Williams v. Midwest Employers

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

__________________________

No. 00-31391
__________________________

JO ANN WILLIAMS, ETC.,
Plaintiff,
versus

MIDWEST EMPLOYERS CASUALTY CO. and
on behalf of Willie E. Williams

Defendant-Plaintiff-Third Party Plaintiff-Appellant,

versus

ADAMS PLASTICS, INC. AND SPARTECH CORPORATION,

Defendants-Third Party Defendants-Appellees.

___________________________________________________

Appeal from the United States District Court
for the Western District of Louisiana
(97-CV-1208)
___________________________________________________
March 21, 2002

Before KING, Chief Judge, and DAVIS, Circuit Judges and VANCE,1

District Judge.

PER CURIAM:2

Appellant Midwest Employers Casualty Company appeals

multiple partial summary judgment rulings against it regarding

1
District Judge of the Eastern District of Louisiana,
sitting by designation.
2
Pursuant to the 5th Cir. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5th Cir. R.
47.5.4.
excess insurance coverage for the workers' compensation claim of

a former employee of its insured, Adams Plastics, Inc. Appellant

sought to impose liability on Adams and its parent company,

Spartech Corporation, under the theory of "piercing the corporate

veil" for claims it brought as assignee of the employee and as a

third-party plaintiff. The district court concluded that, as an

assignee of Williams' workers' compensation claim, Midwest was

entitled to recover from Adams up to the amount of Adams' self-

insured retention and that there was no merit to any of Midwest's

other claims. After our review of the voluminous record in this

case, we conclude that the district court did not err when it

granted summary judgment sua sponte against Midwest on the issues

of the existence vel non of insurance coverage and on piercing

the corporate veil. We further decide that the district court

did not err when it determined that Williams' settlement with and

release of Spartech foreclosed Midwest's claims against Spartech

as Williams' assignee. Finally, we decide that the district

court erred when it dismissed sua sponte Midwest's claims against

Adams for breach of its contractual duties to defend and settle

claims. Accordingly, we affirm in part and reverse and remand in

part.

I. Background

Adams Plastics, Inc. d/b/a Spartech Films, was incorporated

in 1985 with 1000 shares of stock at par value of $1.00 per share

2
and $150,000 of paid-in capital. Spartech Corporation owned all

of the stock of Adams. Adams engaged in the business of

manufacturing and selling plastic film products at a plant that

Adams owned in Monroe, Louisiana. Adams' plant, land, and

equipment had a value of over $1.4 million and a lease value of

$150,000 per year. The plant's local general manager directed

day-to-day activities, and he was responsible for negotiating raw

materials contracts and formulating the annual business plan.

Adams' board of directors retained final approval power over the

business plans. Adams' board of directors had some overlapping

members with Spartech's board, and the two companies shared some

common business departments that operated out of St. Louis,

Missouri. They filed consolidated financial statements and

federal tax returns with the Securities and Exchange Commission

and the Internal Revenue Service, respectively. Each company

kept separate books, and Adams' board conducted business through

unanimous consents, as permitted by Louisiana law.

In October 1991, Spartech closed Adams' Monroe plant because

Adams had become a severe financial drain on Spartech. Indeed,

between 1989 and 1991, in an effort to keep Adams in business,

Spartech "downstreamed" cash to Adams on a weekly basis, totaling

over one million dollars per year. After it closed Adams' plant,

Spartech transferred the Adams plant and land to an inactive

subsidiary and offset the value of the transferred property

3
against Adams' debt to Spartech.

In 1989, Charles Northern, an insurance broker, approached

Adams and offered to help the company become a self-insurer for

workers' compensation claims and to help it obtain excess

workers' compensation coverage from Midwest. Louisiana

employers had the option of purchasing workers' compensation

liability insurance or becoming a "qualified self-insurer," with

an appropriate excess policy of workers' compensation insurance.

