United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
October 7, 2004
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 03-11294
_____________________
RIMADE LTD., Via Alla Fontana 32,
6977 Ruvigliana, Switzerland;
GIAIT LTD., Alla Fontana 32, 6977
Ruvigliana, Switzerland; PNEUS ACQUI
S.P.A., Reg Barbato, 21, 15011 Acqui
Terme, Italia,
Plaintiffs - Appellants,
versus
HUBBARD ENTERPRISES, INC., Etc., ET AL.,
Defendants,
ROBERT M. HUBBARD, also known as
Bob M. Hubbard,
Defendant - Appellee.
__________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
Before JOLLY, WIENER, and PICKERING, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
The Plaintiff tire companies sued Robert M. “Bob” Hubbard,
seeking to hold him liable for the debt of his company, Hubbard
Enterprises, Inc. (“HEI”), a tire wholesaler. After a bench trial,
the district court held that the evidence did not support the
Plaintiffs’ contention that Hubbard used HEI as a corporate sham to
defraud creditors, refused to hold Hubbard personally liable for
HEI’s debts, and entered a take-nothing judgment. The Plaintiffs
have appealed. In this fact-intensive case, we are bound by the
clearly erroneous standard of review, which is particularly
important on the question of Hubbard’s intent to defraud.
Accordingly, we are persuaded that the district court committed no
reversible error in concluding that, under Texas law, HEI’s
corporate veil should not be pierced to reach Hubbard’s personal
assets. We therefore affirm.
I
Rimade Ltd. (“Rimade”) and Giait Ltd. (“Giait”) are Swiss tire
manufacturers that supply tires to Pneus Acqui, S.p.A. (“Pneus
Acqui”), an Italian tire distributor and wholesaler (collectively,
the “Plaintiffs”). One of Pneus Acqui’s customers was Bob Hubbard
and his business, HEI, a Tennessee corporation with its principal
place of business in Fort Worth, Texas. Hubbard, who was the
president, sole shareholder and director of HEI during its rather
brief existence, sold tires in Texas and surrounding states.
Pneus Acqui sold HEI tires on credit from 1998 to 2001. It
negotiated terms with Hubbard alone and shipped tires from Europe
to Texas under standard invoices generated by Giait and Rimade.
The Plaintiffs required that Hubbard maintain a standard letter of
credit for a fixed amount that could be drawn on in the event that
he failed to make a payment. Hubbard opened a $350,000 letter of
credit (the “Letter”) with First Tennessee Bank (“First Tennessee”)
in April 1998, which the Plaintiffs allowed him to reduce to
$150,000 a year later.
2
A
On June 20, 2000, Hubbard directed an HEI employee to email
Rimade and ask if HEI could cancel its Letter. Rimade refused the
request, as HEI owed Rimade about $300,000 at the time. As of
August 31, 2000, all invoices from the beginning of the business
relationship between the Plaintiffs and HEI, totaling over $4.3
million, had been paid in full. Shortly thereafter, HEI began to
fail to make payments, but Hubbard induced the Plaintiffs to
continue providing tires by promising that he would use the profits
from these new tires to pay overdue invoices.
On January 30, 2001, Pneus Acqui employee Loretta Ferrarin
emailed Hubbard to request that he increase HEI’s Letter to
$400,000 because the outstanding balance had reached over $1
million. Unknown to the Plaintiffs, however, their bank, SG Ruegg
Bank SA (“SG Ruegg”), had informed First Tennessee that the Letter
was no longer required. Accordingly, First Tennessee canceled the
Letter and informed Hubbard of the cancellation by fax the day
before Pneus Acqui sent its email. Hubbard responded to Pneus
Acqui by stating that he could not increase the Letter; as Hubbard
testified, he knew the Letter had been canceled but did not mention
this fact to Pneus Acqui. Hubbard testified that he never intended
to mislead the Plaintiffs, and that he made no effort to conceal
the Letter’s cancellation. Further tire shipments to Hubbard were
still accompanied by invoices stating they were covered by the
Letter.
3
On April 24, still believing the Letter to be in place,
Ferrarin again wrote to Hubbard to state that, because HEI owed
nearly $700,000 and had a Letter for only $150,000, future
shipments would have to be paid for upon receipt. Sometime in May
or June, the Plaintiffs finally learned from SG Ruegg that the
Letter had in fact been canceled, at which point they stopped
selling tires to HEI. Ferrarin testified that the Plaintiffs never
would have made the on-credit sales to HEI between January and June
2001 had they known that the Letter had been canceled.
