Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc.

Perpetual Real Estate Services, Inc. (Perpetual) (plaintiff) and Michaelson Properties, Inc. (MPI) (defendant) formed two partnerships, which were joint real estate ventures. The first venture was Bethesda Apartment Associates (Bethesda). Bethesda was funded with a mix of cash and credit. Aaron Michaelson, sole shareholder of MPI, and his wife personally indemnified Perpetual against any losses on the $1-million letter of credit that MPI took out for the Bethesda partnership. The second venture was Arlington Apartment Associates (Arlington). Arlington was funded by a mix of cash and a $24-million loan from Perpetual’s parent corporation, Perpetual Savings Bank. The Michaelsons personally guaranteed the bank loan to Arlington for up to $750,000. A second loan of $1.05 million was needed, and the Michaelsons personally guaranteed repayment of the full amount. Eventually, Arlington was sued, and the case was settled for $950,000. Perpetual paid the full amount. Perpetual sued, seeking indemnification from MPI and Michaelson. Perpetual sought to pierce MPI’s corporate veil to reach Michaelson’s personal assets on the theory that MPI was the alter ego of Michaelson. The district court permitted the jury to consider whether Perpetual may pierce MPI’s corporate veil if MPI was used to perpetrate an injustice or fundamental unfairness. The jury determined Perpetual was entitled to pierce MPI’s corporate veil. Michaelson appealed the denial of his motion for judgment notwithstanding the verdict to the United States Court of Appeals for the Fourth Circuit.