Deck 20: Management: Employee Welfare

Question 1

Vrabel v Acri
103 N.E.2d 564 (Ohio 1952)
Shot Down in a Ma Pa Cafe: Is Ma Liable When Pa Goes to Jail?
FACTS
On February 17, 1947, Stephen Vrabel and a companion went into the Acri Cafe in Youngstown, Ohio, to buy alcoholic drinks. While Mr. Vrabel and his companion were sitting at the bar drinking, Michael Acri, without provocation, drew a.38-caliber gun, shot and killed Mr. Vrabel's companion, and shot and seriously injured Mr. Vrabel. Mr. Acri was convicted of murder and sentenced to a life term in the state prison.
Florence and Michael Acri, as partners, had owned and operated the Acri Cafe since 1933. From the time of his marriage to Mrs. Acri in 1931 until 1946, Mr. Acri had been in and out of hospitals, clinics, and sanitariums for the treatment of mental disorders and nervousness. Although he beat Mrs. Acri when they had marital difficulties, he had not attacked, abused, or mistreated anyone else. The Acris separated in September 1946, and Mrs. Acri sued her husband for divorce soon afterward. Before their separation, Mrs. Acri had operated and managed the cafe primarily only when Mr. Acri was ill. Following the marital separation and until the time he shot Mr. Vrabel, Mr. Acri was in exclusive control of the management of the cafe.
Mr. Vrabel brought suit against Mrs. Acri to recover damages for his injuries on the grounds that, as Mr. Acri's partner, she was liable for his tort. The trial court ordered her to pay Mr. Vrabel damages of $7,500. Mrs. Acri appealed.
JUDICIAL OPINION
ZIMMERMAN, Judge
The authorities are in agreement that whether a tort is committed by a partner or a joint adventurer, the principles of law governing the situation are the same. So, where a partnership or a joint enterprise is shown to exist, each member of such project acts both as principal and agent of the others as to those things done within the apparent scope of the business of the project and for its benefit.
Section 13 of the Uniform Partnership Act provides: "Where, by any wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with the authority of his copartners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act."
However, it is equally true that where one member of a partnership or joint enterprise commits a wrongful and malicious tort not within the actual or apparent scope of the agency, or the common business of the particular venture, to which the other members have not assented, and which has not been concurred in or ratified by them, they are not liable for the harm thereby caused.
Because at the time of Vrabel's injuries and for a long time prior thereto Florence had been excluded from the Acri Cafe and had no voice or control in its management, and because Florence did not know or have good reason to know that Michael was a dangerous individual prone to assault cafe patrons, the theory of negligence urged by Vrabel is hardly tenable.
We cannot escape the conclusion, therefore, that the above rules, relating to the nonliability of a partner or joint adventurer for wrongful and malicious torts committed by an associate outside the purposes and scope of the business, must be applied in the instant case. The willful and malicious attack by Michael Acri upon Vrabel in the Acri Cafe cannot reasonably be said to have come within the scope of the business of operating the cafe, so as to have rendered the absent Florence accountable.
Since the liability of a partner for the acts of his associates is founded upon the principles of agency, the statement is in point that an intentional and willful attack committed by an agent or employee, to vent his own spleen or malevolence against the injured person, is a clear departure from his employment and his principal or employer is not responsible therefore.
Judgment reversed.
What was the nature of the business?

Answer 1

The Acri cafe in Youngstown, Ohio is jointly operating by both Florence and Michael Acri.
Hence, the nature of the business is joint proprietorship in this case.

