Birbara v. Locke

United States Court of Appeals
For the First Circuit

No. 96-1530

CHARLES A. BIRBARA and DAVID G. MASSAD,

Plaintiffs, Appellees,
v.

GORDON LOCKE ET AL.,
Defendants, Appellants,

and

TECHNOLOGY FINANCE GROUP, INC.,
Defendant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]

Before
Boudin, Circuit Judge,

Aldrich, Senior Circuit Judge,

and Lynch, Circuit Judge.

Alexander D. Widell, with whom Eugene R. Scheiman and Baer, Marks

& Upham LLP were on brief, for appellants.

Roy A. Bourgeois, with whom Amato J. Bocchino and Bourgeois,

Dresser & White were on brief, for appellees.

November 7, 1996

LYNCH, Circuit Judge. Two sophisticated investors
LYNCH, Circuit Judge.

bought computer-lease tax shelters. The 1986 revisions to

the Tax Code undercut the economic rationale for such tax

shelters. As a result, the seller of the shelters,

Technology Finance Group ("TFG"), later became insolvent and

violated its investment contracts. A public company,

Creative Resources, Inc. ("CRI"), acquired control of TFG,

poured in money and attempted, unsuccessfully, to salvage the

company. The two investors, plaintiffs here, sued TFG, its

new parent and two individuals, officers of the parent, inter

alia, for TFG's breach of contract on a corporate veil

piercing theory. The investors obtained a jury verdict of

$250,000.1 We reverse and vacate the verdict, finding the

evidence insufficient to meet the strict standards

Massachusetts has set for piercing the corporate veil.

Facts

In 1986, plaintiffs Charles Birbara and David

Massad each purchased a one-half ownership interest in a

commercial computer from a subsidiary of TFG, a Delaware

corporation that leased commercial equipment as tax shelters.

In addition, Massad purchased a second computer from the TFG

affiliate. These computers were subject to existing "user

1. With interest, this resulted in an award of $427,945.21.
The court and jury rejected fraud, conversion and deceptive
trade practices claims against the defendants. TFG has not
appealed from the verdict against it.

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leases" with companies that had actual possession of the

computers, as well as to the right of a TFG subsidiary to

sell the computers when the leases expired. TFG was required

to pay plaintiffs the proceeds of these sales, less certain

fees. Following the enactment of the Tax Reform Act of 1986,

TFG became unable to market its equipment leases and

consequently could not generate adequate operating capital.

In an effort to return the company to firm financial footing,

Jerry Minsky, TFG's then-president and CEO, who is not a

party to this suit, decided that TFG would not pay investors

the proceeds from the sales of their equipment but rather

would retain these funds, thereby violating the investment

contracts.

TFG continued to face financial problems. In 1989,

CRI, a public Nevada corporation which owned several other

businesses, acquired complete ownership of TFF, Inc., a

Delaware corporation which owned all of TFG's outstanding

common stock. CRI began taking steps to ameliorate TFG's

financial problems. Gordon Locke and Dennis Williamson,

members of the CRI Board of Directors' Executive Committee

and CRI's only preferred shareholders, together invested

$250,000 in CRI. CRI, in turn, made interest bearing loans

to TFG, which were properly documented in the accounts of

both companies. Locke and Williamson became executive vice

presidents of TFG, for which Williamson received an annual

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salary of $206,250 and a monthly automobile allowance, and

for which Locke received an annual salary of $187,500 and a

monthly automobile allowance. In addition, TFG's by-laws

were amended to curtail the power of the CEO, Minsky.

CRI was careful to observe all the corporate

formalities with respect to TFG. The two companies had

different boards of directors and separate board meetings.

Although, consistent with good accounting practice, CRI and

TFG eventually had consolidated financial statements, each

kept its own financial records.

The new management of TFG decided to continue

Minsky's policy of violating contracts with TFG investors by

reselling equipment leases without paying investors the

proceeds, believing that this was the only way to continue to

improve TFG's financial health as well as to avoid favoring

investors whose equipment had not been sold before TFG was

acquired by CRI. CRI, however, did begin the process of

offering to all of the investors whose contracts were

violated a settlement package which included cash, notes, and

CRI stock.