On August 30, after HEI had failed to pay down its overdue
invoices, and knowing the Letter was no more, Ferrarin met with
Hubbard in Texas to discuss resolution of the outstanding balance.
At the meeting, Hubbard signed summaries that reflected HEI’s debt
of $227,922.68 to Rimade and $224,647.51 to Giait. Hubbard also
signed a letter stating that he was giving Ferrarin six post-dated
checks totaling $105,000 to begin a payment plan. Only two of the
checks were honored, however, as Hubbard later instructed First
Tennessee to stop payment on the remaining four.
At the time the complaint was filed in this matter, HEI and
Hubbard stipulated that HEI owed the Plaintiffs $359,052 (exclusive
of interest) -- and this is where the balance stood in July 2003.
In sum, in the course of their dealings, the Plaintiffs sent tires
to HEI that were invoiced for a total of nearly $6 million, all of
which HEI either paid for or returned, with the exception of the
$359,000 worth of tires at issue in of this litigation.
4
B
Hubbard also had extensive involvements with a number of other
businesses owned and operated by Hubbard and his relatives
(collectively the “Hubbard Businesses”), most of which sell and
resell tires in Texas.1 Hubbard and his sons, through their
controlling interests, caused the Hubbard Businesses to engage in
a variety of questionable business practices, including: 1) making
loans to each other that were never collected; 2) renting property
to each other without collecting the full rents; and 3)
overextending credit to each other.
Of particular relevance to this case, between October 2000 and
June 2001, the time when HEI was running up its debt to the
Plaintiffs, HEI transferred over $1 million in assets, including
the Plaintiffs’ tires, to Tire Dealers Warehouse (“TDW”), a
corporation owned and operated by Hubbard’s sons. From April to
August 2001, HEI transferred over $1.4 million in inventory to TDW
on credit. TDW paid several hundreds of thousands of dollars to
HEI during the first three quarters of 2001, but was unable to
continue paying its debts thereafter. TDW ceased doing business as
of March 2003, and sold all its assets to various entities,
including other Hubbard Businesses. TDW still owes HEI over $1.9
million, and it is making payments to HEI’s secured creditor.
1
In the light of the stipulations in the parties’ Joint
Pretrial Order, there is no dispute as to Hubbard’s involvement in
the Hubbard Businesses, or in the Hubbard Businesses’ activities.
5
Hubbard never caused HEI to so much as issue a demand letter
to TDW, which is the only business to which HEI “overextended”
credit -- though he did file a security interest for HEI against a
TDW lease. Hubbard also never told the Plaintiffs that he was
selling tires on credit to his sons’ company, or that he was making
no efforts to collect on those sales. Ferrarin testified that the
Plaintiffs never would have continued making sales on credit to HEI
if they had known about Hubbard’s dealings with TDW.
According to Reginald Parr, the Plaintiffs’ accounting expert,
HEI was always insolvent by some definition during its short life,
and it owed Hubbard over $400,000 at the time of the trial.
Because HEI was a subchapter S corporation, its income was taxed as
Hubbard’s income, though Hubbard never received distributions as a
shareholder. He did receive salaries of $88,000 in 2000 and
$64,000 in 2001, as well as rental income from TDW (from his stake
in Berry Street Properties, a Hubbard Business).
C
On October 8, 2002, the Plaintiffs sued HEI and Hubbard,
charging that HEI breached its contract and that “HEI is the alter
ego of Hubbard who used HEI to defraud Plaintiffs.” In June 2003,
the Plaintiffs moved for summary judgment (which motion they later
supplemented) and Hubbard moved for partial summary judgment on the
sole question of his own personal liability. In July, the district
court denied the Plaintiffs leave to amend their complaint with new
counts based on new evidence from discovery.
6
The district court then partially granted the Plaintiffs
summary judgment, entering judgment against HEI in the amount of
$359,052, plus interest and costs. It also denied the opposing
motions for summary judgment on the veil piercing issue. Hubbard
then stipulated that HEI ceased doing business in November 2002 and
had disposed of all its assets at that time.