Question 2

Gailey, Inc., incorporated in 1980, removed asbestos and mechanical insulation on contract jobs that required union labor. Richard Gailey had been the president, controlling shareholder, and director of Gailey, Inc. from its inception.
Universal Labs, Inc. was incorporated by Mr. Gailey in March 1984 to analyze asbestos samples and air samples and to perform general laboratory work. Mr. Gailey was the sole shareholder of Universal Labs.
As president and director of Gailey, Inc., Mr. Gailey directed Gailey to pay certain debts of Universal Labs. Subsequent to that, $14,500 was provided by Gailey, Inc. to Universal Labs to pay for the latter's start-up expenses and costs.
Gailey, Inc. filed a voluntary petition pursuant to Chapter 11 of the Bankruptcy Code on January 28, 1985. The case was converted to a Chapter 7 proceeding on September 30, 1985.
The trustee in bankruptcy filed suit alleging that Mr. Gailey usurped a corporate business opportunity belonging to Gailey, Inc., when he incorporated Universal Labs. Is the trustee correct? [ In re Gailey, Inc., 119 B.R. 504 (Bankr. W.D. Pa. 1990)]

Answer 2

The trustee is correct in stating that, by incorporating Universal Labs, Mr. Gailey has usurped a business opportunity that belonged to Gailey Inc.
Under Section 542(a), a person who owns a property must turn over the property or its value to the trustee. The trustee can recover the value of the property if it has transferred wrongfully after a petition for bankruptcy has filed, unless the transferor had transferred in good faith without being aware of the bankruptcy case.
The payments to Universal Labs constitute a transfer of interest of Gailey Inc. in property within one year of it filing for bankruptcy. Thus, the trustee may recover from Mr. Gailey the amount he had transferred to Universal Labs for its startup costs and pay its debts.

Question 3

Vrabel v Acri
103 N.E.2d 564 (Ohio 1952)
Shot Down in a Ma Pa Cafe: Is Ma Liable When Pa Goes to Jail?
FACTS
On February 17, 1947, Stephen Vrabel and a companion went into the Acri Cafe in Youngstown, Ohio, to buy alcoholic drinks. While Mr. Vrabel and his companion were sitting at the bar drinking, Michael Acri, without provocation, drew a.38-caliber gun, shot and killed Mr. Vrabel's companion, and shot and seriously injured Mr. Vrabel. Mr. Acri was convicted of murder and sentenced to a life term in the state prison.
Florence and Michael Acri, as partners, had owned and operated the Acri Cafe since 1933. From the time of his marriage to Mrs. Acri in 1931 until 1946, Mr. Acri had been in and out of hospitals, clinics, and sanitariums for the treatment of mental disorders and nervousness. Although he beat Mrs. Acri when they had marital difficulties, he had not attacked, abused, or mistreated anyone else. The Acris separated in September 1946, and Mrs. Acri sued her husband for divorce soon afterward. Before their separation, Mrs. Acri had operated and managed the cafe primarily only when Mr. Acri was ill. Following the marital separation and until the time he shot Mr. Vrabel, Mr. Acri was in exclusive control of the management of the cafe.
Mr. Vrabel brought suit against Mrs. Acri to recover damages for his injuries on the grounds that, as Mr. Acri's partner, she was liable for his tort. The trial court ordered her to pay Mr. Vrabel damages of $7,500. Mrs. Acri appealed.
JUDICIAL OPINION
ZIMMERMAN, Judge
The authorities are in agreement that whether a tort is committed by a partner or a joint adventurer, the principles of law governing the situation are the same. So, where a partnership or a joint enterprise is shown to exist, each member of such project acts both as principal and agent of the others as to those things done within the apparent scope of the business of the project and for its benefit.
Section 13 of the Uniform Partnership Act provides: "Where, by any wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with the authority of his copartners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act."
However, it is equally true that where one member of a partnership or joint enterprise commits a wrongful and malicious tort not within the actual or apparent scope of the agency, or the common business of the particular venture, to which the other members have not assented, and which has not been concurred in or ratified by them, they are not liable for the harm thereby caused.
Because at the time of Vrabel's injuries and for a long time prior thereto Florence had been excluded from the Acri Cafe and had no voice or control in its management, and because Florence did not know or have good reason to know that Michael was a dangerous individual prone to assault cafe patrons, the theory of negligence urged by Vrabel is hardly tenable.
We cannot escape the conclusion, therefore, that the above rules, relating to the nonliability of a partner or joint adventurer for wrongful and malicious torts committed by an associate outside the purposes and scope of the business, must be applied in the instant case. The willful and malicious attack by Michael Acri upon Vrabel in the Acri Cafe cannot reasonably be said to have come within the scope of the business of operating the cafe, so as to have rendered the absent Florence accountable.
Since the liability of a partner for the acts of his associates is founded upon the principles of agency, the statement is in point that an intentional and willful attack committed by an agent or employee, to vent his own spleen or malevolence against the injured person, is a clear departure from his employment and his principal or employer is not responsible therefore.
Judgment reversed.
What type of injury occurred, and who caused it?

