the business objectives of Fleming. See Tr. III (testimony of
Weidner and Lavinsky).
30. DiMichele was required by Fleming to make an initial equity
contribution of $200,000.00. Despite this requirement,
DiMichele's equity contribution was $25,000 short. Tr. I at 116.
As of February 1992, he had not taken any action to rectify the
deficiency. Fleming had knowledge of it and did not take action
either. When he finally did rectify it, he did so by borrowing
money from his existing corporations to satisfy his obligation
with Fleming, which Fleming ultimately learned. Tr. I at 117-18.
Thus, out of the $200,000 equity contribution, he borrowed
$100,000 from his other corporations. Tr. I at 117; Pl.Ex. 26.
31. Given the nature of the business, even if DiMichele had
timely paid his initial contribution of $200,000, there would
have been insufficient capital to sustain the operation. Tr. III
at 61-65. Meels was grossly undercapitalized from its inception.
By March 1992, Meels was already in violation of the current
ratio required under the Loan Agreement. Tr. III at 66. It was
insolvent in less than a year. Tr. III at 61-71.
32. As of September 1992, the Pennsauken Store was not
operating profitably. Tr. I at 122. Nonetheless, Fleming extended
an additional $500,000 to DiMichele (through Mella, Inc.) to open
another store in Folcroft, Pennsylvania. Tr. I at 108, 123. This
additional $500,000 was secured by the same collateral as the
Pennsauken loan. Tr. I at 123. At the time of the loan, the
Pennsauken Store had already lost significant amounts of money,
and the personal guarantees of DiMichele and Carmella DiMichele
and Meels were worthless. Tr. III at 25-26. No arms length lender
would have approved this loan. Tr. III at 26. Ultimately,
Folcroft also failed and Fleming has never been able to collect
its debt. Tr. I at 108.
33. After Meels took over operation of the Pennsauken Store,
DiMichele suffered from health problems and was frequently absent
for an extended period of time. Tr. I at 102. Even before his
illness, however, DiMichele's son Cubby primarily managed the
operation. Tr. I at 147-48, 172. DiMichele also suffered a loss
of capital as a result of litigation of a sexual harassment
lawsuit. Tr. I at 102. Although Fleming was aware of these facts,
all of which technically constituted defaults under the Loan
Agreement, it took no action.
34. In 1994, Fleming and DiMichele discussed restructuring the
loan. Ultimately, Fleming decided not to restructure them because
"at the time, the stores were so marginal that even if a case
broke down or somebody spilled something they would have lost
money again. There was just no reason to go any further with
this." Tr. I at 121-22. When the decision was made to close the
Pennsauken Store, Fleming did not obtain a list of other
creditors or discuss payment to other creditors. Tr. I at 124-25.
DiMichele voluntarily surrendered any rights to the store to
Fleming. Although DiMichele owes Fleming the balance of the loan
proceeds from the Pennsauken Store, Fleming has not taken any
action to enforce the personal guarantees executed by DiMichele.
35. As a result of its other financial obligations, Meels did
not pay contributions to the Funds, resulting in a substantial
delinquency and thereby compelling the Funds to commence legal
action to collect the delinquent amounts. The Plaintiff Funds
obtained a judgment for delinquent contributions in this Court at
Civil Action No. 94-1873(SSB) (consolidated with Civil Action No.
94-1966) in the sum of $54,750.33 against Meels. To date, no part
of the judgment has been satisfied.
36. Since the closing of the Pennsauken Store `N Bag, Fleming
has obtained a new operator, Browns Supermarkets, Inc., which
also operates the store as a Shop `N Bag. Despite the fact the
new operator obtained outside financing, it has a supply
agreement with Fleming similar to that between Meels and Fleming.
Tr. I at 131.
III. Conclusions of Law
1. This Court has subject matter jurisdiction and jurisdiction
over the parties. In addition, venue in this District is proper.
A. Liability Under ERISA § 515.
2. Plaintiffs bring this suit under the Employee Retirement
Income Security Act of 1974 ("ERISA") § 515, 29 U.S.C. § 1145,
which requires an "employer" to make contributions to an employee
benefit plan pursuant to the terms of an applicable collective
bargaining agreement, and further imposes liability on an
"employer" for unpaid contributions. An employer is defined as
"any person acting directly as an employer, or indirectly in the
interest of an employer, in relation to an employee benefit plan;
and includes a group or association of employers acting for an
employer in such capacity." 29 U.S.C. § 1002(5). Fleming asserts
that it cannot be held liable for the delinquent contributions
under the CBA because it does not qualify as an employer under
this definition. The Funds acknowledge that technically Fleming
was not a party to the CBA and that there is no liability under
ERISA § 515 unless a person is a party to the collective
bargaining agreement. The Plaintiffs contend that Fleming is
nonetheless liable for the delinquent contributions because it
was the alter ego of Meels. See Board of Trustees, Sheet Metal
Workers' Nat'l Pension Fund v. Elite Erectors, Inc.,
212 F.3d 1031, 1037-38 (7th Cir. 2000) (noting that "[e]fforts to pierce
the corporate veil ask a court to hold A vicariously liable for
B's debt . . . [whereas] a contention that A is B's "alter ego"
asserts that A and B are the same entity").
