Bendix Home Systems, Inc. v. Hurston Enterprises, Inc.
| Decision Date | 30 January 1978 |
| Docket Number | No. 77-2569,77-2569 |
| Citation | 566 F.2d 1039 |
| Parties | BENDIX HOME SYSTEMS, INC., Plaintiff-Appellant, v. HURSTON ENTERPRISES, INC., et al., Defendants-Appellees. Summary Calendar. * |
| Court | U.S. Court of Appeals — Fifth Circuit |
Robert E. Austin, Jr., Timothy A. Burleigh, Leesburg, Fla., for plaintiff-appellant.
Henry E. Coleman, Tavares, Fla., for defendants-appellees.
Appeal from the United States District Court for the Middle District of Florida.
Before THORNBERRY, RONEY and HILL, Circuit Judges.
Bendix Home Systems, Inc., a Michigan corporation, sued Hurston Enterprises, Inc., Capital Mobile Homes, Inc., and Service Contract Company, Inc., Florida corporations, to recover $45,121 owed Bendix from the sale of four custom built mobile homes to Capital. Service Contract Company counterclaimed against Bendix for $34,000 which Bendix owed Service for warranty, service and repair operations on mobile homes. The parties stipulated to the amounts involved. Because Capital was insolvent at the time of the suit, Bendix sought to set aside the separate corporate identities of the three companies and to aggregate their assets. 1 The case was tried to the court which held that Bendix had not, as a matter of law, met its burden to demonstrate that the corporate entities should be disregarded and entered judgment for Bendix against Capital for $45,121 and Service against Bendix for $34,000.
The trial court applied the test for disregard of corporate entities set out in Berger v. Columbia Broadcasting System, 453 F.2d 991, 995 (5 Cir. 1972). Although Berger involved a suit in a Florida district court, the law which was applied by agreement of the parties was that of New York. Id. at 994. We, however, are governed by the general rule that a federal court sitting in a diversity case must apply the law of the state in which it sits. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). 2 We must, therefore, determine whether there is any material difference between Florida's law and the test adopted by the trial court and whether the trial court was correct in its conclusion that there was no evidence of conduct warranting disregard of the corporate entity.
The test set out in Berger requires that a plaintiff seeking to set aside a corporate identity must show that there has been:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of plaintiff's legal rights; and
(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
Florida applies a rule that the separate identities of two or more corporations will be disregarded on a showing that one corporation is a "mere instrumentality" of the other, Aztec Motel v. State ex rel. Faircloth, 251 So.2d 849 (Fla.1971); Unijax, Inc. v. Factory Insurance Association, 328 So.2d 448 (Fla.App.1976); St. Petersburg Sheraton Corp. v. Stuart, 242 So.2d 185 (Fla.App.1971), and that the corporation is a device or sham to mislead creditors or exists for fraudulent purposes. Gross v. Cohen, 80 So.2d 360 (Fla.1955); Computer Center, Inc. v. Vedapco, Inc., 320 So.2d 404 (Fla.App.1975); Sirmons v. Arnold Lumber Co., 167 So.2d 588 (Fla.App.1964). We think that there is no material difference between the Berger requirements under which a plaintiff must show that the individual or corporation sought to be held liable completely "dominated" the other corporation and used that domination to commit an unjust act or wrong and the Florida rule which requires a finding of mere instrumentality and that the instrument corporation was used to mislead the creditor or for fraudulent purposes. While the trial court was technically incorrect in applying Berger the lack of material difference between the law applied and the law which should have been applied permits us to pass to the question whether Bendix failed, as a matter of law, to demonstrate that the corporate identities should be disregarded.
In any suit to disregard the corporate entity, it is of primary importance to examine the relationships between the corporations and individuals involved. In the present case Bendix seeks to treat the assets of Hurston Enterprises, Inc., Capital Mobile Homes, Inc., and Service Contract Company, Inc. as one fund. Bendix did not sue Edward Hurston individually and does not seek to hold him liable in this action. This requires us as a reviewing court to look to the actions of Edward Hurston as president of Hurston Enterprises, Inc. and to determine whether Hurston Enterprises, Inc., the parent company, so controlled the activities of its subsidiaries that they were no more than mere instrumentalities used to mislead creditors. 3
The trial court held that as a matter of law the plaintiff had failed to carry its burden to show conduct warranting a disregard of the corporate entity. The three defendant corporations are close, private corporations. Edward E. Hurston owns around 80% Of Hurston Enterprises, Inc. shares. He was president of Hurston Enterprises and one of its directors. Hurston Enterprises owned all of the stock in Capital Mobile Homes and Service Contract Company.
Florida courts have long held that a corporate entity will not be ignored simply because the number of stockholders is few unless the circumstances are such as would warrant the same disregard of the entity were there many stockholders. Sirmons v. Arnold Lumber Co., 167 So.2d 588 (Fla.App.1964). Thus the fact that Hurston Enterprises, Inc. owned all of Capital and Service stock does not permit the...
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