Opinion ID: 545490
Heading Depth: 2
Heading Rank: 1

Heading: The Claims Against SCL

Text: 10 Plaintiffs advance three theories in support of their contention that SCL is liable for the damages that resulted when AES Ltd. ceased doing business and thereby breached the container leases. They contend that SCL should have been found liable (1) as a joint venturer with AES Ltd., or (2) as AES Ltd.'s principal, or (3) for such abuse of the corporate form as to warrant piercing the corporate veil. We find no merit in any of these arguments.
11 Under New York law, which applies to this case, see Itel Containers International Corp. v. Atlanttrafik Express Service Ltd., No. 86 Civ. 1313, slip op. at 12, 1988 WL 75262 (S.D.N.Y. July 13, 1988), a joint venture is in a sense a partnership for a limited purpose, and it has long been recognized that the legal consequences of a joint venture are equivalent to those of a partnership. Gramercy Equities v. Dumont, 72 N.Y.2d 560, 565, 534 N.Y.S.2d 908, 911, 531 N.E.2d 629 (1988). Thus, for example, one coventurer will be bound by a lease signed by another coventurer, even if the first neither signed nor assented to the lease. See Edison Stone Corp. v. 42nd Street Development Corp., 145 A.D.2d 249, 255-56 & 256 n. 3, 538 N.Y.S.2d 249, 252-53 & 253 n. 3 (1st Dep't 1989); see also N.Y. Partnership Law Sec. 20(1) (McKinney 1988). Plaintiffs contend that the district court should have found that SCL and AES Ltd. were joint venturers in operating the AES line and that, under the above principles, SCL was liable for the container leases signed by AES Ltd. We conclude that the district court properly found that SCL was not party to a joint venture. 12 In order to form a joint venture, (1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge, or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses. See, e.g., Flammia v. Mite Corp., 401 F.Supp. 1121, 1127 (E.D.N.Y.1975), aff'd without opinion, 553 F.2d 93 (2d Cir.1977). All of these elements must be present before joint venture liability may be imposed. At least two elements were lacking in the present case. 13 The district court found that SCL did not intend to engage in a joint venture. Plaintiffs have pointed to no evidence to the contrary, and the record fully supports the view that SCL purposely used layers of corporations so that its involvement with the AES line would be remote. Thus the second element listed above was not present. Further, the court found that SCL chose to operate through corporations in order to limit its losses to the amounts it was willing to advance in loans. Though SCL plainly hoped to share in whatever profits the AES line produced, there was no indication that it expected to share in the losses except as a lender to AES Ltd. Thus, the fifth element also was not present. Accordingly, assuming that the AES line was properly to be considered the venture, the findings of the district court preclude the conclusion that it was an SCL joint venture. 14 Further, we note that the district court correctly found that AES Ltd. itself was not a joint venture because it was a corporation. A joint venture and a corporation are mutually exclusive ways of doing business. See Arditi v. Dubitzky, 354 F.2d 483, 486 (2d Cir.1965); see also Chalmers v. Eaton Corp., 71 A.D.2d 721, 722, 419 N.Y.S.2d 217, 219 (3d Dep't 1979) (mem.) (joint venture is a business combination  ' without any actual partnership or corporation designation ' ) (quoting Forman v. Lumm, 214 A.D. 579, 583, 212 N.Y.S. 487 (1st Dep't 1925) (quoting Schouler, Personal Property [5th ed.] Sec. 167a)). Though business associates may be treated as partners vis-a-vis one another even when they operate through a corporation, the corporate form is to be respected in dealings with third parties. Arditi v. Dubitzky, 354 F.2d at 486.
15 Plaintiffs also contend that SCL should have been held liable on the leases as a principal for which AES Ltd. was the agent. Though they assert that there was an express agency relationship, their argument appears to rely to a greater extent on the proposition that there was an implied agency. They further contend that the district court applied the wrong standard for determining whether an agency relationship existed, namely whether there was abuse of control. Though the district court does appear to have stated the wrong standard, on this record it nonetheless reached the correct result. 16 In concluding that [t]he standard required to establish an agency relationship between SCL and AES [Ltd.] is the same as that required to pierce the corporate veil--abuse of control, 725 F.Supp. at 1310, the district court relied on the holding of another district court in Kashfi v. Phibro-Salomon, Inc., 628 F.Supp. 727, 735 (S.D.N.Y.1986). The Kashfi court, however, enunciated that standard for determining agency relationships as they might exist between related corporations, i.e., those with overlapping shareholders, officers, or directors, stating that to impose any other standard would undermine the presumption that corporations are separate entities whose form is to be respected. 17 Whether or not that view is correct is a question we need not reach here, for we are dealing with corporations that are not formally related. SCL and AES Ltd. were not parent and subsidiary; nor did they have any shareholders, officers, or directors in common. Accordingly, we look to the traditional tests of actual and implied agency. 18 An express agency is created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account. Restatement (Second) of Agency Sec. 26 (1958) (Restatement ). Whether such an agency is formed depends on the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship. 19 Plaintiffs point to various activities of SCL that might perhaps have been thought by others to establish an agency relationship in some respect. There was no evidence, however, that SCL actually authorized AES Ltd. to act as its agent or that it in any way led AES Ltd. to believe AES Ltd. was so authorized. SCL made clear from the start its intention to utilize the corporate form for AES Ltd. so as to limit SCL's liability. SCL did provide financing to AES Ltd., but AES Ltd. was meant to, and did, operate independently. SCL chose not to be a shareholder, and no SCL employee sat on AES Ltd.'s Board of Directors. The record simply would not have supported a finding that SCL authorized AES Ltd. to act on its behalf. 20 Implied agency, in contrast, depends not on the actual relationship between principal and agent but on the reasonable conclusion of a third party, derived from actions of the principal, that the person acting has authority to do so from the principal. [A]pparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him. Restatement Sec. 27. Thus, in order to determine whether there was implied authority, the court must focus on the acts of the principal in relation to the third party. See Ford v. Unity Hospital, 32 N.Y.2d 464, 473, 346 N.Y.S.2d 238, 244, 299 N.E.2d 659 (1973); General Overseas Films, Ltd. v. Robin Int'l, Inc., 542 F.Supp. 684, 698 (S.D.N.Y.1982), aff'd without opinion, 718 F.2d 1085 (2d Cir.1983). 21 Though plaintiffs argue that the actions of SCL reasonably led them to believe that SCL was AES Ltd.'s principal, the record refutes their claims. Under New York law, [o]ne who deals with an agent does so at his peril, and must make the necessary effort to discover the actual scope of authority. Ford v. Unity Hospital, 32 N.Y.2d at 472, 346 N.Y.S.2d at 244. Whatever the possibility that some of SCL's actions may have given outsiders the impression that AES Ltd. was running the AES line on behalf of SCL, the scope of any such implied authority plainly could not be deemed to have extended to the one set of AES Ltd. actions that is pertinent here, i.e., the execution of the container leases. Both Itel and Flexi-Van, in the course of negotiating the leases with AES Ltd., communicated directly with SCL in an attempt to get SCL to take responsibility for the leases. SCL flatly refused to do so. Neither these plaintiffs nor Textainer (which does not appear to have communicated with SCL when negotiating its leases) point to any action by SCL that they could reasonably have interpreted as authorizing AES Ltd. to enter into the leases on behalf of SCL. 22 We conclude that the record belies plaintiffs' contentions that SCL actually or impliedly authorized AES Ltd. to enter into the container leases as agent for SCL.
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.