3. The Third Circuit has not expressly set forth the standard
for piercing the corporate veil on an alter ego theory in an
action to recover delinquent contributions under § 515 of ERISA.
However, it is settled that federal law governs liability for
breach of a labor contract between a union and employer,
including liability based on a theory of corporate veil piercing.
American Bell, Inc. v. Federation of Telephone Workers of
Pennsylvania, 736 F.2d 879, 886 (3d Cir. 1984); see also United
States v. Pisani, 646 F.2d 83 (3d Cir. 1981).
4. As a general rule, the corporate entity should be upheld
unless specific, unusual circumstances call for an exception.
Zubik v. Zubik, 384 F.2d 267, 272 (3d Cir. 1967), cert.
denied, 390 U.S. 988, 88 S.Ct. 1183, 19 L.Ed.2d 1291 (1968). A
court should disregard the corporate existence only when it
appears that "a corporation was an artifice and a sham to execute
illegitimate purposes and [an] abuse of the corporate fiction and
immunity that it carries." Kaplan v. First Options of Chicago,
Inc., 19 F.3d 1503, 1520-22 (3d Cir. 1994) (quoting
Wheeling-Pittsburgh Steel Corp. v. Intersteel, Inc.,
758 F. Supp. 1054, 1058 (W.D.Pa. 1990)), aff'd in part,
514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). "The alter ego
concept is a `tool of equity'" which should be utilized by the
courts only on clear and convincing evidence of "fraud,
illegality or injustice, or when recognition of the corporate
entity would defeat public policy or shield someone from public
liability for a crime." Kaplan, 19 F.3d at 1521, 1522 (quoting
Carpenters Health & Welfare Fund of Philadelphia v. Kenneth R.
Ambrose, Inc., 727 F.2d 279, 283-84 (3d Cir. 1983)).
5. When determining whether the facts of a particular case
warrant piercing of the corporate veil based on an alter ego
theory, a court should engage in a fact-specific inquiry in light
of the following factors:
First is whether the corporation is grossly
undercapitalized for its purposes. Other factors are
. . . failure to observe corporate formalities,
non-payment of dividends, the insolvency of the
debtor corporation at the time, siphoning funds of
the corporation by the dominant officers or
directors, absence of corporate records, and the fact
that the corporation is merely a facade for the
operations of the dominant stockholder or
Pisani, 646 F.2d at 88 (quoting DeWitt Truck
Brokers, Inc. v. W. Ray Flemming Fruit Co.,
540 F.2d 681, 686-87 (4th Cir. 1976)). This list is not
exhaustive, nor must all of the above factors be
present to warrant a finding of alter ego liability.
American Bell, Inc., 736 F.2d at 886-87. Moreover,
the Third Circuit has recognized that alter ego
liability may be premised on some "less precise
notion that the [two distinct] corporations simply
acted interchangeably and in disregard of their
corporate separateness." American Bell, Inc., 736
F.2d at 886-87 (quoting Publicker Indus., Inc. v.
Roman Ceramics Corp., 603 F.2d 1065, 1070 (3d Cir.
1979)). For example, the Third Circuit has found that
alter ego liability may be appropriate where "the
controlled corporation acted robot- or puppet-like in
mechanical response to the controller's tugs on its
strings or pressure on its buttons." Culbreth v.
Amosa (Pty) Ltd., 898 F.2d 13, 15 (3d Cir. 1990)
(considering alter ego liability under Pennsylvania
and New Jersey law which require showing of
"pervasive domination"). Thus, a court should impose
alter ego liability where the facts of a case
"present an element of injustice or fundamental
unfairness." Pisani, 646 F.2d at 88.
6. Applying these principles and the Pisani factors to the
facts of this case, the Court finds that the Plaintiffs have
shown through clear and convincing evidence that Fleming was the
alter ego of Meels and is liable to the Funds for Meels'
delinquent contributions. In so finding, certain arguments raised
by Fleming warrant express discussion. Fleming argues, in part,
that (a) it cannot be held liable under an alter ego theory of
liability because it had no ownership interest in Meels. Thus,
traditional tests to determine alter ego status are inappropriate
in this case; and (b) even under the Pisani analysis,
Plaintiffs adduced insufficient evidence that Fleming functioned
as an alter ego of Meels. As support for this argument, Fleming
focuses primarily on its lack of a formal ownership in Meels, the
fact that no representative of Fleming was ever an officer,
director or shareholder of Meels and Meels' adherence to the
corporate formalities. Fleming further notes that none of its
representatives had the authority to sign checks on the account
of Meels, to instruct Meels as to which of its creditors should
be paid or given priority, and that its representatives were not
present at the business premises on a daily basis.
