I "uv Z I The Intersection of State Corporation Law and Employee Compensation Programs: Is it Curtains for Veil Piercing?* Dana M. Muir * and Cindy A. Schipani** Introduction I. The Scope of Personal Liability in Privately Sponsored Benefit Programs A. History and Structure of Benefit Program Regulation 1. The Extent of Federal Regulation 2. The Regulators 3. Benefit Program Sponsorship B. Legislative History C. Thomas v. Peacock II. Traditional Doctrines of Personal Liability A. Limited Liability B. 'Exception to the Doctrine of Limited Liability: Piercing the Corporate Veil 1. Piercing the Corporate Veil: State Law 2. Piercing the Corporate Veil: Federal Law a. In General b. Specific Statutory Applications 1. CERCLA 2. Federal Securities Laws 3. Piercing the Corporate Veil: Special Considerations a. Differences in Treatment Among Individual Shareholders of Closely Held and Publicly Held Corporations b. Corporations as Shareholders c. Tort versus Contract Claimants L

,:; Is it Curtains for Veil Piercing? III. Contexts of Personal Liability in Employment Programs A. Multiemployer Plans 1. Common Control 2. Definition of "Employer" 3. Piercing the Corporate Veil B. Other Benefit Program Contexts 1. Fiduciary Breaches 2. Suits by Regulatory Agencies ' | 3. Cases Against Foreign Corporations 4. Settlement Agreements 5. Summary C. Other Federal Employment and Labor Law Statutes 1. Title VII, ADEA, and ADA 2. FLMA 3. NLRA IV. ERISA's Unique Barriers to a Veil Piercing Claim ~, A. The Regulation B. Application to State Corporation Laws C. An Argument for the Survival of Veil Piercing Claims nclusion: Conclusion; t. 4' -, B.k; I. j 'j 2

-Is it Curtains for Veil Piercing? INTRODUCTION The limited liability of corporate shareholders: is well established in the law.: The rise of new forms of; business entities, such as limited liability companies and limited liability partnerships, confirms both the importance and the general acceptance of limited liability in attracting capital.5 However, if granted without exception, limited liability could lead to abuse of the corporate form at the expense of individuals and entities, such as employees, creditors, and injured consumers, 'who look to corporations to satisfy contractual obligations or tort claims. In order to avoid such abuses, the jurisprudence has developed an exception to the general principle of limited liability that has become known as the doctrine of "piercing the corporate veil."' This doctrine enables a claimant to reach through the curtain of protection typically accorded to corporate shareholders and to hold shareholders personally liable for the acts of the corporation. Operating on a seemingly separate plane, the Employee Retirement Income Security Act of 19748 ("ERISA") established sweeping federal regulation of privately sponsored non-cash and deferred compensation programs. The statutory scheme is extensive in its application~0 and the United States Supreme Court itself has recognized ERISA's "comprehensive and reticulated"'.- nature. Given the scope of this regulation and the tremendous increase in asset values held by employee benefit programs,12 it should not be surprising that the courts have been troubled by ERISA's relationship with a myriad of other federal and state laws. 1J And, as evidenced by the United States Supreme Court's 1996 decision in Peacock v. Thomas, the intersection of ERISA with the corporate law doctrine of veil piercing is one area of critical import to benefit plan sponsors as well as to plan participants and beneficiaries. While corporate law jurisprudence uniformly has accepted the concept of piercing the corporate veil,' the doctrine has eluded attempts to reduce it to a single formula.17 In addition to the issues that result from the ephemeral nature of a piercing claim, the notion of applying the doctrine of piercing the corporate veil in the context of ERISA raises special concerns for shareholders of corporations that sponsor employee benefit plans. Because it broadly defines the term employer, ' sets forth a functional definition of who constitutes an ERISA fiduciary,1' and, in certain situations, permits liability to be extended to companies under common control,'2 ERISA already provides numerous opportunities for claimants to recover from an entity or individual other than their direct employer. Adding the specter of personal liability as a result of a piercing claim to this array of provisions would further extend ERISA's reach. The extraordinary monetary amounts ~~~~i 1~~~~~~~~~~~ s~~ ~~~~~~~~~~~~~~~~~~~ t

f i I i I which can be at stake in an ERISA action.' only increase the risk to shareholders. And, given the voluntary nature of the sponsorship of emplboyee benefit programs,`2 an unreasonable extension of personal liability could affect the willingness of private employers to maintain non-cash and deferred compensation programs for their employees. From the perspective of employees, of collective bargaining representatives, and even of competing companies though, piercing the corporate veil may be the only way in some instances to ensure that a corporation honors its benefit promises. Set in this context, piercing the corporate veil seems to accord with ERISA's stated goal of protecting "the interests of participants in employee benefit plans and their beneficiaries,... " And, where a shareholder causes a corporation to act purposively to avoid benefit obligations or to circumvent a court judgment in favor of ERISA claimants, the case for holding the shareholder accountable becomes even stronger. 24 This Article analyzes the application of the corporate law doctrine of piercing the corporate veil in a suit brought under Title I25 of ERISA. To provide a foundation for the specific analysis that follows, Part I begins with a brief explanation of the structure and scope of ERISA. Part I also undertakes a detailed analysis of the court decisions that ultimately culminated in the Supreme Court's opinion in Peacock v. Thomas.2' Part II examines the doctrine of piercing the corporate veil in its best known context -- state corporation law. It also evaluates the manner in which the doctrine has been applied in the context of federal regulatory law outside the arenas of employment and collective bargaining. Part III then considers these constructs in the framework of federal employment law. It analyzes the plenitude of non-Peacock contexts where a party to an ERISA case might seek to pierce a corporate veil or otherwise to extend liability beyond the nominally liable party. It also looks at personal liability, including the application of the doctrine of piercing the corporate veil, in the context of other federal employment and collective bargaining statutes. Part IV considers whether current ERISA jurisprudence precludes application of the doctrine of piercing the corporate veil in cases brought to enforce rights under Title I of ERISA. ERISA's pre-emptive force has been recognized as the "most expansive [of] any federal statute."' The authors conclude, however, that the existing pre-emption doctrine does not precludes a claim for piercing the corporate veil in an appropriate case. Furthermore, the authors argue that permitting use of state law piercing doctrine in ERISA enforcement actions is consistent with ERISA's goal of protecting benefit plans from the inconsistencies of state law. Thus, pre-emption is not necessary to prevent inconsistent regulation. I~~~~~~~~1 4 I I

Is it Curtains for Veil Piercing? I I. The Scope of Personal Liability in Privately Sponsored Benefit Programs A. History and Structure of Benefit Program Regulation Direct federal regulation of employee benefit plans can be traced to at least 1914, when the Treasury Department confirmed the right of employers to deduct, as compensation, the cost of pension payments. 2 Subsequent enactments limited discrimination in the provision of benefits 2 mandated disclosure of certain plan features and investments, 3 and prevented the diversion of contributions made to pension plans for unionized employees.31 However, it was not until ERISA's enactment that a single piece of comprehensive legislation attempted to regulate private employee benefit plans.32 1. The Extent of Federal Regulation ERISA regulates both pension plans and welfare benefit plans. In ERISA parlance, a pension plan is any program which defers income at least until the termination of employment and most typically is designed to provide individuals with income upon retirement. In contrast, a welfare benefit plan under ERISA is any "plan, fund, or program" 3 that provides certain other types of benefits, including health benefits. - - Most of the non-tax regulation affecting the establishment and operation of an employee benefit plan can be found in Title I of ERISA. There, detailed provisions impose a variety of.reporting and disclosure requirements in favor of the federal'government and of plan participants and beneficiaries.35 Title I also sets forth minimum participation and vesting levels3b and governs plan funding.J7 Although informed by traditional trust law,38 ERISA contains a specialized definition of who is a fiduciary for its purposes,-l" establishes fiduciary standards,4' and prohibits transactions between and among parties-in-interest.4' In addition, Title I makes provision for administration and enforcement of its requirements.42 The remedial scheme is at ERISA Section 502" ("Section 502"). Section 502 sets forth a detailed listing of categories of relief and plaintiffs eligible to bring federal claims under ERISA.44 Potential plaintiffs include not just plan participants45 but also employers,4 the Secretary of Labor,4 and even states. Finally, Title I of ERISA contains an explicit pre-emption clause that one eminent commentator has described as the "most expansive pre-emption clause found in any federal statute."' That pre-emption clause, found in ERISA Section 514, provides that: "[T]he provisions of [ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.... ERISA defines "Sta-e law" broadly to include "all laws, 5t l

I Is it Curtains for Veil Piercing? decisions, rules, regulations, or other State action having che effect of law, of any State."52 And, the courts have taken a broad view of what constitutes an employee benefit plan. Congress did include some statutory exceptions to this generally broad pre-emption provision. In general applications,s' the most important of these exceptions is found in the "savings clause, "5 which prevents ERISA preemption of state law regulation of insurance, banking, and securities. In turn, the "deemer clause"5 limits the "savings clause" by providing that employee benefit plans and trusts shall not be deemed to be institutions that would be regulated by state insurance, banking, or securities laws. At the time of ERISA's enactment, Title II5A set forth amendments.to the Internal Revenue Code ("IRC"). The tax regulation has grown over time and many of the tax provisions substantially parallel provisions of Title I.6" Compliance with the tax provisions is necessary in order to achieve tax-favored status for any employee benefit plan. Title III 2 designated agency authority at the time of ERISA' s enactment.h Title IVO4 governs the termination of pension plans, created the Pension Benefit Guaranty Corporation ("PBGC"), and outlines the PBGC insurance program. In addition, one section of Title IV is devoted to specialized regulatory provisions for plans co-sponsored by labor unions and employers. Such jointly sponsored plans are known as "multiemployer plans" and require separate regulation because of unique incentives and disincentives associated with funding and participation in those plans.6 Most of those requirements were introduced into ERISA through the Multiemployer Pension Plans Amendments Act of 1980 ( "MPPAA" ). There are, however, some limitations to all of this regulation. ERISA applies only to private employee benefit plans. Church plans and governmental plans, for example, are exempt from most of ERISA.6 Plans for a small group of an employer's top executives, known as "top hat plans," receive an exemption from much of ERISA. " This exemption extends to the reporting and disclosure requirements so long as the plan files a simple statement soon after its inception.70 2. The Regulators The Department of Labor ("DOL"), the Internal Revenue Service ("IRS"), and the PBGC share responsibility for the administration and enforcement of ERISA."' The statute itself contributes to some of the interpretative and enforcement problems that this tri-partite division of labor creates because the same or similar regulatory requirements often occur under both the labor title, Title I, and in the Internal Revenue Code provisions, originally Title II.T2 6! j mobh I

I Is it Curtains for Veil Piercing?! The DOL has primary authority over the regulation found in Title I of ERISA. This includes interpretive authority over the reporting and disclosure requirements as well as over the fiduciary and prohibited transactions provisions of ERISA.7 The DOL has the authority to bring civil enforcement actions for most violations of Title I, including fiduciary and reporting infractions.74 The PBGC regulates the termination of pension plans ' and oversees the federal insurance program, which applies to the benefits of defined benefit pension plans. During its 1994 fiscal year, the PBGC paid approximately $721 million in retirement benefits to individuals whose pension plans were unable to make promised payments.' The PBGC also monitors pension plan underfunding and works with employers to increase the funding security of their plans.' In addition, the PBGC bears responsibility for administration of MPPAA. * The IRS is charged with ensuring that plans comply with the complex legislative and administrative provisions governing eligibility for favorable federal tax treatment. 'j The role of the IRS in issues governing disclosure and plan administration appears to be increasing as Congress looks more and more frequently to employee benefit plans as sources of revenue to support unrelated programs. For example, in 1992 Congress imposed new regulations on distributions from qualified employee benefit plans82 to pay for additional unemployment insurance benefits. 3 3. Benefit Program Sponsorship As the baby boom generation approaches what has traditionally been retirement age, the financial security of retirement programs in this country has begun to receive increased attention. The positions of commentators on these issues range from calls for increased study of pension issues 4 to declarations that the sky is falling. 5 What can be stated for certain is that the types of pension plans being sponsored by private employers is changing and that millions of Americans currently do not participate in any formal retirement plan. During 1975, the year after the enactment of ERISA, the vast majority of workers covered by a privately-sponsored pension plan were covered by a defined benefit pension plan. Studies of various time periods beginning in the late 1970s and continuing through the mid to late 1980s. indicate that employers began to shift their sponsorship from defined benefit to defined contribution plans."7 This shift continued through 1990, the most recent date for which detailed analysis is available." Still, the 1994 Annual Report of the PBGC estimated that almost 33 million workers participated in single employer, defined benefit pension plans. The reasons for the changes in plan sponsorship are the subject of considerable disagreement among researchers."D ~~~~~~7~~~~~~~~~~~~~~~~~~. 1

11 I Is it Curtains for Veil Piercing? However, there seems to be general agreement that ERISA's regulation of employee benefit plans in general and defined benefit plans in particular has contributed to this phenomena. As an example of the costs of regulation, one recent study concluded that for every $1400 an employer spends to fund defined benefit plan benefits, the employer will incur $800 in administrative costs.92 Particularly strong advocates of the theory that federal regulation has affected plan sponsorship include Professors Robert Clark and Ann McDermed who have performed detailed empirical studies on employer sponsorship of qualified benefit plans. Their studies indicate that regulatory changes constitute the primary cause of the increase in employer preference during recent years for defined contribution over defined benefit plans.' In addition, new data show that structural changes in the economy do not account for the shift in employer preferences. B. Legislative History Although ERISA comprehensively regulates privatelysponsored employee benefit plans, the legislation left in place the voluntary nature of employee benefit plan sponsorship. No federal legislation, including ERISA, requires an employer to sponsor a pension or health care 'program for its employees. And, if an employer chooses to sponsor a benefit plan, ERISA guarantees the employer the right to modify or terminate the benefit plan at almost any time. ERISA's legislative history supports this concept of voluntary and flexible employer sponsored benefit plans. Legislative hearings on pension plans disclosed numerous stories of destitute workers and spurred the development of ERISA." Yet, floor debate during the consideration of ERISA emphasized the need to balance protections for plan participants with the goals of encouraging employers voluntarily to sponsor benefit plans. For example, Congressman Ullman, Chairman of the Ways and Means Committee, argued that: Generally, it would appear that the wider or more comprehensive the coverage, vesting, and funding, the more desirable it is from the standpoint of national policy. However, since these plans are voluntary on the part of the employer and both the institution of new pension plans and increases in benefits depend upon employer willingness to establish or expand a plan, it is necessary to take into account additional costs from the standpoint of the employer.7 In a similar vein, other comments during the legislative process acknowledged that, to the extent 8 I - I — I

Is it Curtains for Veil Piercing? government regulation increased benefit plan costs, the result would be to encourage termination of existing plans and discourage formation of new plans. And, the 1974 Committee Report summarized the issue by stating: "The primary purpose of [ERISA] is the protection of individual pension rights, but the committee has been constrained to recognize the voluntary nature of private retirement plans. The relative improvements required by this Act have been weighed against the additional burdens to be placed on the system." In contrast to the generally extensive nature of the legislative history underlying much of ERISA,'/~ the record is. more sparse regarding the statute's pre-emption provision. The language of that provision came from the Conference Committee and matched neither the House nor Senate bill. "" The record is devoid of any challenges to the revised language; however, statements made by Senator Javits, one of the sponsors of ERISA, give some indications of the goals undergirding the revised language. Some concern had developed that the House version, which limited pre-emption to specified areas regulated by ERISA, might result in "endless litigation over the validity of State action."'~0 Furthermore, there was a fear that the lack of a broad pre-emption clause would "open[ ] the door to multiple and potentially conflicting state laws."'10 The latter fear had some basis in fact because the states, perhaps having become impatient with the many years of congressional debate that preceded ERISA's enactment, 104 were beginning to pass piecemeal legislation regulating employee benefit plans.10 Even at the time though, there was some anxiety that the pre-emption provision would not appropriately balance state and federal interests. As such, the Conference Committee called for the Congressional Pension Task Force to analyze the effect of ERISA pre-emption 1b and plans for the Task Force were incorporated in the legislation. 1' However, no such analysis was ever undertaken for the simple reason that Congress failed to establish a task force. As a result, while relatively minor examptions have been added over the years,1" the basic language of ERISA's pre-emption provision remains unchanged from the version enacted in 1974. C. Thomas v. Peacock The genesis of the litigation which culminated in the Supreme Court's recent decision in Thomas v. Peacock,/'^ can be traced to a commitment made by Tru-Tech, Inc. ("TruTech") to its employees in late 1981. 11 After Tru-Tech purchased part of Rockwell International's Draper Division,' Tru-Tech promised salaried employees a pension plan similar to the one they had at Rockwell."' Tru-Tech hoped to use the pension plan as an inducement to encourage the employees to remain employed at Tru-Tech after the I I 9

a Is it Curtains for Veil Piercing? acquisition. A class of former salaried employees sued Tru-Tech after being notified in 1985 that the promised pension plan had failed to meet the IRS's requirements for qualification and the plan would not pay them any benefits. "s After announcing the pension plan, Tru-Tech made initial contributions to the plan but later ran into severe financial difficulties.'" In order to recoup the moneys it had contributed to the pension plan, Tru-Tech attempted to negate a plan amendment, which arguably had been adopted in order to comply with IRS qualification requirements. A plan clause permitted the plan to be rescinded if it did not receive a favorable qualification determination.' TruTech, in fact, rescinded the plan and received a refund of its. contributions. I The district court decided that Tru-Tech had breached its fiduciary duty to the plan participants and awarded them their expected plan benefits together with interest. '" The plaintiffs received an award of $217,628.93, plus attorney's fees, against Tru-Tech.121 The court did not explicate the precise nature of Tru-Tech's breach of fiduciary duty; however, the corporation's rescission of the vesting amendment in order to recover plan contributions for its own benefit may have breached ERISA's exclusive benefit rule. 122 The plaintiff class also named as a defendant D. Grant Peacock, the chairman of Tru-Tech's board of directors. 1' Applying ERISA's definitions, the district court found him not to be a fiduciary for purposes related to contributions or the amendment, and thus, the court determined he had no liability to the plaintiffs. 24 The plaintiff class appealed that portion of the decision finding no fiduciary status and, thus, no personal liability for Peacock. -5 In a relatively brief and unpublished decision, the Fourth Circuit Court of Appeals affirmed the lower court's decision.126 However, in 1992 the plaintiffs once again found themselves back in court seeking a judgment against D. Grant Peacock because Tru-Tech had dissolved without ever paying the outstanding judgment in favor of the plaintiffs.' Although some inconsistencies exist in the ownership of Tru-Tech, it appears that Peacock held a controlling interest between 1988 and 1990.1 2 In their claim to hold Peacock personally liable, plaintiffs introduced numerous items of evidence indicating that Peacock had manipulated Tru-Tech receivables and taken other actions to avoid payment of the earlier judgment.'~- In addition, in its discussion of the background facts, the court referred to Peacock as acting as the "alter ego" of Tru-Tech."01 In its finding of facts, the district court specifically determined that Peacock intermingled funds and personnel between TruTech and Peacock's other business. Ultimately the court stated: 10 hk

Is it Curtains for Veil Piercing? "The primary considerations in determining whether to pierce the corporate veil under ERISA are the amount of respect paid by the shareholders themselves to the corporations' separate corporate entity, the fraudulent intent of the dominating shareholder, and the degree of injustice that would be visited on the litigants by recognizing the corporate entity."'3 Applying that standard, the court decided that Peacock's actions had been sufficiently egregious to justify piercing the corporate veil under the alter ego theory.' 13 Once again faced with an appeal in this case, in Thomas II the Fourth Circuit affirmed the award of personal liability against Peacock but remanded for a new determination on attorney's fees. 14 The court indicated '35 though that ERISA pre-empts state veil piercing law. In a nearly unanimous" opinion the United States Supreme Court reversed the Fourth Circuit.1 7 However, the Supreme Court rested its decision solely upon a lack of federal court jurisdiction because of the unique posture of the former employees' veil piercing claim. Plaintiffs only had sought recovery from the federal courts on a theory of veil piercing after being unsuccessful in their attempts to enforce the ERISA judgment against Tru-Tech.J"' Plaintiffs brought this claim in a separate suit, alleging a civil conspiracy to avoid the initial judgment and fraudulent conveyances, along with the veil piercing claim.u o3 In addressing the jurisdictional issue, the Supreme Court held that ancillary jurisdiction does not extend to this type of lawsuit where the state law claim is brought in a suit separate from the original enforcement action and where no independent basis exists to support federal jurisdiction for the state law claim. 14" However, the Court distinguished situations where "ancillary claims are asserted in the same proceeding as the claims conferring federal jurisdiction. "141 The clear import of the Court's reasoning is that federal court jurisdiction exists in the latter type of case.'42' Plaintiffs argued that ERISA's remedial section, which provides standing for claims for equitable relief, supports federal court jurisdiction in a veil piercing action. The Court rejected this notion because the veil piercing claim itself did not allege that Tru-Tech or Peacock violated either ERISA or the terms of an ERISA plan and the statute only supports relief for such violations. 44 And, while the Supreme Court did not dismiss the notion that a veil ' piercing claim may be brought in conjunction with a claim for a substantive ERISA violation, it also did not determine that a veil piercing claim is permissible in such circumstances. 4 However, the Court did provide some guidance in considering the possibility of veil piercing under ERISA in its statement that "Piercing the corporate veil is not itself an independent ERISA cause of action, 11 - - - I,, L ___.1__

7.t Is it Curtains for Veil Piercing? 'but rather is a means of imposing liability on an underlying cause of action.' "14' Before undertaking a detailed examination of how ERISA's unique regulatory provisions may affect a veil piercing claim, and thus the relationships between shareholders and the corporations that sponsor non-cash and deferred compensation programs, the next two Parts explore necessary foundational and jurisprudential concepts of personal liability in corporate law generally and in federal employment law specifically. II. Traditional Doctrines of Personal Liability A. Limited Liability Although not without its critics,14 the doctrine of limited liability has become a cornerstone of traditional corporate law doctrine. 1 Corporate shareholders, whether individuals or other legal entities, are considered distinct from the corporate enterprise they own'49 and, in general, are not held personally accountable for corporate obligations. The doctrine of limited liability is not all encompassing, however. First, it should be noted that the doctrine applies to shareholders, not to other corporate actors such as officers and directors. Directors and officers, in their capacity as such, do not have a capital investment at risk. 51 Thus, because the doctrine of limited liability refers to the amount of the investment, by definition, it applies only to investors. Officers and directors, like shareholders, are not held liable for corporate obligations. Agency law provides that if these corporate officials act properly within the scope of their authority, they are not held personally liable 'for acts taken on behalf of the corporation.152 But this does not mean that officers and directors are without any liability exposure. Also according to agency law, agents are personally liable for acts taken outside of their authoritys'5 and for any torts they commit.54 In addition, corporate law imposes the fiduciary duties of due care and loyalty upon these officials. I'5 The duty of care requires directors and officers to act as the reasonably prudent person would under similar circumstances with respect to corporate matters, '5 and the duty of loyalty requires them to put corporate interests ahead of personal interests. 5' Thus, although as a general rule officers and directors are not held personally accountable for corporate obligations, they may be held personally accountable for actions taken outside of the scope of their agency authority, for the commission of any torts and for failure to fulfill their fiduciary duties to the corporation and shareholders. 12

I Is it Curtains for Veil Piercing? I B. Exception to the Doctrine of Limited Liability: Piercing the Corporate Veil Yet, even though shareholders are generally not liable for corporate obligations, there is an important exception to the doctrine of limited liability. In certain circumstances to reach an equitable result, the courts have found it necessary to pierce the corporate veil which typically provides the liability shield, and hold shareholders personally liable for corporate obligations.'; With some variation among the states, the factors state courts consider in deciding whether to pierce a corporate veil to override shareholders' limited liability include: (1) whether the corporation was used as the alter ego of the shareholder, (2) whether the corporation was inadequately capitalized, and (3) whether the corporation was organized to perpetrate a fraud or wrong. 15 The courts differ by state regarding whether fraud is a required element, ' and although inadequate capitalization is a factor to be considered, courts generally do not require a finding of inadequate capitalization before application of the veil piercing doctrine. Somewhat similarly, the federal courts also consider whether the corporation was used as the alter ego or mere instrumentality of the shareholders in determining whether to pierce the corporate veil.162 The elements to be examined in federal court include: (1) whether unity of ownership exists such that two affiliated corporations or a corporation and its shareholders have ceased to be separate entities and (2) whether recognition of the two as separate actors would encourage fraud or lead to inequitable results."" There also are numerous differences among the federal courts regarding the factors used and the significance placed on any one factor. 4 It should also be noted that research has disclosed no case in which a state or federal court has held individual shareholders of a publicly held corporation liable for corporate obligations, whereas both state and federal courts have found individual shareholders of closely held corporations so liable.' The state and federal courts have also found it necessary to further refine the analysis when considering whether to pierce the veil of a subsidiary corporation in order to reach the assets of the parent. Unfortunately, application of the tests for piercing the corporate veil is not necessarily straightforward in any case. In fact, as noted by Professors Easterbrook and Fischel, "[t]here is a consensus that the whole area of limited liability, and conversely of piercing the corporate veil, is among the most confusing in corporate law."'f' Professor Thompson notes the difficulties of the form and language the courts use to decide these cases. 'b For example, many courts will pierce the corporate veil if the corporation is found to be the alter ego or instrumentality of the shareholders. These courts often arrive at their 13

r Is it Curtains for Veil Piercing? conclusions without explanation of the factors considered in the analysis.' There are, however, situations in which the doctrines of limited liability and veil piercing should perhaps be reconsidered. For example, although it may be reasonable to grant shareholders the protections of limited liability when the injury complained of is breach of contract, limited liability may seem unjust when used as a shield against claimants who have suffered tort injury. 17 That is, tort claimants are involuntary plaintiffs who have not agreed tc do business with the corporate entity whereas contract claimants should know that the entity they are contracting with enjoys the protections of limited liability and have the option of seeking personal liability through other means, such as the use of personal guaranties. Some commentators have thus argued for abolition of the doctrine of limited liability as applied to tort victims. 17 The courts have not, however, adopted this line of reasoning.:' The facts of the Peacock' decision raise a number of these corporate law issues in the ERISA context. As noted in Part I.C. above, although Peacock had no direct liability to plaintiffs as a fiduciary under ERISA, the lower courts still found him personally liable to plaintiffs in a separate action on a corporate law veil piercing theory.174 In order to analyze the corporate law issues as they apply in the Peacock scenario and in the ERISA context in general, it is first necessary to examine the traditional corporate law rules of veil piercing under both state and federal law, giving special consideration to issues involving: (1) the differences in legal treatment between shareholders of closely held corporations versus shareholders of publicly held corporations, (2) distinctions made in the analysis depending on whether the shareholder is an individual or a corporation, and (3) consideration of tort versus contract claimants. These issues are explored in subparts 1 through 3 below. 1. Piercing the Corporate Veil: State Law As noted above, there are generally three factors state courts apply when deciding whether to override the presumption that shareholders are noc liable for corporate obligations: (1) whether the corporation was used as the alter ego of the shareholder, (2) whether the corporation was inadequately capitalized, and (3) whether the corporation was organized to perpetrate a fraud or a wrong. There are, however, variations among the states regarding the articulation and application of the factors in a veil piercing case. New York, for example, maintains a relatively strict standard for veil piercing.17 In determining whether to pierce the corporate veil, New York courts consider (1) whether there has been compliance with corporate formalities (regardless of the relationship between compliance and the injury), /7 (2) whether a 14

