Court Opinion

ID: 2964447
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:25:44.798403+00
Date Added: 2024-06-11T11:37:24.384415
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                                For the First Circuit
                                 ____________________

        No. 96-1530

                       CHARLES A. BIRBARA and DAVID G. MASSAD,

                                Plaintiffs, Appellees,
                                          v.

                                 GORDON LOCKE ET AL.,
                               Defendants, Appellants,

                                         and

                           TECHNOLOGY FINANCE GROUP, INC.,
                                      Defendant.

                                 ____________________
                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS
                   [Hon. Nathaniel M. Gorton, U.S. District Judge]
                                              ___________________

                                 ____________________

                                        Before
                                Boudin, Circuit Judge,
                                        _____________

                            Aldrich, Senior Circuit Judge,
                                     ____________________
                              and Lynch, Circuit Judge.
                                         _____________
                                 ____________________

            Alexander D.  Widell, with whom Eugene R. Scheiman and Baer, Marks
            ____________________            __________________     ___________
        & Upham LLP were on brief, for appellants.
        ___________

            Roy  A.  Bourgeois, with  whom Amato  J.  Bocchino and  Bourgeois,
            __________________             ___________________      __________
        Dresser & White were on brief, for appellees.
        _______________

                                 ____________________

                                   November 7, 1996
                                 ____________________

                      LYNCH,  Circuit Judge.  Two sophisticated investors
                      LYNCH,  Circuit Judge.
                              _____________

            bought computer-lease  tax shelters.   The 1986  revisions to

            the Tax  Code undercut  the economic  rationale for  such tax

            shelters.    As  a  result,  the  seller  of  the   shelters,

            Technology Finance  Group ("TFG"), later became insolvent and

            violated  its  investment  contracts.     A  public  company,

            Creative Resources,  Inc. ("CRI"),  acquired control  of TFG,

            poured in money and attempted, unsuccessfully, to salvage the

            company.  The two  investors, plaintiffs here, sued TFG,  its

            new parent and two individuals, officers of the parent, inter
                                                                    _____

            alia,  for  TFG's breach  of  contract  on  a corporate  veil
            ____

            piercing theory.   The investors  obtained a jury  verdict of

            $250,000.1  We  reverse and vacate  the verdict, finding  the

            evidence   insufficient   to   meet   the   strict  standards

            Massachusetts has set for piercing the corporate veil.

            Facts
            _____

                      In  1986,  plaintiffs  Charles  Birbara  and  David

            Massad  each purchased  a  one-half ownership  interest in  a

            commercial  computer from  a  subsidiary of  TFG, a  Delaware

            corporation that leased commercial equipment as tax shelters.

            In addition, Massad purchased a  second computer from the TFG

            affiliate.   These computers  were subject to  existing "user

                                
            ____________________

            1.  With interest, this resulted  in an award of $427,945.21.
            The court  and jury rejected fraud,  conversion and deceptive
            trade practices claims  against the defendants.  TFG  has not
            appealed from the verdict against it.

                                         -2-
                                          2

            leases"  with companies  that  had actual  possession of  the

            computers,  as well  as to the  right of a  TFG subsidiary to

            sell the computers when the leases expired.  TFG was required

            to pay  plaintiffs the proceeds of these  sales, less certain

            fees.  Following the enactment of the Tax Reform Act of 1986,

            TFG  became  unable  to   market  its  equipment  leases  and

            consequently could not  generate adequate operating  capital.

            In an effort to return the company to firm financial footing,

            Jerry Minsky,  TFG's then-president  and CEO,  who  is not  a

            party  to this suit, decided that TFG would not pay investors

            the proceeds  from the  sales of their  equipment but  rather

            would retain  these funds,  thereby violating the  investment

            contracts.

                      TFG continued to face financial problems.  In 1989,

            CRI, a  public Nevada  corporation which owned  several other

            businesses,  acquired  complete  ownership  of  TFF, Inc.,  a

            Delaware  corporation which  owned  all of  TFG's outstanding

            common  stock.   CRI began  taking steps to  ameliorate TFG's

            financial  problems.    Gordon Locke  and  Dennis Williamson,

            members of  the CRI  Board of Directors'  Executive Committee

            and  CRI's  only  preferred shareholders,  together  invested

            $250,000 in CRI.   CRI, in turn, made interest  bearing loans

            to TFG,  which were  properly documented  in the  accounts of

            both companies.   Locke and Williamson  became executive vice

            presidents of  TFG, for  which Williamson received  an annual

                                         -3-
                                          3

            salary of  $206,250 and  a monthly automobile  allowance, and

            for which Locke received  an annual salary of $187,500  and a

            monthly  automobile allowance.    In addition,  TFG's by-laws

            were amended to curtail the power of the CEO, Minsky.

                      CRI  was  careful  to  observe  all  the  corporate

            formalities  with respect  to  TFG.   The  two companies  had

            different boards  of directors  and separate  board meetings.