Northern obtained financial information from Adams, including

historical loss and payroll data, and he filled out Midwest's

two-page insurance application that he had developed with

Midwest. Midwest did not ask Adams for any other information or

documentation. Midwest responded to Adams' application with a

proposal for coverage, and Adams accepted the proposal. Midwest

issued the policy in May 1989. The policy covered losses for

workers' compensation claims for occupationally-caused disease if

the employee's last exposure occurred during the term of the

policy.

Under the policy, Adams represented that it was a duly

qualified self-insurer under the workers' compensation laws of

Louisiana. At that time, to qualify as a self-insurer, an

employer had to own real estate in Louisiana worth $25,000.

Adams met this qualification at the time it applied for insurance

with Midwest, and at the time Midwest issued the policy in May

4
1989. In July 1989, however, Louisiana changed its laws and

required a prospective self-insurer to get approval from the

Louisiana Office of Workers' Compensation Administration ("OWCA")

and to prove that it could pay a $150,000 per-claim deductible

and post a $200,000 bond or cash with the State as security to

pay claims if the self-insurer could not. Northern applied to

the State to obtain approval for Adams under the new workers'

compensation scheme. The OWCA tentatively approved Adams as a

qualified self-insurer in August 1991. Midwest renewed Adams'

policy in 1990 and 1991. In September 1991, the OWCA revoked

Adams' self-insurer status because Adams was unable to provide

the State with the necessary security. Adams then terminated its

excess policy with Midwest effective September 30, 1991. Adams

paid all premiums due during the term of the Midwest policy.

Willie Williams was employed by Adams at its plant in

Monroe. In October 1989, Williams complained that he was

disabled as a result of lung problems caused by breathing in

plastic at the Adams plant. F.A. Associates handled Williams'

claim as a third-party administrator on behalf of Adams. Adams

paid Williams weekly workers' compensation benefits totaling

$23,760 until October 9, 1991, when Adams ceased doing business.

Weeks before Adams shut-down its operations, F.A. Associates sent

Adams and Midwest a letter summarizing Williams' case and the

potential for "rather heavy exposure" it presented. The letter

5
also indicated that Adams had stated an intention to shut its

doors and "walk away" from any liabilities. F.A. Associates

noted that it had an obligation to notify Williams' attorney of

the lack of funds to pay his client's benefits.

In October 1991, Williams filed a claim in the OWCA against

Adams and Spartech for continued benefits based on his

allegations that he was permanently and totally disabled.

Williams then settled all of his claims against Spartech for

$7500. The settlement was approved by the workers' compensation

court, and it included a release of all claims by Williams

against Spartech. Williams reserved his rights against Adams.

In July 1994, he obtained a default judgment against Adams

declaring that he was permanently and totally disabled and

entitled to benefits of $212.00 per week indefinitely. Adams was

insolvent and failed to pay the judgment. In September 1994,

Williams filed a supplementing and amending petition naming

Midwest as an additional defendant seeking payment of the default

judgment. The suit against Midwest was dismissed for lack of

subject matter jurisdiction. In response, Midwest filed a

declaratory judgment action in the United States District Court

for the Western District of Louisiana to determine coverage under

the policy. Before the district court entered its final ruling,

Williams filed a motion against Adams to accelerate payment in

workers' compensation court. Midwest received a notice of the

6
hearing on this motion. Additionally, Adams notified Midwest

that the motion had been filed and that it had no means to or

intention of defending the claim. Midwest did not defend the

claim in workers' compensation court, and the court granted

Williams' motion for acceleration of payments. Ultimately, the

federal district court issued a judgment declaring that Midwest

was obliged to pay all workers' compensation benefits and medical

expenses that Williams was entitled to receive that exceeded

Adams' $150,000 self-insured retention under the Adams/Midwest

policy. Midwest sought to appeal the district court's ruling,

but it missed both the deadline to file for a new trial and the

deadline to file an appeal. This Court dismissed its appeal as

untimely.

In June 1997, Williams sued Midwest seeking $404,318.25 (the

amount of the judgment against Adams in excess of $150,000) in

Louisiana state court. Midwest removed the action to federal

district court. On April 7, 1998, Midwest filed a third-party

complaint against Adams and Spartech. Midwest asserted tort and

contract claims against Spartech and Adams, based on alleged

breaches of contractual duties and improper conduct in connection

with Williams' workers' compensation claim. Midwest also

asserted that Adams was not an independent corporation, but a

"veil" for Spartech and part of a single corporate enterprise

with Spartech.

