US v. Sebring Homes Corp.

• Decision Date: 20 September 1994
• Docket Number: No. 3:93-CV-248RM.,3:93-CV-248RM.
• Citation: 879 F. Supp. 894
• Parties: UNITED STATES of America, Plaintiff, v. SEBRING HOMES CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of Indiana

879 F. Supp. 894

UNITED STATES of America, Plaintiff, v. SEBRING HOMES CORPORATION, et al., Defendants.

No. 3:93-CV-248RM.

United States District Court, N.D. Indiana, South Bend Division.

September 20, 1994.

Clifford D. Johnson, Office of U.S. Atty., South Bend, IN, Mark T. Quinlivan, U.S. Dept. of Justice Civ. Div., Arthur R. Goldberg, U.S. Dept. of Justice Federal Programs Branch — Civ. Div., Washington, DC, for plaintiff U.S.

Max K. Walker, Jr., Terry C. Shewmaker, Cosentino Walker Shewmaker and Christofeno, Elkhart, IN, for defendants Sebring Homes Corp., Martin Ornatowski, and Darlene Ornatowski.

MEMORANDUM AND ORDER

MILLER, District Judge.

This cause comes before the court on the motion of the plaintiff for partial summary judgment as to liability. Defendants Sebring Homes Corporation, Martin Ornatowski, and Darlene Ornatowski have responded collectively. The court denies the plaintiff's motion for oral argument because the parties' briefs suffice to enable the court to decide the summary judgment motion. For the following reasons, the court grants the plaintiff's motion for partial summary judgment as to the liability of Sebring Homes, but denies the motion with respect to the Ornatowskis.

I.

The United States brought this action for civil penalties and injunctive relief for violations of the National Manufactured Housing Construction and Safety Standards Act of 1974 ("the Act"). 42 U.S.C. § 5401 et seq. The court adopts the following facts, which the court does not understand to be in dispute, from the United States' memorandum in support of its summary judgment motion, at 4-5:

Defendant Sebring Homes ... is a corporation incorporated in the State of Indiana, with its principal place of business in Elkhart, Indiana.... Among other things, Sebring Homes manufactured and sold "park models," which are manufactured homes of 400 square feet or less with full living quarters on one frame.

Defendant Martin Ornatowski served as Vice-President of Sebring Homes. His wife, defendant Darlene Ornatowski, served as President of Sebring Homes. Before his involvement with Sebring Homes, Mr. Ornatowski had founded Hampton Homes Corporation ("Hampton Homes"), also located in Elkhart, Indiana. Like Sebring Homes, Hampton Homes was engaged in the manufacture and sale of park models. Hampton Homes was bought out by Sebring Homes, and Sebring Homes moved into the Hampton Homes plant in Elkhart, Indiana.

Between 1990 and 1992, Sebring Homes manufactured at least 98 park models for Resort Homes, Inc. ("Resort Homes"), a company in Maryland, that did not meet the criteria for recreational vehicles set forth in 24 C.F.R. Section 3282.8(g)¹. Specifically, for each of the 98 park models sold to Resort Homes, Sebring Homes manufactured an add-on that was designed or produced as an integral part of the park model. Each of these 98 park model and add-on combination units was a manufactured home over 400 square feet. None of the 98 combination units were built in accordance with the manufactured home construction and safety standards set forth in 21 C.F.R., Part 3280, as required by 42 U.S.C. Section 5409(a)(1). In addition, none of the 98 combination units were issued the certification required by 42 U.S.C. Sections 5409(a)-(4) and 5415.

It also is undisputed that, at Sebring Homes' creation, the Ornatowskis held 500 of the 600 shares of Sebring Homes' stock, and the entire capital base for Sebring initially came solely from funds saved by the Ornatowskis. It is further undisputed that the Ornatowskis made a $35,000.00 capital contribution to Sebring in 1992 for "overhead and operating expenses," and made a $15,000.00 secured loan to Sebring in 1992, as well as making various unsecured loans to Sebring "off and on."

In addition to serving Sebring as its president, Mrs. Ornatowski also served as its chief financial officer, handling the balance of the corporation's financial matters, including its payroll, banking activities, insurance, basic accounting, as well as paying the corporation's bills. Mr. Ornatowski served as the vice-president and general manager of Sebring, running the direction of the company on a day-to-day basis.

II.

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment should be granted where

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 a judgment as a matter of law.

Fed.R.Civ.P. 56(c). No genuine issue of material fact exists "where the record as a whole could not lead a rational trier of fact to find for the nonmoving party." Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 322 (7th Cir.1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)).