            Although, consistent with  good accounting practice, CRI  and

            TFG  eventually had  consolidated financial  statements, each

            kept its own financial records.

                      The new  management  of  TFG  decided  to  continue

            Minsky's policy of violating  contracts with TFG investors by

            reselling  equipment  leases  without  paying  investors  the

            proceeds, believing that this was the only way to continue to

            improve  TFG's financial health as well  as to avoid favoring

            investors whose equipment  had not been  sold before TFG  was

            acquired  by CRI.   CRI,  however, did  begin the  process of

            offering  to  all  of  the  investors  whose  contracts  were

            violated a settlement package which included cash, notes, and

            CRI stock.

                      One  of  TFG's  numerous creditors  took  steps  to

            attach a TFG  bank account in  Connecticut.  TFG  transferred

            funds out  of this account  into a TFG account  in a Canadian

                                         -4-
                                          4

            bank in  order to meet  the payroll for TFG  employees.2  For

            several  months in 1990, Locke  ran TFG's payroll  out of his

            personal  attorney  operating account  in  New  York and  was

            reimbursed  with funds  transferred out  of the  TFG Canadian

            account.  Eventually,  in January  1991, CRI sold  TFG.   TFG

            owed  CRI over one million dollars; this debt was forgiven at

            the time TFG was sold.

                      Neither of the plaintiffs in this case ever had any

            direct  dealings  with  CRI,   Locke  or  Williamson.    Both

            plaintiffs had a number of other tax shelter investments, and

            relied on David Levinson, their financial advisor, as to this

            investment.    Indeed, Massad  never  even  read the  initial

            offering memorandum.   Levinson  first became aware  of TFG's

            financial difficulties in February 1990, after calling TFG in

            preparation  for a  meeting  with Birbara.   On  February 20,

            Levinson spoke to Locke, who told  him that he was sure  that

            plaintiffs' computers had been sold.  Although  Locke was not

            familiar with plaintiffs' machines,  he indicated that all of

            the  computers  had  been sold,  and  that  he  would try  to

            determine exactly what had happened to plaintiffs' machines.

                                
            ____________________

            2.  In  both of  his  depositions taken  before trial,  Locke
            testified that  it was his  best recollection that  the funds
            were transferred out of TFG's Connecticut  account into a CRI
            account in Canada.   However, at trial he testified  that his
            recollection  had been  incorrect  and bank  statements  were
            produced to substantiate his trial testimony.

                                         -5-
                                          5

                      Levinson conveyed this  information to  plaintiffs,

            and in the next few days spoke to Locke or Williamson several

            times in  an effort to find  out more.  Levinson  knew he was

            speaking with Locke and Williamson in their capacities as TFG

            officers  and was  not confused  about the  various corporate

            relationships.   On  February 27,  1990, Williamson  informed

            Levinson that  the computer  owned by plaintiffs  jointly had

            been sold by prior  management in October 1989, and  the next

            day, Levinson was told  that Massad's computer had also  been

            sold in October 1989 by prior management.

                      CRI, however, had taken control of TFG prior to the

            sale  of the two computers,  and thus the  new management had

            been   involved in these sales.   Moreover, the  bill of sale

            for Massad's  computer dates  from late February  1990, after

            Levinson's calls.  Defendants contend  that Massad's computer

            was  actually  sold  in  November  1989  by  the  company  in

            possession  (which  later  reimbursed  TFG),  and  that   the

            February bill  of sale was  simply an accounting  between TFG

            and  that other company.   Defendants assert that  this was a

            common industry practice.  The jury would have been warranted

            in disbelieving defendants' claim  that Massad's computer had

            been sold in November 1989.

                      Levinson's telephone calls prompted Locke  in early

            March  to send  each  of the  plaintiffs the  settlement form

            letter  on CRI  stationery  that he  was  in the  process  of

                                         -6-
                                          6

            sending out to  all TFG  investors.  The  letter provided  in

            relevant part:

                      Early last year this company acquired all
                      the  stock  of Technology  Finance Group,
                      Inc. ("TFG") from which you purchased [an
                      interest]  in  equipment as  indicated in
                      the attached  Schedule A.  At  the end of
                      June,  1989  management  changed.    This
                      Company, and  its subsidiary TFG,  is now
                      operated by new management.  We, the  new
                      management have reviewed TFG's  books and
                      records and concluded, to the best of our
                      knowledge, in relation  to the  equipment
                      owned   by   you,  that   TFG   owes  you
                      Additional Rent  .  . .  .   Regrettably,
                      over  the past 5  years, prior management
                      of TFG has not remitted sums to owners of
                      equipment   to   a   total    amount   of
                      approximately  $7  Million.   Further, we
                      concluded, upon review  of the  financial
                      statements of the Company  . . . that TFG
                      does not have the financial  resources to
                      repay these funds.

                      . . . .