7
 In November 1999, Midwest settled Williams' claim for

$267,500 and took an assignment of any claims Williams might have

against Adams and Spartech. Midwest, in its capacity as

Williams' assignee, then sought to undo the Spartech settlement

and to assert claims against Spartech and Adams for all workers'

compensation benefits to which Williams was entitled. Midwest

further claimed that Spartech should be liable for Adams'

obligations to Williams under the corporate veil doctrine.

On July 21, 2000, Midwest moved for partial summary judgment

on the veil piercing issue. At a pretrial conference on August

18, 2000, the court ordered the parties to brief the issue of

insurance coverage as it related to the declaratory judgment

ruling and it informed the parties that it was considering

Midwest's partial summary judgment on the veil piercing issue.

On September 8, 2000, the district court sua sponte granted a

partial summary judgment in favor of Spartech and Adams, the

nonmoving parties on the corporate veil motion, based on the

lengthy record before it. In a separate ruling also issued on

September 8, 2000, the district court dismissed with prejudice

Midwest's claims relating to the validity of the excess insurance

contract based on the ruling in the declaratory judgment action

and it dismissed Midwest's breach of contract claims. The court

ruled that Midwest, in its capacity as Williams' assignee, was

entitled to judgment against Adams in the amount of $126,240 plus

8
interest, which is the amount of Adams' self-insured retention

($150,000) minus the benefits that Adams actually paid to

Williams ($23,760). Finally, in a third ruling, the district

court granted Adams' and Spartech's motion for partial summary

judgment dismissing Midwest's claim that the settlement between

Spartech and Williams was fraudulent, collusive, or otherwise

unlawful or invalid.

On September 20, 2000, the district court entered a separate

final judgment on its rulings. Midwest moved for a new trial.

The district court denied Midwest's motion for new trial on

October 24, 2000, and Midwest timely filed its notice of appeal.

II. Discussion

This court reviews a grant of summary judgment de novo,

applying the same standard as the district court. See Harken

Exploration Company v. Sphere Drake Insurance PLC, 261 F.3d 466,

470 (5th Cir. 2001). Summary judgment is proper only when there

is not a genuine issue as to any material fact, and the movant is

entitled to a judgment as a matter of law. Id. We review the

evidence in the light most favorable to the non-movant and make

all reasonable inferences in its favor. Id.; Matsushita Electric

Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88,

106 S. Ct. 1348, 1356, 89 L. Ed. 2d. 538 (1986). A fact is

material if it might affect the outcome of the suit under

governing law. Id.; Anderson v. Liberty Lobby, Inc., 477 U.S.

9
242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). There

is a genuine issue as to a material fact if the evidence is such

that a reasonable jury could return a verdict for the non-movant.

Id.

A. Midwest's Claims as Subrogee of Williams

The Court finds no error in the district court's ruling that

Williams released his claim against Spartech, and therefore had

no claim to assign to Midwest. Midwest presented no evidence to

indicate that any of Spartech's representations led Williams to

agree to a settlement and release that he otherwise would not

have made. See LA. CIV. CODE art. 1955 ("Error induced by fraud

need not concern the cause of the obligation to vitiate consent,

but it must concern a circumstance that has substantially

influenced that consent."). Williams was represented by counsel

in the workman's compensation proceeding who vigorously pursued

his claim. Williams obviously knew there was a relationship

between Adams and Spartech because he included Spartech as a

defendant. Further, Williams' attorney could have ascertained

the nature of the Adams/Spartech relationship without

"difficulty, inconvenience, or special skill." LA. CIV. CODE

art. 1954 ("Fraud does not vitiate consent when the party against

whom the fraud was directed could have ascertained the truth

without difficulty, inconvenience, or special skill."). Six

years elapsed between the release and the assignment, and

10
Williams made no complaint about the release. Therefore, because

Williams released any claims he might have had against Spartech,

Midwest, as assignee of Williams' rights, has no claims against

Spartech. Accordingly, Midwest cannot, as assignee, attach

liability to Spartech through the piercing the corporate veil

doctrine.