Answer 3

On February 17, 1947, Michael Acri opened fire with a 0.38 caliber gun on Mr. Vrabel and his companion while they were sitting at the Acri bar having an alcoholic drink. In this incident, Mr. Vrabel's companion lost his life and Mr. Vrabel was seriously injured.

Question 4

Until his death in 1980, Cody Morton, husband of Dormilee Morton, operated a construction business from his home in Salem, Missouri. Upon Mr. Morton's intestate death, Mrs. Morton succeeded to her husband's ownership interest in the business, including ownership of supplies, material, and construction equipment. Steve Morton, their son, took over the operation and management of the construction company with Mrs. Morton contributing the capital assets of business, which consisted of the construction equipment.
From time to time, Mrs. Morton signed bank notes and supporting documents granting security interests in the equipment, designating the borrower as "Dormilee Morton and Steven Morton d\b\a Morton Construction Company." In addition, she also provided funds for the operation of the business. The telephone for the business was situated in Mrs. Morton's home, where she also received the business's mail.
Between 1980 and 1984, Morton Construction Company employed laborers and other persons to construct commercial and residential buildings and was required to withhold federal income and Federal Insurance Contributions Act (FICA) taxes from wages paid to its employees. For the taxable quarters between 1980 and 1984, quarterly federal tax returns and an annual federal unemployment tax return for Morton Construction Company were filed with the IRS in the names of Dormilee Morton and Steven D. Morton, partners, by Steven D. Morton.
As a result of business conditions and difficulties, Morton Construction Company failed to make the required deposits of federal withholding and FICA taxes or otherwise pay the amounts of these taxes to the United States.
The IRS imposed assessments against Dormilee Morton, Steven Morton, and Morton Construction for $44,460.52. Tax liens were filed.
Mrs. Morton asserts that she should not be liable for taxes as she was not a general partner in the business but, at most, a limited partner. In support of this contention, she cites Steven Morton's notation on the appropriate tax forms that Morton Construction Company was a limited partnership and he was the general partner.
Is Mrs. Morton correct? Is she a limited partner? Is she personally liable for the wage taxes? [ United States v Morton, 682 F. Supp. 999 (E.D. Mo. 1988)]

