Court Opinion

ID: 62498
Source: CourtListenerOpinion
Date Created: 2010-04-26 04:44:52+00
Date Added: 2024-06-11T17:20:05.909971
License: Public Domain

[DO NOT PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT           FILED
                              _______________________ U.S. COURT OF APPEALS
                                                                      ELEVENTH CIRCUIT
                                                                         JUNE 23, 2008
                                       No. 07-14928                    THOMAS K. KAHN
                                                                           CLERK
                               _______________________
                        D. C. Docket No. 05-01795-CV-CAP-1

BP PRODUCTS NORTH AMERICA, INC.,
                                                                Plaintiff-Appellee,
                                           versus
SOUTHEAST ENERGY GROUP, INC.,
MICHAEL R. HOLLIS
                                                                Defendants-Appellants.
                              ________________________
                      Appeal from the United States District Court
                         for the Northern District of Georgia
                           _________________________

                                      (June 23, 2008)
Before CARNES and MARCUS, Circuit Judges, and DuBOSE,* District Judge.
____________________
       *The Honorable Kristi K. DuBose, United States District Court for the Southern District
of Alabama, sitting by designation.
PER CURIAM:

                                 I. OVERVIEW

      Michael Hollis challenges the district court’s order granting BP Products,

North America Inc. (“BP”) summary judgment on BP’s claim that Southeast

Energy Group Inc. (“Southeast”) was operated as an alter ego for Hollis, the

President of Southeast. Because there are genuine issues of material fact which

must be resolved by a jury, the trial court’s summary judgment in favor of BP on

its claim against Hollis is REVERSED.

                              II. BACKGROUND

      On February 16, 2000, BP and Southeast entered into an agreement in

which Southeast agreed to purchase certain properties (gas stations)owned by BP.

Hollis executed the agreement on behalf of Southeast. The closing was set for

June 2000 and the total purchase price was $42,500,000. As part of the

agreement, BP agreed to pay Southeast a $7,000,000 incentive payment which

Southeast would repay through a twenty-year note, amortized based on the amount

of gasoline Southeast purchased from BP. The twenty-year note was signed by

Hollis on January 31, 2000, prior to the execution of the agreement. Hollis signed

the note twice, once as President of Southeast and once as “Maker-Principal.” On

or about February 3, 2000, BP wired an initial incentive payment of $1.5 million

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to Southeast through its attorney. Subsequently, Southeast notified BP that they

would not be closing on the properties. In June 2000, July 2000, February 2002

and October 2004, BP requested that the incentive money be returned. Southeast

did not return the money.

       On July 8, 2005, BP filed its complaint against Hollis and Southeast,

seeking to recover the incentive money plus interest, as well as other damages,

from the failure to close on the properties as agreed. BP later amended its

complaint to allege that Hollis was personally liable, under an alter-ego theory, for

the obligations of Southeast. The district court granted summary judgment for BP

on its claims against Southeast1 and on its claim that Hollis was personally liable

for Southeast’s obligations.2

                             III. STANDARD OF REVIEW

       We review a district court's grant of summary judgment de novo. Summary

judgment is appropriate when the evidence, viewed in the light most favorable to

the nonmoving party, presents no genuine issue of material fact and compels

judgment as a matter of law. Huff v. DeKalb County, Ga., 516 F.3d 1273, 1277

       1
        Although Southeast is listed as an appellant, no argument has been raised regarding the
propriety of the court’s order as to Southeast. Accordingly the judgment in favor of BP as to its
claims against Southeast is AFFIRMED.
       2
        The district court did not address BP’s claim that Hollis was personally liable on the note
based on the allegation that Hollis signed the note in his individual capacity.

                                                3
(11th Cir. 2008). The word “genuine” as it is used in Rule 56(c) means that the

“evidence is such that a reasonable jury could return a verdict for the nonmoving

party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510,

(1986).

                                IV. DISCUSSION

      This appeal presents the issue of whether, on the evidence presented, a

reasonable jury could find that Michael Hollis did not operate Southeast as his

alter ego. In Georgia, the alter ego doctrine provides that:

      the corporate entity may be disregarded for liability purposes when it
      is shown that . . . the shareholders disregarded the corporate entity
      and made it a mere instrumentality for the transaction of their own
      affairs; that there is such unity of interest and ownership that the
      separate personalities of the corporation and the owners no longer
      exist.