B. Midwest's Claims in its Own Capacity

Midwest raises various issues on appeal regarding its claims

as third-party plaintiff against Adams and Spartech.

1. Tort Claims

Midwest asserted tort claims based on alleged intentional

and negligent misrepresentations regarding Adams qualified self-

insured status. We find that Midwest's tort claims are

prescribed. Although the district court did not rule on the

issue of prescription, this Court may decide a case on any ground

that was presented to the trial court. Breaux v. Dilsalver, 254

F.3d 533, 538 (5th Cir. 2001)(citing Dandridge v. Williams, 397

U.S. 471, 475 n. 6, 90 S. Ct. 1153, 1157 n. 6, 25 L. Ed. 491

(1970)); see also Gregory v. Missouri Pacific Railroad Company,

32 F.3d 160, 164 (5th Cir. 1994)(citing cases). Under Louisiana

Civil Code article 3492, "[d]elictual actions are subject to a

liberative prescriptive period of one year." LA. CIV. CODE art.

3492. When the plaintiff's complaint on its face reveals that

prescription has run, the burden is on the plaintiff to show why

11
the claim has not prescribed. Lima v. Schmidt, 595 So.2d 624,

628 (La. 1992). Here, the face of Midwest's third-party

complaint reveals that the one-year prescriptive period on

Midwest's tort claims has run because it filed its third-party

claims against Adams and Spartech in April 1998, and the claims

relate to acts allegedly performed at the latest in 1991.

Midwest contends that the prescriptive period was suspended under

the principle of contra non valentem. Suspension of the

prescriptive period under the contra non valentem principle

occurs when "the cause of action is not known or reasonably

knowable by the plaintiff, even though his ignorance is not

induced by the defendant." Corsey v. State Dept. of Corrections,

375 So.2d 1319, 1322 (La. 1979). The Louisiana Supreme Court,

however, noted that "this principle will not except the

plaintiff's claim from the running of prescription if his

ignorance is attributable to his own willfulness or neglect; that

is, a plaintiff will be deemed to know what he could by

reasonable diligence have learned." Id.

Clearly, Midwest was on inquiry notice of its claims in 1991

when Adams cancelled its insurance with Midwest because it could

not maintain its self-insured status. Further, Midwest asserts

that it was mislead as to the identity of its insured, but it is

undisputed that when Adams returned the cancellation endorsement

to Midwest in 1991, it changed the insured designation on the

12
form from "Spartech Films, A Division of Spartech, Inc." to

"Spartech Films, A Division of Adams Plastics, Inc." Midwest

could have discovered the factual basis of its claims through the

exercise of reasonable diligence much earlier than a year before

its suit was filed in 1998. See Corsey, 375 So.2d at 1322.

Further, Midwest admitted it knew of the alleged

misrepresentations when it filed its declaratory judgment action

against Williams in May 1995. Midwest's complaint alleged that

Adams misrepresented its qualified self-insured status when it

applied for insurance coverage from Midwest. See Rec. Doc. 60,

Ex. 11, Complt. at ¶ IX. Therefore, the one-year prescriptive

period had run well before Midwest filed its third-party

complaint against Adams and Spartech in April 1998 on claims

involving misrepresentations about Adams' financial status.

Accordingly, Midwest's tort claims are prescribed.

2. Contract Claims

The district court dismissed Midwest's claims regarding the

existence of insurance coverage based on issue preclusion. The

application of issue preclusion is a question of law that we

review de novo. United States v. Brackett, 113 F.3d 1396, 1398

(5th Cir. 1997). Midwest contends that the district court

improperly granted dismissal sua sponte on the coverage issue.

In Celotex Corp. v. Catrett, the Supreme Court held that district

courts "possess the power to enter summary judgments sua sponte."