Question 5

Vrabel v Acri
103 N.E.2d 564 (Ohio 1952)
Shot Down in a Ma Pa Cafe: Is Ma Liable When Pa Goes to Jail?
FACTS
On February 17, 1947, Stephen Vrabel and a companion went into the Acri Cafe in Youngstown, Ohio, to buy alcoholic drinks. While Mr. Vrabel and his companion were sitting at the bar drinking, Michael Acri, without provocation, drew a.38-caliber gun, shot and killed Mr. Vrabel's companion, and shot and seriously injured Mr. Vrabel. Mr. Acri was convicted of murder and sentenced to a life term in the state prison.
Florence and Michael Acri, as partners, had owned and operated the Acri Cafe since 1933. From the time of his marriage to Mrs. Acri in 1931 until 1946, Mr. Acri had been in and out of hospitals, clinics, and sanitariums for the treatment of mental disorders and nervousness. Although he beat Mrs. Acri when they had marital difficulties, he had not attacked, abused, or mistreated anyone else. The Acris separated in September 1946, and Mrs. Acri sued her husband for divorce soon afterward. Before their separation, Mrs. Acri had operated and managed the cafe primarily only when Mr. Acri was ill. Following the marital separation and until the time he shot Mr. Vrabel, Mr. Acri was in exclusive control of the management of the cafe.
Mr. Vrabel brought suit against Mrs. Acri to recover damages for his injuries on the grounds that, as Mr. Acri's partner, she was liable for his tort. The trial court ordered her to pay Mr. Vrabel damages of $7,500. Mrs. Acri appealed.
JUDICIAL OPINION
ZIMMERMAN, Judge
The authorities are in agreement that whether a tort is committed by a partner or a joint adventurer, the principles of law governing the situation are the same. So, where a partnership or a joint enterprise is shown to exist, each member of such project acts both as principal and agent of the others as to those things done within the apparent scope of the business of the project and for its benefit.
Section 13 of the Uniform Partnership Act provides: "Where, by any wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with the authority of his copartners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act."
However, it is equally true that where one member of a partnership or joint enterprise commits a wrongful and malicious tort not within the actual or apparent scope of the agency, or the common business of the particular venture, to which the other members have not assented, and which has not been concurred in or ratified by them, they are not liable for the harm thereby caused.
Because at the time of Vrabel's injuries and for a long time prior thereto Florence had been excluded from the Acri Cafe and had no voice or control in its management, and because Florence did not know or have good reason to know that Michael was a dangerous individual prone to assault cafe patrons, the theory of negligence urged by Vrabel is hardly tenable.
We cannot escape the conclusion, therefore, that the above rules, relating to the nonliability of a partner or joint adventurer for wrongful and malicious torts committed by an associate outside the purposes and scope of the business, must be applied in the instant case. The willful and malicious attack by Michael Acri upon Vrabel in the Acri Cafe cannot reasonably be said to have come within the scope of the business of operating the cafe, so as to have rendered the absent Florence accountable.
Since the liability of a partner for the acts of his associates is founded upon the principles of agency, the statement is in point that an intentional and willful attack committed by an agent or employee, to vent his own spleen or malevolence against the injured person, is a clear departure from his employment and his principal or employer is not responsible therefore.
Judgment reversed.
Why was Mr. Acri not a defendant?

Question 6

Aztec Enterprises, Inc. was incorporated in Washington with a capital contribution of $500. Aztec's incorporator and sole stockholder was H. B. Hunting. Aztec operated a gravel-hauling business and was plagued with persistent working capital problems. Carl Olson, a frequent source of loans for Aztec, eventually acquired the firm. Mr. Olson, who had no corporate minutes or tax returns, personally paid Aztec's lease fees but did not pay when he had Aztec deliver gravel to his personal construction sites. Mr. Olson never had stock certificates issued to him. Despite annual gross sales of more than $800,000, Aztec was unable to pay its debts. Truckweld Equipment Company, a creditor of Aztec, brought suit to pierce the corporate veil and recover its debt from Mr. Olson. Can it pierce the corporate veil? [ Truckweld Equipment Co. v Olson, 618 P.2d 1017 (Wash. 1980)]