Baillie Lumber Co. v. Thompson, 612 S.E.2d 296, 299 (2005). “The corporate

entity may be disregarded only in exceptional circumstances.” McKesson Corp. v.

Green, 597 S.E.2d 447, 455 (2004). “In Georgia, these exceptional circumstances

include . . . such disregard for the corporate form as to make the corporation a

mere sham or a business conduit for the shareholder personally.” Id. The purpose

of allowing the corporate veil to be pierced is “to remedy injustices which arise

where a party has over extended his privilege in the use of a corporate entity in

                                          4
order to defeat justice, perpetuate fraud or to evade contractual or tort

responsibility.” Baillie, 612 S.E.2d at 299.

      Evidence to justify piercing the corporate veil “may include the owner using

corporate funds for personal expenses or the owner bleeding one company to pay

the expenses of another company he owns or the owner treating all his companies

and himself as one unit.” Scott Bros., Inc. v. Warren, 582 S.E.2d 224, 227 (2003)

(citations omitted). Other factors to consider in the determination of whether to

pierce the corporate veil include whether corporate records were maintained

properly, whether shareholders' and directors' meetings were held and whether

formal authorization of expenditures was observed. See United States v. Fidelity

Capital Corp., 920 F.2d 827, 837 (11th Cir. 1991); Pickett v. Paine, 199 S.E.2d

223, 228 (1973). In sum, “[p]roof of the alter ego relationship consists

substantially o[f] how the controlling person treated the disputed entity.” Fed.

Deposit Ins. Corp. v. United States, 654 F. Supp. 794, 810 (N.D. Ga.1986).

      Hollis contends that in granting summary judgment on the issue of whether

Southeast was Hollis’ alter ego, the district court improperly made credibility

determinations and denied Hollis the benefit of all reasonable inferences.

Moreover, Hollis argues that the district court failed to properly apply Georgia law

which counsels: 1) that the alter-ego theory is a two-part inquiry, i.e., was the

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corporate form abused and was it done with fraudulent intent; and 2) that whether

the corporate veil should be pierced is generally a question of fact that the jury

should decide.

      In support of the summary judgment, BP relies on the lack of documentary

evidence that Southeast adhered to the corporate form, Hollis’ inability to

specifically account for the majority of incentive money, and the lack of any

documentary evidence that Southeast engaged in any business outside of

contracting with BP. BP also urges affirmance of the district court based on

Hollis’ inconsistent statements, documentary evidence that appears to contradict

Hollis, and the fact that Hollis allowed the documents to be destroyed after being

sent four demands for repayment of the incentive money.

                                         A.

      The following are the facts viewed in the light most favorable to Hollis,

which is how we are required to view them at this stage of the proceedings. See

Cottrell v. Caldwell, 85 F.3d 1480, 1486 (11th Cir.1996) (“[W]hat is considered to

be the ‘facts' at the summary judgment stage may not turn out to be the actual facts

if the case goes to trial, but those are the facts at this stage of the proceeding for

summary judgment purposes.”).

      Hollis formed Southeast on August 24, 1999, to acquire and operate

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convenience stores. (Doc. 49, Hollis deposition, August 29, 2006, pp. 23, 30).

Hollis was the sole shareholder of Southeast and perhaps its only officer, although

he thinks that Anthony Jackson may have been an officer. (Id. at pp. 27-28).

Initially, Hollis testified that he did not know specifically what happened to the

$1.5 million incentive payment and did not recall whether Southeast had a bank

account, filed tax returns or ever held a corporate meeting. Hollis further testified

that he did not recall whether Southeast had an office, paid rent or acquired any

assets, and did not recall whether he was compensated for any work he did on

behalf of Southeast. (Id. at pp. 30-38, 46, 59-61, 98, 148). Hollis also initially

testified that sometime in 2000 and until Southeast dissolved, Southeast was

“pretty dormant,” “didn’t have any more business to do,” and was “not a

corporation that had a lot of activity.” (Id. at p. 39). Hollis stated that sometime

in 2000, Southeast’s records were put into a prepaid storage unit. Hollis then

received a call in approximately 2004 asking if he wished to renew the rental of

the unit. Hollis declined because Southeast was no longer in business and

presumably the documents were destroyed. (Id. at pp. 71-76, 80-81).