One of TFG's numerous creditors took steps to

attach a TFG bank account in Connecticut. TFG transferred

funds out of this account into a TFG account in a Canadian

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bank in order to meet the payroll for TFG employees.2 For

several months in 1990, Locke ran TFG's payroll out of his

personal attorney operating account in New York and was

reimbursed with funds transferred out of the TFG Canadian

account. Eventually, in January 1991, CRI sold TFG. TFG

owed CRI over one million dollars; this debt was forgiven at

the time TFG was sold.

Neither of the plaintiffs in this case ever had any

direct dealings with CRI, Locke or Williamson. Both

plaintiffs had a number of other tax shelter investments, and

relied on David Levinson, their financial advisor, as to this

investment. Indeed, Massad never even read the initial

offering memorandum. Levinson first became aware of TFG's

financial difficulties in February 1990, after calling TFG in

preparation for a meeting with Birbara. On February 20,

Levinson spoke to Locke, who told him that he was sure that

plaintiffs' computers had been sold. Although Locke was not

familiar with plaintiffs' machines, he indicated that all of

the computers had been sold, and that he would try to

determine exactly what had happened to plaintiffs' machines.

2. In both of his depositions taken before trial, Locke
testified that it was his best recollection that the funds
were transferred out of TFG's Connecticut account into a CRI
account in Canada. However, at trial he testified that his
recollection had been incorrect and bank statements were
produced to substantiate his trial testimony.

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Levinson conveyed this information to plaintiffs,

and in the next few days spoke to Locke or Williamson several

times in an effort to find out more. Levinson knew he was

speaking with Locke and Williamson in their capacities as TFG

officers and was not confused about the various corporate

relationships. On February 27, 1990, Williamson informed

Levinson that the computer owned by plaintiffs jointly had

been sold by prior management in October 1989, and the next

day, Levinson was told that Massad's computer had also been

sold in October 1989 by prior management.

CRI, however, had taken control of TFG prior to the

sale of the two computers, and thus the new management had

been involved in these sales. Moreover, the bill of sale

for Massad's computer dates from late February 1990, after

Levinson's calls. Defendants contend that Massad's computer

was actually sold in November 1989 by the company in

possession (which later reimbursed TFG), and that the

February bill of sale was simply an accounting between TFG

and that other company. Defendants assert that this was a

common industry practice. The jury would have been warranted

in disbelieving defendants' claim that Massad's computer had

been sold in November 1989.

Levinson's telephone calls prompted Locke in early

March to send each of the plaintiffs the settlement form

letter on CRI stationery that he was in the process of

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sending out to all TFG investors. The letter provided in

relevant part:

Early last year this company acquired all
the stock of Technology Finance Group,
Inc. ("TFG") from which you purchased [an
interest] in equipment as indicated in
the attached Schedule A. At the end of
June, 1989 management changed. This
Company, and its subsidiary TFG, is now
operated by new management. We, the new
management have reviewed TFG's books and
records and concluded, to the best of our
knowledge, in relation to the equipment
owned by you, that TFG owes you
Additional Rent . . . . Regrettably,
over the past 5 years, prior management
of TFG has not remitted sums to owners of
equipment to a total amount of
approximately $7 Million. Further, we
concluded, upon review of the financial
statements of the Company . . . that TFG
does not have the financial resources to
repay these funds.

. . . .

Your concern and disappointment at the
position in which you have been placed is
extremely understandable. However, it is
most important that you understand that
the management responsible for the
decisions not to pay you have resigned
and that new management is concerned to
provide you with the maximum economic
benefit possible under the circumstances.

The jury would have been warranted in finding that

the statement that former management was responsible for the

sales of plaintiffs' computers was not true. However,

despite the misrepresentation, plaintiffs were not confused

about the relationship between the corporate entities, nor

did they take any action in reliance on the new management

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language in the letter. Although the majority of TFG's

investors accepted the standard settlement package,

plaintiffs declined to do so.

Procedural History

Plaintiffs, who are Massachusetts residents, filed

this diversity suit in the District of Massachusetts in 1990,

alleging breach of contract, common law fraud, conversion,

interference with contractual obligations, and violation of

the Massachusetts deceptive trade practices statute, Mass.

Gen. L. ch. 93A, 2. Aware of TFG's precarious financial

condition, the plaintiffs brought suit not only against TFG,

but also against CRI, Locke, and Williamson.

