Quad/Graphics, Inc. v. Fass
| Decision Date | 09 September 1982 |
| Docket Number | No. 80-C-120.,80-C-120. |
| Citation | 548 F. Supp. 966 |
| Parties | QUAD/GRAPHICS, INC., a Wisconsin corporation, Plaintiff, v. Myron FASS; Readington Farms, Inc.; Countrywide Publications, Inc.; Stories, Layouts and Press, Inc.; Equine Enterprises, Inc.; Fass Publications, Inc.; General Newsstand Publishing Corp.; Great American Magazines, Inc.; Jock, Inc.; M. F. Enterprises, Inc.; Modern Sports, Inc.; National Newsstand Publishing Corp.; Newsstand Media Publishing Corp.; and U. S. Publishing, Inc., Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Robert K. Steuer, Weiss, Steuer, Berzowski, Brady & Donahue, Milwaukee, Wis., for plaintiff.
Diane Slomowitz and Bruce C. O'Neill, Fox, Carpenter, O'Neill & Shannon, Milwaukee, Wis., for defendants.
DECISION and ORDER
This action was tried to the court from Monday, May 24, 1982, until Thursday, May 27, 1982. In addition to the testimony and exhibits offered during the trial, a number of pretrial stipulations were presented to the court. The parties have also filed comprehensive post-trial briefs. This decision constitutes the court's findings of fact and conclusions of law pursuant to Rule 52, Federal Rules of Civil Procedure.
The plaintiff, Quad/Graphics, Inc., is a Wisconsin corporation engaged in the business of printing magazines. All of the defendant corporations except Readington Farms, Inc. and U. S. Publishing, Inc. were formed either in New York or in New Jersey and, at the relevant time, were publishers of numerous magazines. The entity designated U. S. Publishers, Inc. was never actually formed as a corporation, although it purported to be a party to the contract at issue in this case. All these defendants except Readington Farms will be referred to as the publishing defendants, the corporate defendants, or a similar designation. The defendant Myron Fass is a citizen of New Jersey. He and his brother Irving Fass each holds 50% of the stock in all of the publishing defendants and various other corporations. The defendant Readington Farms, Inc. is a New Jersey corporation which is entirely or almost entirely owned by Myron Fass.
The corporate defendants entered into a contract with the plaintiff in August, 1978. The contract is dated September 15, 1978, and is in evidence as exhibit 1. Generally stated, this contract provided that the plaintiff would print, bind, and ship magazines for the defendant corporations during a period commencing on October 1, 1978, and ending in 1983. The plaintiff now seeks to recover $1,500,000.00 from all of the defendants for unpaid charges incurred by the publishing defendants. The corporate defendants counterclaim for more than six million dollars on the grounds of breach of contract, fraudulent misrepresentation, and economic duress.
The plaintiff seeks recovery of $1,500,000.00 from the defendants. This stipulated sum represents the amount due from unpaid printing, shipping, and other charges incurred by the corporate defendants. Quad/Graphics asks the court to pierce the corporate veil of the publishing corporations and to impose liability on Myron Fass individually, on Readington Farms, and on the publishing corporations themselves. Quad/Graphics argues that Myron and Irving Fass have completely disregarded the corporate form and individual identities of their publishing corporations throughout the relevant period of time. It is undisputed that the corporate defendants all operated out of a single New York address, although at various times a few of the corporate defendants operated out of Myron Fass' residence. They were separately incorporated, maintained separate bank accounts, used different business letterheads, and were listed individually in telephone directories.
There were extensive dealings among the various corporations, as well as between all the corporations and the Fass brothers; the evidence makes it appear quite unlikely that the corporate defendants actually operated as individual entities. The parties agree that between September 15, 1978, and February 1, 1980, large sums of money were regularly transferred from one publishing defendant to another. These transfers are detailed on schedules attached to the pretrial stipulation. There were no agreements between the corporations to repay each other for any of the transfers.
In the same vein, other corporate assets were frequently shuffled among the corporate defendants. The publishing corporations regularly used each other's magazine titles, employees, advertising space, and copyrighted material. Conversely, it was a common occurrence for any given Fass publisher to make payment of the printing or freight charges incurred by another Fass corporation.