      However, at his second deposition and after the discovery of a Southeast

bank account and Southeast tax returns, Hollis testified generally that the $1.5

million was spent on legitimate business expenses of Southeast. Specifically,

                                          7
Hollis believes, after reviewing Southeast’s bank account records, that the

payments of more than $400,000 to “Michael Hollis” or “Moncrief” from July

2000 to January 2002, were for services that he provided to Southeast. (Doc. 87,

Hollis deposition June 21, 2007, pp. 24, 51, 50, 57, 69, 76-79). Hollis further

testified that in 2000 and 2001 he worked “pretty much full-time on Southeast

Energy.” (Id. at p. 30) Hollis also identified approximately $174,000 of the checks

or wire transfers as payments for business equipment, accountant fees, attorney

fees transportation expenses, telephone expenses and other business expenses for

Southeast. (Id. at pp. 38, 69-74, 79). Moreover, after reviewing Southeast’s tax

returns, Hollis believed that approximately $740,000 was used by Southeast for

earnest money or extension fees on commercial contracts with Spectrum, Discount

Foods or other entities that Southeast attempted to acquire. (Id. at pp. 20, 40, 43,

60-63, 78-79). Hollis testified that Southeast did not acquire these properties nor

was Southeast reimbursed the earnest money. (Id. at p. 21).

                                          B.

      At the summary judgment stage all facts asserted by the party opposing

summary judgment must be regarded as true if supported by affidavit or other

evidentiary material. Warrior Tombigbee Transp. Co., Inc. v. M/V Nan Fung,

695 F.2d 1294, 1298 n. 2 (11th Cir. 1983). “[A]ll that is required is that sufficient

                                          8
evidence supporting the claimed factual dispute be shown to require a jury or

judge to resolve the parties' differing versions of the truth at trial.” Anderson,477

U.S. at 249 (quoting First National Bank of Arizona v. Cities Service Co., 391

U.S. 253, 288-289, 88 S. Ct. 1575,1592 (1968)).

       The district court held that “the available evidence shows that Hollis used

Southeast - a company that observed no corporate formalities, kept no records, and

served no discernable function other than to receive a check from BP - as his

personal ‘piggy bank’” In making this determination the court presumed that the

documents Hollis allowed to be destroyed would show a lack of adherence to the

corporate form and would also show Hollis’ use of Southeast’s assets as his own.3

       Presuming that the evidence is sufficient to sustain the district court’s

finding that Hollis disregarded the corporate form, there remains a factual issue as

to whether Southeast was a sham corporation used to “defeat justice, to perpetrate

fraud, or to evade, contractual or tort responsibility.” Baillie, 612 S.E.2d at 299.

Under Georgia law “[a]s a rule, ‘one who deals with a corporation as such an

entity cannot, in the absence of fraud, deny the legality of the corporate existence

       3
          The district court implicitly determined that Hollis’ actions were predicated on bad faith.
 See Bashir v. Amtrak, 119 F.3d 929, 931 (11th Cir. 1997) (“In this circuit, an adverse inference
is drawn from a party's failure to preserve evidence only when the absence of that evidence is
predicated on bad faith.” ) This determination is appropriate for the district court to make, as
opposed to submitting the issue of bad faith to the jury, because it is imposed as a sanction for
failure to preserve evidence. See Flury v. Daimler Chrysler Corp., 427 F.3d 939 (11th Cir. 2005).

                                                 9
for the purpose of holding the owner liable.’” Gardner v. Marcum, No. A08A0578,

2008 WL 2102122 at *3 (Ga. Ct. App. May 20, 2008) (quoting Bulloch South v.

Gosai, 550 S.E.2d 750, 756 (2001)). Hollis’ testimony, as recounted above,

provides a sufficient basis to withstand summary judgment on this issue.

                                          C.

      In the alternative BP invites us to hold that as a matter of law Hollis is

personally liable for the failure of Southeast to repay the incentive money based

on Hollis’ signature on the note in the capacity of “Maker-Principal.” The district

court did not decide this issue and we decline to decide it in the first instance

ourselves.

                                 V. CONCLUSION

      The judgment as to Southeast is AFFIRMED. However, because genuine

issues of material fact exist that preclude summary judgment, we REVERSE the

judgment of the district court as to Michael Hollis and REMAND for further

proceedings consistent with this opinion.

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