In re Wilson
| Decision Date | 10 August 1988 |
| Docket Number | Bankruptcy No. 84-01415-A,Adv. No. 86-0124-A. |
| Citation | 90 BR 208 |
| Parties | In re Edwin Paul WILSON, Debtor. John W. GUINEE, Jr., Trustee, Plaintiff, v. Francis E. HEYDT, Dumas Manufacturing Company, Dumas International, Inc., DeRossi International, DeRossi and Sons, Inc., Donald DeRossi, Glen Berry Manufacturers, Inc., Totibogi Trust, Commercial National Bank of Kansas City, Robert Matthew Heydt, James Timothy Heydt, Wash H. Brown, and Security National Bank of Kansas City, Defendants. |
| Court | U.S. District Court — Virgin Islands, Bankruptcy Division |
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Daniel M. Lewis, Arnold & Porter, Washington, D.C., and Victor M. Glasberg, Alexandria, Va., for defendant Commercial Nat. Bank of Kansas City.
H. Slayton Dabney, Robert E. Draim, McGuire, Woods & Battle, Richmond, Va., and John T. Tansey, Jane T. Dana, McGuire, Woods & Battle, Washington, D.C., for other defendants.
Lawrence A. Katz, Stephen E. Leach, Steven M. Salky, Zuckerman, Spaeder, Goldstein, Taylor & Kolker, Washington, D.C., for plaintiff trustee.
MARTIN V.B. BOSTETTER, Jr., Chief Judge.
We are called upon to rule on the defendants' motion to dismiss for the plaintiff's failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), as made applicable to this proceeding by Bankruptcy Rule 7012.
The Trustee in this Chapter 11 case has filed a ten count amended complaint against the thirteen various defendants, although not all defendants are named in each count. The claims at issue arise out of three contracts and the subsequent agreements and transactions relating to the performance of these contracts. The initial three contracts involve the sale of military clothing, supplies, and equipment to the Directorate of Procurement for the Libyan Arab Armed Forces ("Directorate"). These agreements, attached as exhibits to the complaint, are referred to as "the Benghazi contract", "the SERTE contract" and "the Air Force contract." Counts one, two, four, five, six, eight and nine of the complaint relate to the Benghazi contract, while counts four and eight relate to the SERTE contract. The remaining counts, three, seven and ten, relate to the Air Force contract. Because the Air Force contract related claims are somewhat less complex, we first direct our attention to them.
On its face, the Air Force contract, dated January 28, 1980, reveals an agreement between the Directorate and defendant DeRossi International ("DRI"), signed by defendant Francis Heydt in his capacity as Vice President. The Trustee alleges, contrary to the plain language of the Air Force contract, that Francis Heydt and Donald DeRossi were individual parties to this contract, by and through DRI, or DeRossi and Sons, Inc. The Trustee reaches this conclusion by asserting that DRI is "an alter ego of either defendant Heydt or defendant DeRossi or both," implicitly asking this Court to disregard the entity represented in the contract and maintaining that DRI is a "business enterprise" that is one and the same as DeRossi and Sons, Inc., a New Jersey corporation.
The conclusory allegation that DRI is a mere alter ego is supported only by the bare allegation that "either Donald DeRossi or Francis Heydt or both exercise control" over DRI. With this allegation in counts three, seven and ten, the Trustee asks the Court to hold liable parties other than the contracting party, DRI. Although the Trustee uses language that might support piercing a corporate veil, he does not allege that DRI is a corporation. Rather, he alleges that DRI is a "business enterprise". It is unclear, therefore, on what theory Heydt, DeRossi, and DeRossi and Sons, Inc. allegedly are liable to Wilson. Nevertheless, it is clear that the Trustee seeks to hold other parties liable based on their alleged control of DRI. This pleading provides ample notice to the defendants, subject to proof at trial.
The Trustee further alleges that the Air Force contract was secured as a result of negotiations by the debtor, Edwin Paul Wilson ("Wilson"), for which result defendants Heydt, DeRossi and DRI each agreed to pay a commission of twelve percent of the base price of the contract to Wilson and/or to Services Commerciaux et Financiers Du Moyen — Orient, S.A. ("Services")1.
Count three of the complaint alleges that defendants Francis Heydt, Donald DeRossi and DRI breached their agreement to pay a commission to Wilson and/or Services after Wilson performed his obligation to secure the Air Force contract. DeRossi and Sons, Inc. is allegedly one and the same as the business enterprise DRI and, thus, is a party defendant. If such a commission agreement does exist with Wilson, the Trustee will be entitled to enforce its terms. Therefore, count three properly states a claim and will not be dismissed.