The case proceeded to a one-day bench trial in November 2003
on the issue of whether Hubbard had used HEI to defraud the
Plaintiffs, thereby warranting veil piercing. The Plaintiffs
called Ferrarin, Parr, and Hubbard. The defense called only
Hubbard. The district court restated each of the five contested
issues of fact from the Joint Pretrial Order and then orally
announced that it was ruling for Hubbard in each instance without
making any specific findings.2 It then issued a brief Order,
2
The jointly stipulated contested findings of fact were:
1. Whether Hubbard used HEI to defraud the
Plaintiffs by convincing them to sell HEI
tires when Hubbard knew HEI would never pay
for them;
2. Whether Hubbard continued to order and
accept tires from the Plaintiffs while knowing
HEI could and would not make payment;
3. Whether Hubbard caused HEI to sell tires on
credit to TDW despite knowing that TDW would
never be able to pay;
4. Whether the Hubbards and Hubbard Businesses
routinely failed to follow “regular commercial
business practices”;
5. Whether Hubbard engaged in a strategy of
7
stating that the Plaintiffs should be denied recovery because it
could not find in their favor by a preponderance of the evidence as
to any of the contested issues. The Plaintiffs timely appealed.
II
The Plaintiffs contend that the evidence presented at trial
establishes as a matter of law that Hubbard used HEI to defraud the
Plaintiffs in two ways: by fraudulently misrepresenting to the
Plaintiffs the status of the Letter, and by transferring HEI’s
assets to TDW in fraudulent sales such that HEI would be unable to
pay either the balance owed or the judgment. As such, the
Plaintiffs argue, the district court erred in not piercing the
corporate veil and holding Hubbard personally liable for HEI’s
debts.
We review the district court’s conclusions of law de novo and
its findings of fact for clear error. Joslyn Mfg. Co. v. Koppers
Co., 40 F.3d 750, 753 (5th Cir. 1994). The clearly erroneous
standard does not apply to factual findings made under an erroneous
view of the controlling law. Maritrend, Inc. v. Serac & Co.
(Shipping) Ltd., 348 F.3d 469, 470 (5th Cir. 2003).
Under Texas law, “there are three broad categories in which a
court may pierce the corporate veil: (1) the corporation is the
defrauding creditors by using the Hubbard
Businesses to acquire assets on credit and
then selling the assets to other Hubbard
Businesses, leaving creditors without
recourse.
8
alter ego of its owners and/or shareholders; (2) the corporation is
used for illegal purposes; and (3) the corporation is used as a
sham to perpetrate a fraud.” W. Horizontal Drilling v. Jonnet
Energy Corp., 11 F.3d 65, 67 (5th Cir. 1994). The Texas Business
Corporations Act sets additional requirements for piercing the
corporate veil in cases based on claims of breach of contract. In
such cases, the veil may be pierced where the defendant shareholder
“caused the corporation to be used for the purpose of perpetrating
and did perpetrate an actual fraud on the obligee primarily for the
direct personal benefit of the holder.” TEX. BUS. CORP. ACT art.
2.21(A)(2). Thus the alter ego and illegal purposes considerations
are not at issue; as the present case is based on a breach of
contract, we focus only on Hubbard’s alleged use of HEI to
perpetrate fraud.
A
We must first determine whether Hubbard, using HEI as a sham,
perpetrated an actual fraud on the Plaintiffs when he failed to
disclose to them that their bank had canceled the Letter. Texas
law defines fraud as the “misrepresentation of a material fact with
intention to induce action or inaction, reliance on the
misrepresentation by a person who, as a result of such reliance,
suffers injury.” Trustees of the N.W. Laundry & Dry Cleaners
Health & Welfare Trust Fund v. Burzynski, 27 F.3d 153, 157 (5th
9
Cir. 1994) (internal quotation marks and citation omitted).3 “A
defendant’s failure to disclose a material fact is fraudulent only
if the defendant has a duty to disclose that fact.” Id. A duty to
disclose “can arise by operation of law or by agreement of the
parties,” or by “some special relationship between the parties,
such as a fiduciary or confidential relationship.” Id.
Notwithstanding the above, “there is always a duty to correct one’s
own prior false or misleading statements,” such that a speaker
making a partial disclosure assumes a duty to tell the whole truth
even when the partial disclosure was not legally required. Id.
(all citations omitted).
