My Bread Baking Co. v. Cumberland Farms, Inc.

• Decision Date: 05 February 1968
• Citation: 233 N.E.2d 748,353 Mass. 614
• Parties: MY BREAD BAKING CO. v. CUMBERLAND FARMS, INC. et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 748

233 N.E.2d 748

353 Mass. 614

MY BREAD BAKING CO. v. CUMBERLAND FARMS, INC. et al. ¹

Supreme Judicial Court of Massachusetts, Bristol.

Argued Jan. 4, 1968.

Decided Feb. 5, 1968.

Allan van Gestel, Boston, for Cumberland Farms, Inc.

Charles R. Desmarais, New Bedford, for plaintiff.

Before WILKINS, C.J., and SPALDING, CUTTER, KIRK and REARDON, JJ.

CUTTER, Justice.

The remaining count in this action alleges conversion of certain property by Cumberland Farms, Inc. (C.F. Inc.). There was a substantial verdict for the plaintiff (My Bread) against C.F. Inc. and also a verdict for each codefendant (fn. 1). The case is before us on C.F. Inc.'s exception to the judge's refusal to direct a verdict for it. The facts are stated in their aspect most favorable to My Bread.

In August, 1960, Byron Haseotes discussed with Joseph Duchaine, 'the sole proprietor' of My Bread, the sale of the latter's bakery products in 'Cumberland Farms' retail dairy stores. Haseotes was the secretary and treasurer and a stockholder of C.F. Inc., of each codefendant, and of fifteen other corporations.

After August, 1960, My Bread began selling its bakery products in the retail dairy stores, and provided bakery racks for use in this operation. The racks were delivered by My Bread directly to the local store in which they were used. ² In September, 1963, when the business arrangement with My Bread was terminated, My Bread sought the return of the racks. It was prevented by the local store managers, acting on the instructions of Haseotes, from recovering them from all but a few of the 'Cumberland Farms' stores. Title to the racks remained in My Bread at all times.

In August, 1960, the capital stock of C.F. Inc. and of each codefendant was owned by Haseotes, his parents, his brothers, and his sisters. There was no joint financing of these corporations. The officers and directors of each corporation were the same. The sole business of the codefendants 'was the operation of chains of (small) retail dairy stores * * * in Massachusetts * * *.' C.F. Inc. did not operate retail stores. ³ It conducted 'a bottling * * * plant which processed and packaged milk and other diary products and * * * (sold) its dairy products at * * * wholesale * * * to the * * * five' codefendants. Haseotes testified that in August, 1960, C.F. Inc. did not sell dairy products to all of the 'Cumberland Farms' stores in which My Bread was to sell its bakery products. In 1962 or 1963, however, it began to do so. All of the defendants used the trade name 'Cumberland Farms.' Persons dealing with all of these corporations treated them as 'Cumberland Farms.'

C.F. Inc. never owned any stock interest in the five codefendants, nor did those corporations own any stock in it. The advertising of all six corporations was purchased in separate transactions and always used the trade name 'Cumberland Farms.' ⁴ In August, 1960, the Haseotes family dairy businesses were operated out of headquarters in Woonsocket. Processing and bottling were then done in two plants, one in Woonsocket and the other in Boston. Prior to the alleged conversion, the Woonsocket and Boston plants were consolidated in a new plant in Canton, and each defendant corporation moved its principal office to that plant. Thereafter the 'same business manager operated all the businesses from the Canton address.' Haseotes 'participated in the operation of all the corporations and it was his decision where money was to go in the various corporations.'

In August, 1963, Haseotes as sales manager of C.F. Inc., signed and sent out circular memoranda concerning the sale of bread (including My Bread products) in 'Cumberland Farms' stores. These were on C.F. Inc. letterhead and were addressed to a large number of retail stores or store managers in mandatory language, using such terms as 'must' and stating policies 'to be strictly adhered to.' There was in evidence a loaf which had on its wrapper the name 'Cumberland Farms' and a notation that it was distributed by 'Cumberland Farms, Inc. of Boston.'

Haseotes testified that, in his dealings with My Bread, he never acted on behalf of C.F. Inc. because that corporation did not operate retail stores, nor did it have any control over the store operating corporations. One of My Bread's officers, however, testified that he 'always dealt with * * * Haseotes as 'Cumberland Farms',' although he did on occasion on Haseotes's request make out checks ⁵ to other corporations. He also obtained certificates of insurance which included the names of several of the Haseotes corporations.