13
477 U.S. 317, 326, 106 S. Ct. 2548, 2554 (1986). The power to

enter summary judgment sua sponte, however, is tempered by the

requirement to provide proper notice. Leatherman v. Tarrant

County Narcotics Intelligence and Coordination Unit, 28 F.3d

1388, 1397 (5th Cir. 1994)(citing Celotex, 477 U.S. at 326, 106

S. Ct. at 2554); Judwin Properties, Inc. v. United States Fire

Ins. Co., 973 F.2d 432, 436-37 (5th Cir. 1992)("A district court

may grant a motion for summary judgment sua sponte, provided that

it give proper notice to the adverse party.")(citations omitted);

see also Fed. R. Civ. Proc. 56(c) (requiring that summary

judgment motion be served at least 10 days before the time fixed

for the hearing). Failure to give notice may be harmless when

the nonmovant has no additional evidence or if all the

nonmovant's additional evidence is reviewed by the appellate

court and none of the evidence presents a genuine issue of

material fact." Nowlin v. Resolution Trust Corp., 33 F.3d 498,

504 (5th Cir. 1994)(quoting Leatherman, 28 F.3d at 1398). This

circuit also recognizes two instances in which the district or

appellate court can sua sponte dismiss an action on issue

preclusion grounds. Nagle v. Lee, 807 F.2d 435, 438 (5th Cir.

1987). One exception allows a court to raise the issue

preclusion defense on its own when all the relevant data and

legal records are before the court and the demands of comity,

continuity in the law, and essential justice mandate judicial

14
invocation of the principles of issue preclusion. See id. at 439

n. 2 (citing American Furniture Co. v. International

Accommodations Supply, 721 F.2d 478, 482 (5th Cir. 1981)).

Here, Adams and Spartech specifically pleaded issue

preclusion as dictated by Federal Rule of Civil Procedure 8(c) in

their first amended answer to Midwest's third-party complaint

(see Rec. Doc. 212) and in their answer to Midwest's first

amended third-party complaint (see Rec. Doc. 339). See FED. R.

CIV. P. 8(c). Further, the court asked the parties for briefs on

the preclusive effect of the declaratory judgment ruling at the

August 18, 2000 pretrial conference, and in response, the parties

briefed the preclusion issue before the court ruled on it. See

Rec. Doc. 550, 567, 580. Moreover, all of the relevant data and

legal records, such as the declaratory judgment action pleadings

and rulings (see Rec. Doc. 60), were before the district court.

Therefore, essential justice mandated judicial invocation of the

principles of issue preclusion before the commencement of the

trial. See Nagle, 807 F.2d at 439.

Midwest contends that the district court erred by applying

issue preclusion to its coverage claims because the coverage

issues were not actually litigated in the previous action. We

find no error in the district court's application of the

principle of issue preclusion. The principle of issue preclusion

bars a party from relitigating issues of fact or law that were

15
necessary to the court's judgment and actually determined in a

prior action. Sidag Aktiengesellschaft v. Smoked Foods Products

Co., Inc., 776 F.2d 1270, 1275 (5th Cir. 1985).

In Midwest's 1995 declaratory action against Williams,

Midwest challenged Williams' right to collect workers'

compensation benefits under the policy it issued to Adams. See

Midwest v. Williams, Civil Action No. 95-CV-0798 (M.D. La.

October 15, 1997), appeal denied, 161 F.3d 877 (5th Cir.

1998)(appeal denied based on untimely filing of notice of

appeal). One of the issues Midwest asserted in its complaint was

that Williams had no claim against it because the excess

insurance policy it issued to Adams was void ab initio as a

result of Adams' material misrepresentations that Adams was a

qualified self-insurer. See Rec. Doc. 60; Ex. 11, Complt. at ¶

IX. In addition, Midwest asked for a declaration that Williams'

employer was not an insured under the policy and that it had no

coverage obligation because Williams settled his claim with

Spartech. Midwest argued as it does here that since Spartech

Films was listed on the policy endorsement as a division of

Spartech, Inc., Spartech Films was Spartech. See Rec. Doc. 618,

Ex. XII, Summ. J. Memo. at 8 n. 1. Midwest moved for summary

judgment and the district court ultimately issued a ruling that

Midwest was obliged to pay Williams' claim in excess of the

$150,000 self-insured retention. Midwest raised the

16
fraud/misrepresentation issue in its pleadings on the motion.