At the close of the evidence, the trial judge

entered a directed verdict against the plaintiffs on the

fraud claim concerning the computer they owned jointly. The

defendants then moved, pursuant to Rule 50(a), for judgment

as a matter of law on various grounds, including a lack of

personal jurisdiction. The district court denied the motion,

ruling that the personal jurisdiction issue had been waived,

but even if it had not, that the jury could find the

defendants had sufficient contacts with Massachusetts for a

proper exercise of personal jurisdiction. The jury found for

the defendants on the remaining fraud and interference with

contractual relations claims, but for the plaintiffs on the

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breach of contract claim. The trial judge reserved decision

on the Massachusetts deceptive trade practices claim.

After the verdict, defendants again moved for

judgment as a matter of law, pursuant to Rule 50(b). The

trial court denied the motion. At the same time, it ruled

that the defendants had not violated the Massachusetts

deceptive trade practices statute, finding that the decision

to breach the contract with the plaintiffs was a valid

business judgment rather than an attempt on the part of the

defendants to line their pockets.

Personal Jurisdiction

The defendants question whether there is personal

jurisdiction over them under the Massachusetts long arm

statute, Mass. Gen. L. ch. 233A, 3, and the United States

Constitution. The district court found that all three

defendants had waived their objections to personal

jurisdiction and that in any event, the jury could find that

the defendants had sufficient contacts with Massachusetts for

a proper exercise of jurisdiction. The trial judge was

plainly correct that CRI waived any objection to

jurisdiction: at the final pre-trial conference, defense

counsel conceded there was no jurisdictional issue with

respect to CRI. Because parties are, as a general matter,

bound by the representations, concessions, and stipulations

of their attorneys, United States v. Woburn City Athletic

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Club, 928 F.2d 1, 6 (1st Cir. 1991), this express waiver is

dispositive on the issue of the trial court's jurisdiction

over CRI.

The matters of waiver and personal jurisdiction

over the two individual defendants are far closer. Because

we find that plaintiffs did not submit evidence sufficient to

sustain their verdict on the merits, we pretermit resolution

of the jurisdictional issue. See Norton v. Mathews, 427 U.S.

524, 530-31, 96 S. Ct. 2771, 1773-76A, 49 L. Ed.2d 672 (1976)

(where merits can be easily resolved in favor of the party

challenging jurisdiction, resolution of complex and

theoretical jurisdictional issue may be avoided); Menorah

Ins. Co., Ltd. v. INX Reinsurance Corp., 72 F.3d 218, 223 n.9

(1st Cir. 1995).

Piercing the Veil

TFG admittedly violated its contract with

plaintiffs, has not appealed and is liable to plaintiffs.

TFG is insolvent and plaintiffs, as TFG's putative creditors,

seek to have CRI, the corporate parent, and Locke and

Williamson, individuals who were officers of both TFG and

CRI, satisfy TFG's contractual obligations. Although

corporate and individual defendants present slightly

different questions, Pepsi Cola Metropolitan Co. v. Checkers,

Inc., 754 F.2d 10, 15-16 (1st Cir. 1985), the analyses are

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sufficiently similar to warrant discussing them together,3

only distinguishing the two categories when necessary.

Neither party disputes that Massachusetts law

controls in this diversity action. Our review is de novo.

We will only reverse if the evidence, when viewed in the

light most favorable to the verdict, would allow a reasonable

factfinder to come to only one conclusion -- that the moving

party was entitled to a judgment in its favor. Conway v.

Electro Switch Corp., 825 F.2d 593, 598 (1st Cir. 1987).

Plaintiffs seek to make the corporate parent and

two of its officers liable for the damages owed for breach of

contract by a subsidiary.4 Specifically, CRI acquired 100%

3. The leading Massachusetts case on piercing the corporate
veil, My Bread Baking Co. v. Cumberland Farms, Inc., 233

N.E.2d 748 (Mass. 1968), notes in dicta that a "corporation

or a person controlling a corporation and directing, or
participating actively in its operations may become subject
to civil or criminal liability on principles of agency or of
causation," My Bread, 233 N.E.2d at 751 (citation omitted),

and this court has applied the same analysis to individual
defendant shareholders as it has to defendant corporations.
Pepsi Cola, 754 F.2d at 15-16. However, commentators have

noted that courts have evinced a "greater willingness to
reach the assets of corporate as opposed to personal
shareholders." Easterbrook & Fischel, The Economic Structure

of Corporate Law 56 & n.9 (1991); Hackney & Benson,

Shareholder Liability for Inadequate Capital, 43 U. Pitt. L.

