PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY v. ESHAI CORPORATION
2:21-cv-01892
| E.D. Pa. | Aug 5, 2025Background
- Pennsylvania Manufacturers’ Association Insurance Company (PMA) sued Eshai Corporation and later its shareholders to recover over $8.6 million in unpaid insurance premiums and related fees after Eshai's business collapsed when Amazon terminated its delivery contract.
- Eshai Corporation was a rapidly growing, closely held, family-run package delivery company that became wholly dependent on Amazon as its sole client, resulting in high-risk business operations and persistent cash flow issues.
- PMA had already won summary judgment for the breach of contract claim against Eshai Corporation, but needed to pierce the corporate veil to hold individual shareholders personally liable for the debt.
- PMA argued that Eshai Corporation issued significant distributions to shareholders during years with net operating losses, failed to maintain corporate formalities, and commingled funds between related entities and personal accounts.
- A two-day evidentiary hearing was held to resolve disputed facts regarding the nature of distributions, observance of formalities, and whether any actions perpetrated a fraud or promoted injustice.
- The court found significant shortcomings in PMA’s evidentiary presentation, especially after the plaintiffs’ expert withdrew key allegations regarding improper use of pandemic PPP funds and could not establish that most transactions classified as distributions were improper payouts.
Issues
| Issue | Plaintiff’s Argument | Defendant’s Argument | Held |
|---|---|---|---|
| Piercing the corporate veil | Eshai should be disregarded as a separate entity; shareholders should be liable for corporate debts due to undercapitalization, improper distributions, lack of formality, and commingling | Observed some corporate flaws but claimed no fraudulent intent, distributions were justified or ambiguous, and no abuse of the corporate form occurred | Court denied veil-piercing; plaintiffs did not meet clear and convincing evidence standard |
| Alleged improper distributions | Distributions to shareholders while in financial distress show abuse and undercapitalization | 2019 distributions followed a major asset sale; 2020 distributions are ambiguous, not proven to be payouts | Distributions not clearly shown to be improper or fraudulent |
| Failure to follow formalities | Lack of meetings, policies, and formal records proves improper conduct and warrants veil-piercing | Informality is typical for closely held family businesses and does not amount to abuse | Lack of formalities not given significant weight |
| Commingling of funds | Funds were transferred among related companies and to personal accounts without proper records | Transfers reflected joint business operations or loan repayments; no evidence of personal enrichment | No substantial commingling proved; transfers justified by business context |
Key Cases Cited
- Lumax Industries, Inc. v. Aultman, 669 A.2d 893 (Pa. 1995) (establishes the stringent test and presumption against veil-piercing in Pennsylvania)
- Mortimer v. McCool, 255 A.3d 261 (Pa. 2021) (sets forth the two-prong test for veil-piercing: unity of interest and sanctioning fraud/injustice, reinforces holistic analysis)
- Trinity Indus., Inc. v. Greenlease Holding Co., 903 F.3d 333 (3d Cir. 2018) (emphasizes consideration of all relevant factors and a strong presumption against veil-piercing)
- Zubik v. Zubik, 384 F.2d 267 (3d Cir. 1967) (warns against lightly disregarding the corporate entity and emphasizes the integral nature of corporate liability shields)