Stone v. Eacho

On January 23, 1939, Tip Top Tailor (TTT) incorporated under Delaware law, with its principal place of business in Newark, New Jersey. TTT operated nine retail stores, including one in Richmond, Virginia. On July 12, TTT secured a corporate charter from the Commonwealth of Virginia for the same name. The officers of Delaware TTT and Virginia TTT were the same, and there was no separate corporate activity of any sort by Virginia TTT. Customers at the Richmond store would be measured and select the suit cloth, and the order was then sent to Newark to be tailored and shipped back to Richmond. Payments received in Richmond paid for employees’ salaries and petty items, with the balance deposited into a Richmond bank and then forwarded to a New York City bank. No creditor of Virginia TTT extended credit to it. On November 20, 1940, Delaware TTT was adjudged bankrupt in a New Jersey proceeding, and Stone (plaintiff) was appointed Delaware TTT’s receiver. On November 22, two TTT creditors attached the property in the Richmond store as property of Virginia TTT. On November 23, an involuntary petition in bankruptcy was filed against Virginia TTT by Stone. Virginia TTT was adjudged bankrupt, Stone was appointed Virginia TTT’s receiver, and Stone filed a claim for $39,069.67, the amount owed by Virginia TTT to Delaware TTT. Virginia TTT’s trustee (defendant) resisted the allowance and argued that Virginia TTT was not a separate entity but a mere instrumentality of Delaware TTT, and that the indebtedness was an advance of operating capital. Virginia TTT’s trustee requested that the claim be postponed to the claims of other TTT creditors. The claim was referred to a special master, who found that Virginia TTT was a mere shell and corporate pocket of Delaware TTT and recommended that the claim be postponed to the claims of other general creditors of Virginia TTT. Stone filed an exception to the special master’s report and filed a petition, for relief in the alternative, asking that Virginia TTT be entirely disregarded and the bankruptcy proceedings for Virginia TTT and Delaware TTT be consolidated and the creditors share equally in the distribution of the consolidated assets. Three creditors of Delaware TTT filed intervening petitions for the same relief sought by Stone. The district court entered an order denying the motion to intervene and affirmed the special master’s report. The trustee for Delaware TTT and the three intervening creditors appealed.