Rev. 837, 873 (1982) (collecting cases); Hamilton, The

Corporate Entity, 49 Tex. L. Rev. 979, 992 (1971).

4. That CRI acquired ownership of TFF, Inc. and thus of TFG
in 1989 while plaintiffs entered in their contracts with TFG
several years earlier in 1986 does not defeat plaintiffs'
claim, because the actions leading to the breach of contract
occurred in 1989 and 1990, after CRI had made the
acquisition. Thus, this case does not involve an effort to
hold a later parent responsible for the pre-parenthood

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of the stock of TFF, Inc., which in turn owned all of the

common stock of TFG (but not its preferred stock). Thus, CRI

was the parent once removed.

To start, CRI is a publicly traded, not a closely

held corporation. Caselaw and precedent elsewhere draw

distinctions between close and public corporations, and the

cases where courts have allowed creditors to reach the assets

of shareholders have almost always involved close

corporations. Easterbrook & Fischel, The Economic Structure

of Corporate Law 55-56 & n.8 (1991) (explaining that a

"manager's incentive to undertake overly risky projects is

greater in close corporations"). Massachusetts apparently

has not yet addressed the issue of piercing the corporate

veil of a public corporation. The key Massachusetts cases on

piercing the corporate veil have all involved close, family-

owned defendant corporations. In this silence, we will

assume, dubitante, that Massachusetts would apply the same

standards in deciding whether to pierce the corporate veil

when the defendant is a public corporation as it has when the

defendant is a close corporation.

Further, this case concerns injured creditors of

the subsidiary seeking to impose contract obligations on the

activities of its new corporate child. See, e.g., C.M. Corp.

v. Oberer Dev. Co., 631 F.2d 536, 539 (7th Cir. 1980)

(parent's acquisition of subsidiary after breach of warranty
renders analysis of relationship between two corporations
irrelevant).

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parent and its officers. Several courts and commentators

have suggested that it should be more difficult to pierce the

veil in a contract case than in a tort case. See, e.g.,

Edwards v. Minogram Indus., 730 F.2d 977, 980-984 (5th Cir.

1984) (en banc); Blumberg, The Law of Corporate Groups:

Substantive Law 17.01, 17.06, at 349-51, 359-60 (1987)

("[T]he underlying facts and policies in contract are often

very different from those in tort . . . ."); Easterbrook &

Fischel, supra, at 58 ("Courts are more willing to disregard

the corporate veil in tort than in contract cases."); Douglas

& Shanks, Insulation from Liability Through Subsidiary

Corporations, 39 Yale L.J. 193, 210-11 (1929). We have found

no Massachusetts Supreme Judicial Court case applying the

veil piercing doctrine in a contract case. The Appeals Court

cases that do so have not addressed the question of whether

it is more difficult to pierce the corporate veil in contract

than in tort. E.g., Evans v. Multicon Const. Corp., 574

N.E.2d 395, 400 (Mass. App. Ct. 1991), review denied, 577

N.E.2d 304 (Mass. 1991) (tbl.).

We need not, however, resolve this issue, because

we find that plaintiffs do not even meet the standard

articulated by the Supreme Judicial Court in its seminal

ruling on veil piercing in a tort case, My Bread Baking Co.

v. Cumberland Farms, Inc., 233 N.E.2d 748 (Mass. 1968). As a

preliminary matter, we note that "Massachusetts has been

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somewhat more 'strict' than other jurisdictions in respecting

the separate entities of different corporations." My Bread,

233 N.E.2d at 752.

It is true that My Bread teaches that the principle

that corporations are generally to be regarded as distinct

entities is not "of unlimited application":

Although common ownership of the stock of
two or more corporations together with
common management, standing alone, will
not give rise to liability on the part of
one corporation for the acts of another
corporation or its employees, additional
facts may be such as to permit the
conclusion that an agency or similar
relationship exists between the entities.

