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V.F. Garment, Inc. v. Seaboard Atlantic Garment

September 14, 2009

V.F. GARMENT, INC., PLAINTIFF,
v.
SEABOARD ATLANTIC GARMENT, INC.; SEABOARD GRAPHIC SERVICES, LLC; GERALD WILSON, A/K/A GERRY WILSON, INDIVIDUALLY; DENNIS WILSON, INDIVIDUALLY; AND AMERICAN FASHION NETWORK, LLC, DEFENDANTS.
CENTURY GARMENT, INC. PLAINTIFF,
v.
SEABOARD ATLANTIC GARMENT, INC.; SEABOARD GRAPHIC SERVICES, LLC; AMERICAN FASHION NETWORK, LLC; GERALD WILSON, A/K/A GERRY WILSON, AND INDIVIDUALLY; DENIS WILSON, INDIVIDUALLY, DEFENDANTS.



The opinion of the court was delivered by: Hon. Norman A. Mordue, Chief U.S. District Judge

MEMORANDUM-DECISION AND ORDER

INTRODUCTION

V.F. Garment, Inc. ("V.F. Garment"), plaintiff in Case No. 5:05-CV-1137, and Century Garment, Inc. ("Century Garment"), plaintiff in Case No. 5:05-CV-1431, are in the business of cutting, sewing, and finishing garments.*fn1 From 2000 to May 2005, defendant Seaboard Atlantic Garment, Inc. ("Seaboard Atlantic"), which manufactured and distributed garments, contracted with plaintiffs to provide cutting, sewing, and finishing services. Defendants Gerald Wilson and Dennis Wilson, son and father respectively, were sole shareholders of Seaboard Atlantic, and both served as officers and on the Board of Directors, along with other family members. Plaintiffs bring these actions to recover monies due for garment finishing work performed for Seaboard Atlantic between April 1, 2005 and May 19, 2005.

Seaboard Atlantic defaulted in this action.*fn2 The remaining defendants, Gerald and Dennis Wilson (together, "Wilsons"), move for summary judgment in both cases (Case No. 5:05-CV- 1137, Dkt. No. 38; Case No. 5:05-CV-1431, Dkt. No. 28), primarily on the ground that they are not personally liable for the monies owed to plaintiffs by Seaboard Atlantic. Plaintiffs cross-move for summary judgment (Case No. 5:05-CV-1137, Dkt. No. 58; Case No. 5:05-CV-1431, Dkt. No. 45). Plaintiffs argue that they are entitled to pierce the corporate veil and impose liability on the Wilsons for the corporation's debts. For the reasons set forth below, the Court denies the motions and cross motions.

THE COMPLAINTS

In its amended complaint (Case No. 5:05-CV-1137, Dkt. No. 16), plaintiff V.F. Garment claims that between April 1, 2005 and May 19, 2005, pursuant to Seaboard Atlantic's orders, it serviced and delivered to Seaboard Atlantic more than 100,000 garments for a total purchase price of $143,511.66. Seaboard Atlantic accepted all of the finished garments and received invoices for them. According to the complaint, Seaboard Atlantic ceased making payments as of April 12, 2005, and has made no further payment. V.F. Garment seeks to recover $143,511.66 plus interest. The first five causes of action are stated against Seaboard Atlantic. The first cause of action is for an account stated; the second is for breach of contract; and the third is for implied contract. In the fourth cause of action, based on promissory estoppel, V.F. Garment alleges that its representative had several conversations with Gerald Wilson regarding the unpaid invoices; that Gerald Wilson gave assurances that Seaboard Atlantic would pay all outstanding invoices and orders and encouraged V.F. Garment to continue to perform services; and that in reliance on Gerald Wilson's representations, V.F. Garment continued to perform services to its detriment. In the fifth cause of action, for fraud, V.F. Garment adds that when he made the representations, Gerald Wilson knew that they were false and that Seaboard Atlantic was unable to pay.

V.F. Garment's sixth cause of action seeks to pierce the corporate veil and recover from the Wilsons individually, based on the following allegations: that the Wilsons "have full ownership interests in Seaboard Atlantic and have dominion and control of the transactions between Seaboard Atlantic and V.F. Garment"; that Dennis Wilson "is the Chairman or Chief Executive Officer of Seaboard Atlantic"; that the Wilsons "have dominion and control over Seaboard Atlantic's daily operations, management, finances, customer relations and accounts payable"; that the Wilsons "had knowledge, or reckless disregard of Seaboard Atlantic's financial problems, inability to pay the V.F. Garment invoices, dated from April 10, 2005 to May 19, 2005, and failed to inform V.F. Garment of the risk of not being paid"; that they "knew or should have known that their false assurances, statements, representations and actions would be relied upon by V.F. Garment regarding invoices that were due and owing"; that their "false assurances, statements, representations, and actions were wrongful, unjust and fraudulent and in fact induced V.F. Garment to continue to provide services to Seaboard Atlantic"; and that they "abused their ownership and domination of Seaboard Atlantic and the transactions with V.F. Garment, thus abusing the privilege of doing business in the corporate form to perpetrate a wrong or injustice against V.F. Garment."*fn3

The amended complaint in the Century Garment case (Case No. 5:05-CV-1431, Dkt. No. 3) sets forth the same causes of action based on nearly identical factual allegations. Century Garment claims that Seaboard Atlantic and the Wilsons owe it $120,652.79.

APPLICABLE LAW

A party moving for summary judgment bears the initial burden of demonstrating that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56 (c); see Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the Court, viewing the evidence in the light most favorable to the non-movant and drawing all reasonable inferences in the non-movant's favor, determines that the movant has satisfied this burden, the burden then shifts to the non-movant to adduce evidence establishing the existence of a genuine issue of material fact requiring a trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A genuine issue of material fact exists if the evidence is such that "a reasonable [factfinder] could return a verdict for the nonmoving party." Id. at 248. If the non-movant fails to carry this burden, summary judgment is appropriate. See Celotex, 477 U.S. at 323-24.

In support of their claims against Gerald and Dennis Wilson, plaintiffs contend the Court should pierce the corporate veil and impose on the Wilsons personal liability for Seaboard Atlantic's debts to plaintiffs. New York State courts "are reluctant to disregard the corporate entity[,]" William Wrigley Jr. Co. v. Waters, 890 F.2d 594, 600 (2d Cir. 1989), and a party seeking such relief bears a "heavy burden." TNS Holdings, Inc. v. MKI Sec. Corp., 92 N.Y.2d 335, 339 (1998). Nevertheless, "courts will disregard the corporate form, or, to use the accepted terminology, pierce the corporate veil, whenever necessary to prevent fraud or to achieve equity." Walkovszky v. Carlton, 18 N.Y.2d 414, 417 (1966) (internal quotes omitted).

New York's high court states the general principles of the doctrine as follows:

The concept of piercing the corporate veil is a limitation on the accepted principles that a corporation exists independently of its owners, as a separate legal entity, that the owners are normally not liable for the debts of the corporation, and that it is perfectly legal to incorporate for the express purpose of limiting the liability of the corporate owners.

The doctrine of piercing the corporate veil is typically employed by a third party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners and to hold them liable for some underlying corporate obligation. The concept is equitable in nature and assumes that the corporation itself is liable for the obligation sought to be imposed. Thus, an attempt of a third party to pierce the corporate veil does not constitute a cause of action independent of that against the corporation; ...


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