Skidmore, Owings & Merrill v. CANADA LIFE ASSUR.

• Decision Date: 24 February 1989
• Docket Number: No. 86-B-1460.,86-B-1460.
• Citation: 706 F. Supp. 758
• Parties: SKIDMORE, OWINGS & MERRILL, a partnership, Plaintiff, v. CANADA LIFE ASSURANCE COMPANY, a Canadian corporation; and Confederation Life Insurance Company, a Canadian corporation, Defendants.
• Court: U.S. District Court — District of Colorado

706 F. Supp. 758

SKIDMORE, OWINGS & MERRILL, a partnership, Plaintiff, v. CANADA LIFE ASSURANCE COMPANY, a Canadian corporation; and Confederation Life Insurance Company, a Canadian corporation, Defendants.

No. 86-B-1460.

United States District Court, D. Colorado.

February 24, 1989.

Mark S. Lillie, Kirkland & Ellis, Denver, Colo., Steven J. Harper, Kirkland & Ellis, Chicago, Ill., for plaintiff.

Glen Keller, John Roche, Davis, Graham & Stubbs, Denver, Colo., for defendants.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

This matter is before the Court on defendants' motion for summary judgment pursuant to Fed.R.Civ.P. 56. Oral argument was heard on February 21, 1989. Jurisdiction exists based on diversity of citizenship, 28 U.S.C. § 1332(a).

In 1982 and 1983, plaintiff, Skidmore, Owings & Merrill (SOM), performed architectural services for Dover Park Development Corp. (Dover-Park US) and Dover Park Development Corporation, Ltd. (Dover-Park Canada) (collectively, the Dover entities). The Dover entities failed to pay SOM fully for the services rendered and SOM filed suit against them in Denver District Court. SOM obtained a substantial judgment against the Dover entities on February 20, 1986. The Dover entities filed a petition in bankruptcy under Chapter 7 in U.S. District Court, District of Colorado on October 22, 1986, but were never declared bankrupt. The judgment remains unsatisfied.

SOM now brings the present alter ego action against defendants Canada Life Assurance Company and Confederation Life Insurance Company (the Life Companies), claiming that they are liable to it as the parent companies of the Dover entities. SOM seeks to pierce the corporate veil and hold the Life Companies liable to SOM for the debts, obligations, and judgments of the Dover entities. SOM also asserts an unjust enrichment claim against defendants, which is dependent upon the existence of an alter ego relationship between defendants and the Dover entities.

Defendants move for summary judgment that, as a matter of law, the Dover entities were neither a mere instrumentality nor an alter ego of the Life Companies, and therefore, defendants are not liable to SOM for the Dover entities' debts. The motion will be granted.

Fed.R.Civ.P. 56 provides that summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Summary judgment is appropriate when the Court can conclude that no reasonable juror could find for the non-moving party, on the basis of the evidence presented in the motion and response. Matsushita, supra. The non-moving party must present sufficient evidence so that a reasonable juror could find for him. The standard is whether the non-movant has presented evidence which is persuasive enough for a reasonable juror to rule in his favor. Id. Further, the non-moving party has the burden of showing that there are issues of material fact to be determined. Celotex, supra.

Generally, a parent corporation is treated as a legal entity separate from the subsidiary in the absence of circumstances justifying disregard of the corporate entity. Quarles v. Fuqua Industries, Inc., 504 F.2d 1358, 1362 (10th Cir.1974).

Before one corporation by be held liable for the acts of another corporation, there must be such a close relationship between the two companies that one is, in essence, an instrumentality of the other.

New Sheridan Hotel & Bar, Ltd. v. Commercial Leasing Corp. Inc., 645 P.2d 868, 869 (Colo.App.1982).

In U.S. v. Van Diviner, 822 F.2d 960 (10th Cir.1987), this Circuit iterated the factors to be considered in determining whether one corporation is a mere instrumentality of another:

1. whether a corporation is operated as a separate entity;

2. commingling of funds and other assets;

3. failure to maintain adequate corporate records or minutes;

4. the nature of the corporation's ownership and control;

5. absence of corporate assets and undercapitalization;

6. use of a corporation as a mere shell, instrumentality or conduit of an individual or another corporation;

7. disregard of legal formalities and the failure to maintain an arms-length relationship among related entities; and

8. diversion of the corporation's funds or assets to noncorporate uses.

Id. at 965; see also United States v. Excellair, Inc., 637 F.Supp. 1377, 1386 (D.Colo. 1986).

An analysis of the parties' showing on the motion for summary judgment in light of these factors leads me to conclude that no genuine issue of material fact exists as to the alter ego issue. Thus, as a matter of law the Dover entities are not the mere instrumentality of defendants.

Initially, Gordon Arnell (Arnell), approached defendants with the financial proposals to create the Dover entities. The Life Companies organized the Dover entities to engage in real estate development and billed them as the Life Companies' "development arm." The Life Companies were significant shareholders in the Dover entities and chose their own company executives to sit on the Dover Board. However, from the time of their formation until January 1984, the Dover entities transacted all of their own business, including the contracts with SOM at issue here. Thus, it is apparent that the Dover entities operated separately and had distinct corporate identities from their parent Life Companies.

There is no evidence that there was ever any commingling of funds or other assets between the Life Companies and the Dover entities at the time the Dover entities entered into the contracts with SOM.

At all times pertinent, the Dover entities observed the formal corporate legal requirements: they maintained their own books and records; hired and fired their own employees; had their own bank accounts; filed their own tax returns; maintained separate offices and...