Las Palmas Associates v. Las Palmas Center Associates

Hahn Devcorp (Devcorp) (defendant) was the general partner of Las Palmas Associates (Associates). Devcorp was a wholly owned subsidiary of Ernest W. Hahn, Inc. (Hahn, Inc.) (defendant). Stanley Gribble (defendant) was Devcorp’s president. Associates agreed to build the Rancho Las Palmas Shopping Center and sell an 84 percent interest in the center to Villa Pacific Building Company (Villa Pacific) (plaintiff). Ronald Waranch (plaintiff) was Villa Pacific’s sole shareholder and chairman. The remaining interest in the center was acquired by Gribble as part of his compensation. Villa Pacific and Gribble formed Las Palmas Center Associates (Las Palmas) (plaintiff), a general partnership that would own the shopping center. Associates, Devcorp, and Hahn, Inc. (collectively, sellers) leased the shopping center back from Villa Pacific, Waranch, and Las Palmas (collectively, buyers), making the sellers responsible for finding tenants. The sellers agreed to pay a portion of the shopping center’s gross rentals to the buyers beginning in March 1980. In 1980 or 1981, Hahn, Inc. merged with Trizec Centers, Inc. (Trizec). As of the merger, Devcorp owed more than $30 million in loans, which Hahn, Inc. fully guaranteed. On March 20, 1981, Hahn, Inc. transferred all its Devcorp shares to Trizec. In 1982, to induce the buyers to complete the acquisition, the sellers caused Devcorp to guarantee the leases of two problem tenants by pledging to pay all rents due under those leases for a specified period. In 1983, Devcorp became a shell company; Hahn, Inc. employees thereafter conducted Devcorp’s remaining business. In the summer of 1984, the buyers found a replacement for one of the problem tenants that was a subject to the Devcorp guarantee. In July, Hahn, Inc. agreed to pay the expected shortfall between the new tenant’s rent and the rent that Devcorp had guaranteed, but Hahn, Inc. soon thereafter stated that Devcorp was providing that guarantee. One week later, Devcorp proclaimed that the guarantees were invalid. After the buyers took offsets for the unpaid guarantees against money they owed the sellers, the sellers sought a judicial declaration that the guarantees were terminated and that the buyers were in default. The buyers responded by seeking damages for breach of the guarantees. Per the buyers, Devcorp’s corporate veil should be pierced to reach Hahn, Inc. because Devcorp was Hahn, Inc.’s alter ego. The jury ruled for the buyers. Hahn, Inc. appealed, contending that Devcorp was not its alter ego.