See Rec. Doc. 618, Ex. XII, Reply Memo. at 7. The court's

ruling became final after Midwest's appeal was denied by the

Fifth Circuit as untimely. See 161 F.3d at 880. The declaratory

judgment found that Williams' employer, "Adams Plastics, Inc.,

d/b/a Spartech Films," was Midwest's insured and that it was

obliged to pay workers' compensation benefits to Williams for

injuries resulting from Williams' employment by Adams. See

Lamana v. LeBlanc, 526 So.2d 1107, 1109 (La. 1988)(res judicata

can be invoked to bar relitigation of issue presented in

pleadings and addressed or referred to in judgment). The

determination of the coverage issue was essential to the court's

final judgment against Midwest because Midwest could not have

been found to be liable to pay Williams unless the court

determined that Adams was the insured and that the underlying

excess policy between Adams and Midwest was valid. Accordingly,

the district court did not err when it ruled that the issue of

the identity of the insured and the validity of the policy were

actually litigated and necessary to the judgment. Since the

district court committed no error in finding that Spartech was

not a party to the insurance contract, it properly dismissed

Midwest's contract claims against Spartech.

Regarding Midwest's remaining contract claims against Adams,

we find that the district court erred in dismissing sua sponte

17
Midwest's claims that Adams breached its duty to use diligence

and good faith in the investigation, defense, and settlement of

Williams' claim. The district court failed to provide the

parties with notice that it planned to rule on the issue. See

Leatherman, 28 F.3d at 1397-98; Judwin Properties, 973 F.2d at

436-37. At the pretrial conference the court asked the parties

to brief the existence of any duties Spartech and Adams may have

had under the contract, but it did not specifically ask for

briefs on whether the duties were breached. See Rec. Doc. 550.

Further, the parties' earlier summary judgment motions and their

responses to the court's pretrial order merely addressed the

issue of whether Spartech had a duty under the contract.

Accordingly, the district court's ruling on Midwest's claim

against Adams for breach of contractual duties to defend and

settle claims is reversed and remanded.

3. Piercing the Corporate Veil

Midwest contends that the district court violated its due

process rights by sua sponte granting summary judgment in favor

of the nonmovants, Adams and Spartech, on the corporate identity

issue without the proper notice. In Exxon Corp. v. v. St. Paul

Fire and Marine Insurance Co., 129 F.3d 781, 786 (5th Cir. 1997),

this Court indicated that in order to achieve the goal of Federal

Rule of Civil Procedure 56, the prompt disposition of cases when

there is no genuine issue of material fact for the court to

18
consider, the district court may grant summary judgment for the

nonmovant sua sponte.

Here, Midwest brought the partial summary judgment motion on

the issue of corporate identity, so it had to have been on notice

that the district court was considering the issue. See Goldstein

v. Fidelity and Guaranty Insurance Underwriters, Inc., 86 F.3d

749, 750 (7th Cir. 1996)(affirming grant of summary judgment in

favor of nonmovant; after plaintiff filed for summary judgment

both parties on notice that summary judgment being considered).

Further, the court informed the parties at the August 18, 2000

pretrial conference that the court would consider Midwest's

motion before the trial. See Rec. Doc. 550. Accordingly, we

find that the district court did not violate Midwest's due

process rights.

Corporations function as distinct legal entities, separate

from the individuals who own them, and their shareholders are

generally not liable for the debts of the corporation. Riggins

v. Dixie Shoring Co., Inc., 590 So.2d 1164, 1167 (La. 1991); see

also LA. REV. STAT. § 12:93(B). Louisiana law holds that the

limited liability afforded corporate ownership should be

disregarded only in "exceptional circumstances." Id. at 1168

(emphasis added). Louisiana courts are reluctant to pierce the

corporate veil in the absence of fraud, malfeasance, or criminal

wrongdoing. See id. (piercing the veil is often justified to

19
prevent the use of the corporate form to defraud creditors).