Count seven alleges that defendants Francis Heydt, DeRossi, DRI and DeRossi and Sons, Inc. "were unjustly enriched when they refused to pay over to Wilson the commission he had earned by securing the Air Force contract for defendants from the Libyan military." For the Trustee to state an unjust enrichment claim, he must plead that the defendants have received benefits they should not justly retain. Cleland v. Stadi, 670 F.Supp. 814, 816 (N.D. Ill.1987); see Harris v. Sentry Title Co., Inc., 715 F.2d 941, 949 (5th Cir.1983), cert. denied, 469 U.S. 1037, 105 S.Ct. 514, 83 L.Ed.2d 404 (1984); ___ U.S. ___, 108 S.Ct. 74, 98 L.Ed.2d 37 (1987); see generally 66 Am.Jur.2d Restitution and Implied Contracts § 3 (1973). The complaint makes no allegations, however, that the contract with Libya was ever performed, enriching these defendants at Wilson's expense or loss. Therefore, count seven fails to state a claim upon which relief can be granted and accordingly will be dismissed.
Count ten alleges that defendant Francis Heydt personally made fraudulent and deceitful representations regarding procurement of the Air Force contract upon which Wilson justifiably relied and consequently was damaged. Clearly, this allegation states a cause of action that if true would entitle the Trustee to recover. The defendants have presented no argument to hold otherwise, thus the claim will stand for trial.
The remainder of the complaint is more complex. In passing on a motion to dismiss under Rule 12(b)(6), this Court must accept as admitted all material allegations of fact in the complaint. Associated Dry Goods Corp. v. Equal Employment Opportunity Comm'n, 419 F.Supp. 814, 818 (E.D.Va.1976). It is well settled, however, that courts will not accept as true allegations contradicted by exhibits attached to or incorporated in the pleading. Olpin v. Ideal Nat'l. Ins. Co., 419 F.2d 1250, 1255 (10th Cir.1969), cert. denied, 397 U.S. 1074, 90 S.Ct. 1522, 25 L.Ed.2d 809 (1970); Ott v. Home Sav. & Loan Ass'n, 265 F.2d 643, 646 n. 1 (9th Cir.1958).
The Trustee alleges in the remainder of his complaint that the debtor Wilson was a party to four separate agreements: the Benghazi contract, the SERTE contract, and two bond posting agreements designed to facilitate the performance of the Benghazi and SERTE contracts. The exhibits, however, show that Wilson is not named as a party in any of the agreements. The Benghazi and SERTE contracts are between the defunct Liberian corporation, Services, and the Libyan Directorate. Likewise, the exhibits show that the bond posting agreements are between Services and various defendants. Thus, we cannot assume as true the allegations of Wilson's status as a party to each agreement.
The Trustee attempts to surmount this hurdle by alleging that Services was the alter ego of Wilson and, therefore, Wilson has individual claims that the Trustee may pursue in this proceeding. In asking this Court to disregard the corporate entity of Services, the Trustee seeks to pierce the corporate veil in reverse. In its customary form, as it is used in counts three and seven above, the alter ego doctrine is an equitable principle employed to hold the shareholder(s) of a corporation liable for corporate acts. De Witt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 683 (4th Cir.1976); see e.g., Steyr-Daimler-Puch of America Corp. v. Marcus, 852 F.2d 132, 135 (4th Cir.1988) (). Even in the usual application of this principle, courts should proceed with great reluctance and caution. 540 F.2d at 683. Here, however, the Trustee does not wish to place liability on Wilson for injurious acts by Services. Rather, he seeks to assert, in Wilson's name, claims that would otherwise rightfully belong to the corporation, Services. Thus, by seeking to pierce the corporate veil for his own benefit, the Trustee urges this Court to employ "a highly unique and reverse twist to the extraordinary principle he ostensibly relies upon." Love v. Ben Hicks Chevrolet, Inc., 655 S.W.2d 574, 576 (Mo.App.1983).
Whether this Court should permit this procedure and allow the piercing of the corporate veil in reverse is the pivotal question at this stage of the proceedings. The Trustee asserts that this issue may not be resolved on a motion to dismiss, and with this we cannot agree. Ordinarily, the decision to pierce the corporate veil is a question of fact to be resolved on the merits. In re Country Green Ltd. Partnership, 604 F.2d 289, 292 (4th Cir.1979). Here, however, the Trustee is not applying the alter ego doctrine in the usual way. Instead, he attempts to use a theory implicitly rejected by the Fourth Circuit. Although not applying the "reverse pierce" label, the Fourth Circuit has disclaimed the validity of the Trustee's proposition, in noting that "where an individual creates a corporation as a means of carrying out his business purposes he may not ignore the existence of the corporation in order to avoid its disadvantages." Terry...
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In re Smith
...in a court of equity. Smith's deficiencies are imputed to the Trustee, as the legal successor to his interests. Guinee v. Heydt (In re Wilson), 90 B.R. 208 (Bankr.E.D.Va. 1988). Based upon the foregoing, the Trustee's demand for money damages should be, and the same is, hereby denied. Consi......