“Alter Egos” and “Piercing the Corporate Veil” in Maritime Law

Types : Alerts

When someone, even a corporation, sets up a dummy corporation just to avoid personal liability and goes on doing business the same way they did before, a maritime court may “pierce the corporate veil” and find the individuals or corporations involved are “alter egos” of the paper corporation and hold them personally liable for breach of contract, although the contract is signed only for the dummy corporation.

A case decided this year by the 11th Circuit Court of Appeals involved the theft of three sea shipping containers full of computer monitors from a marine storage facility leased by the defendant, Inter-Florida Container Transport, Inc.  After a non-jury trial, the District Court found that Inter-Florida was liable for the loss in excess of $500,000, but it also held liable two other defendants, Leonard Diaz and 10997 Project, Inc., who were using Inter-Florida as a front.

The court found that Inter-Florida and 10997 Project shared overlapping directors, and Diaz was 50 percent owner and President of 10997 Project. He also served as director, vice president, secretary and treasurer of Inter-Florida. His wife was the owner and President of Inter-Florida. The two companies ignored formalities, including holding of board meetings, and both companies were grossly undercapitalized.

The Appeals Court listed the factors that courts consider when deciding whether to pierce the corporate veil. These include, among others, (1) common directors and officers between corporations; (2)inadequate capitalization; (3)one corporation’s use of another corporation’s property and assets as its own; (4) informal intercorporate loan transactions; (5) overlapping decision making between corporations; (6) failure to observe formal legal requirements, and (7) “existence of fraud, wrongdoing or injustice to third parties.” LIG Insurance Co. Ltd. v. Inter-Florida Container Transport, Inc., 10997 Project, Inc. and Leonel Diaz (11th Cir. May 1, 2014).