Is it Curtains for Veil Piercing? shareholder has controlling interests in multiple corporations and whether those corporations are operated as separate enterprises, 17 (3) whether the corporation was adequately capitalized at the outset to provide for foreseeable creditors' claims, 7* and (4) whether the corporation was used to commit a fraud."8' None of the four factors on its own justifies piercing the corporate veil in New York. Rather, some combination of the factors is necessary and fraud must be present.182 It is generally true throughout state law jurisprudence that the corporation would be considered the alter ego' of the shareholder if there is such unity of ownership and interest that the corporation has effectively ceased to operate as a separate entity and if recognition of the corporation would lead to fraud or an inequitable result. Furthermore, the instrumentality theory might be applied if the shareholder was found to have exercised excessive control over the corporation while engaging in inequitable conduct.185 Activities commonly cited in support of application of the alter ego or instrumentality theories are: (1) conduct of business without completion of the corporate organization formalities, issuance of shares or receiving of consideration for shares; (2) lack of meetings held by shareholders and directors; (3) shareholder participation as partners in decision-making; (4) failure of shareholders to distinguish between- personal and-corporate property, funds, etc.; and (5) failure to maintain corporate and financial records.' California, however, has been rather liberal in its application of the doctrine. The California courts, for example, appear to be the only state courts to have considered undercapitalization as an independent ground for piercing the corporate veil.'"7 In contrast, Texas has partially codified its veil piercing law to provide that actual fraud must be present in contract cases.' The Texas statute also explicitly states that failure to follow corporate formalities is a not proper ground for imposing liability."'" And in a similar vein, it is relatively difficult to pierce the corporate veil in Delaware. The Delaware courts will entertain an action to pierce the corporate veil "only in the interest of justice, when such matters as fraud, contravention of law or contract, public wrong, or where equitable consideration among members of the corporation require it.""' 2. Piercing the Corporate Veil: Federal Law a. In General In general, federal veil piercing law appears on its face to be more liberal than state doctrine. The decision of the Supreme Court in Anderson v. Abbott2 has permitted federal courts to pierce the veil simply upon a finding that d the corporate form would permit a federal statutory 15 I I

i II Is it Curtains for Veil Piercing? violation to survive without a remedy. "j Some federal courts have also required evidence of intent to circumvent the statute before disregarding the corporate form. For example, at first glance, the First Circuit appears to have followed this lead and articulated a rather liberal federal veil piercing standard.'" In Brookline v. Gorsuch, the court ruled that the corporate form can-be ignored if the purpose of the applicable federal statute places no "importance on the corporate form."'~ This test purports to allow federal courts to pierce the veil even absent a showing of corporate abuse, in the interest of "public convenience, fairness and equity," 7 if the applicable federal statute failed to specifically protect the corporate entity. Nevertheless, courts following the Brookline analysis generally consider a number of factors when deciding whether to pierce the corporate veil. These factors include evidence of: (1) inadequate capitalization in light of corporate purpose, (2) extensive control by shareholders, (3) intermingling of corporate property with that of owner, (4) failure to observe corporate formalities, (5) siphoning of funds from corporation, (6) absence of corporate records, and (7) nonfunctioning officers and directors. No one factor is necessary or sufficient to justify liability, and the ultimate decision remains an equitable one.' Interestingly, although the Brookline test initially appears more liberal than state veil piercing standards, the factors are essentially the same factors considered by state courts in determining whether the corporation should be held co be the alter ego or mere instrumentality of the shareholder.20 Thus, the factors actually considered by Brookline and other federal courts vary little from those articulated in state courts.2"f Moreover, in many federal courts, the decision whether to pierce the corporate veil collapses into consideration of the following two factors: (1) the amount of unity of interest between the corporation and its shareholders and (2) the presence of fraud or an inequitable result.20- The Third Circuit, for example, applies a similar two-pronged test for piercing the veil. According to the Third Circuit, to pierce the corporate veil the plaintiff must show complete financial and managerial domination of the corporate entity by a shareholder or another corporation and that failure to pierce the veil would result in fraud, illegality, injustice or a defeat of public policy." Other federal courts, however, disregard the second factor, and pierce the veil regardless of proof of fraud or inequitable result if the subsidiary or corporation is found to lack practically any appearance of separateness.:-4 In many situations, however, the federal courts have found it unnecessary to resort to veil piercing because the shareholder has engaged in activities resulting in direct liability under the federal statute.205 For example, shareholders may be held liable for their corporation's I t I 16 I

Is it Curtains for Veil Piercing? violations of the federal environmental statutes or the federal securities laws if the shareholders have either engaged in acts direccly prohibited under the statutes or in activities leading a court to pierce the corporte veil. Veil piercing issues as they arise in the context of federal environmental and securities legislation are discussed below. b. Specific Statutory Applications 1. CERCLA Courts deciding cases pursued under the Comprehensive Environmental Response, Compensation, and Liability Act'"" (CERCLA) have confronted the issue of whether to hold a shareholder liable for corporate CERCLA violations. Yet, as noted above, it has not always been necessary for courts deciding issues presented under CERCLA to resort to consideration of whether the facts justify piercing the corporate veil. Thus, CERCLA jurisprudence includes a line of cases in which veil piercing analysis became unnecessary because the defendant could be more accurately characterized as an owner, operator, generator or transporter of hazardous waste, as defined by the statute,207 and thus directly liable for the violation.?0 Although there are a number of cases considering potential CERCLA liability of individual shareholders, research has disclosed only one case in which a court has employed veil piercing analysis to find an individual shareholder liable for a CERCLA violation. In United States v. Moctolo,j the court pierced the corporate veil and held the individual shareholder liable for corporate environmental violations. The shareholder in Mottolo admitted that he incorporated his business after his sole proprietorship incurred CERCLA liability in order to avoid that liability.?" The court thus pierced the corporate veil and held the individual shareholder liable for the corporate violation. The shareholder would not be permitted to use the corporation as his alter ego to escape liabilities he had previously incurred as a sole proprietor.2 In all other CERCLA cases alleging the liability of an individual shareholder, the issue was decided by considering whether the individual was directly liable under the terms of the statute.2" Moreover, no shareholder has been held liable for corporate CERCLA violations simply due to ownership of shares of stock in the corporation.21I Shareholders held directly liable under the terms of the statute also held positions as officers and it was their activities as officers in the management of the corporation's waste disposal practices that exposed them to liability.4 A substantial body of CERCLA case law concerning issues of shareholder liability involves the potential liability of a parent corporation for the CERCLA violations of its subsidiary. As in cases concerning the CERCLA liability of 17

Is it Curtains for Veil Piercing? individual shareholders, courts considering whether the parent-corporation may be held liable for the subsidiary's action frame the issue as involving either direct liability under the statute"5 or veil piercing theory. Those courts considering whether the parent corporation should be held directly liable under the statute for the violations of the subsidiary evaluate whether the parent actively participated in the management of the subsidiary, ' and the amount of control the parent exercised over the subsidiary's waste management practices. Similarly, courts deciding whether to pierce the corporate veil to hold che parent responsible for the subsidiary's actions have considered whether the parent corporation actively controlled or dominated the offending subsidiary. ' Although the Fifth Circuit did not find the facts sufficient to warrant piercing the veil in Joslyn Manufacturing Co. v. T.L. James & Co.,22 it listed twelve factors to be considered in determining whether a parent controlled the subsidiary. These factors include whether: (1) the parent and the subsidiary have common stock ownership; (2) the parent and the subsidiary have common directors or officers; (3) the parent and the subsidiary have common business departments; (4) parent and the subsidiary file consolidated financial statements and tax returns; (5) the parent finances the subsidiary; (6) the parent caused the incorporation of the subsidiary; (7) the subsidiary operates with grossly inadequate capital (8) the parent pays the salaries and other expenses of the subsidiary; (9) the subsidiary receives no business except that given to it by the parent; (10) the parent uses the subsidiary's property as its own; (11) the daily operations of the two corporations are not kept separate; and (12) the subsidiary does not observe the basic corporate formalities, such as keeping separate books and records and holding shareholder and board meetings.22' Moreover, regardless of whether the court analyzes the case under a veil piercing theory, or considers whether to hold the parent directly liable for the subsidiary's violation under the terms of the statute, the results are similar. That is, in either case, liability depends on the parent's active participation in the enterprise of the subsidiary.'' 18

Is it Curtains for Veil Piercin.: 2. Federal Securities Laws The federal securities laws also avoid some of the underlying requirements of corporate law veil piercing in defining the persons and entities to be held primarily and secondarily liable under the 193322' and 1934:24 Acts (the Acts). The Acts impose liability on both a defined class of persons and upon others in the related control group?."' Thus, because of direct liability of controlling persons under the statutes, courts generally do not need to decide whether to pierce the. corporate veil to hold shareholders liable.'" Rather, those persons and entities who might be held accountable under a veil piercing analysis are instead held directly liable under the terms of the statutes. In those limited circumstances under the securities laws where the courts consider veil piercing analysis, they have noted that the governmental interest in preventing the unlawful use of securities prevails over strict adherence to corporate form.7 For example, in SEC v. Elmas Trading Corp.,< the court stated that in the interests of public convenience, fairness, and equity, and that in applying this rule the federal courts will look closely at the purpose of the federal statute involved to determine whether it places importance on the corporate form.' The court then found that the government's interest in preventing the unlawful manipulation and use of securities under the Securities and Exchange Act required it to apply a rather flexible federal approach that would give less respect to the corporate form than would application of the strict common law alter ego doctrine of veil piercing. ':0 In 1994, however, the United States Supreme Court issued a decision that may put many common law claims brought concurrently with the securities laws into question. In Central Bank v. First Interstate Bank of Denver, the Cour: held that "a private plaintiff may not maintain an aiding and abetting suit under ~ 10 (b). "I The Court reasoned that the Acts should not impose liability beyond the person who actually engages (even indirectly) in a prohibited activity and reach to cover those who simply assist them.-' It thus follows that because the Acts do not directly provide for alter ego liability under common law principles, future courts following the reasoning of Central Bank might not allow imposition of such liability. 4 According to the Court in Central Bank "[t]he fact that Congress chose to impose some forms of secondary liability, but not others, indicates a deliberate congressional choice with which the courts should not interfere." 25 However, as the Supreme Court recognized in Peacock, a piercing claim does not constitute an independent cause of action.- Instead, when a claim to pierce a corporate veil is joined with a substantive claim grounded in the federal securities laws, the piercing claim simply acts as a method of determining the identity of the parties who are financially responsible for any judgment rendered in the! 19

Is it Curtains for Veil Piercing? case.23' In this way then, a piercing claim differs from an aiding and abetting claim, which the Central Bank Court viewed as a separate substantive claim not authorized by the Acts. 2i Lifting the state-granted shield on shareholder liability need not be viewed as adding a substantive cause of action to the Acts. Instead, it may be viewed as deferential to the state law determinations of corporate existence and limited liability. 3. Piercing the Corporate Veil: Special Considerations Piercing the corporate veil to hold shareholders liable for corporate obligations is an unusual remedy.'" The doctrine of limited liability is so firmly entrenched in traditional corporate law jurisprudence, that courts are generally reluctant to override it.i4 But, as discussed in Parts II.B.1. and II.B.2. above, both state and federal courts will disregard the corporate entity to hold shareholders accountable for corporate obligations in certain circumstances where the interests of equity so require. Nevertheless, a few special considerations as they relate to these general principles should be noted. First, although theoretically the veil piercing doctrine would apply to both publicly and closely held corporations, in fact it has not been. Second, even though veil piercing notions apply equally to individual as well as corporate 'shareholders, the courts have enumerated several additional factors to be considered in the parent-subsidiary context. And finally, commentators have argued that the doctrine of limited liability should not be applied equally to tort and contract claimants. These special considerations are discussed in subparts a through c below. a. Differences in Treatment Among Individual Shareholders of Closely Held and Publicly Held Corporations The only context in which the courts seem willing to pierce the corporate veil involves the liability of shareholders of closely-held corporations.242 In Professor Robert Thompson's empirical study of all veil piercing cases reported by Westlaw through 1985, no case was found in which the court pierced the veil of a publicly held corporation. 243 Although theoretically there is no reason why a court should not pierce the veil of a publicly held corporation, as a practical matter, it is nearly impossible to envision a situation that would warrant such a result. It would presumably be difficult for a diverse group of investors to organize to set up the corporation as a fraud or to use it as their alter ego. 44 In contrast, it is easy to see how the shareholders of a closely held corporation may run afoul of the protections 20 I I

Is it Curtains for Veil Piercing? I of limited liability. An individual would not find it difficult to set up a corporation to perpetrate a fraud or to use it as a mere instrumentality to avoid liability already incurred.245 Similarly, it would not be difficult for a few shareholders of a closely held corporation to act in concert to commit the fraud or inequity that would cause a court to pierce the corporate veil. Moreover, the shareholders of closely held corporations often serve as officers and directors and thus have more opportunity to engage in activities that may negate the protections provided by the corporate form.24 Consistent with this analysis, Professor Thompson found that shareholders who did not also serve as officers or directors were less likely than their officer or director counterparts to be held liable for corporate obligations under a veil piercing analysis. b. Corporations as Shareholders Similarly, courts also recognize that, as in the case of the corporation owned by individuals, there are circumstances warranting liability of the parent corporation for acts of the subsidiary. 4" Moreover, according to Easterbrook and Fischel, courts are more likely to pierce the corporate veil to reach corporate rather than individual shareholders. q However, according to Thompson's empirical study, courts pierce the corporate veil more often when the shareholder is an individual than when the shareholder is a corporation.250 Either way, the doctrine also applies to parent corporations. Liability of a parent corporation for obligations of its subsidiary depends mostly on whether the parent exercised active control of or domination over the subsidiary. State courts have delineated a number of factors to be considered to determine whether the parent dominated the subsidiary. These factors include consideration of whether: (a) The parent corporation owns all or most of the capital stock of the subsidiary. (b) The parent and subsidiary corporations have common directors or officers. (c) The parent corporation finances the subsidiary. (d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. (e) The subsidiary has grossly inadequate capital. (f) The parent corporation pays the salaries and other expenses or losses of the subsidiary. (g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to it by the parent corporation. 21

Is it Curtains for Veil Piercing? (h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own. (i) The parent corporation uses the property of the subsidiary as its own. (j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation in the latter's interest. (k) The formal legal requirements of the subsidiary are not observed.251 It is not necessary that every factor be found before a court will resort to veil piercing. 25 Instead, the overall relationship between the parent and subsidiary are considered.:" Another state court framed the inquiry more simply noting that the parent corporation may be held liable under a veil piercing theory: 1) where the parent company perpetrates a fraud on or causes a severe injustice to another party through control of its subsidiary (the so-called "alter-ego theory") and 2) where the parent directs the business activities of the subsidiary to such a degree that the latter becomes the agent of the parent. 54 For the most part, federal courts applying the federal common law of veil piercing to reach a parent corporation employ factors similar to those used in the state courts.' The overall consideration is whether the parent corporation exercised such domination or pervasive control over the actions of the subsidiary that the parent should also be held liable for the statutory violation.-5' c. Tort versus Contract Claimants As noted above, the doctrine of limited liability for shareholders is not without controversy. Commentators have argued that, particularly in the case of tort claimants, the doctrine provides incentives for corporations to not fully consider tort liability and to assume too much risk.2'5 Furthermore, some of these risks do not manifest themselves until some time into the future. By the time the hazard is discovered, the tort victim may find that the corporation has long been dissolved and its assets distributed, leaving the victim without recourse."5l Moreover, it has been asserted that the doctrine of limited liability is unfair and in many cases economically unsound in its application to J tort victims.5 This is in part because tort victims are I 22 I.,

Is it Curtains for Veil Piercing? I involuntary creditors with no opportunity to assess the risks of doing business with the corporate entity.' Insurance has played a key role in the discussion of this issue. Liability insurance is widely available for most businesses. If a firm underinsures for tort liability, and the shareholders enjoy the protections of the doctrine of limited liability, then the costs of underinsurance are borne by tort victims. If corporate shareholders incurred unlimited liability, however, they presumably would insist that firms purchase full insurance coverage for tort liability. It might be argued, therefore, that enforcing unlimited liability against shareholders for corporate tort claims would merely lead firms to purchase adequate insurance and not subject shareholders to additional risk.6 In contrast, critics of the doctrine of limited liability generally do not argue that shareholders of corporations should bear unlimited liability for contract claims.-6 The difference is that the parties to a contract are able to allocate the risk among themselves. The parties thus have a choice regarding whether to enter into the transaction with the corporate entity. Assuming a party to a contract with a corporation is able to assess the risks of the transaction prior to the injury and decline to participate, it can be argued that this voluntary association should be subjected to the doctrine of limited liability. 24 If, however, the party contracting with the corporation did not have the opportunity to decline to participate, it has been argued that limited liability should not apply. III. Personal Liability in Employment Programs This Article focuses on the availability of a corporate veil piercing claim in an action brought under Title I of ERISA. Before the next Part begins that detailed analysis though, this Part considers the scope of personal liability under ERISA and compares some of the basic doctrines of personal liability under other federal employment law statutes. ERISA's unique regulatory stance may then be evaluated in light of the explicit statutory provisions permitting personal liability. The Peacock case offers one specific illustration of how the specter of personal liability may attach in conjunction with a claim under Title I of ERISA. But, upon careful analysis even that nominally narrow focus proves illusory. The foregoing discussion explained that under traditional concepts of corporation law, personal liability may accrue to corporate shareholders. Also, although a particular obligation may appear nominally to inure upon a specific corporation, scate and federal corporation law concepts may extend the liability to related entities. Even more than other federal statutes such as CERCLA, ERISA's myriad of regulatory requirements2b provide a number of potential settings where a variety of parties may attempt 23

Is it Curtains for Veil Piercing? to reach through the curtain of protection typically accorded to corporations. Therefore, this Part begins by analyzing the application of personal liability in the area where such liability may be most frequently litigated, which is in the context of multiemployer plans. The Part then examines a variety of other frameworks where the standard protections accorded to corporate shareholders may be lost in an ERISA action. Finally, the Part briefly looks at the application of the doctrine of piercing the corporate veil in other federal employment and labor law statutes. A. Multiemployer Plans As explained above,' ERISA contains a number of specific provisions regulating multiemployer plans. One of the advantages of multiemployer plans is that, by permitting members of a union to earn pension credit while working for any employer who is signatory to a collective bargaining agreement ("CBA") with the union,'b the plans avoid some of the problems of portability that plague other types of pension plans. Multiemployer plans are especially prevalent in industries such as construction where unionized workers receive assignments from a hiring hall or otherwise frequently change employers.2'7" Another unique feature of multiemployer pension plans is that, from the perspective of contributing employers, the plans most closely resemble defined contribution plans but they most closely resemble defined benefit plans in the nature of the benefits paid to retirees.>7' While having its advantages, this disparity can create significant funding problems for the plans. Prior to the enactment of MPPAA, when a plan contained insufficient assets to pay projected benefits an incentive existed for employers to engage in a "race to the exit"2'2 in order to leave the burden of underfunding (1) on the employers who remained or (2) on the PBGC. MPPAA sought to eliminate this incentive by requiring employers who terminate their participation in a multiemployer plan to pay their fair share of plan underfunding.` Given the number of variables and the significance of the monetary amounts at issue, perhaps it should not be surprising that the provisions for making this determination are almost mind-numbingly complex24 and have generated a significant amount of litigation.27 1. Common Control While participation in a multiemployer plan typically is predicated upon an entity's obligation under a CBA,/7 withdrawal liability may extend much further. According to ERISA, each "trade[ ] or business[ ]... under common control"- with the withdrawing employer, is responsible for payment ofthe withdrawal liability. The language in the provision dates back to ERISA's enactment and legislative history explicitly states that the intent undergirding such 24 1..~~~~~~~~~~~~~~~~~~~~~~ I I II I j I

Is it Curtains for Veil Piercing? X extensive liability was to ensure that ERISA's substantive "provisions cannot be avoided by operating through separate corporations instead of separate branches of one corporation.,7 - In interpreting the scope of the MPPAA language, the PBGC defers271 to the definition of "common control," contained in the IRC. As a result, the courts have drawn upon the IRC,:" and its corresponding regulations, 28 for assistance in determining the scope of withdrawal liability.f However, when multiemployer plan trustees rely upon this provision to extend liability to an enterprise other than the nominal employer, in addition to being under "common control," the enterprise must also be a "trade or business. " ' In the typical case where the definition of "trade or business" is at issue, an employer that directly participates in a multiemployer plan is wholly owned by a sole shareholder or closely held by a small group. The shareholder also has other investments that the shareholder holds as a partner, joint venturer,:V5 or outside any formal organizational structure."' The determination of whether the other investments of the shareholder constitute a trade or business becomes critical because such a determination not only results in the extension of liability to the partnership, joint venture, or other enterprise, it also results in personal liability to the shareholder. In these instances the personal liability is premised not upon shareholder status but upon the basis that the individual is an owner of a liable enterprise, and the non-corporate status of that enterprise results in the attachment of personal liability.2' 2. Definition of "Employer" Multiemployer plans also have relied-upon ERISA's l statutory definition of an "employer" to argue that i liability for delinquent contributions or withdrawal i liability2' extends to corporate shareholders or officers. This theory generally is premised upon the notion that ERISA's vague definition of who constitutes an employer28' should be analogized to the definition in the Fair Labor. Standards Act ("FLSA" ), which permits personal liability.2v A number of circuits have rejected this theory because neither the statutory language nor the legislative history of ERISA supports such automatic liability.: In contrast, other circuits have assumed that ERISA's definition of employer may sweep broadly enough to include individual shareholders or officers who are not the nominal signatories to a CBA.2" However, those same circuits still decline to impose automatic liability for delinquent contributions owed to a multiemployer plan because of the statutory language, which refers to an "employer who is obligated to make contributions.... Where individuals are not a party to the CBA, the individuals are 25

.1.1.. l im Is it Curtains for Veil Piercing? not "obligated to make contributions":5 and, thus, do not automatically incur personal liability.'2; 3. Piercing the Corporate Veil The circuits to have addressed the question have indicated they may be willing to hold individual shareholders personally liable through veil piercing claims in actions for delinquent contributions or withdrawal liability.; 7 However, as is true in the traditional contexts,27 there is little consensus as to the standards to be applied in a veil piercing action. For example, in Alman - v. Danin,<M the First Circuit upheld a determination of i personal liability where the lower court had analyzed three factors: (1) the shareholders lack of respect for the corporate form, (2) bad faith on the part of the shareholders, and (3) the injustice that would have accrued to the pension plan if the corporate form would have been upheld. While still sitting on the First Circuit Court of Appeals, Justice Breyer interpreted this as a federal "alter ego" test, which looked in part to state law for its substance. 3"' On the other hand, it appears that at least some of the circuits would rely on state law for the applicable veil piercing standards.' This latter position accords with that of the PBGC, which has indicated that a shareholder's personal liability for ERISA awards is typically determined under state law. 2 In actual application, courts have relied upon the doctrine of piercing the corporate veil in order to find the sole owner of a corporation liable for the corporation's multiemployer plan withdrawal liability.3"1 In addition, the application of both the common control provisions and the doctrine of piercing the corporate veil has resulted in -the imposition of personal liability on the sole shareholder of a corporation that was under common control with a corporation that owed withdrawal liability even though the shareholder had no ownership interest in the latter corporation. 5's And, using an alter ego theory, multiemployer funds have been able to recoup delinquent plan contributions from corporations that are interrelated with actual signatories to a CBA.""' B. Other ERISA Contexts 1. Fiduciary Breaches ERISA Section 409 ("Section 409")' makes specific provisions for the liability of those who breach ERISA's fiduciary provisions. It requires a breaching fiduciary to reimburse the plan for any losses caused by the fiduciary's breach and to repay any gains wrongfully received by the fiduciary."" The statute specifically provides that fiduciaries "shall be personally liable"Ju" for their breaches. ERISA also subjects fiduciaries to "other I 26 U I mommilk- -~~_ ____

Is it Curtains for Veil Piercing?! equitable or remedial relief as the court may deem appropriate. It% This broad language has provided the courts with a clear basis to award a wide variety of remedies to successful plaintiffs in fiduciary duty cases. And, instances of personal liability have occurred. One court held plan fiduciaries personally liable for failure to comply with a plan's investment guidelines. In another case, former plan participants successfully alleged personal liability against ERISA fiduciaries who amended a plan's valuation procedure in order to value account benefits after the 1987 "Black Monday" stock market decline. 12 Recently, a company president was held personally liable for a fiduciary breach when he failed to investigate suspicions about the co-mingling of plan funds and assured participants regarding the plan's rate of return.J'For some time though, the courts struggled with fiduciary claims brought on behalf of a plaintiff other than an ERISA plan. The statutory right to recover under Section 409 runs in favor only of plans.. As a result, in Massachusetts Mutual Life Insurance Co. v. Russell,'s the Supreme Court determined that Section 409 does not provide individual claimants with the right to recover extracontractual damages on their own behalf. Instead, defendants must pay any awards directly to the appropriate ERISA plan."" After Massachusetts Mutual, some circuits permitted individuals to bring fiduciary suits for -recovery on their own behalf so long as those suits are grounded solely on one of ERISA's general remedial provisions and not on Section 409. i' Other circuits decided that the Massachusetts Mutual opinion permitted only those fiduciary suits that are brought on behalf of a plan." In Varity Corp. v. Howe,'' the Supreme Court resolved this issue and determined that ERISA does permit plan participants and beneficiaries to bring individualized claims for equitable relief. However, unlike Section 409, the remedial section that provides the basis for these claims does not make explicit provision for personal liability.'-" 2. Suits by Regulatory Agencies Both the DOL and the PBGC have relied upon the doctrine of piercing the corporate veil in attempts to extend liability in ERISA cases. In Reich v. Compton3' the Third Circuit rejected the DOL's effort to apply the alter ego doctrine to establish a prohibited transaction between a multiemployer plan and a company that the DOL alleged to be the alter ego of the union sponsor of the plan. The plan had loaned the alleged alter ego $800,000 at a below-market rate of interest.' The borrower then used the proceeds of the loan to construct a building that the union used as its headquarters. 23 According to the Third Circuit's analysis, ERISA does not specifically prohibit this type of three-way 27

R! I. Is it Curtains for Veil Piercing? I transaction and it would be inappropriate to utilize corporate law doctrine, such as the alter ego doctrine, to impose liability where otherwise none would exist.; In one case brought by the PBGC, the alleged alter ego was two ownership layers away from the benefit plan sponsor, Reserve Mining. The PBGC attempted to hold Armco, Inc. ("Armco") liable for $21.4 million in pension plan underfunding by Reserve Mining. t' According to an earlier, unrelated decision by the Eighth Circuit Court of Appeals, Armco allegedly acted as the alter ego of First Taconite, Inc. j2 First Taconite, Inc., in turn, was the general partner of the partnership that owned Reserve Mining. Less than three months after the PBGC filed the original suit, Armco agreed to a settlement of $27.5 million, which strengthened the funding of Armco's own pension plan as well as reimbursed the PBGC for underfunding in the First Taconite plan.. The same provisions that hold control group members liable for withdrawal liability incurred by a former member of a multiemployer plan also apply to the termination of a single employer plan.3'J And, as in the multiemployer context, application of these provisions can cause a variety of difficulties, especially in bankruptcy. Because the PBGC becomes responsible for underfunded terminated plans, it often seeks to hold solvent control group members liable for funding deficiencies. In this context, one question that has caused difficulty has been the allocation of liability between control group members in bankruptcy and those members that remain solvent. One panel of the FirsCircuit likened the statutory provisions providing for control group liability to the doctrine of piercing the corporate veil and imposed the liability on solvent members of the group.'i 3. Cases Against Foreign Corporations The increasing globalization of business operations, has created a variety of interpretive problems under ERISA. Not surprisingly, in at least one case where a United States subsidiary of a foreign parent corporation failed to fulfill its benefit obligations to retired and disabled former employees, those former employees and their labor union sought relief from the parent. ' The parent argued that the court had no personal jurisdiction over it.'3' One of the theories propounded by the plaintiffs in response was that the court had jurisdiction over the subsidiary, the court should pierce the corporate veil of the parent, and, having done that, the court would have personal jurisdiction over the parent. 3 The plaintiffs also argued that the parent was the alter ego of the subsidiary and thus the two constituted an integrated enterprise. " While the First Circuit rejected all of these arguments, on a subsequent appeal it found that application 28

Is it Curtains for Veil Piercing? of the traditional minimum contacts test resulted in personal jurisdiction existed over the parent.' 4. Settlement Agreements Finally, in one of the more unusual cases involving an alter ego claim, one corporation attempted to use the alter ego doctrine as a defense to ERISA liability. The saga began when Navistar'41 sold its Wisconsin Steel Division to two wholly-owned subsidiaries of Envirodyne Industries, Inc. ("Envirodyne").J41 The subsidiaries were grossly undercapitalized given that the terms of the deal required them to assume responsibility for more than $62 million in unfunded pension liabilities for the Wisconsin Steel Division. - Three years later, the two subsidiaries filed for bankruptcy. )4 As a result of the bankruptcy, the PBGC took over the pension plan and paid a portion of the benefits promised by the plan.45 However, a number of individuals had been promised benefits under the Wisconsin Steel Division plan that exceeded the PBGC guarantees. 14b To recover some of the difference between the promised benefits and the guarantees, the beneficiaries entered into a settlement with the subsidiaries and Navistar. In an attempt to recover the rest of the difference, the beneficiaries sued Envirodyne. 4 Among other arguments, Envirodyne argued that it was the alter ego of its subsidiaries and, therefore, the settlement agreement that released the subsidiaries also released Envirodyne. 4' The Seventh Circuit rejected this argument, saying that the "alter ego doctrine is a sword, not a shield, the basis for a cause of action, not a defense. " C. Federal Employment and Labor Law Statutes The jurisprudence relating to the application of the doctrine of piercing the corporate veil reflects the same controversy and confusion in the context of federal employment and labor statutes as already discussed in the context of other federal legislation. ' However, because ERISA often looks to the jurisprudence developed under other federal employment statutes, this subsection looks at personal liability for corporate shareholders under a number of those statutes. -5 1. Title VII, ADEA, and ADA Nondiscrimination in employment provisions can be found in a variety of federal statutes, depending upon the characteristics being protected. Title VII of the Civil Rights Act of 1964"' ("Title VII") protects against employment discrimination based upon "race, color, religion, sex, or national origin." 54 The Age Discrimination in Employment Act355 ("ADEA") prohibits employment I I 29