Additionally, Louisiana courts are less likely to disregard the

corporate veil when the underlying claim is based on contract

rather than tort. See Riggins v. Dixie Shoring Co., Inc., 592

So.2d 1282, 1285 (La. 1992)(concurrence in denial of

rehearing)(in contract cases plaintiff chooses to rely solely on

obligation of corporation without any additional guarantees from

its shareholders).

The Louisiana Supreme Court stated in Riggins that piercing

the corporate veil usually occurs when shareholders use the

corporate form to practice fraud or deceit or when the corporate

form is so ignored that the corporation has become

indistinguishable from its shareholders:

There are limited exceptions to the rule of non-liability of
shareholders for the debts of a corporation, where the court
may ignore the corporate fiction and hold the individual
shareholders liable. Generally that is done where the
corporation is found to be simply the "alter ego" of the
shareholder. It usually involves situations where fraud or
deceit has been practiced by the shareholder acting through
the corporation. (Citations omitted). Another basis for
piercing the corporate veil is when the shareholders
disregard the requisite corporate formalities to the extent
that the corporation ceases to be distinguishable from the
shareholders. (Citations omitted).
590 So.2d at 1167.

The totality of the circumstances is determinative when a party

seeks to pierce the corporate veil. Id. The Riggins court

listed several factors that courts consider when determining

whether to apply the alter ego doctrine:

20
 (1) commingling of corporate and shareholder funds; (2)
failure to follow statutory formalities for incorporating
and transacting corporate affairs; (3) undercapitalization;
(4) failure to provide separate bank accounts and
bookkeeping records; and (5) failure to hold regular
shareholder and director meetings.
Id. (citations omitted).

"The ultimate inquiry, however, requires a balance of the

policies behind the recognition of a separate corporate existence

with the policies justifying piercing." Huard v. Shreveport

Pirates, Inc., 147 F.3d 406, 409 (5th Cir. 1998)(citing Glazer v.

Commission on Ethics for Public Employees, 431 So.2d 752, 757

(La. 1983)). As the Louisiana Supreme Court stated in Glazer,

the same factual scenario may result in veil piercing in some

contexts but not in others, depending on the competing interests

and policies involved:

Depending on the various competing policies and interests
involved, the same factual scenario may result in
recognition of a separate corporate identity for some
purposes, i.e. insulation of shareholders from liability,
and a disallowance of the separate corporate entity
privilege for others. Each situation must be considered by
the court on its merits. The facts presented must
demonstrate some misuse of the corporate privilege in that
situation or the need of limiting it in order to do justice.
431 So.2d at 758 (citation omitted).

The Court finds that the district court committed no error

in dismissing Midwest's veil piercing claim because there is no

evidence that Spartech or Adams misused the corporate privilege

to the detriment of Midwest or that Spartech and Adams are

indistinguishable. Adams was properly formed with an initial

21
paid-in capital of $150,000. Adams and Spartech maintained

separate books, and Adams' day-to-day operations were handled by

Adams' general manager in Monroe. Adams' board of directors

conducted business by unanimous consents, which is permitted by

Louisiana law. Further, that Adams' board of directors

overlapped with Spartech's board and that it was located in St.

Louis, where Spartech's corporate offices were located, do not

present genuine issues of fact as to whether Spartech controlled

Adams. There is no evidence that anyone other than Adams' board

members made decisions for Adams, such as approving the annual

business plans formulated by Adams' general manager in Monroe.

Midwest argues that the corporate veil should be pierced

because Adams and Spartech misused the corporate form in

procuring insurance from Midwest so that Midwest issued its

policy in ignorance of Adams' financial problems. Midwest, is an

excess insurer, however, which in no event would be liable for

Adams' self-insured retention, regardless of Adams' financial

condition. Midwest's policy does not specify that the insolvency

of the insured is a breach of contract or that it voids the

policy. Indeed, Midwest agreed that Adams' insolvency would not

terminate the policy. The Midwest policy provides:

Bankruptcy or insolvency of the Insured will not relieve the
Insurer of its duties and liabilities under this policy.
After the Insured's retention has been reached, payments due
under this policy will be made by the Insurer as if the
Insured had not become bankrupt or insolvent, but not in
excess of the Insurer's limit of indemnity.

