their enforcement of the Note is fraudulent.
In the first instance, the Zanders have failed to cite any authority holding that a private right of action exists under 12 U.S.C. § 78. Moreover, the language of the statute nowhere provides that contracts executed by a party in violation are thereby invalid. Finally, the evidence at trial did not establish that CITC is "primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, or stocks, bonds, or other similar securities" and therefore covered by 12 U.S.C. § 78. Therefore, this defense and counterclaim are without merit.
7. The Zanders Proved that CITC's Corporate Veil was Pierced
Because the Zanders failed to prove their defense, counterclaim and third-party claim of fraudulent inducement, their claim for piercing the corporate veil of CITC is technically irrelevant. However, had they prevailed, the evidence at trial established that, with respect to the WORC transactions, CITC's corporate veil was pierced to reach Citibank.
To prove their claim for piercing the corporate veil, it was upon the Zanders to prove that CITC was so dominated by Citibank that it was a "mere instrumentality" of Citibank. See Fisser v. International Bank, 282 F.2d 231, 234 (2d Cir. 1960); Fidenas AG v. Honeywell, Inc., 501 F. Supp. 1029, 1036 (S.D.N.Y. 1980). New York courts have articulated a number of bases for piercing the corporate veil on the instrumentality theory. "A court may pierce the corporate veil to reach the controlling parent, shareholder or director, upon a showing that said party exercised complete domination in respect to the transaction attacked so that the subsidiary has at the time no separate will of its own." Chase Manhattan Bank v. 264 Water Street Assocs., 174 A.D.2d 504, 571 N.Y.S.2d 281, 282 (1st Dep't 1991) (citations omitted). "The corporate veil may be pierced either to achieve equity, where the officers and employees of the parent corporation exercise control over the daily operations of the subsidiary and act as the true prime movers behind the subsidiary's action, or on the theory that the parent conducts business through the subsidiary, which exists solely to serve the parent." Pritchard Servs., Inc. v. First Winthrop Props., Inc., 172 A.D.2d 394, 568 N.Y.S.2d 775, 776 (1st Dep't 1991).
Some factors that may be relevant to this determination are:
(1) the absence of the formalities which are part and parcel of normal corporate existence, i.e., the issuance of stock, the election of directors, the keeping of corporate records, etc., (2) inadequate capitalization, (3) personal use of corporate funds, and (4) the perpetration of fraud by means of the corporate vehicle.
Walter E. Heller & Co. v. Video Innovations, Inc., 730 F.2d 50, 53 (2d Cir. 1984). While there is no set rule as to how many of these factors must be present to pierce the corporate veil, generally, courts will pierce the corporate veil when doing so would achieve an equitable result. Brunswick Corp. v. Waxman, 599 F.2d 34, 35 (2d Cir. 1979). Additional important factors to be considered are "the degree of overlap of personnel, the amount of business discretion displayed by the alleged puppet corporation and whether the two entities deal with each other at arm's length." United States Barite Corp. v. M. V. Haris, 534 F. Supp. 328, 330 (S.D.N.Y. 1982).
The proof at trial established that Citibank exercised "complete domination in respect to the transaction attacked so that [CITC had] at the time no separate will of its own." 264 Water Street Assocs., 174 A.D.2d 504, 571 N.Y.S.2d at 282. Although Weiss was at no time an officer, director or employee of CITC, Tr. at 19, he had "management responsibility for the [the WORC] transaction" as Vice President of Citibank; id. at 47, directly supervised three CITC employees, including Gerry Horah who was the CITC executive handling the WORC transaction, id. at 33; and had "organizational responsibility for a small segment of employees within CITC" which he "managed." Id. at 108. Kowalcyk testified that Mr. Horah, in his capacity at CITC, did not have authority to act on "major decisions" without going through "his boss," Mr. Weiss. Tr. at 112-14. Finally, it was Weiss who signed the Note on behalf of CITC. Tr. at 47 (Weiss testimony that he signed as Vice President of Citibank on behalf of CITC); Pl. Ex. 1, at 3.
The evidence also suggested that Citibank's domination of CITC extended more generally than the WORC transactions. For example, CITC's "mission," according to Weiss, was "to serve the bank [Citibank] by serving companies on international transactions, across border transactions, and around the world transactions." Tr. at 34. CITC and Citibank shared some overlapping officers, Tr. at 107, and, possibly, directors. Id. at 115. And, although post-dating the WORC transactions, when CITC disbanded as an "operating entity" in 1987, Citibank kept CITC's license "to allow all of the places in the bank that needed to use that license and needed to be empowered by that license -- we continued to have that legal vehicle." Id. at 20-21. The reason for keeping the CITC license was that "a very specific benefit of having a trading company license was that a bank could not take title to goods in the course of a transactions and a trading company could. That allowed us [Citibank] to create financing transactions for clients in a different manner to suit whatever need they might have had." Id. at 21; id. at 105 (Kowalcyk testimony that "CITC basically is [and was in 1987] used by a number of Citicorp units around the world for its charter capability that was mentioned earlier, to act in this trade advisory role, and to take possession of title of goods if need be.").
Thus, as the evidence showed, Citibank dominated CITC with respect to the WORC transactions, and more specifically with respect to the execution of the Note. CITC did not have a will of its own, as all major decisions had to be approved by Weiss, a Citibank officer. This same Citibank officer was the "boss" of the CITC employees handling the WORC transactions, had "management responsibility" for those transactions, and signed on behalf of CITC. According to the evidence, CITC appears to have had no purpose separate and distinct from conducting Citibank's international trading business, and seems to have existed "solely to serve the parent." There was an overlap of personnel, officers, and possibly directors. Given these factors and others described above, CITC was a "mere instrumentality" of Citibank, at least as far as the WORC transactions were concerned.
Upon the findings and conclusions set forth above, judgment will be entered granting the relief sought in the complaint with costs upon notice. The counterclaims, affirmative defenses and third-party complaint of the Zanders will be dismissed. Submit judgments on notice.
It is so ordered.
New York, N. Y.
April 10, 1992
ROBERT W. SWEET