Legal Research AI

Birbara v. Locke

Court: Court of Appeals for the First Circuit
Date filed: 1996-11-07
Citations: 99 F.3d 1233
Copy Citations
33 Citing Cases
Combined Opinion
                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.

                             -2-
                                          2


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

                             -3-
                                          3


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

                             -4-
                                          4


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.

                             -5-
                                          5


          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

                             -6-
                                          6


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

                             -7-
                                          7


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

                             -8-
                                          8


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
                                                                         

                             -9-
                                          9


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
                

                             -10-
                                          10


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

                             -11-
                                          11


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).

                             -12-
                                          12


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

                             -13-
                                          13


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

                             -14-
                                          14


          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
                                                                         

                             -15-
                                          15


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
                                                                         

                             -16-
                                          16


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

                             -17-
                                          17


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.

                             -18-
                                          18


          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

                             -19-
                                          19


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. 
                                

                             -20-
                                          20


          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.

                             -21-
                                          21


(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
                                                               

                             -22-
                                          22


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.

                             -23-
                                          23


          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.

                             -24-
                                          24