Is it Curtains for Veil Piercing? discrimination based upon an individual's age. 35 And, the Americans with Disabilities Act35 ("ADA") makes it illegal to discriminate in the employment of a disabled individual." Case law discussing application of the doctrine of piercing the corporate veil to these federal discrimination statutes is sparse. However, district courts have indicated that individual corporate shareholders could be held liable, in appropriate circumstances, as a result of a veil piercing claim. In addition, Title VII contains an explicit provision limiting its pre-emption of state law. b'L Thati provision has been construed to save most state laws that touch upon employment discrimination. 1 As a result, it does not appear likely that Title VII would pre-empt the application of a claim to pierce the corporate veil simply because such a claim might be based upon state law."' As in other areas of federal statutory law, the reason underlying the relative paucity of veil piercing claims in federal discrimination cases may be attributable to the possibility of holding individuals liable on other grounds. For example, Title VII, ADEA, and the ADA all contain equivalent definitions of who is an "employer" for purposes of the statutes. 3 And, the circuits are split over whether that definition should be construed as permitting the imposition of personal liability upon supervisory or management employees. 2. FLSA In some respects, the analysis of personal liability under the FLSA is similar to the analysis which occurs under the federal nondiscrimination statutes. Among other things, the FLSA establishes a federal minimum wage, sets maximum hours of work,"' and regulates child labor. All of these regulations are applicable only to certain employees. ' The FLSA contains a provision which establishes the federal law as a floor but which does not preclude state laws that establish higher standards.'" Accordingly, on the theory that the FLSA's pre-emptive effect is quite narrow, it appears the jurisprudence would permit a claim to pierce the corporate veil to be raised in conjunction with a claim brought under the FLSA. 37' However, the circuits have construed broadly the FLSA's definition of the term "employer," 7 often making a veil piercing claim unnecessary. It is widely established that in actions brought under the FLSA, a corporate official who exerts control over the operations of the corporation may be personally liable for statutory violations. '2 And, the jurisprudence makes it clear that this standard is not predicated upon the doctrine of piercing the corporate veil. 7 I I I i 30

.L 26 L L.. %- LL.L t.. cL L L4 ap L wa. V %.- 46 -16 dh. ft %W b. -.0 - - = w I 3. NLRA For purposes of veil piercing the most relevant labor relations statute is the National Labor Relations Act'7 ("NLRA"). Unlike ERISA though 75 the NLRA does not contain a general pre-emption provision. Following the traditional development of pre-emption analysis for statutes without an explicit pre-emption clause, 377 the jurisprudence has established that the NLRA pre-empts state law that conflicts with the NLRA3T7 or where Congress intended the NLRA to "occup[y] the field and close[ ] it to state regulation."' However, the determination of whether state or federal veil piercing standards would apply in claims brought under the NLRA does not appear to rest so much upon a pre-emption analysis as upon the standards' consistency with the goals expressed in the federal legislation.'0 In addition to veil piercing claims, liability for NLRA purposes may be extended through either the single employer doctrine"' or the alter ego doctrine. While these doctrines, particularly the alter ego doctrine, utilize principles from state common law doctrines for piercing the corporate veil, they developed as provisions to assist in the interpretation and application of the statute. Thus, as with the other areas of federal employment law regulation, a variety of avenues may lead to personal liability. D. Summary The Thomas v. Peacock case offers one situation in which to study the importation into ERISA of the corporate law doctrine of piercing the corporate veil. However, as recognized by the Supreme Court, the posture of the Peacock case was unique in that it bifurcated the veil piercing claim from the substantive ERISA claim. It ultimately was this bifurcation which led to the Supreme Court's rejection of federal court jurisdiction. 15 However, the Peacock case is far from the only context where personal liability may accrue in ERISA-related actions. In fact, ERISA contains a number of specific statutory provisions that can result in personal liability. Beyond that, as seen above,h ERISA's complex regulatory provisions provide an abundance of opportunities for a wide variety of plaintiffs, and defendants, to argue that a corporate veil should be pierced. Other federal employment and collective bargaining laws also offer some opportunities, in addition to piercing the corporate veil, for the extension of liability to corporate shareholders or related business entities. What remains to be addressed is whether a piercing claim can survive ERISA's wide-ranging regulation. 31

I Is it Curtains for Veil Piercing? IV. ERISA's Unique Barriers to a Veil Piercing Claim As illustrated by the Peacock case, application of the doctrine of piercing the corporate veil in the context of claims brought under Title I of ERISA has created unique problems of interpretation for the federal courts. This Article argues that in large part the problems are attributable to two particular statutory provisions which are peculiar to ERISA, each of which has engendered significant interpretative problems outside the piercing analysis. This Part analyzes these two ERISA provisions, the extraordinarily broad pre-emption provision and the detailed remedial provision. The Part determines that concerns about the incompatibility of ERISA with a claim to pierce the corporate veil are largely illusory. A. The Regulation As noted above, ERISA's pre-emption clause is both explicit and sweeping in its breadth. Yet, the breadth of the pre-emption clause may not have caused the controversy which has eruptedI"' but for the narrow construction accorded to ERISA's remedial provisions. Although an initial perusal might give one the impression that the remedial scheme exceeds the pre-emption clause in scope, "' that has not been the result of the jurisprudence. Instead, the decisional law has construed the remedial provisions narrowly and as being the exclusive cause of action under ERISA. The history of this construction is traceable at least back to the Supreme Court's decision in Massachusetts Mutual Life Insurance Co. v. Russell." ' There the Court stated that the reticulated nature of the remedial provision could be attributed to careful congressional development of its provisions and should be enforced as written.' The Supreme Court reinforced this narrow view of ERISA remedies in its 1993 decision in Mertens v. Hewitt Associates-" where the court narrowly construed the types of relief available as equitable relief under Section 502(a)(3). The effect of the decisional law has been a jurisprudence which pre-empts much state law but does not necessarily offer a corresponding federal law remedy. "' ERISA's pre-emption provision has generated a voluminous amount of litigation. In late 1992, Justice Stevens noted that the LEXIS reporting system held more than 2800 ERISA pre-emption cases.<4 The Supreme Court itself has interpreted ERISA's pre-emption provision numerous times, Sbeginning with Alessi v. Raybestos-Manhattan, Inc.' In Alessi, the Court looked to traditional federal preemption doctrine and reiterated the importance of respecting the preservation of separate spheres of authority for the national and state governments. Second, the Supreme Court reminded litigants that congressional intent plays a key factor in determining the scope of a pre-emption provision. From the legislative history, the Court has 32

Is it Curtains for Veil Piercing? I determined that a primary goal of ERISA pre-emption is to protect plans from inconsistent state regulation and the inefficiencies that can result from such inconsistent regulation. ic In one early opinion, the Court explained that "[a] law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.'1" However, the Court also acknowledged, in one of those Supreme Court footnotes to have played a key role in the development of jurisprudence, 4i that even ERISA pre-emption is not without bounds. In what has become almost a mantra to the lower courts, 402 the Supreme Court noted that a state law or action may be "too tenuous, remote, or peripheral"4"1 to meet the "relates to" test. As subsequently developed by the Court, it appears that state laws which "relate to" an ERISA plan because they make "reference to" such a plan automatically will fall prey to pre-emption. For example, a District of Columbia statute required employers to maintain health care coverage for employees who collect workers' compensation benefits.4" Because the statute specifically referred to employerprovided health insurance coverage, which is regulated by5 ERISA, the statute was pre-empted "on that basis alone.115 The analysis is more complex where a state law is alleged to relate to an ERISA plan because the state law has a "connection with" a plan. Clearly, the "connection with" standard is to be construed broadly. The Court has indicated that an indirec: effect on a plan may result in pre-emption and that a law will not be saved from preemption simply because the law was not specifically intended to affect plans. 4i' In addition, even a law that is "consistent with ERISA's substantive requirements" may be pre-empted.4" However, it is with respect to this prong of the pre-emption test that the "tenuous, remote, or peripheral" standard also applies and may extricate the state law from the net of ERISA pre-emption. The Supreme Court has not enunciated a specific test for determining when a state law or action is tenuous, remote, or peripheral enough to avoid being caught in the web of ERISA pre-emption."'l However, in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers ins., its last pre-emption decision, the Court upheld a New York state statute which imposed surcharges on the hospitalization rates of patients who were covered by particular insurers but which did not impose surcharges on the rates of patients covered by a traditional Blue Cross and Blue Shield indemnity plan. The differential nature of the surcharges had an indirect effect on the cost structures of employee benefit plans.41" This effect assertedly meant the state law had a connection with such plans and resulted in ERISA pre-emption. However, the Court feared that acceptance of this logic would result in the pre-emption of all state regulation that indirectly affected hospital or insurance rates.41: Accordingly, the Court rejected this 33 a re I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-r 71 I I

1 4,i I i N, Is it Curtains for Veil Piercing? theory as being inconsistent with its earlier decisions finding ERISA pre-emption to be limited by the "tenuous, remote, or peripheral" standard. The Court also cited the lack of any evidence that Congress intended ERISA to "displace general health care regulation, which historically has been a matter of local concern.";' In a case with some parallels to actions relying upon state corporation law to pierce the corporate veil, the Supreme Court considered whether ERISA pre-empts state law collection statutes. In Mackey v. Lanier Collection Agency & Service, Inc., 14 a collection agency attempted to rely upon general provisions in a Georgia garnishment statute to collect money judgments from the vacation and holiday benefits of a number of plan participants. The plan trustees argued that ERISA preempted the entire state statute, including both the general provisions and a specific provision that protected ERISA plan funds from garnishment except as the garnishments related to alimony or child support. 15 A bare majority of the Supreme Court held that ERISA preempted the specific provision because that provision expressly referenced ERISA plans; thus subjecting it to the "reference to" prong of the pre-emption analysis test. The general garnishment provisions required a different analysis. The plan trustees argued that the burdens imposed upon them in complying with garnishment orders were sufficient to cause the statute to "relate to" an ERISA plan and, thus, fall to the pre-emption axe.48 However, the Court recognized that while ERISA's remedial scheme establishes a variety of situations in which monetary relief is available against benefit plans, ERISA does not contain any enforcement mechanisms.417 The Court concluded that the necessary implication of this scheme is that Congress meant to' leave undisturbed the state mechanisms for collection. 42 The Court also noted that Congress had expressly protected pension plan benefits from garnishment in ERISA's antialienation provision,2' indicating that Congress had preempted state law enforcement mechanisms where it wanted to and had chosen to leave open the rest of the field.4 The dissent, written by Justice Kennedy and joined by three other Justices, argued that ERISA did pre-empt the general provisions of the Georgia garnishment statute because "state garnishment laws necessarily relate to employee benefit plans to the extent they require such plans to act as garnishees, which is a substantial and onerous obligation."42 The dissent relied heavily upon the reach of ERISA's antialienation provision, which it viewed as limiting all garnishments except the few explicitly permitted under the statutory exceptions.424 However, the dissent did not challenge the majority's view that ERISA permits the use of state law enforcement mechanisms to collect ERISA judgments.425 Instead, it distinguished instances where the burdens of the state law collection mechanism fall on benefit plans, from situations where an I,1 -'4 I 34 -- - _ _

I Is it Curtains for Veil Piercing? ERISA plan is the debtor so that the burden of compliance with state law falls upon a third party.42, B. Application to State Corporation Laws The struggle to define the contours of ERISA's preemption clause has carried over to those situacions where state corporation law is a factor in a legal action involving an ERISA claim or an ERISA entity. And, perhaps it should not be surprising given the breadth both of corporation law and of ERISA that these intersections occur in a variety of contexts. For example, a considerable body of case law has developed to address the disputes that occur over entitlement to severance benefits.427 Much of that case law involves issues such as when a privately-established severance plan constitutes an ERISA-regulated plan, 42 the permissibility of modifications to severance promises, 42 and the effect on severance plan entitlement of working for a successor employer.4J( In some instances though, states have enacted legislation requiring employers to make severance payments. In Fort Halifax Packing Co. v. Coyne,4'1 the United States Supreme Court upheld a Maine statute that required employers who close a plant in Maine to make a lump sum severance payment. Fort Halifax Packing Company, Inc. had closed a plant and challenged the severance. requirement on the basis that ERISA pre-empted the requirement.43 By its terms ERISA's pre-emption provision only pre-empts state law that relates to an "employee benefit plan."44 In Fort Halifax, the Supreme Court determined that, because of the non-recurring, single payment nature of the Maine requirement, the payment would not constitute an employee benefit 'plan." Without an employee benefit plan for the statute to relate to, there could be no pre-emption.435 In addition, the Court once again noted that "'in any pre-emption analysis, "the purpose of Congress is the ultimate touchstone."'" According to the legislative history of ERISA, Congress intended the pre-emption provision to protect employers from the administrative difficulties and costs that result when state regulation differs from federal requirements. ' Largely because of the statute's simple definition of eligibility and single-payment feature, the Court determined that the Maine statute did not raise these administrative concerns. Perhaps noting this favorable Supreme Court precedent, Massachusetts included a severance pay requirement in an anti-takeover statute which it enacted under the umbrella of state corporation law.4'" The statute protected employees who lost their jobs within the two years following a change in the control of their employer.44" In order to be eligible for a severance payment, the employees had to have at least three years of service with the original employer and had to 35

I Is it Curtains for Veil Piercing? meet the state's standards for receiving unemployment benefits. 44 While the severance payment was made in a lump sum, the amount of the payment depended upon each individual employee's salary and years of employment. The First Circuit Court of Appeals struck down the severance pay provision as inconsistent with ERISA preemption./4 It may seem ironical444 that ERISA would invalidate pare of a state anti-takeover statute after an Indiana anti-takeover statute survived a Commerce Clause challenge. 44 However, the First Circuit's decision was a direct result of the application of standard ERISA preemption jurisprudence. Following the analysis established in Fort Halifax, the First Circuit evaluated whether or not the Massachusetts statute required affected employers to establish an ERISA plan. 4 The court decided that the two year time period during which covered reductions in employment could occur meant that the potential payer must maintain employment records and make eligibility determinations over a lengthy time frame.44 The requirement of eligibility for state unemployment compensation obligated the payer to make another set of determinations some of which necessitated the exercise of judgment, such as the reason for the former employee's termination of employment.44 In total, these provisions meant that any potential payer had to establish an ongoing set of administrative procedures in order to comply with the statutory requirements.44" After analyzing these requirements in the context of other decisions that addressed the extent of administrative burdens necessary to constitute an ERISA plan, the First Circuit Court of Appeals decided the Massachusetts statute impermissibly required the establishment of an ERISA plan.450 The analysis undertaken by the First Circuit illustrates the manner in which standard pre-emption analysis can result in ERISA's pre-emption of state corporate law. At the end of its analysis, the court denied the various amici's request that the court give weight to the "benign purposes" of the Massachusetts statute.. And, from the standpoint of applying pre-emption analysis, the First Circuit was correct in denying this request. According to the Supreme Court, where a state statute "relates to" an employee benefit plan, ERISA will pre-empt the statute in spite of a benign purpose. 45' Rarely though in a piercing claim brought in conjunction with an ERISA action would one expect to see a contention that a benefit plan does not exist. Instead it is likely that participants or plans would be alleging a breach of one of ERISA's many substantive provisions by a corporate benefit plan sponsor, and, given a lack of corporate assets, would be seeking to hold the corporate shareholders personally liable for any judgment rendered against the corporate plan sponsor. In such an instance, a variety of parties will be acting in a multiplicity of roles. ri I I"I.. 'i, - 4 ";.l "; Ar5 -IP.- I. h- 1:., ", f., I I I. 36

Is it Curtains for Veil Piercing? I As a result, the jDurisprudence must recognize the different roles that corporate actors may play in ERISA plans, and the way in. which ERISA bifurcates those roles. Typically, this examination of an individual's or an entity's status occurs in cases where an employer is a fiduciary but is treated as acting outside the fiduciary role for certain decisions that affect an employee benefit plan. For example, an employer may act as a plan administrator, in which case the employer must comport with ERISA's fiduciary standards in making decisions about benefit eligibility.54 One of those standards requires the employer to make its decisions in the best interest of the plan's participants and beneficiaries.455 However, in making decisions as a plan sponsor, such as the extent of benefits to be offered45 or whether to terminate a plan, the employer acts in its capacity as an employer and may make the decisions in its own best interest. In a few cases involving state corporation law, this distinction has been critical to the analysis and has resulted in the state law surviving an ERISA pre-emption challenge. Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enterprises, Inc.45 was one such case. The plaintiff was the employee benefit plan, which had held a minority position in Corrigan stock.5 The plan alleged that both (1) the "scheme" used by the defendant director, who was also the majority shareholder, and the corporation, to acquire stock from minority shareholders and (2) the failure of the defendants to liquidate the corporation, breached fiduciary duties imposed by the state's common law of corporations." The defendants alleged that ERISA preempted the state's common law, which governed the fiduciary duties owed by a corporate director to a shareholder.4/ The Fifth Circuit Court of Appeals began its preemption analysis by acknowledging the broad scope assigned by the Supreme Court to the "relate[s] to" provision of the pre-emption clause. _ In accordance with the circuit's general interpretation of when a state law is too "tenuous, remote, or peripheral" to relate to an employee benefit plan, the court concentrated on the effect of the state law on relationships between principal ERISA entities. Principal ERISA entities are: plans, employers, participants, beneficiaries, and fiduciaries.4'4 From one point of view, the state corporate fiduciary law does affect relations between principal ERISA entities in cases such as Sommers Drug Stores. After all, an ERISA plan had sued an ERISA fiduciary 45 However, this argument ignores the multiple roles played by the parties. In fact, in bringing its state law claims for breach of fiduciary duty the plan was acting in its role as a minority shareholder and its ERISA status was irrelevant.4" In addition, the plan brought the state law claim against the director alleging breach of his duties as a corporate director and his ERISA status was irrelevant.4" When viewed through this lens, it becomes clear that the state 37

E Is it Curtains for Veil Piercing? corporation law, which imposes fiduciary duties upon corporate actors, simply determined the obligations owed by a corporate director to a minority shareholder. Following this latter method of analysis, the court concluded that the state corporate fiduciary law did not affect relations between primary ERISA entities and was not pre-empted by ERISA. 4bb C. An Argument for the Survival of Veil Piercing Claims The breadth of ERISA's pre-emption provision calls into question every state law cause of action that affects benefit plans and vast numbers of state laws have fallen prey to ERISA pre-emption. In the context of veil piercing, the Supreme Court's decision in Peacock could give one pause. After all, according to that decision, ERISA does not support federal jurisdiction for a free-standing claim to pierce a corporate veil." Instead, the Court's opinion indicates that claims to pierce the corporate veil must be attached to a substantive cause of action. In a claim for an ERISA violation, this interrelationship between the federal statutory cause of action ahd the state law piercing claim arguably will be sufficient to pre-empt the state law piercing claim on the basis that it "relates to" a benefit plan. Not only are the two claims related, the piercing claim relies upon the ERISA claim to supply the piercing claim with the substantive cause of action and federal court jurisdiction. And, in fact, the Fourth Circuit Court of Appeals had concluded that "ERISA preempts any state law of veil-piercing.,"47 However, more detailed consideration of the considerable body of pre-emption jurisprudence indicates that ERISA pre-emption should not result in automatic nullification of state law claims to pierce the corporate veil that are brought in conjunction with a claim for a substantive violation of Title I of ERISA. State law piercing doctrine does not refer explicitly to employee benefit plans so claims based upon that doctrine do not fall automatically to the "reference to" prong of the pre-emption analysis. And, piercing doctrine does not require the establishment and administration of an employee benefit plan as did the Massachusetts anti-takeover provisions. Turning to the traditional "connection with" analysis though, piercing claims may have some economic effect on employee benefit plans. To cite just one example, piercing claims may result in the recovery of promised benefits where the plan sponsor is unable to fund such benefits.47' In fact, such a situation, where plan participants seek recovery from a corporate shareholder because the plan sponsor cannot fund benefits, may represent the prototypical t., case for piercing the corporate veil under ERISA. However, New York State Conference of Blue Cross & Blue Shield Plans47" ' teaches that an indirect economic effect on a 138.1 I h.

I Is it Curtains for Veil Piercing? benefit plan is insufficient by itself to result in preemption. And, application of the "tenuous, remote, or peripheral" standard requires a result that will not extend pre-emption to the outer limits implied by the "connection with" language. 4 The Supreme Court's decision in Mackey v. Lanier Collection Agency & Service, Inc. lends further support to this analysis. In upholding the Georgia garnishment statute of general application, the Court indicated that ERISA does not contain any collection mechanisms and, as a result, ERISA cannot be held to pre-empt state law collection 47 A mechanisms. A piercing claim is somewhat analogous to a collection mechanism, such as a garnishment, because both are methods of recovering funds that are held by other than the person or entity against whom the substantive judgment runs. Admittedly though, there are some differences between garnishments and piercing claims. In the garnishment setting, the funds are held by a third party. The piercing claim is slightly different because piercing permits the shredding of the corporate veil which typically protects shareholders from the liabilities of their corporations. And, while garnishments do not impose liability on new parties, in some ways, piercing claims do extend liability beyond the corporation by making the shareholders financially responsible for judgments rendered against their corporations.. However, piercing claims accomplish this extension of liability by refusing to acknowledge the distinction between 477 the corporation and the shareholders. In the same way that state partnership law would hold partners personally liable for unmade benefit plan obligations as an obligation of the partnership,47h so too would a claim to pierce the corporate veil hold a shareholder responsible, in appropriate circumstances, for unmade benefit plan obligations or judgments flowing from substantive ERISA violations. It is unimaginable that Congress intended ERISA to pre-empt state partnership law. Similarly, it is unlikely that Congress intended ERISA to pre-empt state law claims for piercing the corporate veil. Furthermore, when brought in conjunction with a substantive claim under Title I of ERISA, claims for piercing the corporate veil can be analogized to the type of claim at issue in Sommers Drug Stores. While the standards vary from jurisdiction to jurisdiction, 4 the heart of a piercing claim is predicated upon the relationship between the incorporated entity and a controlling shareholder. While at least one of the parties to the substantive ERISA claim is likely to be a primary ERISA entity, this status is irrelevant to the underlying evaluation of factors such as respect for corporate formalities, maintenance of separate property and accounts, and fraudulent use of the corporate form necessary for the piercing claim. 480 And, although the outcome of the analysis may affect an ERISA plan or redound 39

Is it Curtains for Veil Piercing? to the benefit of a primary ERISA entity, the substance of the analysis focuses on the roles of shareholders and corporations in their traditional state law roles. In fact, it is the compliance, or noncompliance, with those traditional roles that forms the heart of the piercing analysis. Historically, this regulation has been administered by the states and there is no indication in ERISA's legislative history that Congress intended ERISA to pre-empt this arena of traditional state concern. On the other hand, as recognized by the Supreme Court,4"" substantial legislative history indicates that Congress intended ERISA's pre-emption provision to protect plans from the burdens of inconsistent state regulation. Once one recognizes that a state law claim to pierce the corporate veil focuses upon the relationship between corporations and shareholders, it becomes clear that this type of state regulation does not threaten employee benefit plans with inconsistent state regulation. Instead, the standards which are important in a piercing claim, are standards which require appropriate use of, and respect for, the corporate form. Such standards apply to corporations and their shareholders, not to employee benefit plans. As such, permitting the use of state law claims to pierce the corporate veil in conjunction with substantive ERISA claims does not threaten benefit plans with the specter of inconsistent state regulation. In sum, ERISA's pre-emption provision should not be construed to pre-empt a state law claim for piercing the corporate veil when such a claim is brought as part of a suit alleging a violation of Title I of ERISA. ERISA preemption jurisprudence has resulted in the negation of a wide range state laws, and even has invalidated at least one provision of a state corporation law. However, claims to pierce the corporate veil focus on the relationship between shareholders and corporations. This is an area of traditional state regulation and does not affect the central concern of ERISA pre-emption, that of avoiding the costs of inconsistent state regulation of employee benefit plans. I *1 40 - I I~~~~~~~I -I I

I Is it Curtains for Veil Piercing? CONCLUSION The limited liability of corporate shareholders has become an accepted fixture in this country. However, the doctrine of piercing the corporate veil, based in state law, has become almost equally well established. The questions regarding the application and availability of veil piercing gain new vitality though when viewed through the lens of the increasing federalization of employment law. And, in this era when the baby boom generation approaches retirement age, perhaps the most important arena of federal employment law is the law governing non-cash and deferred compensation programs. As the demands on privately-sponsored health care and deferred compensation programs increase, plaintiffs are likely to seek ever broader sources of recovery for their claims that relate to those programs. As that happens, the judicial system will continue to confront claims similar to those asserted in Peacock v. Thomas.4 Accordingly this Article has examined the doctrine of piercing the corporate veil in both the traditional context of substantive state law claims as well as the developing jurisprudence in the arena of federal legislation. The analysis requires recognition that the breadth of ERISA's pre-emption clause, and the corresponding decisional law, threatens the utilization of veil piercing claims in association with substantive ERISA claims. -_However, this Article concludes that, broad as it is, proper construction of ERISA pre-emption would permit the survival of veil piercing claims in appropriate circumstances. Use of veil piercing in substantive ERISA actions accords with the traditional corporate law rationales undergirding the doctrine. At the same time, permitting the use of veil piercing claims will not threaten the financial integrity of voluntarily sponsored benefit plans and is unlikely to subject those plans to inconsistent state regulation. Therefore, ERISA pre-emption should not bring down the ~urtain on a veil piercing claim attached to a substantive ERISA claim. 41

I U Is it Curtains for Veil Piercing? + Copyright 1996. Dana M. Muir and Cindy A. Schipani. All rights reserved. * Assistant Professor, University of Michigan. J.D., University of Michigan; M.B.A., University of Detroit; A.B. University of Michigan. ** Louis and Myrtle Moskowitz Research Professor and Visiting Professor of Law, University of Michigan. J.D., University of Chicago; B.A. Michigan State University. The authors wish to gratefully acknowledge the research support provided by the Louis and Myrtle Moskowitz Research Professorship and the University of Michigan. 1. In general, corporate shareholders are not held personally accountable for corporate obligations. 1 WILLIAM M. FLETCHER, FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS ~ 25, at 513 (perm. ed. rev. vol. 1990, Supp. 1995); HARRY G. HENN & JOHN R. ALEXANDER, LAWS OF CORPORATION AND OTHER BUSINESS ENTERPRISES ~73 (3d ed. 1983). Although the doctrine is commonly known as the doctrine of limited liability, this term is misleading. The so-called "limited" liability of corporate shareholders is actually no liability. That is, barring application of an exception to the rule, shareholders have no liability, limited or otherwise, for corporate obligations. The phrase limited liability awkwardly describes the rather obvious feature of corporate ownership whereby shareholders are not entitled to recover their investment until satisfaction of the firm's obligations to outside creditors. The shareholder's liability is therefore said to be limited to the amount of her investment. But in reality, it is the shareholder's risk rather than liability that is limited. See Frank H. Easterbrook & Daniel R. Fischel, Limited Liability and the Corporation, 52 U. CHI. L. REV. 89, 101 (1985) (limited liability is a risk sharing arrangement); Stephen B. Presser, Thwarting the Killing of the Corporation: Limited Liability, Democracy and C Economics, 87 Nw. L. REV. 148, 161-62 (1992); (limiting i' liability may be justified by arguing that by limiting; risk it promotes corporate investmennt); Joseph H. Sormmruer, The Subsidiary: Doctrine Without a Cause? 59:; FORDHAM L. REV. 227, 230 (1990) (argues that limited!.; liability acts as an "insurance policy against Id, insolvency that the firm's creditors provide to the firm's shareholders"); John A. Siliciano, Corporate '. Behavior and the Social Efficiency of Tort Law; 85;'*| I I I 42 k A

