This is an appeal by H.H. Keim Co. (Keim) from a summary judgment in favor of Alpine Packing Company (Alpine), holding that there were no material issues of
Several transactions form the foundation of this dispute. Alpine, a closely held corporation based in California and engaged in the meat packing business, sold goods worth approximately $36,000 to Keim, an Idaho corporation. Before Keim paid Alpine for the goods, Keim sold apprоximately $19,000 worth of goods on credit to Made-Rite, Inc., (Made-Rite) another closely held corporation from California and also engaged in meat packing. Before Made-Rite paid its debt to Keim, it went out of business. When Alpine sought payment of the $36,000 due from Keim, the latter paid оnly $17,000, claiming an offset of the $19,-000 due from Made-Rite. Alpine instituted this collection action against Keim for the $19,000. Keim refused to pay, asserting in a cross-motion for summary judgment that because of the familial relationship between the owners of Alpine and Made-Rite, and because of the finаncing Alpine provided to and the control it exerted over Made-Rite, Made-Rite and Alpine were essentially one business entity, allowing Keim to set off the Made-Rite debt, against its account with Alpine.
The trial court found that although Alpine and Made-Rite were operated by members оf the same family and Alpine financed Made-Rite, the record did not establish that Alpine committed any act of wrongdoing which would justify holding it liable for Made-Rite’s debt. The court also found that Keim failed to establish complete domination by Alpine over Made-Rite. Based on these findings, the court granted summary judgment for Alpine, disallowing the offset sought by Keim.
Summary judgment is proper only where there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. I.R.C.P. 56(c);
Edwards v. Conchemco, Inc.,
When faced with a motion for summary judgment, a party has the burden of presenting sufficient materials to shоw that there is a triable issue.
Earl v. Cryovac, A Division of W.R. Grace Company,
Generally, every corporation will be regarded as a separate legal entity.
Jolley v. Idaho Securities, Inc.,
Keim grounds its argument in Chick and Surety Life. Both cases stand for the proposition that individual owners of corporations should not be allowed to commit fraud upon creditors by hiding behind the limited personal liability produced by incorporation. Both cases pоint up several factors that are relevant in deciding whether to pierce the corporate veil of a corporation to hold its shareholders liable.
In Chick, an individual shareholder and his corporation were found to be one and the same entity. Several factors the court considered in reaching this conclusion were (1) the sole shareholder acted as president of the corporation; (2) a lack of corporate formalities, such as directors’ meetings; (3) the shareholder’s failure to submit corporate contracts and inventоry revisions to the board of directors; and (4) the transfer of funds, accrual and payment of accounts, and satisfaction of intercompany claims without approval by any director or officer of the corporation. The court also found that because the sole shаreholder disregarded the separate quality of his corporation, maintaining that quality to the disadvantage of creditors would be unjust.
In Surety Life, the court found a lack of corporate formalities such as director and shareholder meetings. Also, the court indicated that the two shareholders of one corporation anticipated using the profits from that corporation to offset the losses from their second corporation. The court in Surety Life also found that maintaining the corporate form would promote an unjust result.
The ease at hand presents some parallels to Chick and Surety Life. Principally, Made-Rite did not hold regular meetings of its board of directors or shareholders. Also, loans seem to have been taken and repaid without board approval. In this regard, piercing Made-Rite’s corporate veil may indicate that its owners, Joseph Kaeslin Jr. and Norma Kaeslin, did not run the business as they should have. However, the actions of Made-Rite’s directors and officers do not necessarily lead to the conclusion that Alpine dictated Made-Rite’s actions.
Nevertheless, we will review the record to determine whether there exists such a “unity of interest and ownership” that would allow a reasonable inference of control and a disregard of Made-Rite’s status as a separate corporation.
Alpine, founded in 1930, is a profitable, closely held corporation. Laura and Joseph Kaeslin Sr., the founders and chief executives, own 57% of its stock. They arе the father and mother of Joseph Kaeslin Jr., who started Made-Rite.
Joseph Kaeslin Jr. owned 9% of Alpine’s stock and was vice-president until he resigned his position to start Made-Rite. After his resignation, he was hired as a consultant for $1,000 a month, but rendered no services and was never paid. After lеaving Alpine, Joseph Kaeslin Jr. visited that facility only three times. From its inception in 1984, Made-Rite’s sole shareholders have been Joseph Kaeslin Jr. and his wife Norma. Alpine has never owned any Made-Rite stock. No shareholder or officer of Alpine, other than Joseph Kaeslin Jr., has еver been a shareholder or officer of Made-Rite.
To start Made-Rite, Joseph Kaeslin Jr. borrowed approximately $1.9 million dollars from Security Pacific National Bank (Security Pacific). Alpine put up the security for the loan and acted as guarantor. This action had been approved at a previously held meeting of Alpine’s board of directors, where it was agreed that Made-Rite would constitute a ready buyer for Alpine’s products and that starting a similar business of its own would cost Alpine $3.6 million dollars. Another stated reason for guaranteeing the loan wаs that Joseph Kaeslin Jr. was a family member, he had done well at Alpine, and the members of the board believed he would make Made-Rite profitable.
