Sea-Land Services, Inc. v. Pepper Source

Sea-Land Services, Inc. (Sea-Land) (plaintiff) filed a complaint against Pepper Source (PS) (defendant). The suit alleged that PS never paid for the peppers Sea-Land had shipped. Sea-Land claimed that PS’s owner, Gerald J. Marchese (defendant), had assured Sea-Land that PS would pay for the shipment if it had sufficient funds. The district court entered a default judgment for Sea-Land. PS was ordered to pay the amount owed. However, at the time of the judgment, PS was dissolved and assetless. In response, Sea-Land filed suit against Marchese and against other business entities that Marchese owned. The suit alleged that Marchese’s corporations were alter egos of Marchese and of each other and that the companies were created to defraud creditors. Therefore, Sea-Land sought to pierce PS’s corporate veil to declare Marchese personally liable for the money owed and then reverse pierce Marchese’s business entities. At trial, Sea-Land presented evidence that Marchese had used PS’s funds to pay for personal expenses and the expenses of his other business entities. Sea-Land also introduced testimony from multiple accountants, claiming that Marchese had withdrawn corporate funds so that the corporation was insolvent and so that any monetary obligations could be avoided. The district court held that Sea-Land had satisfied the two-prong test for corporate veil-piercing and entered judgment for Sea-Land. PS appealed on the ground that Sea-Land had provided insufficient evidence to satisfy the second prong of the two-prong test.