I Is it Curtains for Veil Piercing? MICH. L. REV. 1820, 1835 (1987) (limited liability limits the risks faced by shareholders and investors). 2. See generally HENN & ALEXANDER ~ 73; Adolph A. Berle, The Theory of Enterprise Entity, 47 COLUM. L. REV. 343, 343 (1947); Presser, supra note 1; Note, Piercing the Corporate Law Veil: The Alter Ego Doctrine Under Federal Common Law, 95 HARV. L. REV. 853, 854 (1982). 3. Steven C. Bahls, Application of Corporate Common Law Doctrines to Limited Liability Companies, 55 MONT. L. REV. 43 (1994) (general overview of limited liability companies); Susan P. Hamill, The Limited Liability - Company: A Possible Choice for Doing Business?, 41 FLA. L. REV. 721, 722-23 (1989) (providing overview of tax advantages and business scenarios in which use of limited liability company is attractive); Jonathan R. Macey, The Limited Liability Company: Lessons for Corporate Law, 73 WASH U. L.Q. 433, 434-437 (1995) (general description of limited liability companies); Larry E. Ribstein, The Deregulation of Limited Liability and Death of Partnership, 70 WASH. U. L.Q. 417, 450-73 (1992) (focusing on relative advantages of limited liability company over partnership form). Most states and the District of Columbia have adopted legislation permitting formation of limited liability companies. ALA. CODE ~ 10-12-1 (1993); 1994 Alaska Sess. Laws 99; ARIZ. REV. STAT. ANN.m ~ 29-601 (19.92); ARK. CODE ANN. ~ 4-32-101 (Michie 1993); CAL. CORP. CODE ~ 17000 (West 1994); COLO. REV. STAT. ANN. ~ 7-80-101 (West 1990); CONN. GEN. STAT. ~ 7-80-101 (1993); D.C. CODE ANN. ~ 29-1301 (1993); DEL. CODE ANN. tit. 6, ~ 18 -101 (1992); FLA. STAT. ANN. ~ 608.401 (West 1992); GA. CODE ANN. ~ 14-11-100 (Michie 1993); IDAHO CODE ~ 53-601 (1993); ILL. ANN. STAT. Ch. 180, para. 1-1 (Smith-Hurd 1992); IND. CODE ~ 23-16-10.1-1 (1992); IOWA CODE ANN. ~ 490A.100 (West 1992); KAN. STAT. ANN. ~ 17-7601 (Supp. 1991); 1994 Ky. Acts 275; LA. REV. STAT. ANN. ~ 12:1369 (West 1994); 1993 Me. Laws 718; MD. CORPS. & ASS'NS CODE ANN., ~ 4A-101 (1992); MICH. COMP. LAWS ~ 450.4101 (1993); MINN. STAT. ANN. ~ 322B.01 (West 1992); Miss. CODE ANN. ~ 79-6-1 (1993); Mo. ANN. STAT. ~ 347.010 (Vernon 1993); MONT. CODE ANN. ~ 35-8-101 (1993); NEB. REV. STAT. ~ 21-2 601 (1993); NEV. REV. STAT. ANN. ~ 86.011 (Michie 1992); N.H. REV. STAT. ~ 304-C:1 (1993); N.J. STAT. ANN. ~ 42:2B-1 (West 1993); N.M. STAT. ANN. ~ 53-19-i (Michie 1993); N.Y. LTD. LIAB. Co. LAW ~~ 34-101 & 34-1403 (1993); N.C. GEN. STAT. ~ 57C-1-01 (1993); N.D. CENT. CODE ~ 10-32-01 (1993); OHIO REV. CODE ANN. ~ 1705.01 (Anderson 1994); OKLA. STAT. ANN. tit. 18, ~ 2000 (West 1992); OR. REV. STAT. ~ 63.951 (1994); 15 PA. CONS. STAT. Ch. 89, ~ 8901 (1994); R. I. GEN. LAWS ~ 7 -16-1 (1992); 1994 S.C. Acts 448; S.D. CODIFIED LAWS ANN. ~ 47-34-1 (1993); TENN. CODE ANN. ~ 48A-1-101 (1994); TEX. REV. CIV. STAT. ANN. art. 1528n, ~ 1.01 (West 43

I Is it Curtains for Veil Piercing? 1992); UTAH CODE ANN. ~ 48-2b-102 (1992); VA. CODE ANN. ~ 13.1-1000 (Michie Supp. 1991); WASH. REV. CODE ~ 25.15.005 (1995); W. VA. CODE ~ 31-1A-1 (1992); Wis. STAT. ANN. ~ 183.0102 (West 1994); WYO. STAT. ~ 17-15 -101 (1977). 4. See generally Robert W. Hamilton, Registered Limited Liability Partnerships: Present at the Birth (Nearly), 66 U. COLO. L. REV. 1065 (1995) (history and current status of limited liability partnerships). Limited liability partnerships are permitted in a majority of the states and the District of Columbia. ARIZ. REV. STAT. ANN. ~ 29-103 (1994); COLO. REV. STAT. ~ 7-60-106 (1995); CONN. GEN. STAT. ANN. ~ 34-81A (West Supp. 1995); DEL. CODE ANN. tit. 6, ~ 1502 (1994); D.C. CODE ANN. ~ 14-8-62 (Supp. 1995); FLA. STAT. Ch. 620.78 (1995); GA. CODE ANN. ~ 14-8-6 (1995); IDAHO CODE ~ 53 -302 (1995); ILL. ANN. REV. STAT. Ch. 805, para. 205 (Smith Hurd Supp. 1995); IND. CODE ~ 23-4-1-2 (1995); IOWA CODE ANN. ~ 486.44 (West Supp. 1995); KAN. STAT. ANN. ~ 56-345 (1995); KY. REV. STAT. ANN. ~ 275.015 (Baldwin 1994); LA. REV. STAT. ANN. ~ 9.3431 (A) (West Supp. 1995); MD. CODE ANN. CORPS & Ass'NS ~ 9-801 (Supp. 1994); MICH. COMP. LAWS ~ 449.44 (West Supp. 1995); MINN. STAT. ~ 319A.02 (1995); Miss. CODE ANN. ~ 79-12-3 (1995); Mo. REV. STAT. ~ 358.020 (1995); MONT. CODE ANN. ~ 35-10-102 (1995); N.J. REV. STAT. ~ 42:1-2 (1995); N.M. STAT. ANN. ~ 54-1-1 (Michie 1995); N.Y. PARTNERSHIP LAW ~ 121 (McKinney Supp. 1995); N.C. GEN. STAT. ~ 5-9 -84.2 (Supp. 1994); N.D. CENT. CODE ~ 45-22-01 (1995); OHIO REV. CODE ANN. ~ 1775.05 (Anderson 1994); PA. CONS. STAT. ANN. ~ 8201 (Supp. 1995); S.C. CODE ANN. ~ 33-41 -20 (Law Coop. 1994); S.D. CODIFIED LAWS ANN. ~ 48 (1995); TENN. CODE ANN. ~ 61-1 (1995); TEX. REV. STAT. ANN. art. 6132b ~ 15 (West Supp. 1995); UTAH CODE ANN. ~ 48-1-41 (Supp. 1994); VA. CODE ANN. ~ 50-43-1 (1995). 5. Fischel & Easterbrook, supra note 1, at 90-91; Presser, supra note 1, at 155-56; Siliciano, supra note 1, at 1835; Sommer, supra note 1, at 230-31. 6. See generally JOEL SELIGMAN, CORPORATIONS CASES AND MATERIALS (1995), at 87; see also Econ. Mktg., Inc. v. Leisure Am. Resorts, Inc., 664 So.2d 869 (Ala. 1994) (in order to pierce the veil, a plaintiff must show that allowing the corporate form to stand would promote fraud or injustice); Autonotritz del Golfo de Cal. v. Resnick, 306 P.2d 1, 3 (Cal. 1957) (failure to issue stock or provide adequate capitalization made corporation an alter ego of stockholders); Tomaselli v. TransAmerica Ins. Co., 25 Cal. Rptr. 2d 433, 442 (Cal. Ct. App. 1994) (courts require a showing that there is such a unity of interest that the separate personalities of the enticy are nonexistent and that recognizing the corporate form would promote injustice); Doughty v. CSX Transp., Inc., 905 P.2d 106, 111 (Kan. 1995) (in parent j I I I:. 1, cI.,.* I 44 L

I Is it Curtains for Veil Piercing? subsidiary relationship, veil will be pierced when the two are so interwined that "recognition of the subsidiary as a distinct entity would result in an injustice"); Wilmot v. Bulman, 908 S.W.2d 139, 145 (Mo. Ct. App. 1995) ('three-pronged test to pierce veil in Missouri -- plaintiff must show (1) complete and dominating control of corporate entity, (2) that control had been used to commit fraud or injustice, and (3) the control and breach of duty in (1) and (2) must have been used to proximately cause the injury or loss of the plaintiff); Belvedere Condominium Unic Owners' Ass'n v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274, (Ohio 1993)(the test for veil piercing is first, complete control over the corporation by those to be held liable and second, exercise of complete control by those to be held liable in a way that "fraud or an illegal act" is committed against the person seeking to pierce, causing that person injury or loss); University Circle Research Ctr Corp. v. Gailbreath Co., No. 68038, 1995 WL 588770, at *2 (Ohio Ct. App. 1995)(same); Stewart & Stevenson Servs., Inc., v. Serv.-Tech., Inc. v. Serv.-Tech., Inc., 879 S.W.2d 89, 108 (Tex. Ct. App. 1994) (listing fraud and inadequate capitalization as factors in determining whether corporation is an alter ego); Kansas Gas & Elec. Co. v. Ross, 521 N.W.2d 107, 113 (S.D. 1994) (courts should pierce when separateness of corporate identity is disregarded and that disregard causes injustice or fraud); Schafir v. Harrigan, 879 P.2d 1384, 1389 (Utah 1994)(two-pronged test for piercing requires both that (1) there is unity of interest and ownership such that the separate personalities of the corporation, and (2) individual are nonexistent and allowing the corporate form to stand would sanction fraud or promote injustice); Laya v. Erin Homes, Inc., 352 S.E.2d 93, 98 (W. Va. 1986) (listing these and additional factors). 7. Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1521 (3d Cir. 1993) (courts should pierce when corporation is a sham and abuse of corporate form); Carpenters Health & Welfare Fund v. Kenneth R. Ambrose, Inc., 727 F.2d 279, 284 (3d Cir. 1983)(alter ego doctrine is a "tool of equity"). 8. Employee Retirement Income Security Act ("ERISA") ~~ 1 -4402, 29 U.S.C. ~~ 1001-1461 (1988 & Supp. IV 1992). 9. See Dana M. Muir, Note, Changing the Rules of the Game: Pension Plan Terminations and Early Retirement Benefits, 87 MICH. L. REv. 1034, 1034 (1989). 10. See infra text accompanying notes 33-67. 11. Nachman Corp. v. PBGC, 446 U.S. 359, 361 (1980). 12. Private and public pension plans held assets of approximately $4.6 trillion as of the end of 1993. JOHN H. LANGBEIN & BRUCE A. WOLK, PENSION AND EMPLOYEE BENEFIT LAW 20 (2d ed. 1995). In contrast, in 1970 the 45

i.. Is it Curtains for Veil Piercing? j assets in those plans totaled approximately $241 billion. CELIA SILVERMAN, ET AL., EBRI DATABOOK ON EMPLOYEE BENEFITS 190 (1995). 13. As an example, prior to its decision in Peacock v. Thomas, 64 U.S.L.W. 4095 (U.S. Feb. 21, 1996), the Supreme Court decided at least 13 cases analyzing the interplay between ERISA and other federal law. Concrete Pipe & Products of Cal., Inc. v. Construction Laborers Pension Trust For S. Cal., 113 S. Ct. 2264, 2292 (1993) (upholding the constitutionality of multiemployer provisions of ERISA); Commissioner of i Internal Revenue, v. Keystone Consol. Indus., Inc., 113 S. Ct. 2006, 2011 (1993) (applying same definition of "sale or exchange" to benefit plans as traditionally used in tax law); Hazen Paper Co. v. Biggins, 507 U.S. 604, 608-14 (1993) (addressing employee claims under federal age discrimination law and ERISA); Patterson v. Shumate, 504 U.S. 753, 757-59 (1992) (analyzing interaction between ERISA and bankruptcy law); Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322 -27 (1992) (applying traditional definitions of "employee" in ERISA action); PBGC v. LTV Corp., 496 U.S. 633, 645-47 (1990) (analyzing interaction between ERISA and bankruptcy law); Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S. 365, 375-76 (1990) (including a comparison of ERISA and federal labor law); Laborers Health & Welfare Trust Fund for N. Cal. v. Advanced Lightweight Concrete Co., Inc., 484 U.S. 539, 545-49 (1988) (comparing obligations under ERISA and federal labor law); Connolly v. PBGC, 475 U.S. 211, 228 (1986) (upholding the constitutionality of multiemployer provisions of ERISA); PBGC v. R. A. Gray & Co., 467 U.S. 717, 734 (1984) (upholding the constitutionality of multiemployer provisions of ERISA); Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 86 -89 (1982) (comparing obligations under ERISA and federal labor law); NLRB v. Amax Coal Co., 453 U.S. 322, 330-39 (1981) (comparing obligations under ERISA and federal labor law); International Bhd. of Teamsters v. Daniel, 439 U.S. 551, 566-70 (1979) (comparing ERISA and federal securities law). 14. 64 U.S.L.W. 4095, 4096-97 (U.S. Feb. 21, 1996). 15. As one measure of the number and variety of groups who I;; claimed an interest in the Supreme Court's decision in ' Peacock, seven entities filed amicus briefs in the case. See Brief of the Nat'l Ass'n of Real Estate Inv.. Managers as Amicus Curiae in Support of Petitioner, Peacock (No. 94-1453); Brief of the Bricklayers & }., Trowel Trades Int'l Pension Fund as Amicus Curiae in Support of Respondent, Peacock (No. 94-1453); Brief of the Nat'l Coordinating Comm. for Multiemployer Plans as Amicus Curiae in Support of Respondent, Peacock (No. ''' ' 94-1453); Brief of the American Fed'n of Labor and -?'.. I i 46 11 06.

I Is it Curtains for Veil Piercing? Congress of Indus. Orgs. as Amicus Curiae in Support of Respondent, Peacock (No. 94-1453); Brief of the American Assoc. of Retired Persons and the Nat'l Employment Lawyers Assoc. in Support of Respondent, Peacock (No. 94-1453); Brief of Amici Curiae Central States, S.E. & S.W. Areas Health and Welfare and Pension Funds in Support of Respondent, Peacock (No. 94-1453); Brief for the United States as Amicus Curiae Supporting Respondent, Peacock (No. 94-1453). 16. See Linn & Lane Timber Co. v. United States, 236 U.S. 574 (1915); PHILLIP BLUMBERG, THE MULTINATIONAL CHALLENGE TO CORPORATE LAW: THE SEARCH FOR A NEW CORPORATE PERSONALITY 125-33 (1993); 1 FLETCHER, supra note 1, at 41. 17. See infra text accompanying notes 19-22. 18. See ERISA ~ 3(5), 29 U.S.C. ~ 1002(5) (1992). 19. See ERISA ~ 3 (21), 29 U.S.C. ~ 1002 (21) (1992). 20. See ERISA ~ 4001(b) (1), 29 U.S.C. ~ 1301(b) (1) (1992). 21. For example, one consolidated class action alleging violations of ERISA's noninterference clause settled in 1992 for $415 million. McLendon v. Continental Group, Inc., 802 F. Supp. 1216, 1217, 1219 (D.N.J. 1992). 22. See infra text accompanying notes 96-99. 23. ERISA ~ 2(b), 29 U.S.C. ~ 1001(b) (1992). 24. Just such an avoidance scheme allegedly lies at the heart of the Peacock case. See infra text accompanying notes 127-33. - * 25. As enacted, ERISA consisted of four titles. See infra text accompanying notes 35-67. 26. 64 U.S.L.W. 4095 (U.S. Feb. 21, 1996). 27. Jay Conison, The Federal Common Law of ERISA Plan Attorneys, 41 SYRACUSE L. REV. 1049, 1083 (1990). 28. ROBERT C. CLARK & ANN A. MCDERMED, THE CHOICE OF PENSION PLANS IN A CHANGING REGULATORY ENVIRONMENT 67 (1990). 29. Id. at 68-69; EDWIN W. PATTERSON, LEGAL PROTECTION OF PRIVATE PENSION EXPECTATIONS 85-88 (1960). 30. Federal Welfare and Pension Plan Disclosure Act, 29 U.S.C. ~~ 301-309 (Supp. 1958) (repealed Jan. 1, 1975). 31. 29 U.S.C. ~ 186(a) (1947). 32. See Muir, supra note 9, at 1034. 33. ERISA ~ 3(2) (A), 29 U.S.C. ~ 1002(2) (A) (1988). 34. ERISA ~ 3(1), 29 U.S.C. ~ 1002(1) (1988). 35. ERISA ~~ 101-11, 29 U.S.C. ~~ 1021-31 (1988 & Supp. IV 1992). 36. ERISA ~~ 201-11, 29 U.S.C. ~~ 1051-61 (1988 & Supp. IV 1992). 37. ERISA ~~ 301-08, 29 U.S.C. ~~ 1081-86 (1988 & Supp. IV 1992). 38. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989) ("ERISA's legislative history confirms that the Act's fiduciary responsibility provisions.. 'codif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts. '") (quoting H.R. REP. No. 533, 93d 47

I ^ Is it Curtains for Veil Piercing? Cong., 1st Sess. 11 (1973), reprinted in 1974 U.S.C.C.A.N. 4639, 4649) (all brackets inserted by Firestone opinion); Central States S.E. & S.W. Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559, 570 (1985) ("Congress invoked the common law of trusts to define the general scope of [fiduciaries'] authority and responsibility.") (citing, among other authorities omitted here, Acosta v. Pacific Enters., No. 89-56170, 1992 U.S. App. LEXIS 639, at *13 (9th Cir. Jan. 23, 1992) (ERISA does not detail each duty of a fiduciary but relies generally upon trust law)); H.R. REP. No. 533, 93d Cong., 2d Sess., at 11 (1973), reprinted in 1974 U.S.C.C.A.N. 4649); S. REP. No. 127, 93d Cong., 2d Sess., at 29 (1973), reprinted in 1974 U.S.C.C.A.N. 4639, 4865. 39. ERISA ~ 3(21), 29 U.S.C. ~ 1002(21) (1988 & Supp. IV 1992). 40. See, e.g., ERISA ~~ 404-05, 29 U.S.C. ~~ 1104-05 (1988 & Supp. IV 1992). 41. ERISA ~~ 406-08, 29 U.S.C. ~~ 1106-08 (1988 & Supp. IV 1992). 42. ERISA ~~ 501-15, 29 U.S.C. ~~ 1131-45 (1988 & Supp. IV 1992). 43. ERISA ~ 502, 29 U.S.C. ~ 1132 (1988). 44. See id. 45 See, e.g., ERISA ~ 502(a) (1), 29 U.S.C. ~ 1132(a) (1) (1988). 46. See ERISA ~ 502(a) 8), 29 U.S.C. ~ 1132(a)(8) (1988). 47. See, e.g., ERISA ~ 502 (a) (2), 29 U.S.C. ~ 1132 (a) (2) (1988). 48. See, e.g., ERISA ~ 502(a) (7), 29 U.S.C. ~ 1132(a)(7) (1988). 49. ERISA ~ 514, 29 U.S.C. ~ 1144 (1988). 50. Conison, supra note 27, at 1083. For a later work by Professor Conison suggesting how the courts might apply a narrower interpretation to the pre-emption clause, see Jay Conison, ERISA and the Language of Pre-emption, 72 WASH. U. L.Q. 619 (1994). Among the numerous advantages resulting from expansive pre-emption are opportunities for employers to provide uniform benefit plans across state lines, to avoid state premium taxes, to utilize uniform administrative procedures, and to hold off state minimum benefit requirements. Curtis D. Rooney, ERISA: Pre-emption Challenged by State Strategies and Health Care Reform, 7 BENEFITS L. J. 127, 128 C1994). 51. ERISA ~ 514, 29 U.S.C. ~ 1144 (1988). 52. ERISA ~ 514(c) (1), 29 U.S.C. ~ 1144(c) (1) (1988). 53. See, e.g., Kenney v. Roland Parson Contracting Corp., 28 F.3d 1254, 1257-58 (D.C. Cir. 1994) (citing decisions from each of the circuits which have addressed the appropriate standard for determining the existence of an employee benefit plan). 48. i.l I L I I

Is it Curtains for Veil Piercing? 54. More specific exceptions include, for example, the exemption which permits Hawaii to provide for universal health care within the state. ERISA ~ 514(b) (5), 29 U.S.C. ~ 1144(b)(5) (1988). For more information on the "Hawaii exception," including a discussion of the case law and legislative history of the exception, see David Gregory, The Scope of ERISA Pre-emption of State Law: A Study in Effective Federalism, 48 U. PITT. L. REV. 427, 474-75 (1987). 55. See, e.g., Pilot Life Ins. v. Dedeaux, 481 U.S. 41, 45 (1987). 56. ERISA ~ 514(b) (2) (A), 29 U.S.C. ~ 1144(b) (2) (A) (1988). 57. See, e.g., Pilot Life Ins., 481 U.S. at 45. 58. ERISA ~ 514(b) (2) (B), 29 U.S.C. ~ 1144(b) (2) (B) (1988). 59. ERISA ~~ 1001-2008 (1974) (codified as amended in scattered sections of the I.R.C. (1988)). 60. Compare ERISA ~ 203, 29 U.S.C. ~~ 1053 (1988 & Supp. IV 1992) with I.R.C. ~ 411 (1988). 61. See LANGBEIN & WOLK, supra note 12, at 149-50. 62. ERISA ~~ 3001-43, 29 U.S.C. ~~ 1201-42 (1988 & Supp. IV 1992). 63. The original designation of agency authority was revised by Reorganization Plan No. 4. Reorganization Plan No. 4 of 1978, 3 C.F.R. ~~ 101-09 (1978), reprinted in 5 U.S.C. app. at 1163 (1982) and in 92 Stat. 3790 (1978). 64. ERISA ~~ 4001-4402, 29 U.S.C. ~~ 1301-1461 (1988 & Supp. IV 1992). 65. ERISA ~~ 4201-35, 29 U.S.C. ~~ 1381-1415 (1988). 66. See infra text accompanying notes 268-73. 67. Multiemployer Pension Plans Amendments Act of 1980 ("MPPAA"), Pub. L. No. 96-364, 94 Stat. 1208 (1980)-. For a discussion of ERISA's regulation of multiemployer plans, see infra Part III.A. 68. ERISA ~~ 4(b), 4021(b), 29 U.S.C. ~~ 1003 (b), 1321(b) (1988); see Wollman v. Poinsett Hutterian Brethren, Inc., 844 F. Supp. 539, 542 (S.D.S.D. 1994) (members of a religious colony unsuccessfully attempted to obtain federal court jurisdiction by alleging that they were colony "employees" and covered by ERISA). 69. See ERISA ~~ 201(2), 301(a) (3), 401(a) (1), 29 U.S.C. ~~ 1051(2), 1081(a) (3), 1101(a) (1) (1988). 70. See ERISA ~ 110, 29 U.S.C. ~ 1030 (1988); 29 C.F.R. ~ 2520.104-23 (1989). 71. The original designation of agency authority was revised by Reorganization Plan No. 4. Reorganization Plan No. 4 of 1978, 3 C.F.R. ~~ 101-09 (1978), reprinted in 5 U.S.C. app. at 1163 (1982) and in 92 Stat. 3790 (1978). 72. See supra note 60. 73. Reorganization Plan No. 4 of 1978, 3 C.F.R. ~~ 102-04 (1978), reprinted in 5 U.S.C. app. at 1163 (1982) and in 92 Stat. 3790 (1988). 49 - I at III ~I I ~ r I I

I Is it Curtains for Veil Piercing? 74. ERISA ~ 502 (a) (2) & (4), 29 U.S.C. ~ 1132(a) (2) & (4) (1988). 75. PBGC v. Furlong Mfg. Co., 590 F. Supp. 740, 742 (E.D. Pa. 1984) ("The PBGC is a wholly-owned United States Government corporation created... to administer the mandatory, self-financing pension plan termination insurance program established by Title IV of ERISA."); PBGC v. Roadway Maintenance Corp., 547 F. Supp. 629, 629 (S.D.N.Y. 1982) ("Congress passed ERISA to provide an efficient and equitable mechanism for termination of employee pension plans..... The Pension Benefit Guaranty Corporation... was established under ERISA and is responsible for the distribution of guaranteed pension benefits."). 76. Barbizon Corp. v. ILGWU Nat'l Retirement Fund, 842 F.2d 627, 631 (2d Cir. 1988). 77. See ERISA ~ 4003, 29 U.S.C. ~ 1303 (1988). A defined benefit pension plan typically promises to pay a dollar amount at retirement, based upon a formula specified in the plan. See ERISA ~ 3(35), 29 U.S.C. ~ 1002(35) (1988). The other standard type of pension plan is a defined contribution pension plan. In a defined contribution pension plan, the plan establishes a separate account on behalf of each individual participant. See ERISA ~ 3(34), 29 U.S.C. ~ 1002(34) (1988). In a defined contribution pension plan, the employee bears the investment risk. In a defined benefit pension plan, the employer bears the investment risk. Muir, supra note 9, at 1034 n.4. 78. 1994 PBGC ANN. REP. 1 (1995). 79. See id. at 8-10. 80. See Debreceni v. Merchants Terminal Corp., 889 F.2d 1, 6 (1st Cir. 1989); Solar v. PBGC, 666 F.2d 28, 29 (2d Cir. 1981) (Coffrin, J., dissenting). 81. See Reorganization Plan No. 4 of 1978, 3 C.F.R. ~~ 101, 105 (1978), reprinted in 5 U.S.C. app. at 1163 (1982) and in 92 Stat. 3790 (1988). Stated in simplest terms, qualified pension plans receive three tax advantages. Employers may take current federal income tax I 4 J) I '.1 -1 i I I I deductions for contributions, employees are not taxed on the benefits until they receive distributions from the plan, and the corpus of the trust is not subject to federal taxation. See LANGBEIN & WOLK, supra note 12, at 149-50. For a detailed explanation of the economic advantages that result from this tax treatment, see id., at 156-59. 82. Revenue Provisions, Subtitle B, Pension Distributions, Pub. L. No. 102-318, 106 Stat. 290, 300 (1992) codified at I.R.C. ~ 401(a)(31) (Supp IV 1994). 83. H.R. CONF. REP. No. 650, 102d Cong., 2d Sess., 31, at 42-44 (1992). 84. See, e.g., Alan L. Gustman, Olivia S. Mitchell, & Thomas L. Steinmeier, The Role of Pensions in the Labor J S -I it, I -9 50

I Is it Curtains for Veil Piercing? Market: A Survey of the Literature, 47 INDUS. & LAB. REL. REV. 417, 426-427 (1994). 85. See, e.g., James H. Smalhout, The Not-So-Golden Years, WALL ST. J., June 29, 1995, at A14 ("Today the retirement prospects of 64 million Americans hang in the balance... Cleaning up this Godforsaken mess will become the political and moral struggle of our time. "); see also CRAIG S. KARPEL, THE RETIREMENT MYTH 4 (1995) ("We're living in a time of global political and technological change so swift and sweeping that yesterday's rational retirement plan has become a parachute that won't open."). 86. See CELIA SILVERMAN, ET AL., supra note 12, at 141. 87. See Angela Chang, The Trend Away from Defined Benefit Pension Plans, in THE FUTURE OF PENSIONS IN THE UNITED STATES 112 (Ray Schmitt ed., 1993); CLARK & MCDERMED, supra note 28, at 99. 88. See CELIA SILVERMAN, ET AL., supra note 12, at 144; see also Robert L. Clark, Ann A. McDermed, & Michelle White Trawick, Firm Choice of Type of Pension Plan: Trends and Determinants, in THE FUTURE OF PENSIONS IN THE UNITED STATES 117-121 (Ray Schmitt ed., 1993) (updating their work through 1988). 89. 1994 PBGC ANN. REP. 15 (1995). 90. See, e.g., Angela Chang, supra note 87, at 112. 91. See id. - - 92. KARPEL, supra note 85, at 42. 93. CLARK & MCDERMED, supra note 28, at 91-106. But see Angela Chang, supra note 87, at 112 (discussing studies that attribute the shift to other causes). 94. CLARK & MCDERMED, supra note 28, at 91-106. 95. See, e.g., Curtiss-Wright Corp. v. Schoonejongen, 115 S. Ct. 1223, 1228 (1995) (regarding welfare benefit plans). However, through the establishment of contractual obligations, an employer may become obligated to continue benefits. See U.A.W. v. YardMan, Inc., 716 F.2d 1476, 1482 (6th Cir. 1983), cert. denied, 465 U.S. 1007 (1984). 96. STAFF OF SENATE SUBCOMMITTEE ON LABOR OF THE COMMITTEE ON LABOR AND PUBLIC WELFARE, 94TH CONG., 2D SESS., LEGISLATIVE HISTORY OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, at 90 (COMM. PRINT 1975) (hereinafter HISTORY) (The Senate Subcommittee on Labor "listened to one heartbreaking story after another of dashed hopes, broken promises, and the bleak dispair of a poverty-stricken old age.") (statement of Sen. Williams). 97. 120 CONG. REC. 4295 (1974), reprinted in HISTORY, supra note 96, at 3415 (remarks of Congressman Ullman, Chairman of the Ways and Means Committee); see also 119 CONG. REC. 146 (1973), reprinted in HISTORY, supra note 96, at 204 (remarks of Senator Javits) ("The committee believes that the legislative history approach of establishing minimum standards and safeguards for 51