22
 Appellant's Rec. Excerpts 13; Midwest Excess Ins.
Policy at Part Seven(K).

Adams was obliged to pay premiums to Midwest for the coverage

issued under the policy, and there is no evidence that Adams

failed to pay its premiums before it terminated the policy.3

Midwest issued the insurance policy to Adams as a qualified self-

insured, which it was at the time the policy was issued in May

1989. Also, Adams' failure to maintain its qualification as a

self-insurer did not increase Midwest's obligation under its

contract because the policy provided that such an event would not

result in Midwest's having to pay the self-insured retention.

The policy states:

If the Insured should terminate such qualifications or if
qualification of the Insured as a self-insurer is cancelled
or revoked while this policy is in force, the amounts
payable under this policy will not exceed the amounts which
would have been payable if such qualifications had been
maintained in full force and effect.
Id. at General Section E, "Qualified Self-Insurer."

The district court confirmed that Midwest had no obligation to

pay the amount of Adams' self-insured retention to Williams. See

Rec. Doc. 609, Memorandum Ruling at 6-7.

Further, because piercing the corporate veil is essentially

an equitable remedy, the district court was correct to take into

account Midwest's conduct with regard to Adams. See Brown v.

3
Adams paid premiums totaling $21,869 for the May 1989 - May
1990 period and $27,022 for the May 1990 - May 1991 period. See
Apellant's Rec. Excerpt 13.

23
Benton Creosoting Co., Inc., 147 So.2d 89, 94 (La. Ct. App.

1962)(piercing the corporate veil especially appropriate when

court is exercising equitable powers)(quoting Mayo v. Pioneer

Bank & Trust Company, 274 F.2d 320, 321 (5th Cir. 1960)); see

also See Watson v. Big T Timber Co., Inc., 382 So.2d 258, 262

(La. Ct. App. 1980); Giuffria Realty Co., Inc. v. Kathman-Landry,

Inc., 173 So.2d 329, 334 (La. Ct. App. 1965)(corporate veil

should be pierced when adherence to the corporate fiction would

clearly result in inequity). Midwest did no underwriting of its

own and did not request financial information from Adams beyond

the limited information Northern, the insurance broker, provided

in the short-form application. Moreover, Northern testified that

financial information on the insured was generally not important

to an excess insurer because its only liability was for amounts

above the self-insured retention.

Further, the evidence in the record demonstrates that

Midwest was notified of Williams' claim in September 1991. A

letter from Adams' third-party administrator, F.A. Associates,

who had investigated the claim, indicated that Williams' workers'

compensation claim had the potential to create heavy exposure and

that Adams could not continue to pay Williams. See Rec. Doc.

522, Ex. 2. Adams terminated its policy with Midwest at about

the same time because it could not maintain self-insured status.

It was not until three years later, during which period Midwest

24
took no action, that Williams took a judgment against Adams

declaring him to be permanently and totally disabled and entitled

to weekly benefits indefinitely. Further, although Midwest was

given notice of the motion to accelerate benefits, it did nothing

to defend it. Indeed, Midwest admitted that its settled policy

was to do nothing to aid in or handle the defense of claims

against its insured regardless of whether the insured was

insolvent and unable to put on a defense. See Rec. Doc. 218, Ex.

9; Deposition of Matthew Jerabek at 48-51, 74-75. Therefore,

considering the record before the district court, we find that it

did not err when it granted summary judgment against Midwest on

the piercing corporate veil issue.

III. Conclusion

In light of the foregoing analysis, we AFFIRM all of the

rulings of the district court, except for its order granting

summary judgment against Midwest on the issue of whether Adams

breached the insurance contract by failing to defend and settle

Williams' claim. We REVERSE and REMAND that issue alone to the

district court.

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