Question 7

Vrabel v Acri
103 N.E.2d 564 (Ohio 1952)
Shot Down in a Ma Pa Cafe: Is Ma Liable When Pa Goes to Jail?
FACTS
On February 17, 1947, Stephen Vrabel and a companion went into the Acri Cafe in Youngstown, Ohio, to buy alcoholic drinks. While Mr. Vrabel and his companion were sitting at the bar drinking, Michael Acri, without provocation, drew a.38-caliber gun, shot and killed Mr. Vrabel's companion, and shot and seriously injured Mr. Vrabel. Mr. Acri was convicted of murder and sentenced to a life term in the state prison.
Florence and Michael Acri, as partners, had owned and operated the Acri Cafe since 1933. From the time of his marriage to Mrs. Acri in 1931 until 1946, Mr. Acri had been in and out of hospitals, clinics, and sanitariums for the treatment of mental disorders and nervousness. Although he beat Mrs. Acri when they had marital difficulties, he had not attacked, abused, or mistreated anyone else. The Acris separated in September 1946, and Mrs. Acri sued her husband for divorce soon afterward. Before their separation, Mrs. Acri had operated and managed the cafe primarily only when Mr. Acri was ill. Following the marital separation and until the time he shot Mr. Vrabel, Mr. Acri was in exclusive control of the management of the cafe.
Mr. Vrabel brought suit against Mrs. Acri to recover damages for his injuries on the grounds that, as Mr. Acri's partner, she was liable for his tort. The trial court ordered her to pay Mr. Vrabel damages of $7,500. Mrs. Acri appealed.
JUDICIAL OPINION
ZIMMERMAN, Judge
The authorities are in agreement that whether a tort is committed by a partner or a joint adventurer, the principles of law governing the situation are the same. So, where a partnership or a joint enterprise is shown to exist, each member of such project acts both as principal and agent of the others as to those things done within the apparent scope of the business of the project and for its benefit.
Section 13 of the Uniform Partnership Act provides: "Where, by any wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with the authority of his copartners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act."
However, it is equally true that where one member of a partnership or joint enterprise commits a wrongful and malicious tort not within the actual or apparent scope of the agency, or the common business of the particular venture, to which the other members have not assented, and which has not been concurred in or ratified by them, they are not liable for the harm thereby caused.
Because at the time of Vrabel's injuries and for a long time prior thereto Florence had been excluded from the Acri Cafe and had no voice or control in its management, and because Florence did not know or have good reason to know that Michael was a dangerous individual prone to assault cafe patrons, the theory of negligence urged by Vrabel is hardly tenable.
We cannot escape the conclusion, therefore, that the above rules, relating to the nonliability of a partner or joint adventurer for wrongful and malicious torts committed by an associate outside the purposes and scope of the business, must be applied in the instant case. The willful and malicious attack by Michael Acri upon Vrabel in the Acri Cafe cannot reasonably be said to have come within the scope of the business of operating the cafe, so as to have rendered the absent Florence accountable.
Since the liability of a partner for the acts of his associates is founded upon the principles of agency, the statement is in point that an intentional and willful attack committed by an agent or employee, to vent his own spleen or malevolence against the injured person, is a clear departure from his employment and his principal or employer is not responsible therefore.
Judgment reversed.
Is Mrs. Acri liable for the injuries?