I Is it Curtains for Veil Piercing? I private pensions is not only consistent with retention of the freedom of decision-making vital to pension plans, but in furtherance of the growth and development of the private pension system."); 120 CONG. REC. 4278 (1974), reprinted in HISTORY, supra note 96, at 3369 (remarks of Congressman Perkins, Chairman of the Committee on Education and Labor) ("It has not been easy to draft a law which protects individual pension rights and at the same time, recognizes the voluntary nature of pension plans."); 120 CONG. REC. 4307 (1974), reprinted in HISTORY, supra note 96, at 3449-50 (remarks of Congressman Collier) (the provisions of ERISA "were carefully worked out to insure flexibility accommodating the individual characteristics of different plans and to balance the disincentives for wider coverage associated with increased costs against the need to provide greater protection"); 119 CONG. REC. 30,003 (1973), reprinted in HISTORY, supra note 96, at 1601 (remarks of Senator Williams) ("This bill secures a promise of retirement security, and yet creates no impediments to the continued growth and expansion of private pensions."). I 98. See, e.g., 119 CONG. REC. 130 (1973), reprinted in HISTORY, supra note 96, at 90 (remarks of Senator Williams) ("anticipated cost burdens to the plans" were minimal because any other approach would "work against the best interests of all parties"). 99. H. REP. No. 533, 93rd Cong., 2d Sess. (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4639. 100. See 119 CONG. REC. 146 (1973), reprinted in HISTORY, 4 supra note 96, at 205-06 (remarks of Senator Javits) (congressional materials regarding the proposed legislation "would fill this entire Senate Chamber"). 101. Compare ERISA ~ 514(a), 29 U.S.C. ~ 1144 (1992) (the version as enacted) with H.R. 2, 93d Cong., 1st Sess. ~ 114 (1973) (the House version) and S. 4, 93d Cong., 1 Sess. ~ 609 (1973) (the Senate version). 102. 120 CONG. REC. 29, 942 (1974), reprinted in HISTORY, supra note 96, at 4770 (remarks of Senator Javits). 103. 120 CONG. REC. 29, 942 (1974), reprinted in HISTORY, supra note 96 at 4770-71 (remarks of Senator Javits); see also 120 CONG. REC. 29, 933 (1974), reprinted in HISTORY, supra note 96, at 4745-46 (speaking of an /: intent "to preempt the field for Federal regulations, thus eliminating the threat of conflicting or.: inconsistent State and local regulation of employee benefit plans."). 104. See CLARK, PENSIONS AND CORPORATE RESTRUCTURING IN AMERICAN INDUSTRY 4 (1993) (Senator Javits "worked for pension reform for more than ten years); LANGBEIN & WOLK, supra <% note 12,at 62-63 (research indicates that the 1963., closing of a Studebaker plant was a primary factor in ^ spurring Congress to consider pension reform).. i.^ I 52

Is it Curtains for Veil Piercing? 105. See Leon E. Irish & Harrison J. Cohen, ERISA Preemption: Judicial Flexibility and Statutory Rigidity, 19 U.MICH. J.L. REF. 109, 114 n.15 (1985). 106. See 120 CONG. REC. 29, 942 (1974), reprinted in HISTORY, supra note 80, at 4771 (remarks of Senator Javits). 107. Pub. L. No. 93-406, ~ 3022 (a) (4) (1974). 108. See S. REP. NO. 299, 103d Cong., 2d Sess. 3 (1994); Irish & Cohen, supra note 105,at 115. 109. See, e.g., Pub. L. No. 97-473, ~ 301(a), 96 Stat. 2605, 2611-12 (1983) (amending ERISA pre-emption to permit Hawaii require state employers to provide health care coverage). 110. 64 U.S.L.W. 4095, (U.S. Feb. 21, 1996). 111. See Thomas v. Tru-Tech, Inc., No. 87-2243-3, 1988 WL 212511, at *2 (D.S.C. Nov. 28, 1988), aff'd, 900 F.2d 256 (4th Cir. 1990), enf'd sub nom. Thomas v. Peacock, No. 7:91-3843-21, 1992 U.S. Dist. LEXIS 18749 (D.S.C. Oct. 28, 1992), aff'd in part, vacated in part, 39 F.3d 493 (4th Cir. 1994), reversed, 64 U.S.L.W. 4095 (U.S. Feb. 21, 1996). 112. See 1988 WL 212511, at *1. 113. See id. at *6. 114. See id. 115. See id. at *5. 116. See id. 117. See 1988 WL 212511, at *8. - 118. See id. at *2. 119. See id. at *5. 120. See id. at *13. 121. See id. at *14. The plaintiffs previously had settled their claim against Connecticut General Life Insurance Company, the administrator of the plan, for $30,000. The award against Tru-Tech was reduced by the amount of this settlement. Id. 122. See ERISA ~ 404(a)(1)(A)(i), 29 U.S.C. ~ 1104 (a) (1) (A) (i) (1988). For a critique of the exclusive benefit rule see Daniel Fischel & John H. Langbein, ERISA's Fundamental Contradiction: The Exclusive Benefit Rule, 55 U. CHI. L. REV. 1105 (1988). 123. See 1988 WL 212511, at *11-12. 124. See id at *11-12. 125. Thomas v. Peacock, Nos. 89-2001, 89-2003, 1990 WL 48865, *1 (4th Cir..1990), enf'd sub nom. Thomas v. Peacock, No. 7:91-3843-21, 1992 U.S. Dist. LEXIS 18749 (D.S.C. Oct. 28, 1992), aff'd in part, vacated in part, 39 F.3d 493 (4th Cir. 1994), reversed, 64 U.S.L.W. 4095 (U.S. Feb. 21, 1996). 126. 1990 WL 48865 at *5. On appeal the plaintiffs argued that even if Peacock was not a fiduciary, he should be held liable for knowing participation in a breach of fiduciary duty. The Fourth Circuit dismissed this claim because the plaintiffs had failed to raise it in the district court. Id. at *4, n.2. The liability of 53

Is it Curtains for Veil Piercing? i I I I ERISA nonfiduciaries has troubled the courts in recent years. In its five to four opinion in Mertens v. Hewitt Associates, a majority of the Supreme Court strongly indicated its belief that nonfiduciaries are not liable for participation in a fiduciary breach. See 113 S. Ct. 2063, 2067 (1993). For a detailed discussion of other remedial issues dealt with in the Mertens opinion, see Dana M. Muir, ERISA Remedies: Chimera or Congressional Compromise?, 81 IOWA L. REV. 1, 26-29 (1995). 127. Thomas v. Peacock, No. 7:91-3843-21, 1992 U.S. Dist. LEXIS 18749 (D.S.C. Oct. 28, 1992), aff'd in part, vacated in part, 39 F.3d 493 (4th Cir. 1994), reversed, 64 U.S.L.W. 4095 (U.S. Feb. 21, 1996). Plaintiffs also unsuccessfully sought to hold Tru-Tech's attorney, Alan Finegold, personally liable for the 1988 judgment. 1992 U.S. Dist. LEXIS 18749, at *2, *37. 128. 39 F.3d at 497 129. 1992 U.S. Dist LEXIS 18749, at *6-13. 130. Id. at *14. 131. Id. at *16. 132. Id. at *35. 133. Id. at *36. 134. Thomas v. Peacock, 39 F.3d 493, 507 (4th Cir. 1994), reversed, 64 U.S.L.W. 4095 (U.S. Feb. 21, 1996). 135. 39 F.3d at 503. 136. Justice Stevens dissented from the Court's opinion. Peacock v. Thomas, 64 U.S.L.W. 4095, 4098 (U.S. Feb. 21, 1996). 137. Id. 138. Id. at 4096. 139. Id. Technically the veil piercing claim was added to his complaint by amendment. Id. 140. See id. at 4097. 141. 64 U.S.L.W. at 4097. 142. See id. 143. Id. at 4096. 144. Id. at 4096-97. 145. Id. ("Even if ERISA permits a plaintiff to pierce a corporate veil to reach a defendant not otherwise subject to suit under ERISA,...I"). Id. 146. 64 U.S.L.W. at 4096-97, (citing 1 C. KEATING & G. O'GRADNEY, FLETCHER CYCLOPEDIA OF LAW OF PRIVATE CORPORATIONS ~ 41, p. 603 (perm. ed. 1990)). 147. See generally PHILLIP I. BLUMBERG, THE LAW OF CORPORATE GROUPS 681-92 (1987 & Supp. 1995) (proposing elimination of limited liability in certain cases); ROBERT CHARLES CLARK, CORPORATE LAW 35 (1986) (criticizing abuses of limited liability); Theresa A. Gabaldon, The Lemonade Stand: Feminist and Other Reflections on the Limited Liability of Corporate Shareholders, 45 VAND. L. REV. 1387 }(1992); Paul Halpern, Michael Trebilcock & Stuart Turnbull, An Economic Analysis of Limited Liability in I 31 i.4 IS:\ 1 *1 I 1' A I IR 54

Is it Curtains for Veil Piercing? I Corporation Law, 30 U. TORONTO L.J. 117 (1980) (suggesting unlimited liability for smaller, closely held corporations, in both tort and contract situations, and proposing that directors of large publicly held corporations be held personally liable to involuntary creditors); Henry Hansmann & Reinier Kraakman, Toward Unlimited Shareholder Liability for Corporate Torts, 100 YALE L.J. 1879 (1991) (arguing that there may be no persuasive justifications for prefering limited liability over unlimited shareholder liability); David W. Leebron, Limited Liability, Tort Victims, and Creditors, 91 COLUM. L. REV. 1565 (1991) (stating that the case for limited liability for corporate torts has been seriously overestimated); Sommer, supra note 1 (providing an economic explanation for limited liability); Robert B. Thompson, Unpacking Limited Liability: Direct and Vicarious Liability of Corporate Participants for Torts for the Enterprise, 47 VAND. L. REV. 1 (1994) (suggesting that the arguments for limited liability have little significance in the parent-subsidiary context); Note, Should Shareholders Be Personally Liable for the Torts of Their Corporation? 76 YALE L.J. 1190 (1967) (supporting liability for closely held corporations). But see FRANK H. EASTERBROOK & DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE OF CORPORATE LAW 40-62 (1991) (defense of limited liability); Janet Cooper A-leander, Unl=tmited Shareholder Liability Through a Procedural Lens, 106 HARV. L. REV. 387, 444 (1992) (criticizing the Hansmann and Kraakman proposal to eliminate shareholder limited liability for torts due to procedural difficulties). 148. See sources cited supra note 2 and accompanying text. 149. 1 FLETCHER supra note 1 ~25, at 513; HENN & ALEXANDER, supra note 1 ~368, at 27. But see ROBERT W. HAMILTON, CORPORATIONS 12 (5th ed. 1994), arguing that the entity status has almost nothing to do with shareholder limited liability. Hamilton notes that English law established the corporation as a separate entity prior to granting shareholders limited liability. Id. at 12 -13. See also Phillip I. Blumberg, Limited Liability and Corporate Groups, 11 J. CORP. L. 574, 588 (1986) (corporations were regarded as entities for "durational and ownership transfer purposes long before their entity status" was tied in with limited liability). In a similar vein, the Revised Uniform Partnership Act (RUPA) grants partnerships entity status yet holds partners personally liable for partnership obligations. Unif. Partnership Act (1994) ~306, 6 U.L.A. (West Supp. 1995). 150. HAMILTON, supra note 149, at 128. See also note 1 supra, for a discussion of the shortcomings of the phrase "limited liability.", i ^ C 55

Is it Curtains for Veil Piercing? j,t k 151. Directors and officers certainly may own shares of stock. When they do, the doctrine of limited liability applies to them with respect to their role as stockholders. It does not, however apply to them in their capacities as officers and directors. 152. United States v. Northeastern Pharmaceutical & Chem. Co., 579 F. Supp. 823, 847 (W.D. Mo. 1984) (corporate officers are not normally personally liable for acts of corporation); In Re Joseph, 22 B.R. 319, 321 (Bankr. E.D. N.Y. 1982) (officers and directors are protected when they act within the scope of their authority, for example, they are not held liable for inducing the corporation to break a contract); Ong Hing v. Arizona Harness Raceway, Inc., 459 P.2d 107, 115 (Ariz. Ct. App. 1969) (directors not personally liable for actions if made in good faith and with the best interest of the corporation in mind); Ace Dev. Co. v. Harrison, 76 A.2d 566, 570 (Md. 1950) (when an officer as an agent of a company signs a contract for the corporation, officer is not personally liable on that contract); Alterio v. Biltmore Constr. Corp., 377 A.2d 237, 242 (R.I. 1977) ('holding officers and directors of a corporation liable for acts performed within the scope of their authority would "seriously impair the concept of limited liability through incorporation"); Wisconsin v. Richard Knutson, Inc., 537 N.W.2d 420, 425 (Wis. Ct. App. 1995) (acts of officers and directors as agents of the corporation within the scope of their authority are acts of the corporation); I FLETCHER, supra note 1, at ~ 91, 279 ("an agent is not liable for the acts of the corporation solely because of his or her agency"); David A. Rich, Personal Liability for Hazardous Waste Cleanup: An Examination of CERCLA Section 107, 13 B.C. ENVT'L. AFF. L. REV. 643, 663 (1986) ("corporate officers generally are not personally liable for acts performed in their corporate capacity"). But see State ex rel. Webster v. Missouri Resource Recovery, Inc., 825 S.W.2d 916, 925 (Mo. Ct. App. 1992) (traditional rule is that officers and directors are not personally liable for I torts of corporation -- but that rule is eroding in environmental cases, especially when corporate official has played a direct role). 153. See In Re Joseph, 22 B.R. at 237 (officers and 'f directors who convert goods for personal use may be ^' held personally liable); Ace Dev. Co., 76 A.2d at 571 -Z (officer may be held personally liable on contract; | signed on behalf of corporation if the "matter is. S tainted by fraud"); State ex rel. Anthony J. Calebreeze:. v. Scioto Sanitation, Inc., No. 1932, 1991 WL 227801,,G at *2 (Ohio App. 1991)(corporate officers may be held personally liable for fraud); Ex parte Franklin D. Chambers, 898 S.W.2d 257, 267 (Tex. 1994) (sole officer/director held liable for his own "knowingly gd' ~ I 56

I Is it Curtains for Veil Piercing? wrongful conduct"); Kinkler v. Juric, 19 S.W. 359, 360 (Tex. 1982) (holding directors personally liable for their misconduct and "not as agents of the corporation"); Richard Knutson, Inc., 537 N.W.2d at 425 (officers are liable for "criminal acts committed in the name of the corporation"); RESTATEMENT (SECOND) OF THE LAW OF AGENCY, ~329 at 81 ("A person who purports to make a contract, conveyance or representation on behalf of another... but whom has no power to bind, thereby becomes subject to liability to the other party thereto upon an implied warranty of authority..."). 154. See Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, -902 (2d Cir. 1981) (liability of officer for tort); Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902, 907 (lst Cir. 1980)(officers liable for torts in which they had "personally participated" whether or not they were acts done within their authority); Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3d Cir. 1978) (corporate officer is "individually liable for the torts he personally commits" and cannot hide behind the corporation); Magic Toyota, Inc. v. Southeast Toyota Distrib., 784 F. Supp. 306, 315 (D. S.C. 1992) (requiring a showing of "direct personal involvement" in tortious act for liability); Cash Energy, Inc. v. Weiner, 768 F. Supp. 892, 895 (D. Mass. 1991) (defining standard of "active personal involvement" for individual liability in tort action); Rhone v. Energy N., Inc., 790 F. Supp. 353, 362 (D. Mass. 1991)(status is not sufficient to prove liability for corporate torts but rather "personal involvement" must be shown); Pocahontas First Corp. v. Venture Planning Group, Ind., 572 F. Supp. 503 (D. Nev. 1983) (officer may be held personally liable for committing a tort while acting as an officer); In Re Joseph, 22 B.R. at 237 (officers may be held personally liable for tortious acts such as fraud or trespass); Ong Hing, 459 P.2d at 114-15 (officers and directors committing the tort of inducing a breach of contract with no business justification may be held personally liable); Central Benefits Mut. Ins. Co. v. RIS Admn. Agency, Inc., 93 Ohio App.3d 397, 403 (Ohio Ct. App. 1994) (corporate officers and directors may be held liable for torts committed by the corporation, with their participation or cooperation); HENRY W. BALLANTINE, ON CORPORATIONS ~ 112, at 275 (rev. ed. 1946); 3A FLETCHER, supra note 1, ~ 1135. 155. See Revlon, Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 173, 179 (Del. 1986) (discussing duty of loyalty to shareholders in a takeover situation as a duty that supersedes that to themselves and noteholders); Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985)(directors have "unyielding fiduciary duty" to the corporation and shareholders); CLARK, supra note 120, at 34 (duty owed 57

IML Is it Curtains for Veil Piercing? j to corporation by officers and directors); R. Franklin Balotti & Mark J. Gentile, Commentary From the Bar: Elimination or Limitation of Director Liability for Delaware Corporations, 12 DEL. J. CORP. L. AS, 14 (1987)(directors must meet duties of due care and loyalty to their corporations or risk personal liability). 156. See, e.g., Stepak v. Addison, 20 F.3d 398, 403 (3d Cir. 1994)(directors owe duty of care to inform themselves adequately before making a business decision); Hanson Trust PLC v. ML SCM Acquis. Inc., 781 F.2d 264, 273 (2d Cir. 1985) (a director, as a corporate fiduciary, must use at least "that degree of diligence that an ordinarily prudent person" would use); Resolution Trust Corp. v. Hess, 820 F. Supp. 1359, 1364 (D. Utah 1993)(directors must "exercise ordinary care, skill and diligence" in corporate matters); Berkman v. Rust Craft 4 Greeting Cards, 454 F. Supp. 787, 793 (S.D. N.Y. 1978)(corporate fiduciaries owe shareholders good faith and full disclosure over self-interest in a reelection situation); Van Gorkom, 488 A.2d at 858 (duty of care includes duty to be informed of reasonably available information); Graham v. Allis-Chalmers Mfg., 188 A.2d 125, 130 (Del. 1963) (directors may rely on honesty of employees until something occurs that should put them on notice, without a violation of duty of care); McLeod v. Lewis-Clark Hotel Co., 164 P.2d 195, 197-98 (Idaho 1945)(officers and directors are fiduciaries of the corporation and must do their jobs with the "diligence, care and skill" which "ordinarily prudent" persons would exercise in similar circumstances); Neese v. Brown, 405 S.W.2d 577, 581 (Tenn. 1964)("ordinary or reasonable care and diligence" is the test for breach of duty of care); FMA Accept. Co. v. Leatherby Ins.:, Co., 594 P.2d 1332, 1334 (Utah 1979)(as long as | officers and directors act in good faith and with reasonable care and skill they will not be liable for mistakes in judgment); Model Business Corporation Act (MBCA) ~8.30(a)(director has duty to act in best interest of corporation). See generally CLARK, supra note 147, at 123; Michael Bradley & Cindy A. Schipani, The Relevance of the Duty of Care Standard in Corporate Governance, 75 IOWA L. REV. 1, 17 - 22 (1989); Henry R. Horsey, The Duty of Care Component of the Business Judgment Rule, 19 DEL. J. CORP. L. 971, 978 (1994); Cindy A. Schipani, Integrating Corporate Law Principles with CERCLA Liability for Environmental Hazards, 18 DEL. J. CORP. L. 1 (1993); Cindy A. Schipani, Should Bank Directors Fear FIRREA: The FDIC's Enforcement of. the Financial Institutions Reform, Recovery and Enforcement Act, 17 J. CORP. L. 739, 745-48 (1992). I 157. See, e.g., Wardell v. Railroad Co., 103 U.S. 651, 658 (1880) (directors' actions in own and interest against. II I 58

I Is it Curtains for Veil Piercing? interest of company violate duty to the company); Hanson Trust, 781 F.2d at 274 (holding directors to standard of "honest judgment in the lawful and legitimate furtherance of corporate purposes"); Abrams v. Koether, 766 F. Supp. 237, 255 (D. N.J. 1991) (defining director self-interest as occuring in situations where directors appear on both sides of a transaction or gain "personal financial benefit"); Revlon, 501 A.2.d at 1250 (directors' self-interested decision in lock-up agreement caused violation of fiduciary duty of loyalty), aff'd, 506 A.2d 173 (Del. 1986); Pogostin v. Rice, 480 A.2d 619, 625 (Del. 1984) ("directors interest occurs whenever divided loyalties are present"); Fliegler v. Lawrence, 361 A.2d 218, 221 (Del. 1976) (transactions or contracts between the company and one of its directors or officers are not automatically void); Guth v. Loft, 5 A.2d 503, 510 (Del. 1939) ("corporate officers and directors are not allowed to use their positions of trust and confidence to further their private interests"); AC Acquis. Corp. v. Anderson Clayton & Co., 519 A.2d 103, 115 (Del. Ch. 1986) (mere good faith will not preclude a finding of breach of loyalty if the transaction is not "objectively or intrinsically fair"); Neese, 405 S.W.2d at 580 (directors and officers must not consider their own interests over those of shareholders); CLARKM, supra note 147, at 141; Bradley & Schipani, supra note 156, at 25-27; Corporate Director's Guidebook, 33 Bus. LAW. 1591, 1620 (1978); Charles Hansen, The Technicolor Case - A Lost Opportunity, 19 DEL. J. CORP. L. 617, 663 (1994); William F. Johnson, Note, Mills Acquisition Co v. MacMillan, Inc.: Corporate Actions Now RequireSharper Supervision by Directors, 39 AM. U. L. REV. 721, 729 (1990). 158. See sources cited supra note 7 and accompanying text. 159. See sources cited supra note 6 and accompanying text. 160. See, e.g., Gershuny v. Martin McFall Messenger Anesthesia Professional Ass'n, 539 So.2d 1131, 1133 (Fla. 1989) (fraud or some illegal purpose required); Barkett v. Hardy, 571 So.2d 13, 14 (Fla. Ct. App. 1990) (declining to disregard corporate entity in spite of undercapitalization and failure to follow corporate formalities because no fraud present); Adam v. Mt. Pleasant Bank & Trust Co., 355 N.W.2d 868, 872 (Iowa 1984) (fraud not required for piercing corporate veil); McLean v. Smith, 593 So.2d 422, 426 (La. Ct. App. 1991) (veil can be pierced in absence of fraud); Antigua Condominium Ass'n v. Melba Investors Atl., Inc., 501 A.2d 1359, 1364 (Md-. Ct. Spec. App. 1986)("fraud or similar conduct necessary"); CMS Energy Corp. v. Attorney Gen., 475 N.W.2d 451, 456 (Mich. Ct. App. 1991) (actual fraud unnecessary); Paynesville Farmers Union Oil Co. v. Ever Ready Oil Co., 379 N.W.2d 186, 59

I Is it Curtains for Veil Piercing? I 189 (Minn. Ct. App. 1985) (strict common law fraud unnecessary); Klein v. Sporting Goods, Inc., 772 S.W.2d 173, 175 (Tex. Ct. App. 1989) (actual fraud unnecessary to pierce); Amfac Mechanical Supply Co. v. Federer, 645 P.2d 73, 74, 79 (Wyo. 1982) (reversing trial court decision requiring fraud); Eric Fox, Note, Piercing the Veil of Limited Liability Companies, 62 GEO. WASH. L. REV. 1143, 1169-70 (1994) (noting that some courts have pierced the veil even absent fraud). 161. Kaplan v. First Options, 19 F.3d 1503, 1520 (3d Cir. 1993).(courts sometimes consider undercapitalization in decision to pierce); Carpenters Health, 727 F.2d at 284 (inadequate capitalization is "an additional factor which court may consider"); Poyner v. Lear Siegler, Inc., 542 F.2d 955, 958 (6th Cir. 1976) (noting lack of precedent in Kentucky for piercing due to inadequate capitalization); Hess v. L.G. Balfour Company, Inc., 822 F.Supp. 84 (D.Conn. 1993) (inadequate capitalization is an important factor in piercing the veil); BostwickBraun Company v. Szews, 645 F.Supp. 221, 225 (W.D. Wis. 1986) (inadequate capitalization cited as a factor for veil piercing); West v. Costen, 558 F. Supp 564, 584 (W.D. Va. 1983) (inadequate capitalization may be a "ground" considered for piercing, but in and of itself is insufficent). See also Robert E. Dye, Note, Inadequate Capitalization as a Basis for Shareholder Liability, 45 S. CAL. L. REV. 823, 845 (1972) (allowing limited liability without adequate capitalization is basically allowing investors to abuse the privilege of limited liability). 162. See, e.g., United States v. Reading Co., 253 U.S. 26, 62 (1920) (instrumentality test); Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.2d 565 (7th Cir. 1985) (alter ego standard); BLUMBERG, supra note 147, at 118. 163. NLRB vW. Greater Kan. City Roofing, 2 F.3d 1047, 1051 (10th Cir. 1993) ("corporate veil may not be pierced absent a showing of improper conduct"); Bank of Cumberland v. Aetna Casualty & Sur. Co., 956 F.2d 595 (6th Cir. 1992); United Elec., Radio & Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1095 (1st Cir. 1992) (fraud is necessary to pierce); RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2dL 543, 545 (9th Cir. 1985); FMC Fin. Corp. v. Murphree, 632 F.2d 413, 422 (5th Cir. 1980); CLARK, supra note 147, at 71-74. 164. See infra notes 192-04 and accompanying text. 165. See infra notes 242-47 and accompanying text. See also David H. Barber, Piercing the Corporate Veil, 17 WILLAMETTE L. REV. 371, 372 (1981) (in theory, veil piercing applies to both closely held and publicly held corporations, in practice, it has been applied only to closely held); Easterbrook & Fischel, supra note 1, at 109 (most famous veil piercing cases involve closely held corporations). 60

I Is it Curtains for Veil Piercing? 166. See infra notes 248-56 and accompanying text. See also Easterbrook & Fischel, supra note 1, at 1ll (courts more willing to pierce the corporate veil to reach corporate rather than individual shareholders). Application of the doctrine of limited liability to ' corporate groups has been criticized. See Phillip I. Blumberg, The Corporate Entity in an Era of Multinational Corporations, 15 DEL. J. CORP. L. 283, 328 (1990); see generally Sommer, supra note 1. 167. Easterbrook & Fischel, supra note 1, at 89. See also Cargill Investor Srvs. v. Cooperstein, 587 F. Supp. 13, 14 (S.D. N.Y. 1984) (law in the area of piercing the - corporate veil is "hardly as clear as a mountain lake in springtime"); Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 CORNELL L. REV. 1036, 1036 (1991) ("Piercing the corporate veil is the most litigated issue in corporate law and yet it remains among the least understood.") (footnote omitted). 168. Thompson, supra note 167, at 1036. 169. Id. 170. Hansmann & Kraakman, supra note 147, at 1880 (concluding that "there may be no persuasive reasons to prefer limited liability over a regime of unlimited pro rata shareholder liability for corporate torts"). 171. See generally Hansmann & Kraakman, supra note 147; see also Sommer, supra note 1, at 268 (arguing for' unlimited liability in tort claims). 172. Professor Thompson notes in his empirical study of veil piercing cases that the courts pierce the veil more often in contract cases than tort cases. Thompson, supra note 167, at 1058. But see Easterbrook & Fischel, supra note 1, at 112 (criticizing Thompson's study); Presser, supra note 1, at 168 (Thompson study may be "misleading;" concluding that between 1985-1991 courts pierced veil more frequently in tort than contract). 173. Peacock v. Thomas, 64 U.S.L.W. 4095 (1996). 174. The Supreme Court, however, dismissed the claims due to lack of jurisdiction. Peacock v. Thomas, 64 U.S.L.W. 4095 (U.S. Feb. 21, 1996). See supra notes 110-46 and accompanying text for a discussion of the Peacock decision. 175. See sources cited supra note 6 and accompanying text. 176. Bartle v. Home Owners Coop., 127 N.E.2d 832, 833 (N.Y. 1955); Lowendahl v. Baltimore & 0. R.R. Co., 287 N.Y.S. 62, 72 (N.Y. App. Div. 1936). 177. Bartle, 127 N.E.2d at 833. 178. Walkovsky v. Carlton, 223 N.E.2d 6, 8-9 (N.Y. 1966). 179. Simplicity Pattern Co. v. Miami Tru-Color Off-Set Serv., 619 N.Y.S.2d 29 (N.Y. 1994); Walkovszky, 223 N.E.2d at 8. 61

