In re 1438 Meridian Place, NW, Inc.

• Decision Date: 12 November 1981
• Docket Number: Bankruptcy No. 81-00121.
• Parties: In re 1438 MERIDIAN PLACE, N.W., INC., A District of Columbia Corporation, Debtor.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

15 B.R. 89 (1981)

In re 1438 MERIDIAN PLACE, N.W., INC., A District of Columbia Corporation, Debtor.

Bankruptcy No. 81-00121.

United States Bankruptcy Court, District of Columbia.

October 21, 1981.

On Motion For Reconsideration November 12, 1981.

Patrick J. Moran, Martin F. McMahon, Washington, D.C., for debtor.

John J. Donohue, Neighborhood Legal Services, Janet E. LaBella, LaBella & Johnson, Washington, D.C., for tenants.

MEMORANDUM OPINION

ROGER M. WHELAN, Bankruptcy Judge.

(Motion to Amend Caption and Pierce Corporate Veils and Debtor's Opposition Thereto)

The pending controversy between the debtor in possession, a District of Columbia corporation operating an apartment as rental property under a pending Chapter 11 case, and the tenant's association¹ represents but one stage of a long standing controversy between this debtor in possession as a landlord and its tenants. The tenants originally secured a jury verdict in the D.C. Superior Court in December 1980, based on a breach of warranty of habitability in the approximate amount of $34,000.

After several post-trial motions were filed by the debtor with respect to this jury verdict, and just prior to final docketing of the judgment itself, the debtor filed its Chapter 11 petition. The debtor in possession is now seeking in the context of this Chapter 11 recovery of the subject premises as part of its attempt to formulate a plan of reorganization in the pending Chapter 11 case. The tenants, who are tantamount to judgment creditors,² are at this time opposing the debtor in possession's attempt to recover the subject premises. As creditors, they are now seeking to pierce the corporate veil. In the tenant's motion to amend the caption and pierce the corporate veil, the tenants allege that the debtor is one of several corporations which is in fact the "alter ego" of Nick and Miranda Rangoussis.³ The tenants argue that the Court in turn should pierce the corporate veil and treat all of the corporate entities as the alter ego of Nick and Miranda Rangoussis. What in fact is sought by the tenants as creditors in this case is to effectively consolidate the named corporate entities, together with the individuals Nick and Miranda Rangoussis, as debtors, and to consolidate their estates in connection with this pending Chapter 11 case. The debtor in possession, however, asserts that jurisdiction cannot be properly asserted over the parties by the United States Bankruptcy Court and that the matter should have been brought as an involuntary petition in bankruptcy. The debtor further argues that there is no merit to the creditor's assertion with respect to the "piercing of the corporate veil." For the reasons set forth in this Memorandum Opinion, and after due consideration of all the evidence, testimonial and documentary, the Court concludes that the motion to pierce the corporate veil should be granted. In order to fully explain the rationale behind this conclusion, the Court will set forth separately its Findings of Fact and will then treat seriatim each of the debtor's contentions with respect to its asserted defenses.

FINDINGS OF FACT

While the basic facts are essentially uncontroverted as evidenced by the documentary and testimonial evidence adduced at the hearing conducted in the Bankruptcy Court on July 2, 1981, the inferences and conclusions to be drawn from this evidence are obviously susceptible to different opinions.

With respect to each of the eight corporations involved in this contested matter, all were incorporated in the District of Columbia between June 12, 1978 and June 26, 1979. As evidenced by the filing of annual reports with the Superintendent of Corporations for the District of Columbia, all reflect that Nick Rangoussis, Miranda Rangoussis, and Antonia Meravoglov are the officers and directors of each of the corporate entities. All reflect that there were 1,000 shares of par value stock authorized and issued, but there are no corporate records to reflect the actual issuance of stock to any particular stock holder of record. When considering the testimony of Nick Rangoussis, and the evidence of record, the Court concludes that as a matter of fact that no stock was ever issued. With respect to this issue it is clear that no stock certificates were ever produced and no documentary evidence of any type has been adduced as to the consideration paid for the issuance of any stock with respect to any of the corporate entities involved.