Id. at 751-52. The Supreme Judicial Court explained that it

is appropriate to depart from the general principle of

corporate separateness:

(a) when there is active and direct
participation by the representatives of
one corporation, apparently exercising
some form of pervasive control, in the
activities of another and there is some
fraudulent or injurious consequence of
the intercorporate relationship, or (b)
when there is a confused intermingling of
activity of two or more corporations
engaged in a common enterprise with
substantial disregard of the separate
nature of the corporate entities, or
serious ambiguity about the manner and
capacity in which the various
corporations and their respective
representatives are acting. In such
circumstances, in imposing liability upon
one or more of a group of "closely
identified" corporations a court "need
not consider with nicety which of them"
ought to be held liable for the act of

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one corporation "for which the plaintiff
deserves payment."

Id. at 752 (citation omitted). However, in setting these

circumstances in context, the Supreme Judicial Court

explained:

Where there is common control of a group
of separate corporations engaged in a
single enterprise, failure (a) to make
clear which corporation is taking action
in a particular situation and the nature
and extent of that action, or (b) to
observe with care the formal barriers
between the corporations with a proper
segregation of their separate businesses
records, and finances, may warrant some
disregard of the separate entities in
rare particular situations in order to
prevent gross inequity.

Id. (internal citation omitted).

Since My Bread, in a variety of factual settings

(albeit none exactly analogous to this case), the Supreme

Judicial Court has repeated that under Massachusetts law, the

corporate veil will only be pierced in rare situations.

Spaneas v. Travelers Indem. Co., 668 N.E.2d 325, 326 (Mass.

1996) (corporate veil will only be pierced to prevent gross

inequity); Berger v. H.P. Hood, Inc., 624 N.E.2d 947, 950

(Mass. 1993) (corporate form will be respected absent

"compelling reason of equity" to do otherwise); Gurry v.

Cumberland Farms, Inc., 550 N.E.2d 127, 134 (Mass. 1990)

(same); Worcester Ins. Co. v. Fells Acres Day Sch., 558

N.E.2d 958, 968-69 (Mass. 1990) (noting the reluctance to

disregard the corporate form); Commonwealth v. Beneficial

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Fin. Co., 275 N.E.2d 33, 91 (Mass. 1971) (courts will only

look through the corporate veil to "accomplish . . .

essential justice"), cert. denied, 407 U.S. 910 (1972) and

407 U.S. 914 (1972); Gordon Chem. Co. v. Aetna Casualty &

Surety Co., 266 N.E.2d 653, 657 (Mass. 1971); see also United

Elec. Workers v. 163 Pleasant St. Corp., 960 F.2d 1080, 1091

(1st Cir. 1992) ("Under Massachusetts common law,

disregarding the corporate form is permissible only in rare

situations.").

We review the evidence in light of the two prong My

Bread test, starting with the second prong. Plaintiffs

clearly did not meet their burden of showing by a

preponderance of the evidence a "confused intermingling" of

CRI's and TFG's activities with "substantial disregard of

the separate nature of the corporate entities," or "serious

ambiguity about the manner and capacity in which the [two]

corporations and their respective representatives [were]

acting." My Bread, 233 N.E.2d at 752. Defendants were

extremely careful about maintaining the formal distinctions

between CRI and TFG. The two companies had distinct boards

of directors, had separate board meetings, and each kept

individual financial records. There is no evidence showing

that TFG was a sham or merely a shield behind which CRI could

hide to escape liability for its own obligations. Beneficial

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Fin. Co., 275 N.E.2d at 91-92; Gordon Chem. Co., 266 N.E.2d

at 657.

The primary evidence on which plaintiffs rely is

TFG's movement of funds from a bank account in its own name

in Connecticut into another TFG account in a Canadian bank in

order to meet the payroll for TFG employees. For several

months, defendant Locke ran TFG's payroll out of his own

attorney operating account in New York because steps had been

taken to attach TFG's Connecticut account. Locke was

reimbursed with funds transferred out of the TFG Canadian

account. It is undisputed that the funds disbursed by Locke

and repaid by TFG went only to TFG employees. Plaintiffs

were unaware of the transfers at the time and the transfers

did not affect them. This is not the sort of "confused

intermingling" we think the Supreme Judicial Court had in

mind.

