Opinion ID: 545490
Heading Depth: 3
Heading Rank: 3

Heading: The Corporate Veil

Text: 23 Finally, plaintiffs contend that SCL should have been held liable for AES Ltd.'s debts on the theory that SCL's control over AES Ltd. constituted an abuse of the corporate form that justified piercing the corporate veil. The district court, in rejecting this claim, stated that to succeed on such a theory, plaintiffs would have to show, inter alia, (a) that SCL's control over AES Ltd. and/or AES Inc. had been so complete that the latter companies had no separate existence, and (b) that SCL had used that domination to perpetrate a fraud on plaintiffs. Though New York law allows the corporate veil to be pierced either when there is fraud or when the corporation has been used as an alter ego, we find no basis for reversal. 24 In Gartner v. Snyder, 607 F.2d 582, 586 (2d Cir.1979), we noted that 25 [b]ecause New York courts disregard corporate form reluctantly, they do so only when the form has been used to achieve fraud, or when the corporation has been so dominated by an individual or another corporation ..., and its separate identity so disregarded, that it primarily transacted the dominator's business rather than its own and can be called the other's alter ego. 26 Similarly, in Kirno Hill Corp. v. Holt, 618 F.2d 982, 985 (2d Cir.1980), we stated: 27 The prerequisites for piercing a corporate veil are ... clear ...: [the defendant] must have used [the corporation] to perpetrate a fraud or have so dominated and disregarded [the corporation's] corporate form that [the corporation] primarily transacted [the defendant's] personal business rather than its own corporate business. 28 See also Walter E. Heller & Co. v. Video Innovations, Inc., 730 F.2d 50, 53 (2d Cir.1984) (listing perpetration of fraud as one of the criteria jury could consider in determining whether to pierce the corporate veil). Mere use of the corporate form to avoid liability is insufficient to warrant piercing the veil. See Gartner v. Snyder, 607 F.2d at 586. 29 The district court's rejection of plaintiffs' claim was consistent with these principles, for the court not only found that plaintiffs had failed to show any fraud by SCL but also found that they had failed to show sufficient control and domination by SCL of AES Ltd. or of AES Inc. to make either of them SCL's alter ego. These findings are not clearly erroneous. 30 The record shows that AES Inc. was responsible for the everyday affairs of the AES line and that SCL did not interfere. AES Ltd. observed the corporate formalities, including holding board meetings, and its shareholder, Elliott Maritime, was independent of SCL. While SCL had the power to acquire Elliott Maritime from Elliott and had a representative on a steering committee established to formulate policy for the shipping line, plaintiffs did not show that SCL dominated AES Inc. or AES Ltd. or used its position to have its own loans to AES Ltd. repaid in preference to those of other AES Ltd. creditors. For example, the record includes evidence that AES Ltd. refused, despite SCL's importuning, to give preferential treatment to SCL containers; that in a dispute over whether to retain the president of AES Inc., SCL's view was overruled; and that when AES Ltd. received a $6 million payment from the former owner of the AES line to close a shortfall in the represented working capital, the money was used to pay off some of AES Ltd.'s outstanding bills, including bills from plaintiffs, but no part of the payment was used to reduce the amount owed to SCL. 31 In sum, we conclude that plaintiffs have presented no tenable theory for holding SCL liable for the debts of AES Ltd. The district court properly dismissed the claims against SCL.