Beware Alter Ego Liability: Piercing of the Corporate Veil

Eitzen Chem. (Sing.) PTE, Ltd. V. Carib Petroleum, No. 17-14697, 2018 WL 4203586 (U.S. App. 11 Cir. Sept. 4, 2018).

By: Kelicia D. Raya

In a per curiam decision by the Eleventh Circuit Court of Appeals, it affirmed the ruling of a magistrate judge in a bench trial involving breach of contract claims governed by maritime law. Defendant entered into two maritime contracts with Plaintiff to transport cargo described, in relevant part as, Tecsol from Venezuela to the Dominican Republic. The contracts also provided for “demurrage” in the amount of 10,000 per day, pro-rated.In regards to the first contract, the vessel MT/GLEN, commercially operated by plaintiff, was delayed in the Dominican Republic causing plaintiff additional costs. Similarly, in regards to the second contract, the vessel Sichem Challenge, also commercially operated by plaintiff, was delayed in port in Venezuela. The Sichem Challenge was detained from July 2, 2010 to September 4, 2010 under authority of the Venezuelan prosecutor’s office. The Venezuelan government tested the cargo and discovered that it was national diesel fuel without the requisite export permit, not tecsol. Thereafter, plaintiff brought suit seeking demurrage for breach of contract associated with the delay of the MT/GLEN and the detention of Sichem Challenge. Plaintiff also sought to pierce the corporate veil and hold the sister corporation Carib-Florida and Carlos Gamboa, owner and operator of both Carib Petroleum entities (Carib-Florida and Carib-Bahamas), in his individual capacity, liable for breach of contract as “alter egos” of defendant corporation.Accordingly, the trial court ruled in favor of plaintiff in the amount of $1,110,276.99 for the breach of aforementioned contracts. However, with respect to plaintiff’s veil piercing claim, the trial court held that there was a lack of evidence with respect to the alter ego factors. Thus, plaintiff failed to prove by a preponderance of the evidence that Carib-Florida and Gamboa should be held liable as alter egos.In affirming the trial court’s ruling, the appellate court reasoned that there is no uniform standard test under federal common law for determining whether an alter ego relationship exists, and instead courts must look at the totality of the circumstances and consider various factors. Plaintiff asserted that seven factors supported the alter ego theory of liability and justified piercing defendant’s corporate veil. However, the evidence presented at the bench trial established that defendant was engaged in legitimate business transactions. Furthermore, no evidence was presented that established that Gamboa failed to observe corporate formalities or that he was using Carib-Bahamas to mislead or defraud creditors. Accordingly, because plaintiff failed to show that defendant corporation was a mere sham or organized to accomplish a fraudulent or illegal purpose, the trial court properly denied the veil-piercing claim.