1. C.F. Inc. contends that the conversions of the bakery racks were 'committed by the local store managers, employed by the (codefendant) store-operating corporations,' that there was no evidence that these managers were agents for C.F. Inc. so as to make that corporation liable for their acts, and that the codefendant corporations must each be treated as distinct and separate from C.F. Inc. and each other. The issue, of course, is whether there was evidence which, on any theory of law, would warrant the jury in finding C.F. Inc. liable for the conversions.

C.F. Inc. thus seeks to have us apply the principle that corporations are generally to be regarded as separate from each other and from their respective stockholders (see Marsch v. Southern New England R.R., 230 Mass. 483, 498, 120 N.E. 120) where there is no occasion 'to look beyond the corporate form for the purpose of defeating fraud or wrong, or for the remedying of injuries.' See e.g. M. McDonough Corp v. Connolly, 313 Mass. 62, 65--66, 46 N.E.2d 576, 579. ⁶ The general principle is not of unlimited application. A corporation or other person controlling a corporation and directing, or participating actively in (see Refrigeration Discount Corp. v. Catino, 330 Mass. 230, 234--236, 112 N.E.2d 790), its operations may become subject to civil or criminal liability on principles of agency or of causation. See Commonwealth v. Abbott Engr., Inc., 351 Mass. 568, 579--580, 222 N.E.2d 862. See also Rock-Ola Mfg. Corp. v. Music & Television Corp., 339 Mass. 416, 422--423, 159 N.E.2d 417. This may sometimes occur where corporations are formed, or availed of, to carry out the objectives and purposes of the corporations or persons controlling them. See Rice V. Price, 340 Mass. 502, 511--512, 164 N.E.2d 891; Centmont Corp. v. Marsch, 68 F.,2d 460, 464--465 (1st Cir.), cert. den. 291 U.S. 680, 54 S.Ct. 530, 78 L.Ed. 1068. See also Finnish Temperance Soc. Sovittaja v. Finnish Socialistic Publishing Co., 238 Mass. 345, 354--356, 130 N.E. 845; Henry F. Michell Co. v. Fitzgerald, 353 Mass. ---, --- ---, ^a 231 N.E.2d 373. The circumstances in which one corporation, or a person controlling it, may become liable for the acts or torts of an affiliate or a subsidiary under common control have been frequently discussed. ⁷ Although common ownership of the stock of two or more corporations together with common management, standing alone, will not give rise to liability on the part of one corporation for the acts of another corporation or its employees, additional facts may be such as to permit the conclusion that an agency or similar relationship exists between the entities. Particularly is this true (a) when there is active and direct participation by the representatives of one corporation, apparently exercising some form of pervasive control, in the activities of another and there is some fraudulent or injurious consequence of the intercorporate relationship, or (b) when there is a confused interminingling of activity of two or more corporations engaged in a common enterprise with substantial disregard of the separate nature of the corporate entities, or serious ambiguity about the manner and capacity in which the various corporations and their respective representatives are acting. In such circumstances, in imposing liability upon one or more of a group of 'closely identified' corporations, a court 'need not consider with nicety which of them' ought to be held liable for the act of one corporation 'for which the plaintiff deserves payment.' See W. W. Britton, Inc. v. S. M. Hill Co., 327 mass. 335, 338--339, 98 N.E.2d 637, 639.

It may be, as one commentator suggests (see Peairs, Business Corporations §§ 8--10, esp. at p. 33), that Massachusetts has been somewhat more 'strict' than other jurisdictions in respecting the separate entities of different corporations. Nevertheless, our law concerning disregarding the corporate fiction has been stated, in cases already cited, essentially in the same general terms employed in decisions elsewhere (fn. 7). Where there is common control of a group of separate corporations engaged in a single enterprise, failure (a) to make clear which corporation is taking action in a particular situation and the nature and extnet of that action, or (b) to observe with care the formal barriers between the corporations with a proper segregation of their separate businesses (see Acton Plumbing & Heating Co. v. Jared Builders, Inc., 368 Mich. 626, 628--630, 118 N.W.2d 956), records, and finances, may warrant some disregard of the separate entitles in rare particular situations in order to prevent gross inequity.

2. On the evidence the jury could reasonably have reached the following conclusions. (a) Haseotes was responsible by an order to the local stores for a highhanded, inexcusable refusal by employees of the various retail stores to return My Bread's racks to it at the termination of the bread sale arrangement. (b) Although no one of the codefendant operating store corporations was a subsidiary of C.F. Inc. (in the sense that C.F. Inc. owned the whole or a part of its stock), all the defendant corporations (including C.F. Inc.) were under the full stock control of the Haseotes family and were operated as a closely coo rdinated single enterprise. Haseotes himself could be found to have been a dominant figure in the whole 'Cumberland...