation is a mere facade for the personal dealings of the shareholder, and that the operations of the corporation are carried on by the shareholder in disregard of the corporate entity. United States Nat. Bank of Omaha v. Rupe, 207 Neb. 131, 296 N.W.2d 474 (1980). Global argues that AMISUB is American Medical's alter ego because the former is a wholly owned subsidiary of the latter, and cites to various agreements between AMISUB and American Medical and the commonality of some of their officers and directors, alleging that the operations of [AMISUB and American Medical] overlap, so that it is impossible to tell what business of AMISUB ... is separate from business of American Medical. However, the doctrine of separate corporate existence does not break down merely because a corporation is a subsidiary, even if wholly owned by the parent. SFN Shareholders v. Dept. of State Rev., 603 N.E.2d 194 (Ind.1992); Peoples Energy Corp. v. Ill. Commerce Com., 142 Ill.App.3d 917, 97 Ill.Dec. 115, 492 N.E.2d 551 (1986). Nor is ownership of all the stock of the corporation by one person, in and of itself, a sufficient basis upon which to disregard the corporate form of AMISUB. See, Krivo Industrial Sup. Co., supra ; Volkswagenwerk, A.G. v. Klippan, GmbH, 611 P.2d 498 (Alaska 1980), cert. denied 449 U.S. 974, 101 S.Ct. 385, 66 L.Ed.2d 236; Inst. of Veterinary Pathology v. Cal. Health, 116 Cal. App.3d 111, 172 Cal.Rptr. 74 (1981); Amfac Foods v. Int'l Systems, 294 Or. 94, 654 P.2d 1092 (1982); Wakeman v. Paulson, 257 Or. 542, 480 P.2d 434 (1971). To pierce the corporate veil between a parent and a subsidiary, a plaintiff must show more than the mere sharing of services between the two corporations. In Boafo v. Hosp. Corp. of America, 177 Ga.App. 75, 338 S.E.2d 477 (1985), a patient who allegedly suffered a severe injury while being administered anesthesia at a facility operated by the subsidiary brought an action against the parent corporation, alleging that the facility was run, operated, and managed by the parent corporation and the subsidiary. The Boafo court refused to pierce the corporate veil despite the fact that the corporations shared some officers and had jointly purchased the hospital property from bankruptcy receivership, the fact that some officers of the subsidiary were paid by the parent, and the existence of other facts showing a commonality between them. What was significant to the court was that the subsidiary was a fully capitalized and insured entity which owned the hospital property, autonomously managed and operated the hospital on a day-to-day basis, maintained its own payrolls, and employed its own employees. For Global to pierce the corporate veil of AMISUB, it must show that American Medical totally dominated AMISUB to such extent that AMISUB had no separate corporate existence and functioned solely to achieve the purposes of the dominant corporation. See, J.L. Brock Bldrs., Inc. v. Dahlbeck, 223 Neb. 493, 391 N.W.2d 110 (1986); Krivo Industrial Sup. Co., supra ; Scott v. AZL Resources, Inc., 107 N.M. 118, 753 P.2d 897 (1988); Unijax, Inc. v. Factory Insurance Association, 328 So.2d 448 (Fla.App. 1976), cert. denied 341 So.2d 1086. Without more, the fact that AMISUB is a subsidiary of American Medical fails to establish that American Medical controls AMISUB. Nor does American Medical's unconditional guarantee of AMISUB's performance in the transfer of the hospital extend its liability beyond the strict terms of that contract to make AMISUB an alter ego of American Medical. See Federal Deposit Ins. Corp. v. Heyne, 227 Neb. 291, 417 N.W.2d 162 (1987). Standing behind another's debts does not require that the corporate forms of the organizations be disregarded. Krivo Industrial Sup. Co., supra . See, also, Frazier v. Bryan Memorial Hosp. Authority, 775 P.2d 281 (Okla.1989); Amfac Foods, supra . Global asserts that the inadequate capitalization of AMISUB requires the piercing of its corporate veil. The claim is based on the fact that at the time of its incorporation, issuance of 1,000 shares of capital stock at the par value of $1 was authorized. Inadequate capitalization means capitalization very small in relation to the nature of the business of the corporation and the risks the business entails measured at the time of formation. J-R Grain Co. v. FAC, Inc., 627 F.2d 129 (8th Cir.1980); Southern Lumber & Coal v. M.P. Olson Real Est., 229 Neb. 249, 426 N.W.2d 504 (1988); J.L. Brock Bldrs., Inc., supra . The authorization to issue capital stock in AMISUB's charter should not be confused with formal minimum paid-in capital requirements and, more importantly, does not reflect the ability of AMISUB to conduct its business. See, J-R Grain Co., supra; 11 William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 5124 (rev. perm. ed. 1986). However, even assuming without deciding that AMISUB is inadequately capitalized, it is only one factor to be considered in determining whether to disregard its corporate nature. See, J.L. Brock Bldrs., Inc., supra ; Scott, supra . Under all the circumstances, that factor falls far short of providing grounds to ignore AMISUB's corporate form. Global also claims that Creighton Omaha Regional and the foundation are wholly owned and controlled alter egos of the university. In so doing, Global points to the articles of incorporation of Creighton Omaha Regional, the foundation, and the university, which reflect that the three corporations share, or have shared in the past, common officers and directors. Indeed, one of the incorporators and directors of the foundation had served as the university's president. Hence, Global argues that the existence of common officers and directors provides a financial interest in Creighton Omaha Regional and the university by direction and participation. As uniformly held, the existence of interlocking directors is not, in and of itself, sufficient without direct evidence of specific manipulative conduct to warrant the piercing of the corporate veil. Jabczenski v. Southern Pac. Memorial Hospitals, 119 Ariz. 15, 579 P.2d 53 (1978); Inst. of Veterinary Pathology v. Cal. Health, 116 Cal.App.3d 111, 172 Cal.Rptr. 74 (1981); Unijax, Inc., supra ; Pederson v. Paragon Pool Enterprises, 214 Ill.App.3d 815, 158 Ill.Dec. 371, 574 N.E.2d 165 (1991). Merely taking an active part in the management of a corporation does not automatically constitute control sufficient to pierce the corporate veil. In Chicago Mill & Lumber Co. v. Boatmen's Bank, 234 F. 41 (8th Cir.1916), a bank had its assistant cashier elected president of the company to protect its investment of money to a mill and land company. In refusing to pierce the corporate veil, the court stated that the creditor's oversight of the operations of a debtor business did not warrant a finding that the bank was carrying on the business of the debtor as a part of the bank's business. The uncontradicted evidence is that both the foundation and Creighton Omaha Regional are separate and distinct corporations from all the other defendants. The foundation is not a subsidiary of any corporation, maintains its own separate corporate and financial records, and conducts its own business and meetings. In short, there is no evidence that any corporation has such a financial interest in, or total domination over, the other as to permit the corporate existence of any corporation to be ignored.