More recently, this Court reiterated that a duty to speak
arises by operation of law when “one party voluntarily discloses
some but less than all material facts, so that he must disclose the
whole truth, i.e., material facts, lest his partial disclosure
convey a false impression.” Union Pac. Res. Group, Inc. v. Rhone-
Poulenc, Inc., 247 F.3d 574, 586 (5th Cir. 2001) (citation
omitted). In Rhone-Poulenc, this Court reversed a judgment in
favor of the defendant with respect to a fraud claim because the
defendant, when it went beyond the minimal formal disclosures
3
See also Menetti v. Chavers, 974 S.W.2d 168, 175 (Tex. App.
-- San Antonio 1998) (“Actual fraud by misrepresentation consists
of a representation that is (1) material; (2) false; (3) knowingly
false or made with reckless disregard for its truth or falsity; (4)
made with the intention that it be acted upon by the other party;
(5) relied upon by the other party; [and] (6) damaging to the other
party.”) (citations omitted).
10
required by the partnership, “assumed an affirmative duty to make
full disclosures.” Id. The defendant “could not remain silent
after merely making partial disclosures that conveyed a false
impression.” Id.
The Plaintiffs argue that here, as in the cases where partial
disclosure was held to obligate full disclosure, Hubbard’s
communications about the Letter conveyed a false impression -- that
the Letter still existed after First Tennessee canceled it -- upon
which the Plaintiffs relied to their detriment. Specifically, even
though Hubbard knew that the Plaintiffs required a Letter to sell
tires on credit, and received invoices stating that they were
covered by the then-nonexistent Letter, he never disclosed that the
Letter had been canceled. When Hubbard emailed Ferrarin to say
that he could not increase the Letter, and when he made continued
promises to pay outstanding balances, he never corrected the
Plaintiffs’ impression that the Letter remained effective. And
Hubbard’s misrepresentation was material because it induced the
Plaintiffs to continue to sell to HEI on credit, sales for which
they were never paid.
The Plaintiffs also contend that this fraud by incomplete
disclosure should be attributed to Hubbard because his acts are
indistinguishable from HEI’s. They argue that, as HEI’s sole
director, shareholder, and president, Hubbard used HEI to take
actions harmful to HEI: It was Hubbard who caused HEI to make a
partial disclosure and thereby defraud the Plaintiffs. And it was
11
Hubbard who gained a direct personal benefit from the fraud in the
form of his salary and S corporation income, thus satisfying the
veil-piercing requirements of Article 2.21(A)(2).
Yet Hubbard had no duty to notify the Plaintiffs that their
own bank had caused the Letter’s cancellation. Moreover, both
Rhone-Poulenc and Burzynski were summary judgment cases, and
summary judgment is rarely proper in fraud cases because the intent
required to establish fraud is a factual question “uniquely within
the realm of the trier of fact because it so depends upon the
credibility of witnesses.” Beijing Metals & Minerals v. Amer. Bus.
Ctr., 993 F.2d 1178, 1185 (5th Cir. 1993). To that end, the Rhone-
Poulenc court stressed that the theory of fraud based on partial
disclosure, viewed in the light most favorable to the non-movant,
was sufficient to defeat summary judgment. 247 F.3d at 591.
Similarly, Burzynski was decided on cross-motions for summary
judgment where a doctor affirmatively seeking payment for
“chemotherapy” indisputably failed to disclose that this
chemotherapy was illegal. 27 F.3d at 156.
Here the case was tried to a judge who had an opportunity to
evaluate the evidence and judge the credibility of witnesses.
There was also direct, if self-serving, evidence of a lack of
intent to deceive that supports the district court’s determination:
Hubbard twice took the stand to say he never intended to mislead
the Plaintiffs. Under the circumstances here, where Hubbard paid
more than $6 million to the Plaintiffs and ultimately had an unpaid
12
balance of less than $400,000, the court was within its discretion
to believe him. Further, Hubbard caused HEI to pay over four times
the amount of the Letter after the Letter was canceled -- the
Letter guaranteed $150,000 and HEI paid down over $600,000. This
evidence further supports the trier of fact’s determination that
there was no intent to defraud. It also shows that the Plaintiffs
did not carry their burden to show that Hubbard’s failure to tell
them of the Letter’s cancellation actually damaged them, given that
Hubbard paid down more than the Letter’s worth after its
cancellation.
Indeed, if the Plaintiffs had immediately learned of the
Letter’s cancellation and at that point ceased doing business with
Hubbard, as they testified they would have, they would have been
worse off financially. This is so because Hubbard would have lost
his supply of tires to sell, and so would not have been able to use
the profit from the sale of new tires to pay old debts, as had been
his practice. As it stands, from the time the Letter was cancelled
until the Plaintiffs learned that the Letter had been cancelled
(January 30, 2001 until May or June 2001), HEI paid the Plaintiffs
a sum equivalent to all invoices during that time period plus some
$300,000. The Plaintiffs’ evidence thus does not establish proof
of damages.