                      Your  concern  and disappointment  at the
                      position in which you have been placed is
                      extremely understandable.  However, it is
                      most important that  you understand  that
                      the   management   responsible  for   the
                      decisions  not to  pay you  have resigned
                      and that  new management is  concerned to
                      provide  you  with  the maximum  economic
                      benefit possible under the circumstances.

                      The jury would have  been warranted in finding that

            the statement that former  management was responsible for the

            sales  of  plaintiffs'  computers  was not  true.    However,

            despite  the misrepresentation, plaintiffs  were not confused

            about the  relationship between the  corporate entities,  nor

            did  they take any action  in reliance on  the new management

                                         -7-
                                          7

            language  in  the letter.    Although the  majority  of TFG's

            investors   accepted   the   standard   settlement   package,

            plaintiffs declined to do so.

            Procedural History
            __________________

                      Plaintiffs, who are Massachusetts  residents, filed

            this diversity suit in the District of Massachusetts in 1990,

            alleging breach  of contract,  common law  fraud, conversion,

            interference  with contractual obligations,  and violation of

            the  Massachusetts deceptive  trade practices  statute, Mass.

            Gen.  L. ch. 93A,    2.  Aware  of TFG's precarious financial

            condition, the plaintiffs brought  suit not only against TFG,

            but also against CRI, Locke, and Williamson.

                      At  the  close of  the  evidence,  the trial  judge

            entered  a directed  verdict  against the  plaintiffs on  the

            fraud claim concerning the computer they owned jointly.   The

            defendants then  moved, pursuant to Rule  50(a), for judgment

            as a matter  of law on various  grounds, including a lack  of

            personal jurisdiction.  The district court denied the motion,

            ruling that the personal  jurisdiction issue had been waived,

            but  even  if  it  had not,  that  the  jury  could  find the

            defendants had  sufficient contacts with Massachusetts  for a

            proper exercise of personal jurisdiction.  The jury found for

            the defendants  on the remaining fraud  and interference with

            contractual relations  claims, but for the  plaintiffs on the

                                         -8-
                                          8

            breach of contract claim.  The  trial judge reserved decision

            on the Massachusetts deceptive trade practices claim.

                      After  the  verdict,  defendants  again  moved  for

            judgment as a  matter of law,  pursuant to Rule  50(b).   The

            trial court denied  the motion.  At  the same time,  it ruled

            that  the  defendants  had  not  violated  the  Massachusetts

            deceptive trade practices statute,  finding that the decision

            to  breach  the  contract  with the  plaintiffs  was  a valid

            business judgment rather than  an attempt on the part  of the

            defendants to line their pockets.

            Personal Jurisdiction
            _____________________

                      The defendants  question whether there  is personal

            jurisdiction  over  them  under the  Massachusetts  long  arm

            statute, Mass. Gen.  L. ch. 233A,   3, and  the United States

            Constitution.    The  district  court found  that  all  three

            defendants   had  waived   their   objections   to   personal

            jurisdiction  and that in any event, the jury could find that

            the defendants had sufficient contacts with Massachusetts for

            a  proper  exercise of  jurisdiction.   The  trial  judge was

            plainly   correct   that   CRI  waived   any   objection   to

            jurisdiction:  at  the  final pre-trial  conference,  defense

            counsel  conceded  there  was  no jurisdictional  issue  with

            respect  to CRI.  Because  parties are, as  a general matter,

            bound by  the representations, concessions,  and stipulations

            of  their attorneys,  United States  v. Woburn  City Athletic
                                  _____________     _____________________

                                         -9-
                                          9

            Club,  928 F.2d 1, 6 (1st  Cir. 1991), this express waiver is
            ____

            dispositive on  the issue  of the trial  court's jurisdiction

            over CRI.

                      The  matters  of waiver  and  personal jurisdiction

            over the two  individual defendants are far  closer.  Because

            we find that plaintiffs did not submit evidence sufficient to

            sustain their verdict on  the merits, we pretermit resolution

            of the jurisdictional issue.  See Norton v. Mathews, 427 U.S.
                                          ___ ______    _______

            524, 530-31, 96 S. Ct. 2771, 1773-76A, 49 L. Ed. 2d 672 (1976)

            (where  merits can be easily  resolved in favor  of the party

            challenging   jurisdiction,   resolution   of   complex   and

            theoretical  jurisdictional issue  may  be avoided);  Menorah
                                                                  _______

            Ins. Co., Ltd. v. INX Reinsurance Corp., 72 F.3d 218, 223 n.9
            ______________    _____________________

            (1st Cir. 1995).

            Piercing the Veil
            _________________

                      TFG   admittedly   violated   its   contract   with

            plaintiffs,  has not  appealed and  is liable  to plaintiffs.