7. Fleming's arguments are unpersuasive because they ignore the
underlying purpose of the alter ego concept and are unsupported
by the law, principles of equity and the facts of this case. At
the outset, the Court notes that Fleming has not identified any
authority that expressly states that alter ego liability may not
be imposed on one entity because it lacks a formal ownership
interest in the second. Nor has Fleming cited to any relevant
precedent which holds that "ownership" is a determinative factor
in the alter ego analysis, or states that the absence of an
ownership interest requires a stricter standard. It is true that
the natures of the alter ego concept and the principle of
corporate veil piercing from which it derives are such that the
issue of alter ego liability has arisen primarily in cases
involving shareholders, parent and subsidiary corporations or
successor corporations. At its core, however, the alter ego
theory is designed to prevent injustice and fundamental
unfairness. Whether it applies turns on the unique facts of a
specific case. To make formal ownership a prerequisite to alter
ego liability as Fleming suggests would serve to elevate form
over substance and runs counter to the fundamental principles
underlying such an equity doctrine.
As the Court has already described in its findings of fact,
Fleming created a complicated and elaborate financial structure
to enable Meels to operate the Pennsauken Store as a separate and
independent corporate entity. In reality, however, Meels was
little more than a "puppet" that allowed Fleming to aggressively
pursue its own goals with virtual immunity. Contrary to its
assertions, Fleming effectively
controlled the day-to-day operations at the Pennsauken Store. To
allow Fleming to circumvent its ERISA obligations because it
technically lacked an ownership interest in Meels or because
Meels pursued all corporate formalities would be tantamount to
condoning Fleming's manipulation of the corporate form to avoid
its liabilities and obligations under ERISA. This, the Court will
not do. The facts of this case present exactly the sort of
injustice, fundamental unfairness and public policy concerns that
the alter ego concept was designed to redress. Accordingly, the
Court finds that Fleming was the alter ego of Meels and that it
is liable to the Funds for Meels' delinquent contributions
pursuant to ERISA § 515.
B. Tortious Interference With Contract
1. The Funds further allege that Fleming tortiously interfered
with contractual relations in violation of Section 301 of the
LMRA, 29 U.S.C. § 185(a). The Third Circuit has held that a claim
of tortious interference with a labor contract is one arising
under federal common law over which the district court has
jurisdiction. Wilkes-Barre Publishing Co. v. Newspaper Guild of
Wilkes-Barre, Local 120, 647 F.2d 372, 381 (3d Cir. 1981),
cert. denied, 454 U.S. 1143, 102 S.Ct. 1003, 71 L.Ed.2d 295
(1982); Young v. West Coast Industrial Relations Ass'n,
763 F. Supp. 64, 76 (D.Del. 1991), aff'd, 961 F.2d 1570 (3d Cir.
2. To support a claim of tortious interference with a contract,
a plaintiff must prove: (1) actual interference with a contract;
(2) that the interference was inflicted intentionally by a
defendant who is not a party to the contract; (3) that the
interference was without justification; and (4) that the
interference caused damage, 214 Corp. v. Casino Reinvestment
Development Authority, 280 N.J. Super. 624, 656 A.2d 70, 72
(1994) (citing Norwood Easthill Associates v. Norwood Easthill
Watch, 222 N.J. Super. 378, 536 A.2d 1317 (1988)); Restatement
(Second) of Torts § 766. An essential element of a cause of
action for tortious interference with a contractual relationship
is the requirement that the defendant's interference be
malicious, which requires a showing not only that the
interference was done "intentionally" but also that it was
"without justification or excuse." East Penn Sanitation, Inc. v.
Grinnell Haulers, Inc., 294 N.J. Super. 158, 682 A.2d 1207, 1213
(1996) (citing Printing Mart-Morristown v. Sharp Electronics
Corp., 116 N.J. 739, 563 A.2d 31 (1989)), cert. denied,
148 N.J. 458, 690 A.2d 606 (N.J. 1997).
3. In this case, the Plaintiffs have not shown by a
preponderance of the evidence that Fleming "intentionally" and
"without justification or excuse" caused a breach of the valid
collective bargaining agreement between the Funds and Meels. The
Funds argue that Fleming caused them harm and tortiously
interfered with the CBA when it "directed" Meels to cease
operations.*fn5 However, they have not produced any probative
evidence that would suggest that Fleming "directed" Meels to shut
down without justification or excuse. As set forth in the
findings of fact, Meels was in default of the loan documents from
the time of their execution. Nonetheless, Fleming devoted
significant energy to improving operations at the Pennsauken
Store. The events of default increased steadily in magnitude,
however, to the point where Meels was writing checks drawn on
insufficient funds. At that point, Fleming determined that
"[t]here was just no reason to go any further. . . ." Findings of
Fact ¶ 32. The Plaintiffs have pointed to nothing in the record
to suggest that the alleged interference with the CBA was
anything more than an unfortunate, but incidental, result of a
valid business decision to cease operations and close a business
that was no longer viable.
1. The Plaintiff Funds have proven by clear and convincing
evidence that Fleming was the alter ego of Meels. Accordingly,
Fleming is liable to the Funds for Meels' delinquent
contributions under ERISA § 515.
2. The Plaintiff Funds have not shown by a preponderance of the
evidence that Fleming tortiously interfered with the valid CBA
between the Funds and Meels in violation of Section 301 of the
LMRA, 29 U.S.C. § 185(a).