As the trier of fact, the district court weighed all the
evidence, including Hubbard’s credibility, when making its
findings, and our examination of the record does not reveal clear
13
error with respect to Hubbard’s use of HEI to defraud the
Plaintiffs with respect to the Letter.
In sum, the district court correctly applied the law of
partial disclosure: While Hubbard did nothing to correct the
Plaintiffs’ mistaken impression about the Letter, he also made no
partial disclosures to cause or perpetuate that misunderstanding.
His simple refusal to increase the amount of the Letter did not
disclose a fact that would impose a legal duty to disclose his
knowledge of the Letter’s cancellation. It was, after all, the
Plaintiffs’ own bank that had canceled the Letter and had failed to
communicate that fact to the Plaintiffs. Thus the district court’s
implicit finding that Hubbard lacked the intent to use HEI as a
sham to defraud with respect to his personal letter of credit was
not clear error. Hubbard does not dispute that HEI breached its
contract with the Plaintiffs, or that he controlled HEI, but these
facts alone are insufficient to pierce the corporate veil in this
breach of contract case under Texas law.
B
Finding that the district court did not err with respect to
the alleged fraud surrounding the Letter, we now turn to the
Plaintiffs’ argument that HEI’s veil should be pierced because
Hubbard used HEI to defraud the Plaintiffs by shifting inventory to
TDW, with the knowledge that TDW would never pay. The Plaintiffs
point to the record as showing that between October 2000 and June
2001, when Hubbard was ordering but failing to pay for the
14
Plaintiffs’ tires, Hubbard was also transferring hundreds of
thousands of dollars worth of tires to TDW -- a company that paid
salaries to Hubbard’s relatives and also paid rent to Hubbard
himself. During a time of increasing demands for payment, the
Plaintiffs contend, Hubbard was literally “giving away the store,”
knowing that HEI would never be paid and that any judgment against
it would be worthless.
To support their argument, the Plaintiffs cite Texas courts
that have pierced corporate veils where the indebted company
transfers assets to a related company to avoid judgments or
collection efforts. One court found that a company was used as a
sham to perpetrate fraud when its owner shifted its funds to
another of his companies to avoid liability. Love v. Texas, 972
S.W.2d 114, 119-20 (Tex. App. -- Austin 1998). Another court found
a sole shareholder liable for company debts when he incorporated a
new business to continue the business of a foreclosed company where
the foreclosure sale was merely an attempt to avoid creditors.
Klein v. Sporting Goods, Inc., 772 S.W.2d 173, 176-77 (Tex. App. --
Houston 1989).
In these and other cases, the defendants used companies they
wholly controlled to defraud the plaintiffs for their own personal
benefit. Here, argue the Plaintiffs, Hubbard similarly gained --
through his and his relatives’ salaries and rental income -- by
causing HEI to transfer its assets and thereby defraud the
15
Plaintiffs, thus satisfying the veil-piercing requirements of
Article 2.21(A)(2).
Yet Hubbard did not have a personal interest in TDW, and
merely selling on credit to TDW cannot be a fraudulent business
tactic because TDW paid over $500,000 to HEI during the first three
quarters of 2001 (pre-9/11) -- a time when Goodyear was considering
investing in TDW. Surely selling on credit cannot be considered
fraudulent, as this is the way the Plaintiffs themselves transacted
business with HEI. Moreover, the receivables from TDW are being
collected to the extent they can be: 1) all payments to TDW are
currently going to First Tennessee, the secured creditor to which
HEI’s receivables are pledged; 2) HEI took a security interest in
a lease owned by TDW, and payments thereunder are going toward
TDW’s debt to HEI.
Further, the Plaintiffs need to prove actual fraud, and the
trier of fact evaluated Hubbard’s testimony and did not find that
the Plaintiffs had proved that actual fraud had occurred by a
preponderance of the evidence. See Coury v. Prot, 85 F.3d 244, 254
(5th Cir. 1996) (“The burden of showing that the findings of the
district court are clearly erroneous is heavier if the credibility
of witnesses is a factor in the trial court’s decision.”). The
Plaintiffs’ authorities are inapposite: Klein pre-dates the
applicable version of Article 2.21, while Love reinforces Hubbard’s
position that actual (not constructive) fraud must be proven to
16
pierce the corporate veil where corporate liability stems from a
breach of contract. Love, 972 S.W.2d at 118. We therefore hold
that it was not clear error for the district court implicitly to
find that HEI’s credit sales were not made with any intent to harm
Plaintiffs; therefore the Plaintiffs did not establish the actual
fraud necessary to pierce the corporate veil.