            TFG is insolvent and plaintiffs, as TFG's putative creditors,

            seek  to  have  CRI,  the  corporate parent,  and  Locke  and

            Williamson,  individuals who  were officers  of both  TFG and

            CRI,  satisfy   TFG's  contractual  obligations.     Although

            corporate   and   individual   defendants  present   slightly

            different questions, Pepsi Cola Metropolitan Co. v. Checkers,
                                 ___________________________    _________

            Inc.,  754 F.2d 10, 15-16  (1st Cir. 1985),  the analyses are
            ____

                                         -10-
                                          10

            sufficiently similar to  warrant discussing them   together,3

            only distinguishing the two categories when necessary.

                      Neither  party  disputes  that   Massachusetts  law

            controls  in this diversity action.   Our review  is de novo.

            We  will only  reverse if  the evidence,  when viewed  in the

            light most favorable to the verdict, would allow a reasonable

            factfinder  to come to only one conclusion -- that the moving

            party was entitled  to a  judgment in its  favor.  Conway  v.
                                                               ______

            Electro Switch Corp., 825 F.2d 593, 598 (1st Cir. 1987).
            ____________________

                      Plaintiffs seek  to make the  corporate parent  and

            two of its officers liable for the damages owed for breach of

            contract by  a subsidiary.4  Specifically,  CRI acquired 100%

                                
            ____________________

            3.  The leading Massachusetts case on piercing  the corporate
            veil, My  Bread Baking  Co. v.  Cumberland  Farms, Inc.,  233
                  _____________________     _______________________
            N.E.2d 748 (Mass.  1968), notes in dicta  that a "corporation
                                               _____
            or  a  person controlling  a  corporation  and directing,  or
            participating actively in  its operations may  become subject
            to  civil or criminal liability on principles of agency or of
            causation,"  My  Bread, 233 N.E.2d at 751 (citation omitted),
                         _________
            and this  court has applied  the same analysis  to individual
            defendant shareholders  as it has to  defendant corporations.
            Pepsi Cola, 754  F.2d at 15-16.   However, commentators  have
            __________
            noted  that courts  have  evinced a  "greater willingness  to
            reach  the  assets  of   corporate  as  opposed  to  personal
            shareholders."  Easterbrook & Fischel, The Economic Structure
                                                   ______________________
            of  Corporate Law  56  &  n.9  (1991);  Hackney  &    Benson,
            _________________
            Shareholder Liability for Inadequate  Capital, 43 U. Pitt. L.
            _____________________________________________
            Rev.  837,  873  (1982)  (collecting  cases);  Hamilton,  The
                                                                      ___
            Corporate Entity, 49 Tex. L. Rev. 979, 992 (1971). 
            ________________

            4.  That  CRI acquired ownership of TFF, Inc. and thus of TFG
            in 1989  while plaintiffs entered in their contracts with TFG
            several  years earlier  in 1986  does not  defeat plaintiffs'
            claim, because the actions leading to  the breach of contract
            occurred  in   1989  and  1990,   after  CRI  had   made  the
            acquisition.  Thus, this  case does not involve an  effort to
            hold  a  later  parent  responsible  for  the  pre-parenthood

                                         -11-
                                          11

            of the stock  of TFF, Inc.,  which in turn  owned all of  the

            common stock of TFG (but not its preferred stock).  Thus, CRI

            was the parent once removed.

                      To start,  CRI is a publicly traded,  not a closely

            held  corporation.   Caselaw  and  precedent  elsewhere  draw

            distinctions between  close and public corporations,  and the

            cases where courts have allowed creditors to reach the assets

            of   shareholders   have   almost   always   involved   close

            corporations.  Easterbrook & Fischel, The  Economic Structure
                                                  _______________________

            of  Corporate  Law  55-56 &  n.8  (1991)  (explaining that  a
            __________________

            "manager's  incentive to  undertake overly risky  projects is

            greater  in close  corporations").   Massachusetts apparently

            has  not yet  addressed the issue  of piercing  the corporate

            veil of a public corporation.  The key Massachusetts cases on

            piercing the corporate veil  have all involved close, family-

            owned  defendant  corporations.   In  this  silence, we  will

            assume, dubitante,  that Massachusetts would  apply the  same

            standards in  deciding whether  to pierce the  corporate veil

            when the defendant is a public corporation as it has when the

            defendant is a close corporation.

                      Further,  this case  concerns injured  creditors of

            the subsidiary seeking to  impose contract obligations on the

                                
            ____________________

            activities of its new corporate child.  See, e.g., C.M. Corp.
                                                    _________  __________
            v.  Oberer  Dev.  Co., 631  F.2d  536,  539  (7th Cir.  1980)
                _________________
            (parent's acquisition of subsidiary  after breach of warranty
            renders analysis  of  relationship between  two  corporations
            irrelevant).