Plaintiffs also argue that confused intermingling

was evident from cash infusions into TFG by CRI, Locke and

Williamson. However, all the money transferred from CRI to

TFG was in the form of loans that were properly recorded in

the financial records of both corporations. Moreover, there

was insufficient competent evidence of transfers of money in

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the other direction, that is, from TFG to CRI.5 These loans

do not support the claim of confused intermingling.

Plaintiffs' argument that there was serious

confusion about the manner and capacity in which the two

corporations and their representatives acted is similarly

unpersuasive. There is no evidence that there was any

confusion about on whose behalf a director was acting in any

given instance. Locke and Williamson, in their capacities as

directors of both CRI and TFG, did sometimes act on behalf of

both corporations simultaneously, but that is to be expected

when individuals serve as directors for both a parent and its

subsidiary. It is also to be expected that when a subsidiary

company profits, the parent company will as well. That the

fortunes of CRI and TFG were to some extent linked does not,

as plaintiffs suggest, militate in favor of piercing the

corporate veil.

Plaintiffs admitted they were not misled about the

relationship between TFG and CRI. Indeed, Massad did not

even know that he had invested in TFG, let alone that CRI had

become its parent. Plaintiffs neither knew nor cared about

the relationship between CRI and TFG, but rather relied on

their financial advisor, Levinson, who understood the

corporate relationship.

5. The bank statements, the best evidence, show no transfers
from TFG to CRI.

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As to the first prong of the My Bread test, the

evidence is only that Locke and Williamson served on the

boards of both TFG and CRI. Mere overlapping of boards does

not meet the test of "active and direct participation by the

representatives of one corporation, apparently exercising

some form of pervasive control." My Bread, 233 N.E.2d at

752. Moreover, plaintiffs have failed to show any

"fraudulent or injurious consequence of the intercorporate

relationship." Plaintiffs argue that the settlement offers

were misleading and fraudulent, because defendants attributed

the decision to retain investment returns to TFG's prior

management, when it had been the decision of the new

management to continue the policy of violating investment

contracts.

Even assuming this misrepresentation might have

supported fraud or unfair practices claims against the

defendants (claims the jury and court here rejected), we

think plaintiffs' argument misses the point of the corporate

disregard doctrine. The phrase "fraudulent or injurious

consequence" is limited in My Bread by the phrase "of the

intercorporate relationship." There was no failure to "make

clear which corporation [was] taking action" or "to observe

with care" the corporate form. My Bread, 233 N.E.2d at 752.

The Massachusetts Appeals Court has put this point well:

"There is present in the cases which have looked through the

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corporate form an element of dubious manipulation and

contrivance, finagling, such that corporate identities are

confused and third parties cannot be quite certain with what

they are dealing." Evans, 574 N.E.2d at 400;6 cf. Oman Int'l

Fin. Ltd. v. Hoiyong Gems Corp., 616 F. Supp. 351, 364

(D.R.I. 1985) (noting that the better reasoned cases under

Rhode Island law only pierce the corporate veil when the

injurious consequences are a direct result of the misuse of

the corporate form). Plaintiffs were never misled about

which corporate entity -- CRI or TFG -- was obligated to them

or was dealing with them. Cf. Leatherbee Mortgage Co. v.

Cohen, 638 N.E.2d 939, 940 (Mass. App. Ct. 1994); Massey's

Plate Glass Co. v. Quinlan, 1992 WL 141885, at *3 (Mass.

Dist. Ct. 1992).

6. To the extent that the earlier Massachusetts Appeals
Court decision in Bump v. Robbins, 509 N.E.2d 12 (Mass. App.

Ct. 1987) could be read to the contrary, we believe it to be
inconsistent with My Bread and effectively overruled by

Evans. See MCLE-NELI, Appellate Practice 108-13 (1980);

Henn, Civil Interlocutory Appellate Review Under G.L.M.

c.231, 118 & G.L.M. c.211, 3, 81 Mass. L. Rev. 24 (1996).

Bump pierced the corporate veil despite the plaintiff's lack

of confusion about with whom he was dealing, based on the
particular facts and circumstances of the case and the belief
that My Bread does not "mak[e] such confusion an absolute

requirement." 509 N.E.2d at 24. Bump, which imposed

liability on a parent under Mass. Gen. L. ch. 93A, also
involved findings of a de facto merger and an undisclosed
principal and articulated its holding by stating that the
parent "was liable on agency principles" for the conduct of
its subsidiary. Id.