From 1984 to when it closed its doors in 1986, Made-Rite lost money. In those two years, the loans from Security Pacific were increased to ovеr $3 million dollars and Alpine continued to loan money to the dy
ing
Keim does not dispute any of the foregoing facts or that it owes $19,000 to Alpine. Keim asserts, however, that reasonable minds could disagree that the facts allow one to infer that Alpine contrоlled Made-Rite, and that dismissal of its case on summary judgment was therefore improper.
Keim supports its argument with a memo from Security Pacific which states that Joseph Kaeslin Sr. wanted to buy Made-Rite so Joseph Kaeslin Jr. could “operate” it, not that the son would “own” it. However, Keim overlooks the fact that the same memo says that Joseph Kaeslin Jr. was to operate Made-Rite as a “separate entity.” We cannot infer from the word choice of a third party that Alpine wanted to control Made-Rite.
Keim further argues that Alpine’s board meeting at which it disсussed buying Made-Rite merits an inference of control. The record indicates that Alpine considered the purchase as a way to integrate vacuum packing and sausage production into its operations. However, the record further reveals that the purchase was equally encouraged by Security Pacific as a way to relieve its own concerns about Made-Rite’s liquidity, negating the inference of control urged by Keim.
Keim next contends that after the fire, Alpine liquidated Made-Rite’s equipment and used the money to pay selected unpaid Made-Rite debts. This contention is not supported by the record which indicates that the liquidation was handled by S. Blondheim & Company, a dealer of new and used food preparation equipment, at the request of Security Pacific and Alpine. Payments for the equipment were forwarded to the bank in аccord with the bank’s security interest. Alpine did not handle the liquidation. Proceeds of the fire insurance settlement were forwarded to Security Pacific in a similar manner. Alpine did not disburse the fire insurance proceeds to selected unpaid accounts, as Keim asserts.
Keim frequently refers to Made-Rite as a subsidiary of Alpine. However, Alpine owns no stock in Made-Rite, a requirement for establishing parent/subsidiary status. See 18 AM.JUR.2d Corporations, § 35, at page 830 (1985).
Keim asserts that Made-Rite was “undercapitalized” and that this supports an inference of control by Alpine. Keim’s real argument is not that the initial capital of $1.9 million dollars was inadequate to meet Made-Rite’s reasonably foreseeable potential liabilities.
See Rice v. Oriental Fireworks Company,
The record reflects that Made-Rite was separately incorporated in California. All of its issued stock is owned by Joseph Kaeslin Jr. and Norma Kaeslin. Joseph Kaeslin Jr. and Laura Kaeslin stated in their depositions that Alpine made no effort to control Made-Rite. The record does not support an inference that Made-Rite became a subsidiary of Alpine due to the latter’s large investment in the former.
Keim also points to the fact that Made-Rite did not hold regular meetings of its board of directors, that Norma Kaeslin was an officer in name only and had no duties, and asserts that Made-Rite failed to adopt any bylaws. We note that, although these facts may indicate a lack of corporate formality by Made-Rite, thus opening Made-Rite’s shareholders to individual liability, they do not support a reasonable inference of control by Alpine.
The record reveals that Laura Kaeslin, managing officer of Alpine since Made-Rite’s inception, never discussed Made-Rite business with her husband or her son. Further, both Laura Kaeslin and Joseph
Keim argues that it “knew” Alpine and the Kaeslin family “owned” Made-Rite, and it relied on that knowledge. The knowledge seems to come from a letter from Made-Rite and two newspaper articles concerning the firm. The letter, from Joseph Kaeslin Jr. advertising Madе-Rite’s opening, states that “[the Kaeslin] family has been in the wholesale meat processing business in the Stockton area for nearly 50 years.” One article says that Joseph Kaeslin Jr. was optimistic about Made-Rite and was “a 20 year veteran of a Stockton packing company, owned by his family____” The second article discloses that Made-Rite was owned by Joseph Kaeslin Jr. and his wife Norma and that the Kaeslin family has owned and operated Alpine for nearly 50 years. An association in the popular press may promote a superficial belief on Keim’s рart that Alpine and Made-Rite were related, but more is needed to allow a reasonable inference that Alpine actually controlled the firm. The record fails to show that Alpine made any representation that would lead a party to believe that Alpine and Madе-Rite were related.
Because we find nothing in the record that would indicate that there was such a unity of interest and ownership that Made-Rite and Alpine ceased to exist as separate corporations, we need not address the second issue as to whether the acts of Made-Rite will promote injustice if its separate identity is upheld.
Conclusion
We find nothing in the record to reveal any genuine, triable issue of material fact that Alpine controlled Made-Rite. Any other finding would be based on speculation. Therefore, we conclude that the district court did not err whеn it granted summary judgment to Alpine. The judgment of the district court is affirmed. Costs to respondent, Alpine. As prevailing party in this action Alpine is also entitled to attorney fees under I.C. § 12-120(3), providing for an award of attorney fees in a civil action to recover on an open account, to be calculated according to I.A.R. 41.