                                         -12-
                                          12

            parent  and its  officers.   Several courts  and commentators

            have suggested that it should be more difficult to pierce the

            veil in  a contract  case than  in a tort  case.   See, e.g.,
                                                               _________

            Edwards v.  Minogram Indus., 730 F.2d 977,  980-984 (5th Cir.
            _______     _______________

            1984)  (en  banc); Blumberg,  The  Law  of Corporate  Groups:
                                          _______________________________

            Substantive  Law     17.01, 17.06,  at 349-51,  359-60 (1987)
            ________________

            ("[T]he underlying  facts and policies in  contract are often

            very different from those  in tort . .  . ."); Easterbrook  &

            Fischel, supra,  at 58 ("Courts are more willing to disregard
                     _____

            the corporate veil in tort than in contract cases."); Douglas

            &  Shanks,  Insulation  from  Liability   Through  Subsidiary
                        _________________________________________________

            Corporations, 39 Yale L.J. 193, 210-11 (1929).  We have found
            ____________

            no  Massachusetts Supreme  Judicial Court  case applying  the

            veil piercing doctrine in a contract case.  The Appeals Court

            cases that do so  have not addressed the question  of whether

            it is more difficult to pierce the corporate veil in contract

            than  in tort.   E.g.,  Evans v.  Multicon Const.  Corp., 574
                             ____   _____     ______________________

            N.E.2d  395, 400  (Mass. App.  Ct. 1991), review  denied, 577
                                                      ______________

            N.E.2d 304 (Mass. 1991) (tbl.).

                      We need  not, however, resolve this  issue, because

            we  find  that  plaintiffs  do not  even  meet  the  standard

            articulated  by the  Supreme  Judicial Court  in its  seminal

            ruling  on veil piercing in a  tort case, My Bread Baking Co.
                                                      ___________________

            v. Cumberland Farms, Inc., 233 N.E.2d 748 (Mass. 1968).  As a
               ______________________

            preliminary  matter,  we note  that  "Massachusetts has  been

                                         -13-
                                          13

            somewhat more 'strict' than other jurisdictions in respecting

            the separate entities of  different corporations."  My Bread,
                                                                ________

            233 N.E.2d at 752.

                      It is true that My Bread teaches that the principle
                                      ________

            that corporations  are generally  to be regarded  as distinct

            entities is not "of unlimited application":

                      Although common ownership of the stock of
                      two  or  more corporations  together with
                      common  management, standing  alone, will
                      not give rise to liability on the part of
                      one corporation  for the acts  of another
                      corporation or  its employees, additional
                      facts  may  be  such  as  to  permit  the
                      conclusion  that  an  agency  or  similar
                      relationship exists between the entities.

            Id.  at 751-52.  The Supreme Judicial Court explained that it
            ___

            is  appropriate  to  depart  from the  general  principle  of

            corporate separateness:

                      (a)  when  there  is  active  and  direct
                      participation  by the  representatives of
                      one  corporation,  apparently  exercising
                      some  form of  pervasive control,  in the
                      activities  of another and  there is some
                      fraudulent  or  injurious consequence  of
                      the  intercorporate relationship,  or (b)
                      when there is a confused intermingling of
                      activity  of  two  or  more  corporations
                      engaged  in  a  common   enterprise  with
                      substantial  disregard  of  the  separate
                      nature  of  the  corporate  entities,  or
                      serious  ambiguity  about the  manner and
                      capacity    in    which    the    various
                      corporations    and    their   respective
                      representatives  are  acting.    In  such
                      circumstances, in imposing liability upon
                      one  or  more  of  a  group  of  "closely
                      identified"  corporations  a court  "need
                      not  consider with nicety  which of them"
                      ought to  be held  liable for the  act of

                                         -14-
                                          14

                      one corporation "for which  the plaintiff
                      deserves payment."

            Id. at  752 (citation  omitted).   However, in setting  these
            ___

            circumstances   in  context,   the  Supreme   Judicial  Court

            explained:

                      Where there is common control of  a group
                      of  separate  corporations  engaged in  a
                      single  enterprise,  failure (a)  to make
                      clear which corporation is  taking action
                      in a particular  situation and the nature
                      and  extent  of that  action,  or  (b) to
                      observe  with  care  the formal  barriers
                      between  the  corporations with  a proper
                      segregation of  their separate businesses
                      records, and finances,  may warrant  some
                      disregard  of  the  separate entities  in
                      rare  particular  situations in  order to
                      prevent gross inequity.

            Id. (internal citation omitted).
            ___

                      Since My  Bread, in  a variety of  factual settings
                            _________

            (albeit  none exactly  analogous to  this case),  the Supreme

            Judicial Court has repeated that under Massachusetts law, the

            corporate  veil  will only  be  pierced  in rare  situations.

