National Soffit & Escutcheons, Inc. v. Superior Systems, Inc.

• Decision Date: 11 October 1996
• Docket Number: No. 96-1409,96-1409
• Citation: 98 F.3d 262
• Parties: NATIONAL SOFFIT & ESCUTCHEONS, INCORPORATED, Plaintiff-Appellant, v. SUPERIOR SYSTEMS, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 262

98 F.3d 262

NATIONAL SOFFIT & ESCUTCHEONS, INCORPORATED, Plaintiff-Appellant, v. SUPERIOR SYSTEMS, INCORPORATED, Defendant-Appellee.

No. 96-1409.

United States Court of Appeals Seventh Circuit.

Argued Sept. 6, 1996.

Decided Oct. 11, 1996.

Lawrence G. Reinhold (argued and briefed), Southfield, MI, for National Soffit & Escutcheons, Inc.

William L. LaBre (argued and briefed), LaBre & Blunier, Edwardburg, MI, for Superior Systems, Inc.

Before CUMMINGS, BAUER, KANNE, Circuit Judges.

BAUER, Circuit Judge.

National Soffit & Escutcheons, Inc. ("National"), an Arizona corporation, filed suit against Superior Systems, Inc. ("Superior"), an Indiana corporation. National sought to enforce an Arizona state court judgment entered against Soffit Systems, Inc. ("Soffit"), an Arizona corporation. National contended that Superior was liable as a corporate successor to Soffit because it was merely a continuation of Soffit, created to defraud Soffit's creditors. National further asserted that because of this alleged fraud, National should be able to collect its judgment against Soffit by piercing Superior's corporate veil. National now appeals an Indiana district court's grant of summary judgment for Superior. We affirm.

Background

National manufactures and sells a product called "Coverline," a sheet metal aluminum material used to cover exposed water pipes and sprinkler heads. Louise Hoisington ("Hoisington") worked for National from 1980 until March 1989. In 1987, Hoisington and her husband Duane ("the Hoisingtons") formed Coverline Corporation and became franchisees of National under five area contracts. These contracts granted Coverline the exclusive right to sell and market National's product in five geographic areas and prohibited Coverline and its employees from divulging any of National's customer information or trade secrets. In addition, the contracts subjected Coverline to a restrictive covenant which forbade competition or sales for a one-year period in the five geographic areas. Hoisington's sons, David and A. Craig Alexander, served as Coverline's president and vice-president, respectively. Because they were both Indiana residents, they were not actively involved in Coverline's business until March 1989. Coverline also employed Ron Alexander, Hoisington's nephew.

In March 1989, Hoisington misled National into believing that she was going to retire, prompting National to rescind the franchise contracts. In actuality, Hoisington went into direct competition with National under the name of Soffit Systems, Inc. Using information obtained from National, Soffit underbid National on several key projects in the areas covered by the franchise contract's non-competition clause.

National filed suit against Soffit, the Hoisingtons, David Alexander, A. Craig Alexander, and Ron Alexander in an Arizona state court. The Arizona court determined that the rescission of the franchise contracts was void because it had been induced by fraud and that Soffit, the Hoisingtons, and Ron Alexander had breached the non-competition clause and an implied covenant of good faith and fair dealing. The court then awarded National damages not to exceed $29,535.46, plus fees and costs.

However, before the final judgment was entered, Soffit formally ceased doing business. In February 1992, the Hoisingtons filed for bankruptcy and were granted a discharge in June 1992. Because of the discharge in bankruptcy, National was unable to collect its judgment from Soffit and attempted to enforce it elsewhere. In the meantime, on November 26, 1991, Soffit's former president, David Alexander, and former vice-president, A. Craig Alexander, formed an Indiana corporation, Superior Systems, Inc. Superior engages in the same line of business as Soffit.

