Was Seashore the alter ego of South State?

Anthony v. One Sun Farms, LLC, N.J. Super. App. Div. January 2019

Submitted by New Jersey Truck Crash Lawyer, Jeffrey Hark

Facts:

South State is in the business of highway construction with its principle place of business in Cumberland County, New Jersey.  The company in in the business of  paving roads, and asphalt and sand production. It is registered with the United States Department of Transportation (DOT) because it owns and operates commercial vehicles incidental to its business operation. South State has a registration number with the DOT but not an interstate “operating authority” number because it is not a for-hire carrier in the business of transporting other companies’ cargo. It is owned in part by Chester Ottinger, Jr. and in part by the Ottinger Family Trust. Seashore is owned by Ottinger’s wife, Mary Lou Ottinger. It is in the business of producing and delivering asphalt and supplying trucking services. During the relevant period, Seashore frequently provided trucks to South State for use in construction jobs.

At the time of the tragic accident on November 4, 2013, South State required certain portable concrete highway barriers, stored at a site near another project, in order to complete the construction of an exit ramp off the Garden State Parkway. A South State employee contacted Seashore, requesting vehicles for hauling the barriers. As Seashore did not have enough trucks available for the job, Seashore contacted One Sun. One Sun, a nursery business owned by Newton B. Shimp III, owns several trucks and occasionally leases vehicles to Seashore or South State. Shimp agreed to provide the necessary trucks to South State. South State, after the accident, paid for the delivery of the barriers.

While making the delivery, one of One Sun’s part-time drivers, Greg R. Hoover, violated the company’s policy prohibiting passengers—his girlfriend accompanied him that morning. On his return trip, Hoover failed to stop at a traffic light, striking several vehicles in the intersection, causing injuries, and finally, landing on top of an overturned car that had been stopped at the red light. One of the occupants of that vehicle died. Hoover’s blood test results came back positive for marijuana. Although at the time of the accident he held a valid commercial driver’s license as well as a valid driver’s license, he had a history of driving infractions.

Obviously the insurance company for Hoover paid this claim for his negligence.  However, given the large number of claimants and the significant amount of the claims the independent’s limited insurance policy was not enough to fully compensate all claimants/  As a result, the plaintiffs attorneys were trying to have South State and Seashore be on note hook too. Factually, South State needed more trucks because they only own a few in their fleet for hauling their own materials and equipment.  South State then contacted their ‘other’ company, Seashore, to get more trucks to work on this locations.  Because Seashore regularly does not have enough trucks in its own fleet for this and all the other jobs they are working on at the same time it reach out to all the local ‘for hire’ independent contractors who own tractor/trailor or dump trucks. This process is a regular practice for these two companies.

Issue: The court was asked whether Seashore is a corporate alter ego of South State.

Plaintiffs argue that Seashore and South State should not have been granted summary judgment on the theory that Seashore is a corporate alter ego of South State. The record is devoid, however, of any facts establishing that relationship either. Seashore was merely a middle man in the transaction that led to the tragic consequences, it was not the alter ego of South State.

The doctrine that would permit the piercing of the corporate veil, to the extent that individual shareholders can be personally held liable for debts of the corporation, is not met here. The corporation must be virtually indistinguishable from an individual or corporate shareholder, resulting in injustice to the corporation’s debtors. See State, Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473 (1983); Mueller v. Seaboard Commercial Corp., 5 N.J. 28 (1950); Coppa v. Taxation Div. Dir., 8 N.J. Tax 236 (1986). “The purpose of the doctrine of piercing the corporate veil is to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate fraud, to accomplish a crime, or otherwise to evade the law[.]” Ventron, 94 N.J. at 500 (citations omitted).

To pierce the corporate veil, a plaintiff must prove that a subsidiary was “a mere instrumentality of the parent corporation” and “the parent so dominated the subsidiary that it had no separate existence but was merely a conduit for the parent.” Id. at 500-01 (citations omitted). Then the plaintiff must prove that “the parent has abused the privilege of incorporation by using the subsidiary to perpetrate a fraud or injustice, or otherwise to circumvent the law.” Id. at 501 (citing Mueller, 5 N.J. at 34-35).

Seashore is not a subsidiary of South State. The marriage between the Ottingers alone is not a basis for piercing the corporate veil. The two companies have an ongoing business relationship, but they are ultimately distinct entities. No fraud or injustice appears on the record, nor any other fact indicating the desire to circumvent the law on the part of either company. See ibid.

The alter ego doctrine is a stringent safeguard for when “the corporate form is used as a shield behind which injustice is sought to be done by those who have the control of it.” Mueller, 5 N.J. at 34-35 (citation omitted). It is not meant to be invoked just because two companies and their respective owners are married. The judge recognized that “a close business relationship existed between Seashore and South State,” but found that “there is nothing to suggest that Seashore was a corporate identity of South State used to circumvent the law.” He found that “Seashore was not created as a sham to disguise the use of South State’s assets for the perpetration of fraud or to avoid liability. . . . [and] [n]othing suggests that Seashore was created for an illegitimate purpose.” The record supports these factual findings.