            Spaneas v.  Travelers Indem. Co., 668 N.E.2d  325, 326 (Mass.
            _______     ____________________

            1996) (corporate veil  will only be pierced  to prevent gross

            inequity); Berger  v. H.P. Hood,  Inc., 624  N.E.2d 947,  950
                       ______     ________________

            (Mass.  1993)  (corporate  form  will  be  respected   absent

            "compelling  reason of  equity"  to do  otherwise); Gurry  v.
                                                                _____

            Cumberland  Farms, Inc.,  550  N.E.2d 127,  134 (Mass.  1990)
            _______________________

            (same);  Worcester  Ins. Co.  v.  Fells Acres  Day  Sch., 558
                     ___________________      ______________________

            N.E.2d  958, 968-69  (Mass. 1990)  (noting the  reluctance to

            disregard  the corporate  form);  Commonwealth v.  Beneficial
                                              ____________     __________

                                         -15-
                                          15

            Fin.  Co., 275 N.E.2d 33,  91 (Mass. 1971)  (courts will only
            _________

            look  through  the  corporate  veil  to  "accomplish  .  .  .

            essential justice"),  cert. denied,  407 U.S. 910  (1972) and
                                  ____________                        ___

            407 U.S. 914  (1972); Gordon  Chem. Co. v.  Aetna Casualty  &
                                  _________________     _________________

            Surety Co., 266 N.E.2d 653, 657 (Mass. 1971); see also United
            __________                                    ________ ______

            Elec.  Workers v. 163 Pleasant St. Corp., 960 F.2d 1080, 1091
            ______________    _____________________

            (1st   Cir.   1992)   ("Under   Massachusetts   common   law,

            disregarding the  corporate form is permissible  only in rare

            situations.").

                      We review the evidence in light of the two prong My
                                                                       __

            Bread test, starting with the second prong.  Plaintiffs
            _____

            clearly  did   not  meet  their   burden  of  showing   by  a

            preponderance of  the evidence a "confused  intermingling" of

            CRI's and  TFG's activities   with "substantial  disregard of

            the separate  nature of the corporate  entities," or "serious

            ambiguity about the  manner and capacity  in which the  [two]

            corporations  and  their  respective  representatives  [were]

            acting."    My Bread,  233 N.E.2d  at  752.   Defendants were
                        ________

            extremely careful about  maintaining the formal  distinctions

            between CRI and TFG.   The two companies had  distinct boards

            of  directors, had  separate  board meetings,  and each  kept

            individual financial  records.  There is  no evidence showing

            that TFG was a sham or merely a shield behind which CRI could

            hide to escape liability for its own obligations.  Beneficial
                                                               __________

                                         -16-
                                          16

            Fin. Co., 275 N.E.2d  at 91-92; Gordon Chem. Co.,  266 N.E.2d
            ________                        ________________

            at 657.

                      The primary  evidence on which  plaintiffs rely  is

            TFG's movement  of funds from a bank  account in its own name

            in Connecticut into another TFG account in a Canadian bank in

            order to meet  the payroll  for TFG employees.   For  several

            months,  defendant Locke  ran TFG's  payroll out  of  his own

            attorney operating account in New York because steps had been

            taken  to  attach  TFG's  Connecticut  account.    Locke  was

            reimbursed  with funds  transferred out  of the  TFG Canadian

            account.   It is undisputed that the funds disbursed by Locke

            and repaid by  TFG went  only to TFG  employees.   Plaintiffs

            were unaware of the  transfers at the time and  the transfers

            did  not affect  them.   This is  not the  sort of  "confused

            intermingling"  we think  the Supreme  Judicial Court  had in

            mind.

                      Plaintiffs also argue  that confused  intermingling

            was  evident from cash infusions  into TFG by  CRI, Locke and

            Williamson.  However, all  the money transferred from  CRI to

            TFG was in the form  of loans that were properly recorded  in

            the financial records of  both corporations.  Moreover, there

            was insufficient competent evidence  of transfers of money in

                                         -17-
                                          17

            the other direction, that is, from TFG to CRI.5   These loans

            do not support the claim of confused intermingling.

                      Plaintiffs'   argument   that  there   was  serious

            confusion about  the manner  and  capacity in  which the  two

            corporations and  their  representatives acted  is  similarly

            unpersuasive.   There  is  no  evidence that  there  was  any

            confusion  about on whose behalf a director was acting in any

            given instance.  Locke and Williamson, in their capacities as

            directors of both CRI and TFG, did sometimes act on behalf of

            both corporations simultaneously, but  that is to be expected

            when individuals serve as directors for both a parent and its

            subsidiary.  It is also to be expected that when a subsidiary

            company profits, the parent  company will as well.   That the

            fortunes of CRI and TFG were  to some extent linked does not,

            as  plaintiffs suggest,  militate  in favor  of piercing  the

            corporate veil.

                      Plaintiffs admitted they were not misled about  the

            relationship  between TFG  and CRI.   Indeed, Massad  did not

            even know that he had invested in TFG, let alone that CRI had

            become its parent.   Plaintiffs neither knew nor  cared about

            the relationship  between CRI and  TFG, but rather  relied on

            their  financial  advisor,   Levinson,  who  understood   the

            corporate relationship.