Il Is it Curtains for Veil Piercing? 180. New York Ass'n for Retarded Children Inc. v. Keator, 606 N.Y.S.2d 784, 785 (N.Y. 1993) (court will pierce the veil only to "prevent fraud, illegality or to achieve equity"); Bowles v. Errico, 558 N.Y.S.2d 734, 736 (N.Y. 1990) (same). 181. See Austin Powder, 628 N.Y.S.2.d at 856 (shareholder must both dominate and commit fraud for veil to be pierced); Walkovszky, 223 N.E.2d at 6 (complaint did not allege fraud). 182. Austin Powder, 628 N.Y.S.2d at 856 (listing various factors to consider in a decision to pierce); Bowles, 558 N.Y.S.2d at 736. 183. See, e.g., First Health, Inc. v. Blanton, 585 So.2d d 1331, 1334 (Ala. 1990)(applying "instrumentality" test in contracts case); Pyshos v. Heart-Land Dev. Co., 630 N.E.2d 1054, 1058 (Ill. App. Ct. 1994)(applying "alter ego" doctrine); Lopez v. TDI Servs., Inc., 631 So.2d 679, 685 (La. Ct. App. 1994) (applying "alter ego" doctrine); Lowendahl v. Baltimore & 0. R.R., 287 N.Y.S. x 62, 74, aff'd 6 N.E.2d 56 (N.Y. 1936)(adopting "instrumentality" test for veil piercing); Postell v. B & D Constr. Co., 411 S.E.2d 413, 416 (N.C. Ct. App.) disc. review denied, 417 S.E.2d 253 (N.C. 1992) (applying "instrumentality" test in torts case). 184. See Autonotriz del Golfo de California v. Resnick, 306 P.2d 1, 3 (Cal. 1957) (finding that failure to issue stock or provide adequate capitalization made corporation an alter ego of individual stockholders); Bein v. Brectel-Jochim Group, Inc., 8 Cal. Rptr. 2d 351, 355 (Cal. App. Dep't Super. Ct. 1992) (piercing the veil where shareholders fully owned and controlled corporation and "great injustice and irreparable damage" resulted); Ross v. Coleman Co., 761 P.2d 1169, 1183 (Idaho 1988) (holding that a parent was not liable for actions of a separately run subsidiary); Central 4 Benefits Mut. Ins. Co. v. RIS Am'rs Agency, Inc., 638 N.E.2d 1049, 1054 (Ohio 1994)(holding that fraud is not a required element for veil piercing); Staubs v. Carlton Enters, No. 16372, 1994 WL 90373, at *2 (Ohio Ct. App. 1994) (holding that the corporate form may be disregarded when corporation has no separate mind of its own and is used to commit fraud or an illegal act); Stewart & Stevenson Servs., Inc. v. Serv.-Tech., Inc., *: 879 S.W.2d 89, 108 (Tex. Ct. App. 1994) (listing above,: factors, among others), See also, 1 FLETCHER, supra note. 1 ~ 41.10, at 614; Lynda J. Oswald & Cindy A. Schipani, CERCLA and the "Erosion" of Traditional Corporate Law; Doctrine, 86 Nw. U. L. REV. 259, 286 (1992). 185. Sunamerica Fin., Inc. v. Peachtree St., Inc., 415 S.E.2d' 677, 683, cert. denied (Ga. Ct. App. 1992)(veil j may be pierced when subsidiary is "mere conduit" of parent); SwaTl v. Custom Automotive Servs., Inc., 831 v S.W.2d 237, 239 (Mo. Ct. App. 1992)(veil must be I 62

I Is it Curtains for Veil Piercing? pierced when corporation is dominated by shareholders and used to perpetrate wrong or fraud); Jeras v. East Mfg. Corp., 566 N.Y.S.2d 418, 419 (N.Y. App. Div. 1990) ("complete dominion and control" of subsidiary required to pierce); Ohio Bureau of Workers' Compensation v. Widenmeyer Elec. Co., 593 N.E.2d 468, 471 (Ohio Ct. App. 1991) (court refused to pierce when complete control was not used to commit fraud or a wrongful act); Tigrett v. Pointer, 580 S.W.2d 375 (Tex. Civ. App. 1978) (sole shareholder preferring self as a creditor). Other courts also require a causal relation between the inequitable conduct and the plaintiff's loss. See, e.g., Lowendahl, 247 A.2d at 157. 186. Zisblatt v. Zisblatt, 693 S.W.2d 944, 950 (Tex. Ct. App. 1985); Roy E. Thomas Constr. Co. v. Arbs, 692 S.W.2d 926, 938 (Tex. Ct. App. 1985); Colman v. Colman, 743 P.2d 782, 786 (Utah Ct. App. 1987); ROBERT W. HAMILTON, BUSINESS ORGANIZATIONS, ~ 234 (1973). 187. Minton v. Cavaney, 364 P.2d 473, 475 (Cal. 1961). But subsequent California courts have moved away from the Minton holding and instead consider undercapitalization a mere factor in veil piercing analysis. Patricia J. Hartman, Comment, Piercing the Corporate Veil in Federal Courts: Is Circumvention of a Statute Enough?. 13 PAC. L.J. 1245, 1252 (1982). 188. TEX. Bus. CORP. ACT ANN. art 2.21A(2) (West Supp. 1996). See Western Horizontal Drilling, Inc. v. Jonnet Energy Corp., 11 F.3d 65, 68 (5th Cir. 1994) (actual fraud must be proven to pierce veil in contract cases, but constructive fraud is sufficient in tort cases, according to Texas law); Thrift v. Hubbard, 44 F.3d 348 (Tex. Ct. App. 1995) (ruling that the statute applied retroactively and required proof of actual fraud, not merely constructive fraud, in order to pierce the veil); Proxima Fitness, Inc. v. Keener, 1994 WL 167999, at *2 (Tex. Ct. App. 1994) (plaintiff bears burden of proving actual fraud); Farr v. Sun World Sav. Ass'n, 810 S.W.2d 294, 296 (Tex. Ct. App. 1991) (proof of actual fraud required). 189. TEX. Bus. CORP. ACT ANN. art 2.21A(3) (West Supp. 1996). See Villar v. Crowley Maritime Corp., 990 F.2d 1489, 1496 (5th Cir. 1993) (merely proving failure to observe corporate formalities is not grounds to pierce in Texas); Fide'lity & Deposit Co., v. Commercial Cas. Consultants, Inc., 976 F.2d 272, 275 (5th Cir. 1992) (same). 190. See Thompson, supra note 167, at 1052 (empirical study finding that Delaware courts only considered eleven piercing cases during the test period and did not pierce the veil in any of them). 191. Pauley Petroleum, Inc. v. Continental Oil Co., 239 A.2d 629, 629 (Del. Ch. 1968) (court refused to pierce the corporate veil noting that the separate existence of 63

I Yr:" Is it Curtains for Veil Piercing? the subsidiary served a legitimate business purpose and that there was no finding of fraud). See also Harco Nat'1 Ins. Co. v. Green Farms, Inc., No.-Civ. A. 1131, 1989 WL 110537, 15 DEL. J. CORP. L. 1030 (Del. Ch. 1989) (quoting Pauley Petroleum, Inc. v. Continental Oil Co., 239 A.2d 629 (Del. Ch. 1968), and finding no evidence of fraud, nor facts justifying a finding that the corporation served as the shareholder's alter ego); Presser, supra note 1, at 169 (unless there is clear fraud, veil should not be pierced). 192. 321 U.S. 349, 364 (1944) ("no State may endow its corporate creatures with the power to... defeat the federal policy... Congress has announced"). 193. See First National City Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611 (1993) (citing Abbott as not allowing states to give their "corporate creatures... the power to place themselves above the Congress of the United States and defeat the federal policy.. which Congress has announced"); Kavanaugh v. Ford Motor Co., 353 F.2d 710, 717 (7th Cir. 1965) (federal statute would be subverted by recognition of corporate entity, regardless of intent); MCI Telecommunications Corp. v. O'Brian Mktg., Inc., No. 91-880ZCIV, 1995 WL 791251 (D. Fla. 1995) (citing Abbott as holding that the corporate form will not be allowed to "defeat a legislative policy"); Baldwin v. Matthew R. White Invs. Inc., 669 F. Supp. 1054, 1057 (D. Utah 1987)(a corporation's inability to satisfy statutory obligations justifies piercing); Zernicek v. Petrolos Mexicanos (PEMEX), 614 F. Supp. 407, 410 (S.D. Tex. 1985)(citing Abbott and claiming that Supreme Court refuses to support the corporate form where it interferes to defeat legislative policies); United States v. Thomas, 515 F. Supp. 1351, 1357 (W.D. Tex. 1981); United States v. Normandy House Nursing Home, Inc., 428 F. Supp. 421, 424 (D. Mass. 1977)(plaintiff has cause of action where goals of Medicare program may be circumvented by corporate form). But see Thompson, supra note 167, at 1049 (federal courts pierce the veil 41.42% of the time, while state courts pierce 39.34% of the time, a statistically insignificant difference). Anderson v. Abbott, 321 U.S. 349 (1944), involved a federal banking statute that specifically provided that shareholders of a national bank were individually liable for all of the bank's debts, contracts, etc., up to an amount equal to their investment, in addition to the amount already invested in the shares. Thus, shareholders of national banks organized under this statute were subjected to "double liability," rather than limited liability. The issue in Abbott involved the liability of shareholders of a bank holding company, organized under the laws of Delaware to hold shares of a national bank, organized under the National ' I' I.,X 64

Is it Curtains for Veil Piercing? Bank Act, 12 U.S.C. ~~63, 64, repealed Pub. L. 86-230, ~7, Sept. 8, 1959, 73 Stat. 457. The national bank failed, and pursuant to the federal Bank Act, the holding company had double liability. The question in Abbott was whether the shareholders of the holding company were also subjected to double liability. The Court held that they were, over the dissent of three justices. The Court found that the investment in the holding company "was in substance little more than an investment in the shares of the Bank. They [holding company shareholders] were as much in the banking business as any stockholder of the Bank had ever been." Id. at 363. In determining liability under the federal statute the Court would not permit formation of a holding company to circumvent the liability laid out clearly in the statute. The Court noted that it was "dealing with a principle of liability that is concerned with realities not forms." Id. See also Northern Sec. Co. v. United States, 193 U.S. 197, 349 (1904). The Abbott test of veil piercing has been applied to a wide variety of federal statutes. See, e.g., United States v. Sutton, 795 F.2d 1040 (Temp. Emer. Ct. App. 1986), cert. denied, 479 U.S. 1030 (1987) (Department of Energy); United States v. Ira S. Bushey & Sons, Inc., 363 F. Supp. 110 (D. Vt.), aff'd, 487, F.2d 1393 (2d Cir. 1973), cert. denied, 417 U.S. 976 (1974) (Rivers and Harbors Act); Normandy House, 428 F. Supp. at 421 (Medicare); United States v. Reserve Mining Co., 380 F. Supp. 11, 28 (D. Minn. 1974), modified, 514 F.2d 492 (8th Cir. 1975) (Water Pollution Control Act). See also, Wilson McLeod, Shareholders' Liability and Workers' Rights: Piercing the Corporate Veil under Federal Labor Law, 9 HOFSTRA LAB.,L.J. 115, 136 (1991). 194. See, e.g., United States v. Firestone Tire & Rubber Co., 518 F. Supp. 1021, 1039-40 (N.D. Ohio 1981) (suggesting that veil piercing should only occur when corporate form has been used to circumvent a federal statute). Other federal courts, however, have been reluctant to apply this test at all. See United States v. Golden Acres, Inc., 702 F. Supp. 1097, 1108 n.6 (D. Del. 1988), aff'd, 879 F.2d 860 (3d Cir. 1989). 195. Brookline v. Gorsuch, 667 F.2d 215, 221 (1st Cir. 1981). 196. Id. See also Lumpkin v. Envirodyne Indus., Inc., 933 F.2d 449 (7th Cir. 1991)(claiming that there is a federal interest in piercing the veil to impose liability in cases analyzed under ERISA, and that "the protection afforded by the corporate form might be undercut by the overriding federal legislative policy reflected in the particular statute" giving the cause of action); Alman v. Danin 801 F.2d 1 (1st Cir. 1986) (because ERISA attached "little weight" to the 65

1 Is it Curtains for Veil Piercing? I corporate form, the veil should be pierced when a federal cause of action is asserted); Capital Tel. Co. v. F.C.C., 498 F.2d 734, 738 (D.C. Cir. 1974)(supports piercing even without misuse of corporate form if statute does not protect the corporate entity and harm to public convenience exists); Markham v. Claire M. Fay, No. Civ. A. 91-10821-Z, 1993 WL 160604, at * 4 (D. Mass. 1993) ("federal alter ego standard will control only where there is an important federal policy at stake," because federal standard gives less deference to the corporate form); John Boyd Co. v. Boston Gas Co., 775 F. Supp. 435, 441 (D. Mass. 1991)(describing the general rule for veil piercing in federal cases as one that disregards the corporate form in the "interest of public convenience, fairness and equity" and that in applying this rule "federal courts will look closely to the purpose of the federal statute [in this case, CERCLA] to determine whether the statute places importance on the corporate form")(quoting Brookline, 667 F.2d at 221); Dodd v. John Hancock Mut. Life Ins. Co., 688 F. Supp. 564, 571 (E.D. Cal. 1988)(looking to purpose and language of ERISA in decision not to disregard the corporate entity); SEC v. Elmas Trading Corp., 620 F. Supp. 231, 234 (D. Nev. 1985)(examining the purpose of the securities and Exchange Act to determine whether it places importance on the corporate form); Schmid v. Roehm, 544 F. Supp. 272 (D. Kan. 1982) (piercing only where corporate misuse is present); Arkansas Bank & Trust Co. v. Douglass, 885 S.W.2d 863, 869 (Ark. 1994) (court will ignore the corporate form where it is being used to avoid a statute); Cindy A. Wolfer, Comment: Piercing the Corporate Veil under CERCLA: To Control or Not to Control ---Which is the Answer?, 59 U. CIN. L. REV. 975, 980 (1991) ("when federal statutes impose liability for certain corporate misconduct, federal courts have also developed tests for piercing the corporate veil in order to meet federal interests"). 197. Wolfer, supra note 196, at 984, citing Capital Tel., 498 F.2d at 738. 198. Brookline, 667 F.2d at 221. See also City of New York v. Exxon Corp., 112 Bnkr. 540, 542 (S.D. N.Y. 1990); In re Acushnet River & New Bedford Harbor, 675 F. Supp. 22, 33 (D. Mass. 1987); Lowen v. Tower Asset Mgmt., Inc., 653 F. Supp. 1542, 1552 (S.D. N.Y. 1987). 199. See, e.g., Acushnet River, 675 F. Supp. at 33. A few courts, however, have expressed willingness to pierce the veil to force shareholders to pay a statutorily mandated debt, absent any of the other factors. See, e.g., United States v. Thomas, 515 F. Supp. 1351, 1357 (W.D. Tex. 1981); United States v. Normandy House Nursing Home, Inc., 428 F. Supp. 421, 425 (D. Mass. 1977). 66

Is it Curtains for Veil Piercing? I 200. See supra notes 175-91 and accompanying text for a discussion of the factors articulated by state courts. 201. Courts have pierced the veil under a wide variety of federal statutes following the reasoning of the Brookline court. These include, among others, cases decided under the Medicare legislation, Thomas, 515 F. Supp. at 1351, the Fair Debt Collection Practices Act, West v. Cos'cen, 558 F. Supp. 564, 587 (W.D. Va. 1983), and environmental statutes, United States v. Reserve Mining Co., 380 F. Supp. 11 (D. Minn. 1974), modified, 514 F.2d 492 (8th Cir. 1975) (Federal Water Pollution Control Act); In re Acushnet River, 675 F. Supp. at 23 (CERCLA). 202. See Hystro Prods., Inc. v. MNP Corp., 18 F.3d 1384 (7th Cir. 1994); Bank of Cumberland v. Aetna Casualty & Surety Co., 956 F.2d 595 (6th Cir. 1992); RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543, 545 (9th Cir. 1985); Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.2d 565 (7th Cir. 1985); Wegerer v. First Commodity Corp., 744 F.2d 719 (10th Cir. 1984); FMC Financial Corp. v. Murphree, 632 F.2d 413, 422 (5th Cir. 1980); BLUMBERG, supra note 147, at 118. For example, in Seymour v. Hull & Moreland Engineering, 605 F.2d 1105 (9th Cir. 1979), the Ninth Circuit had occasion to consider whether to pierce the corporate veil to find the shareholders liable for failure of the corporation to comply with its obligations under a collective bargaining agreement. Although the partners incorporated the business in 1969, they neglected to advise the union of this. Id. at 1108. After considering the amount of respect given to the separate identity of the corporation by its shareholders, the court found that the corporation had indeed maintained corporate formalities. The evidence showed that the shareholders maintained separate corporate records, drew reasonable salaries, formally issued shares of corporate stock, and acquired the partnership assets on behalf of the corporation at the time of incorporation. Id. at 1112. There was no evidence of abuse of the corporate form, such as the commingling of funds, use of corporate assets for personal purposes or inadequate capitalization. Id. Moreover, the Seymour court found no evidence of fraudulent intent in forming the corporation. Allegations of fraudulent intent in disregarding corporate obligations appeared irrelevant to the court. Rather, the relevant fraud must have involved misuse of the corporate form. Id. at 1113. Similarly, the 10th Circuit in NLRB v. Greater Kansas City Roofing, 2 F.3d 1047 (10th Cir. 1993), failed to pierce the corporate veil among allegations that the corporation served as an alter ego for the shareholder. The shareholder, Tina Clark, purchased Greater Kansas 67

I / I I Is it Curtains for Veil Piercing? City Roofing (GKC) from her brother who had owned the business as a sole proprietorship, and then incorporated New GKC. Ms. Clark possessed no knowledge of GKC's prior unfair labor practices or of the outstanding judgment. The NLRB attempted to collect the judgment against New GKC and Tina Clark, personally. The GKC court found that Ms. Clark did indeed fail to adhere to corporate formalities. Among other things, she used the corporation's name and address to establish a credit card collection account for her escort service, she loaned personal funds to pay the corporate payroll without a formal loan agreement and she did not execute corporate bylaws, stock accounts or corporate records. Id. at 1050. Nevertheless, the court did not find sufficient facts to warrant piercing the corporate veil. No evidence existed that Ms. Clark committed fraud in the formation of the corporation or in her use of the corporate form after incorporation. Id. at 1054. Specifically, no evidence existed showing that she incorporated New GKC to avoid the backpay award entered against GKC. Id. Moreover, Ms. Clark was not found to have used the corporate form to work an injustice. The court noted that GKC's financial difficulties existed before the formation of New GKC. Ms. Clark's disregard for corporate formalities did not cause New GKC to be any less able to respond to the backpay order. Id. For other cases requiring a determination of injustice and fraud before the corporate veil will be pierced see American Bell Inc. v. Fed'n of Tel. Workers of Pa., 736 F.2d 879 (3d Cir. 1984) (requires more special and' unusual circumstances beyond control of the subsidiary through the parent-subsidiary relationship before resorting to veil piercing); Operating Eng'rs Pension Trust v. Reed, 726 F.2d 513, 515 (9th Cir. 1984) (decision of district court overturned because there was no evidence at trial of fraudulent intent or injustice); Audit Servs, Inc. v. Rolfson, 641 F.2d 757 (9th Cir. 1981) (decision of district court overturned because there was no evidence of fraud or injustice); Zubik v. Zubik, 384 F.2d 267 (3d Cir. 1967), cert. denied, 390 U.S. 988 (1968) (undue advantage amounting to injustice); Mobil v. Linear Films, Inc., 718 F. Supp. 260 (D. Del. 1989) (ample evidence existed of lack of corporate formalities, no evidence of fraud and injustice). 203. Kaplan v. First Options of Chicago, 19 F.3d 1503, 1521 (3d Cir. 1983); Mass & Bell Atlantic Tricon Leasing Corp., 178 B.R. 626, (M.D. Pa. 1995). The Tenth Circuit has established a comparable two-part test requiring (1) both unity of interest and disregard of the corporate form to the extent that the personalities 68 L

I Is it Curtains for Veil Piercing? and assets of the corporation and the shareholder are indistinct and (2) evidence that allowing the corporate fiction to continue would sanction fraud. Greater Kan. City Roofing, 2 F.3d at 1052. This is also the test articulated by the Seventh Circuit. Hystro Products, 18 F.3d at 1388 (citing Van Dorn, 753 F.2d at 569)(twopart test requiring: (1) "such a unity of interest and ownership" that separate entities of the corporation and the individual (or other corporation) no longer exist; and (2) allowance of the "legal fiction" of the corporation to stand would "sanction fraud or promote injustice"). 204. See, e.g., Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131 (2nd Cir. 1991); United States v. Jon-T Chems., Inc., 768 F.2d 686 (5th Cir. 1985), cert. denied, 106 S. Ct. 1194 (1986); Edwards Company, Inc. v Monogram Industries, Inc., 700 F.2d 994 (5th Cir. 1983). 205. See infra notes 208 and 225-26 and accompanying text. 206. Pub. L. No. 96-510, 94 Stat. 2767 (1980) (codified as amended at 42 U.S.C. ~~ 9601-9675 (1995), as amended by Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613. 207. 42 U.S.C. ~ 9707(a) (1)-(4) (1995). 208. See, e.g., United States v. Kayser-Roth Corp., 910 F.2d 24 (1st Cir. 1990), cert. denied, 438 U.S. 10S4 (1991); United States v. TIC Inv. Corp., 866 F. Supp. 1173 (N.D. Iowa 1994)(finding owner directly liable as an arranger under the statute and thus not considering plaintiff's veil piercing argument); United States v. Nicolet, Inc., 712 F. Supp. 1193 (E.D. Pa. 1989); Vermont v. Staco, Inc., 684 F. Supp. 822 (D. Vt. 1988), vacated in part, No. 86-190, 1989 WL 2254428 (D. Vt. Apr. 20, 1989) (dismissing plaintiffs' claims under the Federal Water Pollution Control Act and Resource Conservation and Recovery Act for lack of jurisdiction); Colorado v. Idarado Mining Co., 18 Envtl. L. Rep. (Envtl. L. Inst.) 20, 578 (D. Colo. 1987), rev'd on other grounds, 916 F.2d 1486 (10th Cir. 1990), cert. denied, 499 U.S. 960 (1991); Idaho v. Bunker Hill Co., 635 F. Supp. 665 (D. Idaho 1986), aff'd in part, rev'd in part, 810 F.2d 726 (8th Cir. 1986), cert. denied, 484 U.S. 848 (1987). 209. 695 F. Supp. 615 (D. N.H. 1988); see also Oswald & Schipani, supra note 184, at 297. 210. Mottolo, 695 F. Supp. at 624. 211. Id. 212. Oswald & Schipani, supra note 184, at 299-301. 213. Id. at 300. 214. Id. at 301. 215. Oswald & Schipani, supra note 184, at 301-15. See also John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 408 (1st Cir. 1993); Riverside Market Dev. Corp. v. 69

II 'I I Is it Curtains for Veil Piercing? International Bld'g Prod., 931 F.2d 327, 330 (5th Cir. 1991); United States v. Kayser-Roth Corp., 910 F.2d 24 (1st Cir. 1990), cert. denied, 498 U.S. 1084 (1991); United States v. TIC Inv. Corp., 866 F. Supp. 1173 (N.D. Iowa 1994); United States v. Nicolet, 712 F. Supp. 1193 (E.D. Pa. 1989); Colorado v. Idarado Mining Co., 18 Envtl. L. Rep. (Envtl. L. Inst.) 20,578 (D. Colo. 1987), rev'd on other grounds, 916 F.2d 1486 (10th Cir. 1990), cert. denied, 499 U.S. 960 (1991); Idaho v. Bunker Hill Co., 635 F. Supp. 665 (D. Idaho 1986), aff'd in part, rev'd in part, 810 F.2d 726 (8th Cir. 1986), cert. denied, 484 U.S. 848 (1987). 216. Oswald & Schipani, supra note 184, at 301-15. See also Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d 80, 83 (5th Cir. 1990), cert. denied, 498 U.S. 1108 (1991); United States v. Jon-T Chems., Inc., 768 F.2d 686, 691 (5th Cir. 1985), cert. denied, 475 U.S. 1014 (1986); Rospatch Jessco Corp. v. Chrysler Corp., 1995 U.S. Dist. LEXIS 12692 (W.D. Mich. 1995); U.S. v. Cordova Chem. Co., 59 F.3d 584 (W.D. Mich. 1995); CPC Int'l, Inc. v. Aeroget-Gen. Corp., 777 F. Supp. 549 (W.D. Mich. 1991); Nicolet, 712 F. Supp. at 1193; In re Acushnet River & New Bedford Harbor, 675 F. Supp. 22 (D. Mass. 1987). 217. See, e.g., New York v. Shore Realty Corp., 759 F.2d 1032, 1052 (2d Cir. 1988); Kayser-Roth, 724 F. Supp. at 20-23; Nicolet, 712 F. Supp. at 1203; United Staces v. Northeastern Pharmaceutical & Chem. Co., 579 F. Supp. 823, 848 (W.D. Mo. 1984), aff'd in part, rev'd in part, 810 F.2d 726 (8th Cir. 1986), cert. denied, 484 U.S. 848 (1987). 218. See, e.g., Kayser-Roth, 910 F.2d at 24; Nicolet, 712 F. Supp. at 1203-04; Idarado Mining Co., 18 Envtl. L. Rep. at 20,578; Bunker Hill, 635 F. Supp. at 665. 219. See, e.g., Joslyn, 893 F.2d at 80; Nicolet, 712 F. Supp. at 1202; Acushnet River, 675 F. Supp. at 22. 220. 893 F.2d 80 (5th Cir. 1990), cert., denied, 498 U.S. 1108 (1991). 221. Josyln, 893 F.2d at 83 citing, United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92 (5th Cir. 1995). 222. United States v. Mottolo, 695 F. Supp. 615, 624 (D. N.H. 1988); Kathryn R. Heidt, Liability of Shareholders Under the Comprehensive Response Compensation and Liability Act (CERCLA), 52 OHIO ST. L.J. 133, 139 I (1991); Oswald & Schipani, supra note 184, at 302. 223. Securities Act of 1933, 15 U.S.C. ~77a (1995). 224. Securities Exchange Act of 1934, 15 U.S.C. ~~77b, 77j, 77k, 77m, 77o, 77s, 78q (1995). 225. See, e.g., Metge v. Baehler, 762 F.2d 621 (8th Cir. 1985) (setting forth the tests for determining primary and secondary liability); BLUMBERG, supra note 147, at 538-39. See generally William H. Kuehnle, Secondary Liability Under the Federal Securities Laws - Aiding t1 70