Finally, there were numerous transfers of funds from the accounts of the defendant corporations to Readington Farms, Myron Fass, or Irving Fass. In addition, expenditures were made by the corporate defendants for the benefit of Myron Fass. Examples of such stipulated expenditures include furs for Myron Fass' wife, a diamond, and two imported automobiles.
The business records of the defendant corporations, to the extent such records exist, do not reflect any business reason for these transfers. The defendants have not offered any supportable explanation as to the purpose of the transfers. Any business records maintained by the corporate defendants are so obscure that it is impossible to determine the financial status of the defendant corporations at any given time.
At trial, Myron Fass was unable to state a credible business purpose for the questionable transfers. I find his attempt to explain away the large sums transferred to himself as justifiable salary payments to be wholly inadequate in light of his reported salary in preceding years.
Myron Fass also claims that his purchase of two imported automobiles, a Mercedes and a BMW, from his corporations at prices far below the market value established by the plaintiff's expert can be explained. Solely through his own testimony and without any supporting documents, Mr. Fass attempts to establish that the cars were originally purchased by the corporate defendants to be used in road tests conducted by the Fasses to provide material for articles in their auto magazines. The road tests allegedly caused significant damage to both cars, necessitating costly repairs and reducing the market value of the cars. Myron Fass' testimony in this regard is not convincing.
In determining whether to pierce the corporate veil, the court must decide whether the corporation operated only as an alter ego of the individual controlling it. If it appears that a person is merely dealing with his own property through a corporation just as if he were dealing with it individually, and if "applying the corporate fiction would accomplish some fraudulent purpose, operate as a constructive fraud, or defeat some strong equitable claim," the court may choose to disregard the corporate entity if such disregard would prevent an inequitable result. Milwaukee Toy Co. v. Industrial Commission of Wisconsin, 203 Wis. 493, 495-96, 234 N.W. 748 (1931), quoted with approval in Sprecher v. Weston's Bar, 78 Wis.2d 26, 37-38, 253 N.W.2d 493 (1977).
The greater weight of evidence in this case persuades me that although the defendant publishing corporations are named as separate entities in their incorporation papers, they did not really exist and operate apart from Myron Fass and his brother. Because of the Fass' manner of conducting business through their corporations, one cannot distinguish the assets and liabilities of one publisher from those of any other. Likewise, one cannot separate the corporations' business transactions from various personal transactions of the Fass brothers.
It is apparent that Myron Fass and his brother operated the publishing corporations as a giant cash box with many drawers. Funds were added to or removed from any of the drawers as desired, without documentation to permit subsequent identification or reconstruction of the transactions. This certainly goes beyond sloppy bookkeeping; there were no lines separating what belonged to each corporation. I find that the corporate defendants did not conduct their business independently nor did they operate separately from their owners' personal wishes.
After such disregard of the corporate form and depletion of the corporations' assets by the Fasses, it would be inequitable to limit Quad/Graphics' recovery for unpaid invoices to the corporate assets. Quad/Graphics cannot be held to have understood that it was contracting with a group of publishing companies that in fact operated as one with the persons dominating them. The corporate veil should be pierced, and Myron Fass will be held personally liable for the debts of his publishing corporations. The total amount that the plaintiff can recover from any or all defendants shall not exceed $1,500,000.00. The corporate publishing defendants are liable to the plaintiff in the full amount of $1,500,000.00; pursuant to the joint pretrial report regarding the plaintiff's case, Myron Fass' individual liability is limited to one-half that amount, or $750,000.00.
The defendant Readington Farms, Inc. was not a party to the contract with Quad/Graphics nor was it engaged in the publishing business all along. Nevertheless, I am persuaded by the entire record that Readington Farms was in fact used by Myron Fass in connection with his publishing business. As previously described, substantial payments were made by various publishers to Readington Farms without any documentation. Readington Farms subsequently assumed liability for many invoices due from the corporate defendants; approximately $68,000.00 of these invoices remain unpaid. I...
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