The court must view the record and draw all reasonable inferences from the evidence in favor of the non-moving party, and where a fact is disputed, the non-moving party must show that the disputed fact is material under the applicable law. Hartford Acc. & Indem. Co. v. Chicago Housing Authority, 12 F.3d 92, 95 (7th Cir.1993); Titran v. Ackman, 893 F.2d 145 (7th Cir.1990); Conery v. Bath Assoc., 803 F.Supp. 1388, 1392-1393 (N.D.Ind.1992); see also Chambers v. American Trans Air, Inc., 17 F.3d 998, 1001 (7th Cir.1994) ("Rule 56 requires the party opposing a summary judgment motion to come forward with some evidence showing the existence of ... a factual dispute."). The non-movant's allegations must be taken as true and given the benefit of the doubt when in conflict with those alleged by the party moving for summary judgment. Bishop v. Wood, 426 U.S. 341, 347-48, 96 S.Ct. 2074, 2078-79, 48 L.Ed.2d 684 (1976); Thornton v. Evans, 692 F.2d 1064, 1074-75 (7th Cir.1982).

III.

The defendants concede that the United States is entitled to partial summary judgment as to liability as against Sebring Homes, and that none of the 98 combination units constructed by Sebring were built in accordance with the manufactured home construction and safety standards set forth in 24 C.F.R., Part 3280, as required by 42 U.S.C. § 5409(a)(1). Therefore, the plaintiff's motion for partial summary judgment as to liability should be, and hereby is, GRANTED as against defendant Sebring Homes.

IV.

The United States also moves for partial summary judgment against Martin and Darlene Ornatowski. Unlike Sebring, the Ornatowskis have not conceded liability for the violations. The United States argues that the Ornatowskis are individually liable under the Act under two theories: first, that the Ornatowskis are liable as "distributors" or "manufacturers" under the Act so as to not frustrate the legislative purpose of the Act; and second, that Indiana law would allow the court to "pierce the corporate veil" to extend liability to the Ornatowskis as the sole shareholders, officers, and directors of Sebring.

A.

The United States couches its first argument in terms of whether the Ornatowskis may be deemed "manufacturers"² or "distributors"³ under the Act. Whether the Ornatowskis qualify as distributors is largely irrelevant for the purposes of this discussion, because 42 U.S.C. § 5409(a) expressly states:

No person shall —

(1) manufacture for sale, lease, sell, offer for sale or lease, or introduce or deliver, or import into the United States, any manufactured home which is manufactured on or after the effective date of any applicable Federal manufactured home construction and safety standard under this chapter and which does not comply with such standard or (4) fail to issue a certification required by section 5415 of this title....

42 U.S.C. § 5409(a)(1) and (4).

Likewise, 42 U.S.C. § 5415 states that "every manufacturer of manufactured homes" shall furnish the required certification of compliance with the federal construction and safety standards. Thus, liability is contingent upon whether the Ornatowskis are "persons" for purposes of § 5409(a), or "manufacturers" for purposes of § 5415. Looking to the definition of manufacturer provided by the Act ("means any person"), the question narrows to whether the Ornatowskis may individually qualify as a "person" under the Act.

The Act does not define "person", but the term is defined by the Dictionary Act, which states that:

In determining the meaning of any Act of Congress, unless the context indicates otherwise —

... the words "person" and "whoever" include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals....

1 U.S.C. § 1.

Thus, had the Ornatowskis acted in their personal capacities, as opposed to as officers and agents of Sebring Homes, they clearly would be liable as "persons" under the Act. However, as the United States acknowledges, the Dictionary Act is silent as to whether the term "individual" may include a corporate officer, director, or shareholder. Thus, the Dictionary Act does not resolve whether the Ornatowskis may be held liable as "individuals" despite the protection of limited liability they enjoy as being mere officers, directors, or shareholders of the corporation.

The United States argues that the Supreme Court has "consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies." First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 630, 103 S.Ct. 2591, 2601, 77 L.Ed.2d 46 (1983); see also Bangor Punta Operations, Inc. v. Bangor & Aroostook Railroad Co., 417 U.S. 703, 713, 94 S.Ct. 2578, 2584, 41 L.Ed.2d 418 (1974) ("Although a corporation and its shareholders are deemed separate entities for most purposes, the corporate form may be disregarded in the interests of justice where it is used to defeat an overriding public policy."). To support this argument, the United States suggests...