contractual obligations. Accordingly, Tsoukanelis is liable for the obligations of HT Investing Co. under the Put Agreement as an agent acting for a partially disclosed principal.
Alter ego liability.
Under New York choice of law principles, "the appropriate law to apply to the question of whether to pierce the corporate veil is the law of the state of incorporation." Stephens v. American Home Assurance Co., 811 F. Supp. 937, 951 (S.D.N.Y. 1993). "The state of incorporation has the greater interest in determining when and if that insulation is to be stripped away." Soviet Pan Am Travel Effort v. Travel Comm., 756 F. Supp. 126, 131 (S.D.N.Y. 1991). Since HT Investing Co. was incorporated in Delaware, its law controls on this issue.
Under Delaware law, "a court can pierce the corporate veil of an entity where there is fraud or where [it] is in fact a mere instrumentality or alter ego of its owner." Geyer v. Ingersoll Publications Co., 621 A.2d 784 (Del. Ch. 1992). "The question of whether [a corporation is its owner's] alter ego or mere instrumentality may be restated to be whether [they] operated as a single economic entity such that it would be inequitable for this Court to uphold a legal distinction between them." Mabon, Nugent & Co. v. Texas American Energy Corp., 1990 Del. Ch. LEXIS 46, 1990 WL 44267, at *4 (Del. Ch. Apr. 12, 1990).
UBS introduced substantial evidence which established that Tsoukanelis and HT Investing Co. operated as a "single economic entity." To begin with, Tsoukanelis conceded at trial that there was a general absence of the formalities and paraphernalia that are part and parcel of corporate existence. For example, Tsoukanelis testified that HT Investing Co. had no employees, offices or bank account, kept no financial statements, never filed a tax return and never held any meetings of any sort after it was incorporated. In fact, HT Investing Co. never did anything at all apart from participating in the ownership of Natural Country Farms, Inc. via its 83.23% control of Kane's Partners Limited. Finally, Tsoukanelis conceded that HT Investing Co. was actually dissolved by the State of Delaware on March 1, 1991 for failure to pay its franchise taxes and was not reinstated by Tsoukanelis until over two years later.
More damning still, the evidence at trial showed that there was little, if any, distinction in Tsoukanelis's own mind between the business of HT Investing Co. and his own. Tsoukanelis testified that he considered HT Investing Co. to be a "passive" entity and stated in a deposition in a related case that the distinction between himself as an individual and HT Investing Co. "as you know, over the years . . . phased in and out." (Tsoukanelis Dep. of Feb. 19, 1993 at 477-78). Documentary evidence showed that Tsoukanelis thought of himself as a partner of Kane's partners Limited, even though, in fact, HT investing Co. was the partner. For example, Tsoukanelis signed two tax returns and a Pledge Agreement dated November 28, 1989 personally as a partner of Kane's Partners Limited. Moreover, Tsoukanelis personally paid HT Investing Co.'s expenses, including its Delaware filing fees and legal costs.
For these reasons I conclude that Tsoukanelis and HT Investing Co. operated as a single economic entity and that, accordingly, Tsoukanelis is personally liable for the corporations's obligations under the Put Agreement.
UBS has applied for $ 960.00 in attorney fees and $ 25.00 in miscellaneous disbursements in connection with its motion to compel the production of "any personal checks of defendant Tsoukanelis by which he paid any expense of defendant HT Investing Co."
I find that the motion was made necessary because of the defendants' inordinate delay in responding to UBS's discovery request. Accordingly, the defendants should bear UBS's reasonable costs in making the motion. However, the nature and subject matter of the motion -- compelling the defendants to produce Tsoukanelis's personal checks -- was relatively straightforward and fails to justify the amount requested by UBS. Accordingly, UBS' application is granted to the extent of $ 500 attorney fees and $ 25 disbursements and is otherwise denied.
The Put Agreement requires HT Investing Co. to purchase the 25 shares UBS seeks to resell and Harry Tsoukanelis is personally liable for HT Investing Co.'s obligations under the Put Agreement. UBS is granted $ 500 in attorney fees and $ 25 in disbursements in connection with its discovery motion.
Submit proposed judgment on notice.
Dated: New York, New York
May 19, 1994
Morris E. Lasker
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