Moreover, Hubbard has not taken a salary from HEI since 2001,
lost money on loans to HEI, and also paid taxes on the company’s
earnings, which were deemed to be passed through to him as
shareholder income (though no money was distributed). Thus the
Plaintiffs cannot establish Hubbard’s direct personal benefit from
any fraud, nor indeed that they were harmed by sales to TDW because
they never requested or relied on any representations by HEI
regarding its customers.
In sum, the district court correctly applied the law of
fraudulent transfer of assets: Once the court (implicitly) found
that Hubbard lacked the intent to defraud with respect to the sales
to TDW -- a finding that is not clearly erroneous -- it could not
as a matter of law have found that he used HEI as a sham to
perpetrate fraud.
III
For the foregoing reasons, the judgment of the district court
is
AFFIRMED.
17
ENDRECORD
18
WIENER, Circuit Judge, dissenting.
I respectfully dissent. To me, the factual findings of the
district court, albeit they are terse, reflect that Hubbard
knowingly and intentionally misused and disregarded his one-man
corporation’s form to disadvantage these plaintiffs, with whom he
had done business for years. His corporation’s veil should be
pierced to expose it as Hubbard’s alter ego and make him personally
liable for his corporation’s debts to Plaintiffs-Appellants.
Even when Hubbard’s acts and omissions are viewed in the
context of the legal hurdles erected by the applicable law of
Texas, he emerges as anything but an innocent, unsophisticated tire
dealer. He fraudulently stood mute and continued to do “business
as usual” with these plaintiffs despite his certain knowledge of a
key fact that he was duty bound to disclose, viz., that unbeknownst
to his vendors, the letter of credit partially securing his
corporation’s obligations to them had been canceled. Knowing full
well that these plaintiffs were unaware that the security for these
transactions had ceased to exist and that they would not sell
merchandise to him in its absence, Hubbard not only continued to
make unsecured purchases of tires, but proceeded to orchestrate
duplicitous non-arms-length transfers of that merchandise from his
wholly owned and operated corporation to entities owned and
controlled by none other than his own sons. He deliberately put
this merchandise and its sales proceeds beyond the reach of his
uninformed, arms-length creditors and simultaneously made them
available instead to his corporation’s lending bank, a secured
creditor to which —— not so coincidentally —— Hubbard was
personally liable as guarantor. He obviously benefited personally
from these intra-family machinations, not just from rent received
and Sub-S corporation advantages realized, but from substantial
reduction or elimination of his personal liability to his bank as
well.
Like the district court, the panel majority errs by viewing
each discrete fact as a snapshot —— “in a vacuum” —— rather than as
a series of links in a continuous and evolving chain of ongoing
business transactions between the parties. Far too much is made of
the unrelated fact that the letter of credit happened to get
canceled through the inadvertence of the plaintiffs’ bank; far too
much emphasis is placed on meaningless statistics of in-and-out
sales and payments; far too little weight is given to the financial
advantages that Hubbard realized personally through the totality of
his manipulation of “his” corporation; totally ignored is the
concept of attribution, the ascribing of the acts of one party to
another closely related party; entirely unrecognized is the
commercial fact that the letter of credit was not meant to serve as
full collateral but as a safety net to hold the vendors’ potential
losses to a manageable risk level; unrealistic is the treatment of
the arms-length transactions between these litigants as
20
indistinguishable from the non-arms-length transactions among
family members.
Except for Hubbard’s wide-eyed, self-serving testimony that he
intended no fraud, all objective evidence demonstrates, to my
satisfaction at least, that this is the very kind of case that
cries out for the piercing of the corporate veil to hold its sole
shareholder personally liable to those he duped by interposing his
corporate alter ego and remaining silent in the face of his duty to
inform. If nothing else, we today re-affirm the age-old adage that
“debtors either die or move to Texas.” Despite my sincerely
genuine respect for the district court and my learned colleagues of
the panel majority, I am constrained to dissent.
21