Question 8

The SEC charged HealthSouth with inflating its earnings by $1.4 billion over a three-year period, with total inflated earnings of $2.5 billion over a decade. The case was the first one brought under the new provisions of Sarbanes-Oxley for financial fraud.
In a federal district court hearing the following information emerged.
• Two of the company's CFOs and its current CFO have been indicted for fraud.
• CFO William Owen recorded his conversations with former CEO Richard Scrushy at the request of the FBI.
• Mr. Scrushy said on tape to Mr. Owen, "We just need to get those numbers where we want them to be. You're my guy. You've got the technology and the know-how."
• Mr. Scrushy has sold $175 million in HealthSouth shares since the accounting fraud began.
• The bookkeeper for Mr. Scrushy's personal companies committed suicide in September 2002. His new bookkeeper, Mary Schabacker, indicated that all of Mr. Scrushy's five corporations owe debts to each other, with no intention to repay them.
• HealthSouth stock was delisted from the NYSE for a period of time. It was listed at $15 per share one year ago and is worth pennies today.
• Mr. Owen's wife told him that if he kept signing "phony financial statements" he might go to jail.
• Mr. Scrushy maintains that he knew nothing about the accounting fraud and that Mr. Owens did it all.
• The acting chairman of the HealthSouth board said, "We [directors] really don't know a lot about what has been occurring at the company."
• For seven years, one director was paid a consulting fee of $250,000 per year.
• One director purchased a $395,000 resort property as a partner with Mr. Scrushy.
• One director secured a $5.6 million contract to install glass at a hospital HealthSouth was constructing.
• MedCenterDirect.com had as investors HealthSouth, Mr. Scrushy's private investment company, six of HealthSouth's directors, and the wife of one of the HealthSouth directors.
• HealthSouth directed business to MedCenterDirect.com totaling almost $174 million in 2001.
• The audit committee and compensation committee were joint committees made up of the same directors.
• HealthSouth invested $2 million in Acacia Venture Partners, a venture capital fund founded and run by C. Sage Givens, a director of HealthSouth. When a shareholder questioned Givens's independence as a result, HealthSouth defended her board position.
• Ernst Young served as HealthSouth's auditor. It earned $1.2 million for financial statement audits and $2.5 million for other services.
Discuss the legal issues that each of these revelations raises. Be sure to cover the changes that Sarbanes-Oxley would impose on the company's governance practices. Also, refer back to Chapter 8 and determine what criminal charges were brought.