I Is it Curtains for Veil Piercing? and Abetting, Conspiracy, Controlling Person and Agency: Common-Law Principles and the Statutory Scheme, 14 J. CORP. L. 313 (1988). 226. Orloff v. Allman, 819 F.2d 904, 908 (9th Cir. 1987). 227. See Eichenholtz v. Brennan, 52 F.3d 478, 486 (3d Cir. 1995) (stating that in a case involving the federal securities laws a nationwide federal rule is advisable); Orloff, 819 F.2d at 904 (court assumed for the sake of argument that an alter ego cause of action could coexist with a claim brought simultaneously under the securities laws but found that the grounds were insufficient to pierce the veil), overruled in part by Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1576 (9th Cir. 1990) (overruling Orloff to extent Orloff held that Section 20(a), 15 U.S.C. ~78t, did not apply to actions under the securities laws); SEC v. Elmas Trading Corp., 620 F. Supp. 231 (D. Nev. 1985) (discussed veil piercing in the context of federal securities law); Kersh v. The Gen. Council of the Assemblies of God, 535 F. Supp. 494 (N.D. Cal. 1982) (alter ego doctrine could be applied in a federal securities law case). 228. 620 F. Supp. 231 (D. Nev. 1994). 229. Id. at 234. 230. Id. 231. 114 S. Ct. 1439 (1994). 232. Id. - - - 233. Id. 234. Decisions subsequent to Central Bank have produced mixed results. See Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424, 1433-34 (9th Cir. 1995)(discusses vicarious corporate liability under the doctrine of respondeat superior without discussion of Central Bank, stating that "[a]lthough respondeat superior liability is independent of section 20(a) liability [citing Hollinger], in the present case any corporate respondeat superior liability would be concurrent with directors' and officers' section 20 liability); Pollack v. Laidlaw Holdings Inc., 1995 WL 261518, at *17 (S.D. N.Y. 1995) (discusses the Central Bank case and quotes the Central Bank dissent stating "[t]his decision had called into question all common law claims that are adjunct to a direct securities claim," indicating that decisions based on respondeat superior are unlikely to survive the majority's ruling; also notes the dearth of comment upon the area of vicarious liability after Central Bank); Denton v. Merrill Lynch, 887, F. Supp. 176 (N.D. 11l. 1995) (does not discuss Central Bank and allows the claims based on the common law of respondeat superior to survive the motion to dismiss); In re Medeva, No. CV93-4376, 1994 WL 447141, at *3 (C.D. Cal. 1994) (dismisses aiding and abetting charge but allows charge under "control person" liability to proceed); In 71

Is it Curtains for Veil Piercing? re Proxima Corp., No. 93-1139, 1994 WL 374306, at *8 (S.D. Cal. 1994) (dismissed, with prejudice, the aiding and abetting claims in response to the Central Bank decision, also dismissed plaintiff's claim under common law agency theory and conspiracy). In addition, the decision in Central Bank has been criticized by commentators. See James P. Berklas, Jr., Implied Liability Under ~10(b) of the Securities Act of 1934: Central Bank v. First Interstate Bank, 114 S.Ct. 1439 (1994), 18 HARV. J. L. & PUB. POL'Y, 603, 604 (1995) (stating that the Court's clear deference to the statutory language to interpret liability under ~10(b) puts at least two forms of secondary liability at risk and "may portend the eventual elimination of all private civil liability" under that section); Richard A. Booth, Vicarious Liability and Securities Fraud, 22 SEC. REG. L.J. 347, 347 (1994-95) (arguing that the Court has shown a trend of looking exclusively to the statutes when interpreting the Acts, stating that the controlling person provisions of federal securities law, rather than state common law principles, should control in securities cases);* Thomas 0. Gorman, Who's Afraid of lOb-5? The Scope of a Section 10(b) Cause of Action After Central Bank of Denver, SEC. REG. L. J. (Spring 1994) (noting that Central Bank rejected the holdings of eleven circuit courts that had previously allowed aiding and abetting liability); S. Scott Luton, The Ebb and Flow of Section 10(b) Jurisprudence: An Analysis of Central Bank, 17 U. ARK. LITTLE ROCK L.J. 45, 46-47 (1994) (claiming that although theories of secondary liability are at risk after Central Bank, lower federal courts have traditionally "tempered" these results by establishing alternative theories of recovery); Joel Seligman, The Implications of Central Bank, 49 Bus. LAW. 1429, 1430 (1994) (claiming that the lasting effect of Central Bank may be to reduce investor confidence, expressing concern about the immediate impact of the decision on secondary claims, including respondeat superior and conspiracy, and concluding that Congress should address this issue directly and take steps to reverse Central Bank); Mark I. Steinberg, TJhe Ramifications of Recent U.S. Supreme Court Decisions on Federal and State Securities Regulation, 70 NOTRE DAME L. REV. 489, 502 (1995) (Central Bank "disallows private actions based on aiding and abetting under section 10(b) and the Court's language and tenor signify that other common law theories of liability, unless provided for by statute, will likewise be rejected"). 235. Central Bank, 114 S. Ct. at 1452. See Berklas, supra note 234, at 603 (arguing that the absence of express statutory language undermines the majority's principle and jeopardizes secondary claims); Booth, supra note 72

Is it Curtains for Veil Piercing? I 234, at 376 (The controlling person provision of federal securities law, rather than state common law principles, should control in securities cases. While it may not do any harm to apply common law "in tandem" with statutory law, it is also arguable that such an approach unnecessarily complicates and confuses securities litigation); Seligman, supra, note 234, at 1445 (expressing concern about effects on secondary claims, including respondeat superior and conspiracy); Steinberg, supra note 234, at 499 (" [t]he Supreme Court reaffirmed its restrictive approach in its 1994 decision in Central Bank."). 236. Peacock v. Thomas, 64 U.S.L.W. 4095, 9096-97 (U.S. Feb. 21, 1996). 237. See id. 238. Central Bank v. First Interstate Bank of Denver, 114 S. Ct. 1439, 1439 (1944). 239. See United Elect., Radio and Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1091 (1st Cir. 1992) (under Massachusetts common law, piercing the veil is rarely permissible); Poyner v. Lear Siegler, Inc., 542 F.2d 955, 957 (6th Cir. 1976) (Kentucky courts are averse to piercing the veil and will only do so in the case of fraudulent reorganization); Zubik v. Zubik, 384 F.2d 267, 273 (3d Cir. 1967), cert. denied, 390 U.S. 988 (1968); Killain v. McCullock, 850 F. Supp. 1239, 1250 (E.D. Pa. 1994) (veil piercihngis an "extreme" remedy); Carpenter's Dist. Council v. W.O. Kessel Co., 487 F. Supp. 54, 57 (W.D. Pa. 1980); In re Kreisler Group, Inc., No. 79 B 1704, slip op. at 2 (S.D. N.Y. Aug. 6, 1980) (courts are reluctant to pierce the veil); PHILLIP I. BLUMBERG & KURT A. STRASSER, THE LAW OF CORPORATE GROUPS, STATUTORY LAW-SPECIFIC 26 (1992) (piercing the veil should only occur in "exceptional" cases); Hansmann & Kraakman, supra note 120, at 1931 (the class of cases where courts pierce the veil is "quite narrow"); Note, Piercing the Corporate Law Veil: The Alter-Ego Doctrine Under Federal Common Law, 95 HARV. L. REV. 853 (1982) (corporation is normally distinct from shareholders and should only be ignored if abused); Thompson, supra note 167, at 1070 (limited liability is the "usual" rule). 240. Anderson v. Abbott, 321 U.S. 349, 361-62 (1944) (limited liability is the general rule, not the exception); NLRB v. Greater Kansas City Roofing, 2 F.3d 1047, 1051 (10th Cir. 1993) (veil should be pierced "only reluctantly and cautiously"); In re Silicone Gel Breast Implants, 887 F. Supp. 1447, 1452 (N.D. Ala. 1995)("limited liability is the rule, not-the exception"); Castleberry v. Branscum, 721 S.W.2d 270, 271 (Tex. 1986) (corporate form protects shareholders unless they "abuse the corporate privilege"); James A. King, Kayser-Roth, Joslyn, and the Problem of Parent Corporation Liability 73

I -1 I Is it Curtains for Veil Piercing? Under CERCLA, 25 AKRON L. REV. 123, 123 (1991) (states have generally been reluctant to pierce corporate veil). 241. See notes 175-204 and accompanying text. 242. Thompson, supra note 167, at 1070 (1991) ("Piercing of the corporate veil is limited to close corporations and corporate groups."). See also 1 F. HODGE O'NEAL & ROBERT B. THOMPSON, O'NEAL'S CLOSE CORPORATIONS ~ 1.10, at 44 (1971) ("piercing of the veil... almost never arises except in corporations with only a few shareholders") (footnote omitted); Barber, supra note 165, at 372 ("A review of the decisional law.. shows no case in which the shareholders of a.corporation whose stock was publicly traded or widely held were found personally liable for the obligations of the corporation.") (footnote omitted); Easterbrook & Fischel, supra note 1, at 109 & n. 37 (general discussion of the role of limited liability); Oswald & Schipani, supra note 184, at 298 ("courts apparently have never pierced the veil of a publicly traded corporation to reach the individual shareholders") (footnote omitted). 243. Thompson, supra note 167, at 1039, 1070. 244. Oswald & Schipani, supra note 184, at 298, n. 217. 245. See, e.g., New York v. Shore Realty Corp., 759 F.2d 1032, 1052 (2d Cir. 1985)(regarding a CERCLA violation); Riverside Maritime Enter., Inc. v. Ishmael, 1991 WL 68214 (E.D. La. 1991)(corporation set up to avoid payment of charter and fuel expenses and to protect assets from seizure); United States v. Kayser Roth, 724 F. Supp. 15, 24 (D. R.I. 1989) (corporate veil pierced to reach controlling parent corporation for CERCLA violation); United States v. Mottolo, 695 F. Supp. 615 (D.. N.H. 1988) (regarding a CERCLA violation); Castleberry v. Branscum, 721 S.W.2d 270, 275 (Tex. 1986) (president admitted corporation was formed in response to lawsuit). See generally CLARK, supra note 147, at 74-77; Hansmann & Kraakman, supra note 147, at 1881 (describes corporations setting up separate entities to bear costs of environmental liabilities). 246. Gilbralter Savings v. LDBrinkman Corp., 860 F.2d 1275, 1277 (5th Cir. 1988) (plaintiff failed to plead potentially meritorious "sham to perpetrate fraud" claim against president); Solomon v. Klein, 770 F.2d 352, 352-3 (3d Cir. 1988)(court implies that it would probably have pierced the veil, if that had been pleaded); Castleberry v. Branscum, 721 S.W.2d at 275 (former president and vice president formed new corporation to avoid paying partner in buyout agreement); Cheatle v. Rudd's Swimming Pool Supply, 300 S.E.2d 828 (Va. 1987); Thompson, supra note 147, at 10. 247. Thompson, supra note 167, at 1056. 74 a

Is it Curtains for Veil Piercing? 248. See, e.g., United States v. Jon-T Chems., Inc., 768 F.2d 686 (5th Cir. 1985), cert. denied, 475 U.S. 1011; Milgo Elec. Corp. v. United Business Comm., Inc., 623 F.2d 645 (10th Cir.), cert. denied, 449 U.S. 1066 (1980); Sabine Towing & Transp. Co. v. Merit Ventures, Inc., 575 F. Supp. 1442 (E.D. Tex. 1983); Anderson v. Kennebec River Pulp & Paper Co., 433 A.2d 752 (Me. 1981); Herman v. Mobile Homes Corp., 26 N.W.2d 757 (Mich. 1947). But see Presser, supra note 1, at 164 (if goal of limited liability is to encourage investment, the courts should refrain from easily piercing the corporate veil in either the parentsubsidiary or the individual shareholder context). 249. Easterbrook & Fischel, supra note 1, at 111. 250. Thompson, supra note 167, at 1038, 1056. But see Presser, supra note 1 (if goal of limited liability is to encourage investment, the courts should refrain from easily piercing the corporate veil in either the parent-subsidiary or the individual shareholder context ). 251. McKibben v. Mohawk Oil Co., 667 P.2d 1223, 1230 (quoting from Jackson v. General Elec. Cb., 514 P.2d 1170, 1173 (Alaska 1973) and adopting the above factors from FREDERICK POWELL, PARENT AND SUBSIDIARY CORPORATIONS ~ 6, at 9 (1931)). 252. McKibben, 667 P.2d at 1230 (quoting Jackson, -514 P.,2d at 1173). 253. See generally, 1 FLETCHER, supra note 1, ~ 43, a: 730. 254. Amfac Foods., Inc. v. International Sys. & Controls Corp., 630 P.2d 868, 874 (Or. Ct. App. 1981) rev'd, 654 P.2d 1092 (1982) (citations omitted). 255. Phoenix Canada Oil Co. v. Texaco, Inc., 658 F. Supp. 1061, 1084-85 (D. Del. 1987), aff'd in part, rev'd in part, 842 F.2d 1466 (3d Cir.), cert. denied, 468 U.S. 908 (1988). But see Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir. 1990), cert. denied, 498 U.S. 1108 (1991) ("Veil piercing should be limited to situations in which the corporate entity is used as a sham to perpetrate a fraud or avoid personal liability."). Even so, the Joslyn court outlined twelve factors to consider in evaluating the control of the parent over the subsidiary, similar to those factors delineated by the state courts. Id. at 83, citing United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92 (5th Cir. 1985), cert. denied, 475 U.S. 1011 (1986), discussed supra at notes 220-21 and accompanying text. 256. For example, in United States v. Nicolet, Inc., 712 F. Supp. 1193 (E.D. Pa. 1989), the court created the following federal rule for veil piercing in a CERCLA case: Where a subsidiary is or was at the relevant time a member of one of the I 75 B~~ ~ ~~~~~~~~~~~~~~~ t K

'I I I I AI Is it Curtains for Veil Piercing? classes of persons potentially liable under CERCLA; and the parent had a substantial financial or ownership interest in the subsidiary; and the parent corporation controls or at the relevant time controlled the management and operations of the subsidiary, the parent's separate corporate existence may be disregarded. Id. at 1202. Similarly, the court in In re Acushnet River & New Bedford Harbor, 675 F. Supp. 22 (D. Mass. 1987) examined whether the parent corporation exercised pervasive control over the hazardous waste disposal practices of its subsidiary, or whether the parent treated its subsidiary as a mere instrumentality, in deciding whether to pierce the corporate veil and hold the parent liable for the CERCLA violations of the subsidiary. It was not enough that the parent corporation had formed the subsidiary to purchase the assets of another company to avoid CERCLA liability for previous violations. Id. at 34. The factors relevant to the analysis of the Acushnet court included: in approximate descending order of importance, (1) inadequate capitalization in light of the purposes for which the corporation was organized, (2) extensive or pervasive control by the shareholder or shareholders, (3) intermingling of the corporation's properties or accounts with those of its owner, (4) failure to observe corporate formalities and separateness, (5) siphoning of funds from the corporation, (6) absence of corporate records, and (7) nonfunctioning officers and directors. Id. 257. See Hansmann & Kraakman, supra note 147, at 1907-09 (arguing that there seems to be no justification for limited liability in the case of corporate torts); Sommer, supra note 1, at 270 (arguing that limited liability should "almost always be breached for torts" in the parent-subsidiary context); Note, Investor Liability: Financial Innovations in the Regulatory State and the Coming Revolution in Corporate Law, 107 HARV. L. REV. 1941, 1953-54 (1994) (arguing that limited liability provides incentives to ignore interests of noncorporate parties and "engage in morally hazardous conduct" in relation to those parties). 258. Hansmann & Kraakman, supra note 147, at 1884-85; Leebron, supra, note 147, at 1604; Rosemary R. Schnall, Extending Protection to Foreseeable Future Claimants 76 I L E3 LI I I I I I

Is it Curtains for Veil Piercing? Through Delaware's Innovative Corporate Dissolution Scheme - In Re Rego Co., 19 DEL. J. CORP. L. 141, 146 (1994) 259. Hansmann & Kraakman, supra note 147, at 1901. 260. Id. at 1901. See also Sommer, supra note 1, at 236 (tort compensation described as "ex post facto negotiation with the victim"). 261. Hansmann & Kraakman, supra note 147, at 1919-20; Leebron, supra note 147, at 1569, 1614. 262. Hansmann & Kraakman, supra note 147, at 1919; Sommer, supra note 1, at 248. 263. Hansmann & Kraakman, supra note 147, at 1919. When discussing limited liability for subsidiaries, it has been argued that contract creditors of the subsidiary are able to protect themselves. Experienced creditors are aware of the risks of lending to a subsidiary and presumably have factored these costs into any credit which they extend. See Sommer, supra note 1, at 232. Therefore, although limited liability may increase the cost of credit of subsidiaries, the parties involved at least have had the opportunity to negotiate beforehand. Id. at 236. 264. Id. at 1919; see also In re Silicone Gel Breast Implants, 887 F. Supp. 1447 (N.D. Ala. 1995) (many jurisdictions require different standards of proof for contract and tort). - - 265. Hansmann & Kraakman, supra note 147, at 1919. See also Thompson, supra note 167, at 1036, 1058 (empirical study showing that "courts pierce more often in the contract context than in the tort context"). But see Presser, supra note 1 (refuting the conclusion that courts pierce more often in contract cases). 266. See supra text accompanying notes 33-51. 267. See supra text accompanying notes 65-67. 268. See Concrete Pipe and Products of Cal., Inc. v. Construction Laborers Pension Trust For S. Cal., 113 S. Ct. 2264, 2271 (1993). On the other hand, ERISA permits multiemployer plans to require longer vesting periods than single-employer plans. Compare ERISA ~ 203 (a)(2) (A)&(B), 29 U.S.C. ~ 1053(a)(2) (A)&(B) (1988) (requiring single-employer plans to provide for five year cliff vesting or three through seven year incremental vesting) with ERISA ~ 203 (a)(2)(C), 29 U.S.C. ~ 1053(a)(2)(C) (1988) (permitting multiemployer plans to use a ten year vesting schedule). Perhaps as a result of these differences, multiemployer defined benefit plans report that only half of their participants are vested as opposed to two-thirds of the participants in comparable single-employer plans. However, vesting in defined contribution plans is roughly equivalent between multiemployer and single employer plans. Ninety percent of participants in multiemployer plans are vested compared with 85 percent I I 77,.f7 _ - i i --. - '0 r

Is it Curtains for Veil Piercing? of participants in single-employer plans. Labor Department Cites Growth of Defined Contribution Plans, Pensions & Benefits Dly. (BNA), Apr. 24, 1995. 269. Criticisms abound of the lack of portability in the private pension system. For recent discussions of this issue, see KAREN FERGUSON & KATE BLACKWELL, PENSIONS IN CRISIS 37-46 (1995); see also Roberta Romano, Public Pension Fund Activism in Corporate Governance Reconsidered, 93 COLUM. L. REV. 795, 849 (1993) (noting that portability is a greater problem in defined benefit than in defined contribution plans); Keir N. Dougall, Note, Augmenting ERISA with Market Discipline: Transforming Pension Plan Interests into Securities, 24 U. MICH. J.L. REF. 709, 757 (1991) (arguing making plan benefits more easily transferrable would solve some of the problems associated with privately sponsored benefit programs). 270. See 1990 Construction Pension Plans in Good Condition, AGC, CLRC Find, Pensions & Benefits Dly. (BNA), Oct. 13, 1993 (more than half of the multiemployer plans service the construction industry). 271. See Fischel & Langbein, supra note 122, at 1113. 272. See Susan C. Glen, Comment, Central States v. Personnel, Inc.: When Real Estate Investments Create Personal Liability Under the Multiemployer Pension Plan Amendments Act of 1980, 78 MINN. L. REV. 501, 505 (1993); see also 126 CONG. REC. 23,003, 23,043 (1980) (statement of Rep. Erlinborn) (arguing for certain amendments to avert "the very chaos and scramble to the exit for PBGC handouts that [MPPAA] purports to avoid."). 273. See ERISA ~ 4201, 29 U.S.C. ~ 1381 (1988). 274. See ERISA ~~ 4206-14, 29 U.S.C. ~~ 1386-94 (1988 & Supp. IV 1992). 275. The Supreme Court alone has decided 6 cases involving MPPAA. See Milwaukee Brewery Workers' Pension Plan v. Jos. Schlitz Brewing Co., 115 S. Ct. 981 (1995); Concrete Pipe & Products of Cal., Inc. v. Construction Laborers Pension Trust For S. Cal., 508 U.S. 602 (1993); Local 144 Nursing Home Pension Fund v. Demisay, 508 U.S. 581 (1993); Connolly v. PBGC, 475 U.S. 211 ' (1986); PBGC v. R. A. Gray & Co., 467 U.S. 717 (1984); Kaiser Steel Corp. v. Mullins, 455 U.S. 72 (1982). 276. See, e.g., Concrete Pipe & Products of Cal., Inc. v. Construction Laborers Pension Trust For S. Cal., 113 S. Ct. 2264, 2271 (1993). 277. ERISA ~ 4001(b) (1), 29 U.S.C. ~ 1301(b) (1) (1988). 278. S. REP. NO. 383, 93d Cong., 2d Sess. 43 (1974), reprinted in 1974 U.S.C.C.A.N. 4890, 4928. 279. 29 C.F.R. ~ 2612.3(a)(1) (1993). ERISA states that "regulations prescribed by the corporation" will explicate the statutory common control provision. ERISA ~ 4001(b) (1), 29 U.S.C. ~ 1301(b) (1) (1988).;I~~~~~~ ~~~78 x~~~~~~~~~ - i, — ~.~II~I-I mw% -

Is it Curtains for Veil Piercing? 280. The applicable Internal Revenue Code provisions are found at ~ 414. I.R.C. ~ 414 (1988). 281. Treas. Reg. ~~ 1.414(c)-1 -- 1.414(c)-5 (1988). 282. See Chicago Truck Drivers, Helpers & Warehouse Union Pension Fund v. Steinberg, 32 F.3d 269, 270 n.2 (7th Cir. 1994); Board of Trustees of Trucking Employees of New Jersey Welfare Fund, Inc. v. Centra, 983 F.2d 495, 502 (3d Cir. 1992). 283. ERISA ~ 4001(b) (1), 29 U.S.C. ~ 1301(b) (1) (1988); Connors v. Incoal, Inc., 995 F.2d 245, 249 (D.C. Cir. 1993). 284. See, e.g., Incoal, Inc., 995 F.2d at 247; Central States S.E. & S.W. Areas Pension Funds v. Skyland Leasing, 691 F. Supp. 6, 8 (W.D. Mich. 1987), aff'd without opinion, 892 F.2d 1043 (6th Cir. 1990). 285. See Board of Trustees of W. Conf. of Teamsters Pension Trust Fund v.-H.F. Johnson, Inc., 830 F.2d 1009, 1012 (9th Cir. 1987). 286. See, e.g., Central States S.E. & S.W. Areas Pension Funds v. Personnel, Inc., 974 F.2d 789, 791 (7th Cir. 1992) (leasing real estate); Board of Trustees of the W. Conf. of Teamsters Pension Trust Fund v. Lafrenz, 837 F.2d 892, 893 (9th Cir. 1988) (leasing two dump trucks); ILGWU Nat'l Retirement Fund v. Minotola Indus., No. 88-9131, 1991 U.S. Dist. LEXIS 6147 (S.D.N.Y. May 3, 1991) (operating a.farm). - 287. See, e.g., Incoal, Inc., 995 F.2d at 254.; Personnel, Inc., 974 F.d at 793; Lafrenz, 837 F.2d at 895; H.F. Johnson, Inc., 830 F.2d at 1014; ILGWU Nat'l Retirement Fund, No. 88-9131, 1991 U.S. Dist. LEXIS 6147, at *20 -21; Skyland Leasing, 691 F. Supp. at 12-13 (W.D. Mich. 1987). 288. Technically, Title IV, which provides for withdrawal liability, does not contain a definition of the term "employer" and does not refer to the definition in Title I. As a result, some courts question whether the Title I definition is applicable to withdrawal liability cases. Seaway Port Authority v. DuluthSuperior Ila Marine Assoc. Restated Pension Plan, 920 F.2d 503, 506-07 (8th Cir. 1990) (declining to use the definition of employer in Title I for Title IV cases because Title I expressly limits its definitions by stating "for purposes of this Title"); Connors v. P & M Coal Co., 801 F.2d 1373, 1376-78 (D.C. Cir. 1986) (refusing to use Title I definition of employer in Title IV case since no clear congressional intent that the expansive definition of employer should apply, and the more expansive definition runs counter to assumptions about corporate forms protecting individuals); Connors v. B.M.C. Coal Co., 634 F. Supp. 74, 76-77 (D.C.D.C. 1986) (refusing to use more expansive definition of employer from Title I because a corporate officer should only be held liable if acting,f 79 j I I I II_- I V9 L -..,, IFPWFIN -— R 1.';_

i.i Is it Curtains for Veil Piercing? I as alter ego or justification exists to pierce the corporate veil). But see Central Pa. Teamster's Pension Fund v. Service Group, Inc., 645 F. Supp. 996, 997 (E.D. Pa. 1985) (Title I definition of employer applies to MPPAA); In re Uiterwyk Corp., 63 B.R. 264, 266 (M.D. Fla. 1986) (same). 289. See ERISA ~ 3(5), 29 U.S.C. ~ 1002(5) (1988) ("any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan" is an employer); see also Nationwide Mut. Ins. Co. v. Darden, 112 S. Ct. 1344, 1348 (1992) (calling the ERISA definition "completely circular and explain[ing] nothing."). 290. 29 U.S.C. ~~ 201-16 (1988). 291. See infra text accompanying notes 371-73. 292. See Plumbers' Pension Fund v. Niedrich, 891 F.2d 1297, 1301 (7th Cir. 1989), cert. denied, 495 U.S. 930 (1990); Scarbrough v. Perez, 870 F.2d 1079, 1082-85 (6th Cir. 1989); Solomon v. Klein, 770 F.2d 352, 353-55 (3rd Cir. 1985); Int'l Bhd. of Painters v. George C. Kracher, Inc., 856 F.2d 1546, 1548-50 (D.C. Cir. 1988); see also Rockney v. Blohorn, 877 F.2d 637, 641-43 (8th Cir 1989) (applying definition in the context of a top hat plan). 293. See Massachusetts Laborers' Health & Welfare Fund v. Starrett Paving Corp., 845 F.2d 23, 25 (1st Cir. 1988); see also Sasso v. Cervoni, 985 F.2d 49, 50 (2nd Cir. 1993) (casting the question as one of obligation rather than as requiring interpretation of the term "employer"), cert. denied, 113 S. Ct. 2964 (1993). 294. ERISA ~ 515, 29 U.S.C. ~ 1145 (1988). 295. ERISA ~ 515, 29 U.S.C. ~ 1145 (1988). 296. See Cement & Concrete Workers Dist. Council v. Lollo, 35 F.3d 29, 36-37 (2d Cir. 1994); Starrett Paving Corp., 845 F.2d at 25-27; see also Sasso, 985 F.2d at 50 (agreeing with the logic of Starrett Paving Corp.). 297. See, e.g., Sasso, 985 F.2d at 50-51; Vaughn v. Sexton, 975 F.2d 498, 504 (8th Cir. 1992); Plumbers' Pension Fund'.v. Niedrich, 891 F.2d 1297, 1299-1301 (7th Cir. 1989), cert. denied, 495 U.S. 930 (1990); Scarbrough v. Perez, 870 F.2d 1079, 1083-84 (6th Cir. 1989); Int'l1 Bhd. of Painters v. George C. Kracher, Inc., 856 F.2d 1546, 1550 n.28 (D.C. Cir. 1988); Starrett Paving Corp., 845 F.2d at 24, 26-27; Solomon v. Klein, 770 F.2d 352, 354 (3rd Cir. 1985). 298. See supra Part II.B.. 299. 801 F.2d 1, 4 (1st Cir. 1986). 300. Starrett Paving Corp., 845 F.2d at 27. 301. See Central States S.E. & S.W. Areas Pension Fund v. Goldstein, No. 94 C 7176, 1995 U.S. Dist. LEXIS 4755, at *5 n.1 (N.D. Ill. Apr. 10, 1995); see also Hanley v. Giordano's Restaurant, Inc., No. 94 Civ. 4696(RPP), 1995 U.S. Dist. LEXIS 10429, at *8-9 (S.D.N.Y. July 24,.. 4 80