                                
            ____________________

            5.  The bank statements, the best evidence, show no transfers
            from TFG to CRI.

                                         -18-
                                          18

                      As to the  first prong  of the My  Bread test,  the
                                                     _________

            evidence  is only  that Locke  and  Williamson served  on the

            boards of both TFG and CRI.   Mere overlapping of boards does

            not  meet the test of "active and direct participation by the

            representatives  of  one  corporation, apparently  exercising

            some form of  pervasive control."   My Bread,  233 N.E.2d  at
                                                ________

            752.     Moreover,  plaintiffs   have  failed  to   show  any

            "fraudulent  or injurious  consequence of  the intercorporate

            relationship."   Plaintiffs argue  that the settlement offers

            were misleading and fraudulent, because defendants attributed

            the  decision to  retain  investment returns  to TFG's  prior

            management,  when  it  had  been  the  decision  of  the  new

            management  to continue  the policy  of violating  investment

            contracts.

                      Even  assuming  this  misrepresentation might  have

            supported  fraud  or  unfair  practices  claims  against  the

            defendants  (claims the  jury  and court  here rejected),  we

            think plaintiffs' argument misses  the point of the corporate

            disregard  doctrine.    The phrase  "fraudulent  or injurious

            consequence" is limited  in My  Bread by the  phrase "of  the
                                        _________

            intercorporate relationship."  There  was no 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  Massachusetts Appeals  Court  has put  this point  well:

            "There  is present in the cases which have looked through the

                                         -19-
                                          19

            corporate  form  an  element  of   dubious  manipulation  and

            contrivance,  finagling, such  that corporate  identities are

            confused and third parties cannot  be quite certain with what

            they are dealing."  Evans, 574 N.E.2d at 400;6 cf. Oman Int'l
                                _____                      ___ __________

            Fin.  Ltd. v.  Hoiyong  Gems Corp.,  616  F. Supp.  351,  364
            __________     ___________________

            (D.R.I. 1985)  (noting that  the better reasoned  cases under

            Rhode  Island law  only pierce  the corporate  veil  when the

            injurious consequences are a direct  result of the misuse  of

            the  corporate form).    Plaintiffs were  never misled  about

            which corporate entity -- CRI or TFG -- was obligated to them

            or was dealing  with them.   Cf. Leatherbee  Mortgage Co.  v.
                                         ___ ________________________

            Cohen, 638  N.E.2d 939, 940  (Mass. App. Ct.  1994); Massey's
            _____                                                ________

            Plate  Glass Co.  v. Quinlan,  1992 WL  141885, at  *3 (Mass.
            ________________     _______

            Dist. Ct. 1992).

                                
            ____________________

            6.  To the  extent  that the  earlier  Massachusetts  Appeals
            Court  decision in Bump v. Robbins, 509 N.E.2d 12 (Mass. App.
                               ____    _______
            Ct. 1987) could be read to the contrary, we believe  it to be
            inconsistent  with  My  Bread and  effectively  overruled  by
                                _________
            Evans.    See MCLE-NELI,  Appellate  Practice 108-13  (1980);
            _____     ___             ___________________
            Henn,  Civil  Interlocutory  Appellate  Review  Under  G.L.M.
                   ______________________________________________________
            c.231,   118 & G.L.M. c.211,   3, 81 Mass. L. Rev. 24 (1996).
            ________________________________
            Bump pierced the corporate  veil despite the plaintiff's lack
            ____
            of confusion about  with whom  he was dealing,  based on  the
            particular facts and circumstances of the case and the belief
            that  My Bread does  not "mak[e]  such confusion  an absolute
                  ________
            requirement."    509  N.E.2d  at  24.    Bump,  which imposed
                                                     ____
            liability  on  a parent  under Mass.  Gen.  L. ch.  93A, also
            involved findings  of a  de facto  merger and  an undisclosed
            principal  and articulated  its holding  by stating  that the
            parent  "was liable on agency principles"  for the conduct of
            its subsidiary.  Id. 
                             ___

                                         -20-
                                          20

                      As was said in Pepsi Cola, we believe the two prong
                                     __________

            general  analysis  in My  Bread  is  exemplary  and does  not
                                  _________

            provide an exhaustive list of  considerations.  My Bread sets
                                                            ________

            the standard  for deciding when to pierce  the corporate veil

            under Massachusetts law; Pepsi  Cola elucidates some  factors
                                     ___________

            that  may be considered when engaging in a My Bread analysis.
                                                       ________

            Pepsi Cola, 754 F.2d at 15.7  The majority of  the Pepsi Cola
            __________                                         __________

            factors cut against piercing the corporate veil in this case.

