Boyle v. Jacor Communications, Inc.

• Decision Date: 20 July 1992
• Docket Number: Civ. A. No. C-1-92-168.
• Parties: Francis L. BOYLE, Jr., Plaintiff, v. JACOR COMMUNICATIONS, INC., Defendant.
• Court: U.S. District Court — Southern District of Ohio

799 F. Supp. 811

Francis L. BOYLE, Jr., Plaintiff, v. JACOR COMMUNICATIONS, INC., Defendant.

Civ. A. No. C-1-92-168.

United States District Court, S.D. Ohio, W.D.

July 20, 1992.

James F. McDaniel, Katz Teller Brant & Hild, Cincinnati, Ohio, for plaintiff.

Richard Guy Taft, Strauss & Troy, Cincinnati, Ohio, for defendant.

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

SPIEGEL, District Judge.

This matter is before the Court for consideration of the plaintiff's motion for summary judgment (doc. 3), the defendant's memorandum in opposition (doc. 6), the plaintiff's reply (doc. 7), and the defendant's supplemental memorandum in opposition (doc. 10).¹ This is a complicated case. Neither counsel has cited any law in support of their respective positions.

BACKGROUND

Francis L. Boyle, the plaintiff, is a former officer and director of ERI Communications Group, Inc. ("ERI"). On November 27, 1985, Mr. Boyle resigned from ERI. ERI and Mr. Boyle subsequently entered into a Retirement Agreement. Under the Retirement Agreement, ERI gave several promissory notes totaling $2,189,949.20 to Mr. Boyle. In exchange for the notes, Mr. Boyle sold 98,204 shares of ERI stock to ERI. The final promissory note, which is presently unpaid, is for $500,000 and was due on January 15, 1992. Mr. Boyle demands payment for the note and interest due.

Mr. Boyle and ERI also entered into a Consulting Agreement. The Consulting Agreement provides for Mr. Boyle to be paid $40,000 on December 30 of each of the years 1986 through 1990, and $50,000 on December 30 1991. The final payment of $50,000 is past due. Mr. Boyle demands this payment and interest in this lawsuit.

In the action before the Court, Mr. Boyle demands recovery from Jacor Communications, Inc. ("JCI") rather than ERI. JCI, not a party to the original agreements, denies all liability for the obligations that ERI contractually incurred. The circumstances which give rise to Mr. Boyle's demand for payment from JCI are set forth below.

STANDARD OF REVIEW

The narrow question that we must decide on a motion for summary judgment is whether there is "no genuine issue as to any material fact and whether the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(b). The Court cannot try issues of fact on a Rule 56 motion, but is empowered to determine only whether there are issues to be tried. In re Atlas Concrete Pipe, Inc., 668 F.2d 905, 908 (6th Cir.1982). The moving party "has the burden of showing conclusively that there exists no genuine issues as to a material fact and the evidence together with all inference drawn therefrom must be read in the light most favorable to the party opposing the motion." Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.1979) (emphasis original), cert. denied, 444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415 (1979). And, "while the movant's papers are to be closely scrutinized, those of the opponent are to be viewed indulgently." Id. at 63. "The District Court is obligated to consider not only the materials specifically offered in support of the motion, but also all `pleadings, depositions, answers to interrogatories, and admissions' properly on file and thus properly before the court." Id. (quoting Rule 56(c), Fed.R.Civ.P.).

Summary judgment "must be used only with extreme Caution for it operated to deny a litigant his day in court." Id. The Supreme Court elaborated upon this standard in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) as follows:

The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial....

Id. at 322. Summary judgment is not appropriate if a dispute about a material fact is "genuine," that is, if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

CHOICE OF LAW

A federal court that has jurisdiction solely on the basis of diversity of citizenship must follow the choice of law rules of the state in which it is sitting. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 491, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The present action is before this Court on the basis of diversity jurisdiction. Therefore, this Court will use Ohio choice of law rules.

Ohio courts have established that parties to a contract can expressly choose the law which they wish to govern the interpretation of their contract. See Nationwide Mutual Insurance Co. v. Ferrin, 21 Ohio St.3d 43, 44, 487 N.E.2d 568 (1986); Gries Sports Enterprises v. Modell, 15 Ohio St.3d 284, 286-287, 473 N.E.2d 807 (1984) cert. denied, 473 U.S. 906, 105 S.Ct. 3530, 87 L.Ed.2d 654 (1985). Mr. Boyle and ERI contractually stipulated that the Agreements "shall be governed and interpreted in accordance with the laws of the state of New York." (doc. 3). Therefore, the Court will apply the substantive law of the state of New York to determine whether to grant Mr. Boyle's motion for summary judgment.

DISCUSSION

We now turn to the question of whether Mr. Boyle may pierce the corporate veil of ERI and hold its sole shareholder, JCI, liable. Corporations are legal entities distinct from their managers and shareholders and have an independent legal existence. Rapid Tr. Subway Constr. Co. v. City of New York, 259 N.Y. 472, 487-488, 182 N.E. 145, 149-150 (1932). JCI, a corporation, merely owns the stock of ERI, another corporation. Ordinarily, parent and subsidiary corporations are separate personalities that cannot be disregarded. See id. Therefore, if Mr. Boyle wants to recover directly from JCI he must show the Court that circumstances exist which justify piercing ERI's corporate veil.

The law of New York allows the Court to look beyond the corporate form where necessary to prevent fraud or to achieve equity. Port Chester Electric Construction Co. v. Atlas, 40 N.Y.2d 652, 389 N.Y.S.2d 327, 331, 357 N.E.2d 983, 987 (1976). New York courts have determined that the following criteria should be examined when a question of piercing the corporate veil arises: (1) whether the subsidiary is subject to such domination and control by its shareholder that it might be said to have no existence of its own, Lowendahl v. Baltimore and Ohio R.R. Co., 272 N.Y. 360, 363, 6 N.E.2d 56 (1936); (2) whether evidence exists of bad faith or fraud by the parent or subsidiary, Ministers, Elders & Deacons of the Reformed Protestant Dutch Church of the City of New York v. Broadway, Inc., 59 N.Y.2d 170, 464 N.Y.S.2d 406, 408, 451 N.E.2d 164, 166 (1983); and (3) whether the corporation is a dummy for its stockholders who are in reality carrying on the business in their personal capacities for purely personal rather than corporate ends, Walkovszky v. Carlton, 18 N.Y.2d 414, 418, 276 N.Y.S.2d 585, 223 N.E.2d 6 (1966).

Mr. Boyle gives two different reasons, in separate documents, for commencing the present action against JCI instead of ERI. We will consider these in turn.

Mr. Boyle first argues that he sued JCI, and not ERI, because JCI purchased ERI and therefore assumed its obligations. In his motion for summary judgment Mr. Boyle states:

In 1987, Defendant Jacor Communications, Inc. ("Jacor") purchased ERI, which became a wholly owned subsidiary. In 1990, Jacor sold ERI but retained responsibility for the payment obligations due to Mr. Boyle under the Promissory Note and the Consulting Agreement.

Plaintiff's Motion for Summary Judgment, doc. 3, at 2.

Mr. Boyle fails to give a detailed account of how the responsibility for payment under the Retirement Agreement and...