Each of the aforesaid corporate entities was apparently formed to correspond with the management and ownership of separate and distinct parcels of rental real estate in this jurisdiction; namely, 1436 Meridian Place, N.W., Inc.; 1438 Meridian Place, N.W., Inc.; 1460 Columbia Road, N.W., Inc.; 1464 Columbia Road, N.W., Inc.; 2714 Quarry Road, N.W., Inc.; 1708 Newton Street, N.W., Inc.; 1316 Euclid Street, N.W., Inc.; and 1419 Columbia Road, N.W., Inc. For the most part, the principal office is given as 475 H Street, N.W.,⁴ Washington, D.C. Although separate bank accounts were opened for each of the separate corporate entities at the time of their incorporation, each of these accounts in turn reflects an initial deposit of only $50.00, and essentially all income and disbursements were transacted for a limited period of time through only one bank account located at Security National Bank and identified as Account No. 11-970-6. Based on the documentary evidence of record introduced in this proceeding, presumably all disbursements were affected through this account for the various properties. There is also documentary evidence to establish that certain personal obligations of the Rangoussises were paid from this account as well. Although separate rent rolls⁵ were produced with respect to the rental properties located at 1436 and 1438 Meridian Place, N.W., there are no identifiable accounting records that intelligently segregate the income and expenses for each of the separate properties involved.⁶

Moreover, with the exception of the debtor's introduction of the certificates of incorporation and the current annual reports, the debtor has, in fact, produced virtually no corporate records of any type, nor is there any credible evidence that any separate corporate records were, in fact, ever maintained by the debtor at his principal office or by any responsible subordinate. The evidence adduced by the tenants clearly reflects that all of the subject properties were, in fact, controlled and managed by Nick Rangoussis through the medium of one checking account. Furthermore, it is important to note that many of the operating expenses incurred for the subject properties were apparently paid by Nick Rangoussis personally as evidenced by Tenant's Exhibit No. 3.⁷ In short, there is no way for the Court or the creditors to intelligently sort out and separate the financial affairs of the eight corporate entities involved, nor has there been any attempt by the debtor in possession to present a coherent and cogent accounting picture for the creditors at any time during the pending proceeding.

In connection with the subject properties, which are all located in the District of Columbia, it appears that all of the individual parcels were originally owned by Nick Rangoussis and/or his wife, as tenants by the entireties. These properties were subsequently transferred to the respective corporations as indicated by the various deeds introduced in evidence and the testimony adduced at trial. (See for example, Tenant's Exhibits Nos. 11 and 12 which are the deeds for 1438 Meridian Place, N.W., Inc., and 1436 Meridian Place, N.W., Inc.) More relevant, however, to the issue before the Court is the fact that all of the subject transfers were effected at some time subsequent to the actual incorporation of each corporate entity⁸ involved and yet the individual tenant notices (Tenant Exhibit No. 19), directing payment of rent to "1436 Meridian Place, N.W." were sent as late as 1978 — the time when the subject property in this case was still titled in the name of Nick Rangoussis.

Based on the existing evidence relating to the financial affairs of the debtor, it is clearly impossible to reconcile the income and expenses as they relate to the operations and management of the debtor's various rental parcels. It is further clear from the evidence of record, particularly with reference to the context of the other corporate entities, that all of these various corporations were and are, in fact, the alter ego of the principal officers, Nick and Miranda Rangoussis. There has been no attempt to comply with any corporate formality, other than the fact of incorporation itself. It is further clear from the evidence of record that based on the nature and size of the rental operations involved, and as evidenced by the testimony of Mr. Rangoussis himself that the rentals received during the 1979 period were in the approximate amount of $3,000 a month on the debtor's property at 1436 and 1438 Meridian Place, N.W. — that the corporate entities at the time of their incorporation were clearly undercapitalized. The evidence of record reflects that this applies as well to the other corporations. In view of the paucity of records available and after reviewing the evidence of record taken during the trial, the record shows that all of the subject real estate was the only asset in connection with their incorporations. Further, the subject property was not legally available to the corporation at the time of its incorporation.

An analysis of the debt structure in the debtor's case (see Schedules A-1 through A-3) (and this is certainly true of the debtor at 1436 Meridian Place, N.W. as well), reflects that the major creditors are all secured (See Schedule A-2), and that the bulk of the unsecured creditors are in fact insiders within the meaning of 11 U.S.C. § 101(25).⁹ Although the only asset of any significant value is the subject real estate located at 1438...