Seeking to enforce the Arizona judgment, National then filed suit in a Pennsylvania district court against Superior and Fire Protection Industries, a Pennsylvania corporation indebted to Superior. National initially sought relief under the equitable doctrine of piercing the corporate veil. National subsequently argued that Superior may also be liable for Soffit's debts as a successor corporation. Although the Pennsylvania district court had personal jurisdiction over Fire Protection Industries, it was not clear that it had personal jurisdiction over Superior, an Indiana corporation. By agreement, the court severed the claims, transferred the claims against Superior to the district court in Indiana, retained jurisdiction over the garnishment proceedings against Fire Protections Industries, and stayed that proceeding pending the outcome in Indiana district court.

National had filed a motion for judgment on the pleadings before the Pennsylvania district court. Superior's answer included a counterclaim against National alleging tortious interference with existing and prospective contractual relationships and seeking, among other things, an injunction prohibiting National from initiating further collection proceedings against Superior in any state or federal court. The case was then transferred to the Indiana district court. Superior filed a motion for summary judgment. The Indiana district court determined that there was no conflict among the laws of Indiana, Pennsylvania, and Arizona. The court found that all three states apply the same general principles in considering whether one corporation may be liable for the debts of another under the doctrine of piercing the corporate veil or as a successor corporation. The court denied National's motion, granted Superior's motion for summary judgment, and denied Superior's counterclaim. National now appeals the trial court's grant of summary judgment for Superior.

Analysis

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Rule 56(e) "mandates 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 essential element to that party's case, and on which the party will bear the burden of proof at trial." Celotex Corp., 477 U.S. at 322, 106 S.Ct. at 2552. "Where the nonmoving party 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 ... there can be 'no genuine issue of material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id.

Although the moving party must initially identify the basis for its contention that no genuine issue of material fact exists, the nonmoving party cannot rest on his pleadings, but must produce his own evidence. Hughes v. Joliet Correctional Ctr., 931 F.2d 425, 428 (7th Cir.1991). Rule 56(e) requires that the nonmoving party who bears the burden of proof on an issue allege specific facts showing that there is a genuine issue for trial by his own affidavits or by the depositions, answers to interrogatories, and admissions on file. Celotex Corp., 477 U.S. at 324, 106 S.Ct. at 2553. However, if the nonmoving party, pursuant to Rule 56(f), provides in an affidavit why he cannot present facts essential to his opposition to the motion for summary judgment, the court may: (1) refuse the motion; (2) order a continuance to permit affidavits to be obtained, depositions to be taken or discovery to be had; or (3) make such other order as justice requires. Lewis v. Faulkner, 689 F.2d 100, 102 (7th Cir.1982).

We review the district court's grant of summary judgment de novo. Brennan v. Daley, 929 F.2d 346, 348 (7th Cir.1991). In considering whether there are any genuine issues of material fact, we view the record and extract all reasonable inferences from the evidence in the light most favorable to the nonmoving party. However, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Where a fact is disputed, the nonmoving party must show that the disputed fact is material under the applicable law. Hartford Accident & Indem. Co. v. Chicago Hous. Auth., 12 F.3d 92, 95 (7th Cir.1993). The applicable substantive law will dictate which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). Only disputes that could affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Id.

In this case, the applicable substantive law is the equitable doctrine of piercing the corporate veil and the rules regarding the liability of a successor corporation. We will first address National's wish to pierce Superior's corporate veil. Generally, courts are reluctant to disregard the corporate entity, but will do so to prevent fraud or unfairness to innocent third parties. Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1232 (Ind.1994). The doctrine of piercing the corporate veil may be used to hold individual shareholders, officers and related corporations liable for the acts of the corporation. The burden of proof falls on the party seeking to pierce the corporate veil to establish that the corporate form was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the misuse of the corporate form would constitute a fraud or promote injustice. Aronson v. Price, 644 N.E.2d 864, 867 (Ind.1994). When a court employs its equitable power to pierce the corporate veil, it...