The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND DECISION
This proceeding is brought pursuant to Section 9 of the
United States Arbitration Act of 1925 as amended (the
"Arbitration Act"), 9 U.S.C. § 9, and Section 301(a) of the
Labor Management Relations Act of 1947, as amended ("LMRA"),
29 U.S.C. § 185(a), by petitioner Directors Guild of America, Inc.
("DGA"), a labor organization, to confirm a labor arbitrator's
award enforcing the provisions of a collective bargaining
agreement against respondent Garrison Productions, Inc.
("Productions"), a motion picture production company.
Productions failed to defend this action and on January 12,
1990, the Court signed a default judgment submitted by the
petitioner against Productions. The remainder of this case,
then, involves DGA's attempt to pierce the corporate veil of
Productions to recover from respondents Morton L. Ginsberg
("Ginsberg") and MLG Properties Inc. ("MLG").
Jurisdiction lies pursuant to Section 301(a) of the LMRA,
29 U.S.C. § 185(a) and 28 U.S.C. § 1331. Venue is proper in this
district pursuant to Section 9 of the Arbitration Act, 9 U.S.C. § 9
and Section 301(a) of the LMRA, 29 U.S.C. § 185(a).
The action was tried before this Court without a jury from
July 5, 1989 through July 7, 1989. Proposed findings of fact
and conclusions of law were submitted by the parties on
January 2, 1990. This opinion constitutes the Court's findings
of fact and conclusions of law.
DGA is an incorporated labor organization within the meaning
of Section 301(a) of the LMRA. Its members are motion picture
and television directors and related personnel. DGA maintains
an office at 110 West 57th Street, New York City.
Productions is a New Jersey corporation which, at times
relevant hereto, maintained its business in Guttenberg, New
Jersey. It was incorporated in early September 1985 by Sandye
Garrison and her attorney, Charles Chehebar. Its business
purpose was to acquire and produce motion pictures. On
September 19, 1985, shortly after the formation of
Productions, a shareholders' agreement was entered into by the
founding shareholders. That agreement reflects that the
principal investor, Ginsberg, acquired 50% of the stock in
return for providing $140,000 of Productions' initial
capitalization of $141,000. Garrison invested $500 and Louis
R. and Eileen M. Capone invested $500.*fn1 The shareholders'
agreement provides that $50,000 of Ginsberg's contribution was
to be held in escrow pending acquisition of the rights to
produce a movie entitled "Single Room".
The Shareholders' Agreement sets forth a division of
functions as follows:
Functions. Morton L. Ginsberg will be the principal
investor in the Company and will advise it in all
financial matters. Sandye Garrison will administer
and execute all production projects undertaken by
the Company, which functions will involve the
preparation of a budget for each production, the
negotiation of co-production agreements, casting
the production and negotiation of all contracts
pertaining thereto. Louis R. Capone will direct the
sale and marketing of all projects and arrange for
the music for all productions and will also
negotiate and acquire rights to original musical
scores and other related properties. Eileen M.
Capone will be principally in charge of developing
and obtaining properties for feature films.
Ginsberg, an attorney, is the sole owner of respondent MLG,
Inc., a New York corporation used by Ginsberg to transact real
estate business. Before he became involved in Productions,
Ginsberg had no experience or skill in film production.
Ginsberg was approached by Garrison, who needed financing in
the form of "seed capital" from investors to acquire the
rights to and thereafter to produce "Single Room." Garrison
represented to Ginsberg that "Single Room" would attract a
cast of well known movie stars and that the cast would in turn
attract additional capital through a pre-sale of "Single Room"
to a major studio.
In addition to interesting Ginsberg in "Single Room,"
Garrison also induced Ginsberg to advance additional moneys to
Productions for the acquisition and production of a second
film, "Hawken." From October 1985 to mid-1986, Ginsberg
contributed approximately $1.8 million to Productions for the
production and distribution of "Hawken." In the spring of 1986
final editing of "Hawken" had still not been completed. At
that point Productions conveyed all its rights in "Hawken" to
Ginsberg. No proof was adduced showing that there was
consideration for this transfer.
In the meantime, Productions was attempting to gain the
rights to, and thereafter produce, "Single Room," a German
stage play by Johannes Reben. In March 1985 a German director,
Wolfgang Panzer, who had been associated with European
productions of "Single Room," obtained with Felix Bloch Erben
the exclusive rights to an English language version of the
play. In March of 1986, Garrison, on behalf of Productions,
entered into a contract with
Pantom Productions, S.A. ("Pantom"), a company controlled by
Panzer, under which Panzer was to direct an English language
production of "Single Room." The contract called for
arbitration of all disputes under the rules and regulations of
DGA. In June 1986 Productions entered into a contract with
Pantom which provided that an assignment of all rights in
"Single Room" would be received from Panzer and Erben upon
receipt of payment in full of 250,000 Deutsche Marks. Pursuant
to this contract, Productions paid $20,000 as an initial
payment and agreed to pay Panzer for Erben a final payment of
about $120,000 ten days before it started shooting "Single
At about the same time, in June of 1986, the Capones
resigned from and relinquished their 25% stock interest in
Productions. In connection with this agreement, the Capones
received a promise to pay $25,000 secured by a confession of
judgment in that amount from Productions, from Garrison
individually, from MLG and from Ginsberg personally.*fn2
After this buy-out of the Capones, Ginsberg was the holder of
75 percent of Productions' stock.*fn3
Productions, as producer of "Single Room", signed the DGA
Basic Agreement on July 26, 1986 (Pt. Ex. 9). The Basic
Agreement obligated Productions to pay the salaries of DGA
members and to make contributions to certain DGA pension and
health and welfare plans.*fn4
On September 2, 1986, after an arbitration hearing requested
by DGA, the arbitrator, Walter Gellhorn, Esq., ordered
Productions to post an escrow deposit of $50,000 pursuant to
the DGA Basic Agreement to secure the salaries and health and
welfare benefits of DGA members employed by Productions to
produce "Single Room." The $50,000 received by DGA for
security was paid directly by MLG. MLG posted this deposit (on
behalf of Productions) on September 4, 1986. Thereafter, in
September 1986, Productions began active film production of
"Single Room" with funds advanced by MLG. In September 1986
Panzer started filming "Single Room." After approximately one
week Garrison and William C. Gerrity, Unit Production Manager,
decided a new cinematographer should be hired. Ginsberg was so
advised and approved the additional budgetary expenditure.
On September 24, 1986, after approximately one-third of the
scenes had been filmed, Panzer refused to proceed further with
the filming of "Single Room." Respondents claim that a number
of disputes had arisen with Panzer. No testimony was offered
to support this general charge. Accordingly, the Court finds
the principal reasons for his refusal were (1) that
Productions' post-dated September 17, 1986 check to Pantom
Productions in the sum of $124,100 in final payment for the
rights to "Single Room" (received on September 11, 1986, some
days after it was due) had failed to clear due to insufficient
funds, and (2) that Productions had failed to pay two
installments of Panzer's salary. After September 24, 1986, the