Is it Curtains for Veil Piercing? 1995) (adopting-, without explanation, a New York state standard of veil piercing); Connors v. Marontha Coal Co., 670 F. Supp. 45, 48 n.5 (D.C.D.C. 1987) (declining to determine whether state or federal law governed a veil piercing claim). Resolution of the question of whether state or federal law should apply is beyond the scope of this Article. 302. PBGC Ltr. Rul. 82-38 (Dec. 14, 1982). 303. See Schaffer v. Charles Benjamin, Inc., Nos. 90-6225, 91-6954, 1992 WL 59152, at *6-7 (E.D. Penn. Mar 18, 1992) aff'd without opinion, 980 F.2d 724 (3d Cir. 1992). 304. See supra text accompanying notes 279-82. 305. See Schaffer, 1992 WL 59152, at *6-7. 306. See Goldberg v. Colonial Metal Spinning & Stamping Co., No. 92-3721, 1993 U.S. WL 361672, *4 (S.D.N.Y. Sept. 14, 1993), later opinion, No. 91-3721, 1994 WL. 510037 (S.D.N.Y. Sept. 16, 1994) (granting summary judgment on joint and several liability of related companies, damages, attorneys' fees); see also Schaffer, 1992 WL 59152, *7 (finding corporation liable as an alter ego of the signatory to the CBA). 307. ERISA ~ 409, 29 U.S.C. ~ 1109 (1988 & Supp. IV 1992). 308. ERISA ~ 409(a), 29 U.S.C. ~ 1109(a) (1988 & Supp. IV 1992). 309. Id. 310. Id. - - 311. Dardaganis v. Grace Capital, 889 F.2d 1237, 1242-43 (2d Cir. 1989). 312. Kay v. Thrift and Profit Sharing Plan for employees of Boyertown Casket Co., 780 F. Supp. 1447 (E.D. Penn. 1991). 313. Barker v. American Mobil Power Corp., 64 F.3d 13 97 (9th Cir. 1995); see also Katsaros v. Cody, 744 F.2d 270 (2d Cir. 1984) (finding fiduciaries liable for making a loan to an unstable bank); Professional Helicopter Pilots Assoc. v. Denison, 804 F. Supp. 1447 (S.D. Ala. 1992) (holding fiduciaries personally liable when deductions were made from employee checks but were not contributed to plan); Connors v. Paybra Mining Co., 807 F. Supp. 1242 (S.D. W.Va. 1992) (finding individual fiduciaries personally liable when funds were not deposited in plan). 314. See ERISA ~ 409(a), 29 U.S.C. ~ 1109(a) (1988 & Supp. IV 1992). 315. 473 U.S. 134, 144 (1985). 316. See; e.g., Lee v. Burkhart, 991 F.2d 1004, 1009 (2d Cir. 1993). 317. See, e.g., Anweiler v. American Elec. Power Serv. Corp., 3 F.3d 986, 992-93 (7th Cir. 1993) (an individual plan participant may sue for a fiduciary violation where he failed to receive important plan information). I I 81 Pr ~ A

Is it Curtains for Veil Piercing? 318. See, e.g., Sokol v. Bernstein, 803 F.2d 532, 535 (9th Cir. 1986) ("The Russell Court used language implying that all of the statute's provisions relating to fiduciary duties run only to plans, and not to... individuals."). 319. No. 94-1471, 1996 U.S. LEXIS 1954, at *45-46 (Mar. 19, 1996). 320. See ERISA ~ 502(a) (3), 29 U.S.C. ~ 1132 (a) (3) (1988 & Supp. IV 1992). 321. 57 F.3d 270, 276 (3rd Cir. 1995). 322. Id. at 272. 323. Id. 324. Id. at 278. 325. Firm was Partnership's Alter Ego PBGC Claims in Action Against Armco, 21 Pens. & Benefits Rep. (BNA), No. 15, at 758 (Apr. 11, 1994). 326. Id. 327. Minnesota Power v. Armco, 937 F.2d 1363 (8th Cir. 1991) 328. Firm was Partnership's Alter Ego PBGC Claims in Action Against Armco, 21 Pens. & Benefits Rep. (BNA), No. 15, at 758 (Apr. 11, 1994). 329. Id. 330. PBGC, Armco Agree to Settle Pension Suit for $27.5 Million, 21 Pens. & Benefits Rep. (BNA), No. 27, at 1336 (July 4, 1994); see also Adamson v. Armco, Inc., 44 F.3d 650, 652 (8th Cir. 1995) (affirming dismissal of suit brought by Reserve Mining retirees who were seeking welfare benefits from Armco). 331. This is true because the statutory section at issue applies to all of Title IV of ERISA. See ERISA ~ 4001!(b) (1), 29 U.S.C. ~ 1301(b) (1) (1988). 332. See supra Part III.A.1. 333. See PBGC v. Ouimet Corp., 711 F.2d 1085, 1092-93 (1st Cir. 1983). But see PBGC v. Anthony Co., 575 F. Supp. 953, 956-58 (N.D. 11. 1983) (criticizing the Ouimet reasoning). i * 334. See Gates v. Victor Fine Foods, 54 F.3d 1457 (9th Cir. 1995) (applying Foreign Sovereign Immunity Act to foreign parent of a subsidiary that terminated its welfare benefit plan); Simcox v. McDermott Int'l, Inc., 152 F.R.D. 689 (deciding, on basis of forum non conveniens, a suit for benefits). 335. United Elec., Radio & Machine Workers v. 163 Pleasant St. Corp., 960 F.2d 1080, 1083 (1st Cir. 1992), vacated on other grounds, 987 F.2d 39 (1st Cir. 1993) (granted jurisdiction on traditional minimum contacts analysis). 336. 960 F.2d at 1085. 337. Id. at 1091. 338. Id. at 1096. or 339. 163 Pleasant St. Corp., 987 F.2d at 48. 340. At the time of the sale, Navistar was still known as International Harvester. Lumpkin v. Envirodyne Indus., I 82 I,_ , _ _ ___._ ___ _ __ _ ___

Is it Curtains for Veil Piercing? 933 F.2d 449, 451 (7th Cir.), cert. denied, 502 U.S. 939 (1991). 341. Id. 342. See id. at 451-52. 343. See id. at 451. 344. The PBGC sued Navistar in order to recover the amount of the PBGC guarantees. Approximately four and onehalf years after a federal district court in Illinois refused to dismiss all of the PBGC's claims, Navistar and the PBGC announced a $65 million settlement. Navistar Agrees to Pay PBGC $65 Million Pension Settlement, 19 Pens. Rep. (BNA), at 1514, Aug. 24, 1992. ERISA now contains a provision that prohibits transactions undertaken for the purpose of evading or avoiding liability for the termination of pension plans. See ERISA ~ 4069(a), 29 U.S.C. ~ 1369(a) (1988). 345. See 933 F.2d at 452. 346. See id. 347. Id. 348. Id. at 453. 349. Id. at 459. 350. 933 F.2d at 460. 'On the remand, the district court denied plaintiff's motion for summary judgment. Lumpkin v. Envirodyne Indus., 159 B.R. 814 (N.D. Ill. 1993). Finally on December 8, 199f5, the suit settled. After 16 years of litigation, Envirodyne agreed to a settlement of 900,000 shares of.common stock worth approximately 3 million dollars. Enforcement: Former Employees of Wisconsin Steel Settle Pension Suit With Envirodyne, 22 Pension & Benefits Reporter (BNA) 2787, Dec. 18, 1995. 351. See supra Parts II.B.2., III.A. and III.B. 352. See, e.g., McLeod, supra note, 193, at 139-183. 353. 42 U.S.C. ~~ 2000e-1-17 (1988 & Supp. IV 1992). 354. Id. at ~ 2000e-2 (a) (1). 355. 29 U.S.C. ~~ 621-34 (1988 & Supp. IV 1992). 356. Id. at ~ 623. 357. 42 U.S.C. ~~ 12,101-213 (Supp. IV 1992). 358. Id. ft ~ 12,112. 359. See Humphreys v. Medical Towers, Inc., 893 F. Supp. 672, 689 (S.D. Tex. 1995) (.denying summary judgment on a claim under Title VII, which alleged personal liability based upon the alter ego doctrine); Martin v. Nannie & the Newborns, Inc., Civ-91-544-T, 1994 U.S. Dist. LEXIS 20550, at *3-4 (W.D. Ok. June 24, 1994) (granting summary judgment on personal liability claim under Title VII where no evidence supported piercing the corporate veil); Dellert v. Total Vision, Inc., 94 C 456, 1994 U.S. Dist. LEXIS 7816, at *2 (N.D. Ill. June 13, 1994) (stating piercing could lead to shareholder liabililty under Title VII but no grounds had been alleged in the case); see also Schallehn v. j I 83 I,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ --

I Is it Curtains for Veil Piercing? Central Trust & Sav. Bank, 877 F. Supp. 1315, 1337 n.20 (N.D. Iowa Feb. 14, 1995) (finding shareholders personally liable under ADEA "would raise complex equitable and legal issues concerning piercing of the corporate veil"). 360. 42 U.S.C. ~ 2000e-7 (1988) (Title VII). 361. See, e.g., California Federal Sav. & Loan Ass'n v. Guerra, 479 U.S. 272, 281 (1987) ("Congress has explicitly disclaimed any intent categorically to preempt state law or to 'occupy the field' of employment discrimination law."). But see, e.g., O'Loughlin v. Pinchback, 579 So. 2d 788 (Fla. Dist. Ct. App. 1991) (voiding state statute that eroded protection to pregnant women). 362. This is not to say that state, rather that federal law, would serve as the appropriate standard in a piercing claim brought in conjunction with a Title VII claim. Of the Title VII cases that even reference piercing the corporate veil, only the Humphreys court actually applied a piercing standard and it utilized a state standard. 893 F. Supp. at 200. 363. See Jendusa v. Cancer Treatment Ctrs. of Am., Inc., 868 F. Supp. 1006, 1008 n.2 (N.D. Ill. 1994). 364. See Schallehn, 877 F. Supp. at 1329 (outlining the split in the circuits); Jendusa, 868 F. Supp. at 1008 -10 (same). For thorough discussions of these issues, see Janice R. Franke, Does Title VII Contemplate Personal Liability for Employee/Agent Defendants?, 12 HOFSTRA LAB. L.J. 39, (1994); Christopher Greer, Note, Who Me?: A Supervisor's Individual Liability for Discrimination in the Workplace, 62 FORDHAM L. REV. 1835, 1836 (1994); Phillip L. Lamberson, Note, Personal Liability for Violations of Title VII: Thirty Years of Indecision, 46 BAYLOR L. REV. 419, 421-25 (1994). 365. 29 U.S.C. ~ 206 (1988). 366. 29 U.S.C. ~ 207 (1988). 367. 29 U.S.C. ~ 212 (1988). 368. See, e.g., 29 U.S.C. ~ 213 (1988) (granting certain exemptions from coverage). 369. See 29 U.S.C. ~ 218(a) (1988). 370. See, e.g., Secretary of Labor v. DeSisto, 929 F.2d 789, 792, 797 (1st Cir. 1991). 371. 29 U.S.C. ~ 203(d) (1988) (defining an employer as "any person acting directly or indirectly in the interest of an employer in relation to an employee"). 372. See, e.g., Fegley v. Higgins, 19 F.3d 1126, 1131 (6th Cir.), cert. denied, 115 S. Ct. 203 (1994); Donovan v. Agnew, 712 F.2d 1509, 1510-14 (1st Cir. 1983). 373. See Donovan, 712 F.2d at 1512-13; Shultz v. ChalkFitzgerald Constr. Co., 309 F. Supp. 1255, 1257 (D. Mass. 1970). 374. Pub. L. No. 198, 49 Stat. 449 (1935) (codified as amended at 29 U.S.C. ~~ 151-69 (1988)). For purposes I 84 L ---- - wwp"rlw7w - - -, - - - - ---- - -, - rl.

Is it Curtains for Veil Piercing? of this Article, references to the National Labor Relations Act ("NLRA") will include that body of amendments made under the Wagner Act. See Labor Management Relations Act, Pub. L. No. 100, 61 Stat. 136 (1947) (codified as amended at 29 U.S.C. ~~ 141-87 (1988)). 375. See supra text accompanying note 27. 376. However, the NLRA does contain a few specific provisions regarding pre-emption. See, e.g., 29 U.S.C. ~ 164(b) (1988) (exempting state right to work statutes from pre-emption). 377.. See, e.g., Henry H. Drummonds, The Sister Sovereign States: Pre-emption and the Second Twentieth Century Revolution in the Law of the American Workplace, 62 FORDHAM L. REV. 469, 529 (1993). 378. See San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236, 244 (1959). 379. International Ass'n of Machinists v. Wis. Employment Relations Comm'n, 427 U.S. 132, 145 (1976) (quoting Teamsters Union v. Morton, 377 U.S. 252, 258 (1964)). For one of the more recent and detailed discussions of pre-emption of collective bargaining statutes, see Drummonds, supra note 377, at 560-95. 380. See, e.g., Seymour v. Hull & Moreland Eng'g, 605 F.2d 1105, 1110-11 (9th Cir. 1979) and cases cited therein. 381. See Stephen F. Befort, Labor Law -and the DoubleBreasted Employer: A Critique of the Single Employer and Alter Ego Doctrines and a Proposed Reformulation, 1987 Wis. L. REV. 67, 75-89 (1987); McLeod, supra note 193, at 142-47. 382. See Befort, supra note 381, at 89-100; McLeod, supra note 193, at 147-50. 383. See Befort, supra note 381, at 75-76, 93-94; see also McLeod, supra note 193, at 151 (distinguishing the "specialized" single employer and alter ego doctrines from "more traditional veil piercing theories"). 384. 64 U.S.L.W. 4095, 4096-97 (U.S. Feb. 21, 1996). 385. Id. 386. See supra Sections Parts III.A. and III.B. 387. See supra text accompanying notes 49-53. 388. Articles addressing ERISA pre-emption include: Conison, supra note 50; David Gregory, supra note 54; James E. Holloway, ERISA, Pre-emption and Comprehensive Federal Health Care: A Call for "Cooperative Federalism" to Preserve the States' Role in Formulating Health Care Policy, 16 CAMPBELL L. REV. 405 (1994); Irish &Cohen, supra note 105; Larry J. Pittman, ERISA's Pre-emption Clause and the Health Care Industry: An Abdication of Judicial Law-Creating Authority, 46 FLA. L. REV. 355 (1994). 389. See supra text accompanying notes 59-64. 390. 473 U.S. 134, 146-47 (1985). r[ I 85 ~I ~~~~~I II _ _ I II ~ II a~~mr'vll - riw~

I Is it Curtains for Veil Piercing? 391. See id. at 146 ("The six care-ully integrated civil enforcement provisions founa in ~ 502(a) of the statute *.. provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.") 392. 508 U.S. 248 (1993). 393. See, e.g., Pacificare v. Mar-:in, 34 F.3d 834, 836 (9th Cir. 1994) (ERISA does not permit an insurer to sue a participant for unjust enric-hment); Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 58-60 (4th Cir.) (allowing estoppel claims may burden plans with significant unanticipated expenses), amended, slip op. (4th Cir. July 17, 1992), cer:. denied, 113 S. Ct. 1051 (1993); see also Coonce v. Aetna Life Ins. Co., 777 F. Supp. 759, 770 (W.D. Mo. 1991) (claim for estoppel or misrepresentation may affecz actuarial integrity of plans). 394. District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 n.3 (1992) (Stevens, J. dissenting). 395. N.Y. State Conference of Bl-e Cross & Blue Shield Plans v. Travelers Ins., 115 S. C:. 1671, 1683 (1995) (ERISA does not pre-empt a state -aw which instituted surcharges on medical costs for participants in ERISA health care plans); District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125 (1992) (ERISA preempts District of Columbia workers' compensation provision affecting health insurance coverage); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990) (ERISA pre-empts Texas commcn law claims for unlawful discharge); FMC Corp. v. Hclliday, 498 U.S. 52 (1990) (ERISA does not pre-empt Pennsylvania subrogation statute for plans that are n L self-insured); Massachusetts v. Morash, 49' U.S. 107 (1989) (ERISA does not pre-empt Massachusetts statute requiring payment of discharged employee's due vacation benefits); Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825 91S8) (ERISA pre-empts Georgia garnishment statute that specifically refers to ERISA benefit plan but not a garnishment statute of general application); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) (ER-SA does not pre-empt Maine statute requiring lump sum severance payment); Pilot Life Ins. v. Dedeaux, 481 U.S. 41 (1987) (ERISA preempts Mississippi tort and contract common law causes of action for improper processing of insurance claims); Metropolitan Life Ins. v. Taylor', 481 U.S. 58 (1987) (ERISA pre-empts Michigan common law causes of action asserting improper processn.na of a benefit claim); Metropolitan Life Ins. v. Mass., 471 U.S. 724 (1985) (ERISA does not pre-empt Massachusetts statute setting minimum standards for health care benefits); Shaw v. Delta Air Lines, 463 U.S. 85 41983) (ERISA pre-empts New York employment discrimnation statute to the 86 - M -- ---- - - -.

Is it Curtains for Veil Piercing? extent the statute was inconsistent with ERISA requirements); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981) (ERISA pre-empts New Jersey statutory provision that affects the way an ERISA plan may calculate pension benefits). 396. 451 U.S. 504. 397. Id. at 522. 398. Id.; see also Ingersoll-Rand, 498 U.S. at 137-38 ("The purpose of Congress is the ultimate touchstone.") (citations omitted). 399. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987); Drummonds, supra note 350, at 523. 400. Shaw, 463 U.S. at 96-97 (1983) (emphasis added). 401. The classic example of such a footnote is footnote number four in United States v. Carolene Products Co., 304 U.S. 144 (1938). See GERALD GUNTHER, CONSTITUTIONAL LAW 467 n.1 (1985); Paul W. Kahn, Community in Contemporary Constitutional Theory, 99 YALE L.J. 1, 19 n.81 (1989) ("famous footnote four of Carolene Products"); Kenneth Lasson, Scholarship Amok: Excesses in the Pursuit of Truth and Tenure, 103 HARV. L. REV. 926, 939 (1990) ("On occasion, notes become more important than text. Witness the famous footnote four in United States v. Carolene Products Co.")(footnote omitted); Jane S. Schacter, Metademocracy: The Changing Structure of Legitimacy iQ Statutory_ Interpretation, 108 HARV. L. REV. 593, 598 (1995) ("famous 'footnote four'"). 402. During the first six months of 1995, twelve U.S. courts of appeals used this phrase. Farr v. U.S. West, Inc., 58 F.3d 1361, 1365 (9th Cir. 1995); Dillingham Constr. N.A. v. County of Sonoma, 57 F.3d 712, 719 (9th Cir. 1995); Harris v. American Airlines, 55 F.3d 1472, 1474 (9th Cir. 1995); O'Shea v. First Manhattan Co. Thrift Plan & Trust, 55 F.3d 109, 113 (2d Cir. 1995); Zuniga v. Blue Cross & Blue Shield, 52 F.3d 1395, 1402 (6th Cir. 1995); The Meadows v. Employers Health Ins., 47 F.3d 1006, 1009 (9th Cir. 1995); Wagman v. Federal Express Corp., No. 94-1422, 1995 U.S. App. LEXIS 3111, at *5 (4th Cir. Feb. 17, 1995); Minnesota Chapter of Assoc. Builders & Contractors v. Minn. Dep't of Labor & Indus., 47 F.3d 975, 979 (8th Cir. 1995); Smith v. America W. Airlines, 44 F.3d 344, 347 (5th Cir. 1995); Hodges v. Delta Airlines, 44 F.3d 334, 336 (5th Cir. 1995); Rosario-Cordero v. Crowley Towing & Transp. Co., 46 F.3d 120, 123 (1st Cir. 1995); Williams v. Ashland Eng'g Co., 45 F.3d 588, 591 (1st Cir. 1995), cert. denied, 64 U.S.L.W. 3239 (U.S. 1995). 403. Shaw, 463 U.S. at 100, n.21. 404. District of Columbia v. Greater Wash. Board of Trade, 113 S. Ct. 580, 582 (1992). 405. Id. ac 583. I I 87 ""ll C -I:". -.- - I - 2, ",.. * -: P". I 'go - -,, -mm %, I. ll-, 4 .,. -7,Tt 4t. : I -..1 -A KW

Is it Curtains for Veil Piercing? 406. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139 (1990). 407. Metropolitan Life Ins. v. Mass., 471 U.S. 724, 739 (1985). 408. The circuits have developed a variety of tests to fill the gap. Memorial Hospital System v. Northbrook Life Ins. Co., 904 F.2d 236, 245 (5th Cir. 1990) (2-prong test); Hospice of Metro Denver, Inc. v. Group Health Ins. of Okla., 944 F.2d 752, 754-56 (10th Cir. 1991) (three-factor test); Rebaldo v. Cuomo, 749 F.2d 133, 139 (2d Cir. 1984), cert. denied, 472 U.S. 1008 (1985) (same test as the 10th Circuit); Barnes Hospital v. Sanus Passport/Preferred Services, Inc., 809 F. Supp. 725, 727 (E.D. Mo. 1992) (7-factor test). 409. 115 S. Ct. 1671, 1674 (1995). 410. Id. at 1679. 411. Id. at 1679-80. 412. id. 413. Id. at 1680 (citations omitted). 414. 486 U.S. 825, 827-28 (1988). 415. Id. at 827-30. 416. Id. at 830. 417. See supra text accompanying notes 391-92. 418. 486 U.S. at 831. 419. Id. at 832-34. 420. Id. at 834. 421. ERISA ~ 206(d) (1), 29 U.S.C. ~ 1056(d) (1) (1988). 422. 486 U.S. at 836-37. 423. Id. at 842. 424. Id. at 842-43. The majority had dismissed the statutory amendments establishing the exceptions at issue as acts of a subseqent Congress with little bearing on the intent of the body that enacted the original version of ERISA. Id. at 840. 425. See id. at 844. 426. See id. 427. See infra notes 428-30. 428. See, e.g., Pane v. RCA Corp., 868 F.2d 631, 635 (3rd Cir. 1989). 429. Swinney v. General Motors Corp., 46 F.3d 512, 520-21 (6th Cir. 1995). 430. See, e.g., Parker v. BankAmerica Corp., 50 F.3d 757, 765-68 (9th Cir. 1995); Rowe v. Allied Chem. Hourly Employees' Pension Plan, 915 F.2d 266, 269 (6th Cir. 1990). 431. 482 U.S. 1, 23 (1987). 432. Id. at 4-6. 433. ERISA ~ 514(a), 29 U.S.C. ~ 1144(a) (1992). ERISA separately defines the phrase "employee benefit plan." ERISA ~ 3(3), 29 U.S.C. ~ 1002(3) (1992). 434. 482 U.S. at 12. 435. Id. at 14. 88 I U &. l_ ** 1, mobb- - Ill-WIll I - 11, - I - I.- %- - --. - - -..-,; -,,

Is it Curtains for Veil Piercing? I 436. Id. at 8 (quoting Metropolitan Life Ins. v. Mass., 471 U.S. 724, 747 (1985) (quoting Malone v. White Motor Corp., 435 U.S. 497, 504 (1978))); see also supra text accompanying notes 385-86. 437. Fort Halifax, 482 U.S. at 9-12. 438. Id. at 12-15. 439. MAss. GEN. L. ch. 149, ~ 183 (1989) (invalidated by Simas v. Quaker Fabric Corp., 6 F.3d 849, 856 (Is: Cir. 1993)). 440. MASS. GEN. L. ch. 149, ~ 183(b) (1989) (invalidated by Simas v. Quaker Fabric Corp., 6 F.3d 849, 856 (1st Cir. 1993)). 441. MASS. GEN. L. ch. 149, ~ 183(d) (2) (1989) (invalidated by Simas v. Quaker Fabric Corp., 6 F.3d 849, 856 (Ist Cir. 1993)). 442. MAss. GEN. L. ch. 149, ~ 183(b) (1989) (invalidated by Simas v. Quaker Fabric Corp., 6 F.3d 849, 856 (1st Cir. 1993)). 443. Simas v. Quaker Fabric Corp., 6 F.3d 849, 856 (1st Cir. 1993). 444. See id. at 856 (1st Cir. 1993) (calling the result an "odd irony")., 445. CTS Corp. v. Dynamics Corp., 481 U.S. 69, 87-94 (1987). 446. Simas, 6 F.3d at 852. The defendants also argued that, even if the statute required the establishment of a plan, the plan could not be an employee plan because the payment would be made by the acquiring firm, not by the former employer. Id. The court rejected this argument because ERISA's definition of the term "employer" is broad enough to include the acquiror. Id. at 854-56. 447. Id. at 853. 448. Id. 449. Id. 450. Id. at 854. 451. Id. at 856. 452. Of course, this question is very different from the questions of the ideal extent of ERISA's pre-emption clause or whether the jurisprudence could have developed in a different manner. These latter two questions are beyond the scope of this Article. 453. See Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 829-30 (1988). 454. See, e.g., Frary v. Shorr Paper Prods., 494 F. Supp. 565, 569 (N.D. Ill. 1980), see also Amato v. Western Union Int'l, 773-F.2d 1402, 1417-18 (2d Cir. 1985) (employer did not act as a fiduciary when amending plan), cert. dismissed, 474 U.S. 1113 (1986). 455. ERISA ~ 404(a) (1) (A) (i), 29 U.S.C. ~ 1104(a) (1) (A) (i) (1992). For a brief explanation of ERISA's fiduciary standards, see Muir, supra note 126, at 100-49. 89 t ~ ~ ~ ~ b'~~~~. 9 ~ ~ ~, p I

I Is it Curtains for Veil Piercing? 456. Akers v. Palmer, 71 F.3d 226, 230 (6th Cir. 1995) (company is not subject to fiduciary duties when deciding what the terms of a plan are to be); Belade v. ITT Corp., 909 F.2d 736, 738-39 (2d Cir. 1990)(design of a program is purely a corporate management decision). 457. See Musto v. American General Corp., 861 F.2d 897, 910 -12 (6th Cir. 1988), cert. denied, 490 U.S. 1020 (1989) ("When an employer decides to establish, amend, or terminate a benefits plan, as opposed to managing any ass'ets of the plan and administering the plan in accordance with its terms, its actions are not to be judged by fiduciary standards."); Viggiano v. Shenango China Div. of Anchor Hocking Corp., 750 F.2d 276, 279 (3d Cir. 1984) (recognizing that ERISA does not require an employer to maintain medical coverage); Sutton v. Weirton Steel Div. of Nat'l Corp., 724 F.2d 406 (4th Cir. 1983) (employer did not breach its fiduciary duty by amending its plan and limiting its own liability), cert denied, 467 U.S. 1205 (1984). 458. 793 F.2d 1456 (5th Cir. 1986); see also Richmond v. American Systems Corp., 792 F. Supp. 449, 460 (E.D.Va. 1992) (upholding state laws governing the fiduciary duties owed to minority sharholders). 459. See 793 F.2d at 1458. 460. Id. at 1465. 461. Id. 462. Id. 463. 793 F:.2d at 1468. 464. See, e.g., id. at 1467. 465. Id. at 1468. 466. See id. 467. See id. 468. Id. 469. Peacock v. Thomas, 64 U.S.L.W. 4095, 4096-97 (U.S. Feb. 21, 1996). 470. Id. 471. Thomas v. Peacock, 39 F.3d 493, 503 (4th Cir. 1993). 472. In fact, this is basically the situtation that led to the Peacock litigation. See supra text accompanying note 127. 473. See 115 S. Ct 1671 (1995); supra text accompanying notes 409-413 for a discussion of this decision. 474. See N.Y. State Conference of Blue Cross & Blue Shield Plans, 115 S. Ct. at 1680. 475. 486 U.S. 825 (1988). 476. See supra text accompanying notes 419-22. 477. For a discussion of the alter ego and instrumentality theories, see supra notes 175-86 and accompanying text. 478. See, e.g., Seymour v. Hull & Moreland Eng'g, 418 F. Supp. 190, 197 (C.D. Cal. 1976) (general partners jointly and severally liable for amounts owed by partnership in action brought by trustees of union I EI 90 1 — -~ ~ ~ I.. - -

Is it Curtains for Veil Piercing? health and welfare fund), aff'd on part and remanded in part, 605 F.2d 1105, 1115 (9th Cir. 1979)(remanding for amendment to hours worked by contractor), see also Ryan v. Brophy, 755 F. Supp. 595, 597(S.D. N.Y. 1991) (partners jointly and severally liable for tort claims against the partnership and jointly liable for contract claims against the partnership); Grass v. Homann, 130 Ill. App.3d 874, 881 (Ill. Ct. App. 1984) (partner may be held jointly or severally liable for a contract claim against the partnership). 479. See supra Part II.B.2. While the choice between state and federal law may be important in this context, a discussion of that choice is beyond the scope of this Article. 480. See supra text accompanying notes 175-204 for a discussion of the factors considered in a veil piercing claim. 481. See supra text accompanying note 399. 482. 64 U.S.L.W. 4095, 4096 (U.S. Feb. 21, 1996). 91 I I. -M..4 " P-.. -- -, I - - -FIW '777," 1 --- 71-=., -.. -1 W,. FW17-1 'IC,", I 1 i -,,. pr WPF I'll.