                      Plaintiffs  largely based  their  case against  the

            individual defendants on a theory that the two defendants ran

            TFG  for their personal  benefit -- that  by drawing salaries

            and receiving certain benefits, the defendants were siphoning

            off  corporate  funds.8    But that  theory  is  topsy-turvy:

            managers should not be  put to the Hobson's choice  of either

            working for free or  facing personal liability.  Such  a rule

            would  undercut,  not advance,  the  policy  reasons for  the

            corporate disregard doctrine.  See  Evans, 574 N.E.2d at  399
                                           ___  _____

                                
            ____________________

            7.  These   factors   include  insufficient   capitalization,
            nonobservance  of  corporate  formalities,  failure   to  pay
            dividends,   insolvency   at  the   time  of   the  litigated
            transaction,  siphoning  off   corporate  funds,  absence  of
            functioning  officers  besides  the   dominant  shareholders,
            absence  of  corporate records,  use  of  the corporation  to
            advance the  interests of the dominant  shareholders, and use
            of  the corporation in promoting fraud.  Pepsi Cola, 754 F.2d
                                                     __________
            at 16.

            8.  In contrast to the  situation in Pepsi Cola, 754  F.2d at
                                                 __________
            14,  there   was  no  credible  evidence   of  subterfuge  or
            channeling excessive  payments; nor was there  any indication
            that  the benefits  were not  part  of a  legitimate benefits
            plan.

                                         -21-
                                          21

            (benefit  gained  by individual  defendants was  a legitimate

            business  purpose  and  so  a factor  pointing  against  veil

            piercing).

                      Indeed,  only one  of  the Pepsi  Cola factors  can
                                                 ___________

            arguably  be said to militate in favor of veil piercing here:

            when  plaintiffs' computers  were  sold,  TFG was  insolvent,

            unable  to  pay  its  debts  as  they  fell  due.    However,

            considering   TFG's   insolvency   in   light   of   policies

            Massachusetts  has  sought  to  foster  provides  us  with  a

            different  perspective.    Evans, 574  N.E.2d  at  399.   The
                                       _____

            Supreme  Judicial Court has  recently, in dicta,  said of the
                                                      _____

            corporate disregard doctrine:

                      [I]t  relates to the quite distinct issue
                      whether the  effects of liability  of one
                      corporate entity should be visited upon a
                      related  entity.   Corporate distinctness
                      is  respected  as  a  means  of  limiting
                      liability  and thus  fostering investment
                      in corporate enterprises.

            Strom v. American Honda Motor  Co., 667 N.E.2d 1137,  1145-46
            _____    _________________________

            (Mass. 1996).

                      This case involves an  attempt to impose  liability

            on  a  new parent  corporation  and  its  officers for  their

            efforts to  salvage an  insolvent, struggling business.   TFG

            was not initially insufficiently capitalized for the purposes

            of its   corporate endeavor and only became insolvent after a

            change  in the  tax  laws.   See  Laborers Clean-Up  Contract
                                         ___  ___________________________

            Admin.  Trust Fund v. Uriarte  Clean-Up Serv., Inc., 736 F.2d
            __________________    _____________________________

                                         -22-
                                          22

            516,  525  (9th Cir.  1984)  (distinguishing,  in dicta,  the
                                                              _____

            propriety   of   veil   piercing   when   a  subsidiary   was

            undercapitalized  at the  outset  from veil  piercing when  a

            subsidiary  began with sufficient funds but subsequently fell

            upon hard times).

                      The  basic   contract  was  entered   into  between

            plaintiffs  and  TFG, and  TFG  became  insolvent before  CRI

            assumed  ownership.    CRI  bought TFG  knowing  that  it was

            insolvent and pumped a great deal of money into TFG to try to

            make  it profitable again.  That TFG may have continued to be

            undercapitalized  in these  circumstances does not  argue for

            piercing the corporate  veil.  Indeed, the  contrary may well

            be true.   This is not  a case involving  a close corporation

            where  the  parent  may   "form  a  subsidiary  with  minimal

            capitalization  for  the   purpose  of   engaging  in   risky

            activities" and where absolute limited liability would create

            "incentives to engage in a socially excessive amount of risky

            activities."   Easterbrook & Fischel,  supra, at 57.   Nor is
                                                   _____

            this  a  case  of  "financial misconduct  of  the  subsidiary

            involving  such  manipulation  as  asset-stripping  or asset-

            siphoning, which  depletes the resources of  the subsidiary."

            Blumberg,  supra,   17.01, at 350.   In sum, this is not that
                       _____

            "rare particular situation" where disregarding  the corporate

            form is necessary "to prevent gross inequity."  My Bread, 233
                                                            ________

            N.E.2d at 752.

                                         -23-
                                          23

                      Accordingly, after examining the case  in the light

            most  favorable   to  the  verdict,  we   find  the  evidence

            insufficient  to warrant  piercing  TFG's corporate  veil  to

            reach CRI's assets or the individual defendants' assets under

            the stringent requirements set forth by Massachusetts law.

                      We reverse and vacate the jury verdict.

                                         -24-
                                          24