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As was said in Pepsi Cola, we believe the two prong

general analysis in My Bread is exemplary and does not

provide an exhaustive list of considerations. My Bread sets

the standard for deciding when to pierce the corporate veil

under Massachusetts law; Pepsi Cola elucidates some factors

that may be considered when engaging in a My Bread analysis.

Pepsi Cola, 754 F.2d at 15.7 The majority of the Pepsi Cola

factors cut against piercing the corporate veil in this case.

Plaintiffs largely based their case against the

individual defendants on a theory that the two defendants ran

TFG for their personal benefit -- that by drawing salaries

and receiving certain benefits, the defendants were siphoning

off corporate funds.8 But that theory is topsy-turvy:

managers should not be put to the Hobson's choice of either

working for free or facing personal liability. Such a rule

would undercut, not advance, the policy reasons for the

corporate disregard doctrine. See Evans, 574 N.E.2d at 399

7. These factors include insufficient capitalization,
nonobservance of corporate formalities, failure to pay
dividends, insolvency at the time of the litigated
transaction, siphoning off corporate funds, absence of
functioning officers besides the dominant shareholders,
absence of corporate records, use of the corporation to
advance the interests of the dominant shareholders, and use
of the corporation in promoting fraud. Pepsi Cola, 754 F.2d

at 16.

8. In contrast to the situation in Pepsi Cola, 754 F.2d at

14, there was no credible evidence of subterfuge or
channeling excessive payments; nor was there any indication
that the benefits were not part of a legitimate benefits
plan.

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(benefit gained by individual defendants was a legitimate

business purpose and so a factor pointing against veil

piercing).

Indeed, only one of the Pepsi Cola factors can

arguably be said to militate in favor of veil piercing here:

when plaintiffs' computers were sold, TFG was insolvent,

unable to pay its debts as they fell due. However,

considering TFG's insolvency in light of policies

Massachusetts has sought to foster provides us with a

different perspective. Evans, 574 N.E.2d at 399. The

Supreme Judicial Court has recently, in dicta, said of the

corporate disregard doctrine:

[I]t relates to the quite distinct issue
whether the effects of liability of one
corporate entity should be visited upon a
related entity. Corporate distinctness
is respected as a means of limiting
liability and thus fostering investment
in corporate enterprises.

Strom v. American Honda Motor Co., 667 N.E.2d 1137, 1145-46

(Mass. 1996).

This case involves an attempt to impose liability

on a new parent corporation and its officers for their

efforts to salvage an insolvent, struggling business. TFG

was not initially insufficiently capitalized for the purposes

of its corporate endeavor and only became insolvent after a

change in the tax laws. See Laborers Clean-Up Contract

Admin. Trust Fund v. Uriarte Clean-Up Serv., Inc., 736 F.2d

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516, 525 (9th Cir. 1984) (distinguishing, in dicta, the

propriety of veil piercing when a subsidiary was

undercapitalized at the outset from veil piercing when a

subsidiary began with sufficient funds but subsequently fell

upon hard times).

The basic contract was entered into between

plaintiffs and TFG, and TFG became insolvent before CRI

assumed ownership. CRI bought TFG knowing that it was

insolvent and pumped a great deal of money into TFG to try to

make it profitable again. That TFG may have continued to be

undercapitalized in these circumstances does not argue for

piercing the corporate veil. Indeed, the contrary may well

be true. This is not a case involving a close corporation

where the parent may "form a subsidiary with minimal

capitalization for the purpose of engaging in risky

activities" and where absolute limited liability would create

"incentives to engage in a socially excessive amount of risky

activities." Easterbrook & Fischel, supra, at 57. Nor is

this a case of "financial misconduct of the subsidiary

involving such manipulation as asset-stripping or asset-

siphoning, which depletes the resources of the subsidiary."

Blumberg, supra, 17.01, at 350. In sum, this is not that

"rare particular situation" where disregarding the corporate

form is necessary "to prevent gross inequity." My Bread, 233

N.E.2d at 752.

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Accordingly, after examining the case in the light

most favorable to the verdict, we find the evidence

insufficient to warrant piercing TFG's corporate veil to

reach CRI's assets or the individual defendants' assets under

the stringent requirements set forth by Massachusetts law.

We reverse and vacate the jury verdict.

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