Question 9

S. v Bestfoods, Inc.
524 U.S. 51 (1998)
Lifting the Veil Is Best for Cleanup, but Not for Shareholders
FACTS
In 1957, Ott Chemical Co. manufactured chemicals at its plant near Muskegon, Michigan, and both intentionally and unintentionally dumped hazardous substances in the soil and groundwater near the plant. Ott sold the plant to CPC International, Inc.
In 1965, CPC incorporated a wholly owned subsidiary (Ott II) to buy Ott's assets. Ott II then continued both the chemical production and dumping. Ott II's officers and directors had positions and duties at both CPC and Ott.
In 1972, CPC (now Bestfoods) sold Ott II to Story Chemical, which operated the plant until its bankruptcy in 1977. Aerojet-General Corp. bought the plant from the bankruptcy trustee and manufactured chemicals there until 1986.
In 1989, the EPA filed suit to recover the costs of cleanup on the plant site and named CPC, Aerojet, and the officers of the now defunct Ott and Ott II.
The District Court held both CPC and Aerojet liable. After a divided panel of the Court of Appeals for the Sixth Circuit reversed in part, the court granted rehearing en banc and vacated the panel decision. This time, seven judges to six, the court again reversed the District Court in part. Bestfoods appealed (Ott settled prior to the appeal).
JUDICIAL OPINION
SOUTER, Justice
The issue before us, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), is whether a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary may, without more, be held liable as an operator of a polluting facility owned or operated by the subsidiary. We answer no, unless the corporate veil may be pierced. But a corporate parent that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable in its own right as an operator of the facility.
The District Court said that operator liability may attach to a parent corporation both directly, when the parent itself operates the facility, and indirectly, when the corporate veil can be pierced under state law. The court explained that, while CERCLA imposes direct liability in situations in which the corporate veil cannot be pierced under traditional concepts of corporate law, "the statute and its legislative history do not suggest that CERCLA rejects entirely the crucial limits to liability that are inherent to corporate law."
Applying that test to the facts of this case, the court found it particularly telling that CPC selected Ott II's board of directors and populated its executive ranks with CPC officials, and that a CPC official, G.R.D. Williams, played a significant role in shaping Ott II's environmental compliance policy.
[W]here a parent corporation is sought to be held liable as an operator pursuant to 42 U.S.C. § 9607(a)(2) based upon the extent of its control of its subsidiary which owns the facility, the parent will be liable only when the requirements necessary to pierce the corporate veil [under state law] are met. In other words… whether the parent will be liable as an operator depends upon whether the degree to which it controls its subsidiary and the extent and manner of its involvement with the facility, amount to the abuse of the corporate form that will warrant piercing the corporate veil and disregarding the separate corporate entities of the parent and subsidiary.
It is a general principle of corporate law deeply "ingrained in our economic and legal systems" that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiary.…
But there is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation's conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf.
Nothing in CERCLA purports to rewrite this wellsettled rule, either. If a subsidiary that operates, but does not own, a facility is so pervasively controlled by its parent for a sufficiently improper purpose to warrant veil piercing, the parent may be held derivatively liable for the subsidiary's acts as an operator.
The fact that a corporate subsidiary happens to own a polluting facility operated by its parent does nothing, then, to displace the rule that the parent "corporation is [itself] responsible for the wrongs committed by its agents in the course of its business." It is this direct liability that is properly seen as being at issue here.
We are satisfied that the Court of Appeals correctly rejected the District Court's analysis of direct liability. But we also think that the appeals court erred in limiting direct liability under the statute to a parent's sole or joint venture operation, so as to eliminate any possible finding that CPC is liable as an operator on the facts of this case.
In imposing direct liability on these grounds, the District Court failed to recognize that "it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary's acts."
The Government would have to show that, despite the general presumption to the contrary, the officers and directors were acting in their capacities as CPC officers and directors, and not as Ott II officers and directors, when they committed those acts. The District Court made no such enquiry here, however, disregarding entirely this time-honored common-law rule.…
In sum, the District Court's focus on the relationship between parent and subsidiary (rather than parent and facility), combined with its automatic attribution of the actions of dual officers and directors to the corporate parent, erroneously, even if unintentionally, treated CERCLA as though it displaced or fundamentally altered common-law standards of limited liability.…
There is, in fact, some evidence that CPC engaged in just this type and degree of activity at the Muskegon plant. The District Court's opinion speaks of an agent of CPC alone who played a conspicuous part in dealing with the toxic risks emanating from the operation of the plant. G.R.D. Williams worked only for CPC; he was not an employee, officer, or director of Ott, and thus, his actions were of necessity taken only on behalf of CPC. The District Court found that "CPC became directly involved in environmental and regulatory matters through the work of… Williams, CPC's governmental and environmental affairs director. Williams… became heavily involved in environmental issues at Ott II." He "actively participated in and exerted control over a variety of Ott II environmental matters," and he "issued directives regarding Ott II's responses to regulatory inquiries."
We think that these findings are enough to raise an issue of CPC's operation of the facility through Williams's actions, though we would draw no ultimate conclusion from these findings at this point. Prudence thus counsels us to remand, on the theory of direct operation set out here, for reevaluation of Williams's role, and of the role of any other CPC agent who might be said to have had a part in operating the Muskegon facility.
The judgment of the Court of Appeals for the Sixth Circuit is vacated, and the case is remanded.
Describe the corporate ownership history that surrounds the Muskegon facility.

Question 10

Allan Jones sold a ski shop franchise to Edward Hamilton. Although Mr. Jones did not contribute equity to the business or share in the profits, he did give Mr. Hamilton advice and share his experience to help him get started. Most of Mr. Hamilton's capital came in the form of a loan from Union Bank. When Mr. Hamilton failed to pay, Union Bank sued Mr. Jones for payment under the theory that Mr. Jones was a partner by implication or estoppel. Was he? [ Union Bank v Jones, 411 A.2d 1338 (Vt. 1980)]

Question 11

S. v Bestfoods, Inc.
524 U.S. 51 (1998)
Lifting the Veil Is Best for Cleanup, but Not for Shareholders
FACTS
In 1957, Ott Chemical Co. manufactured chemicals at its plant near Muskegon, Michigan, and both intentionally and unintentionally dumped hazardous substances in the soil and groundwater near the plant. Ott sold the plant to CPC International, Inc.
In 1965, CPC incorporated a wholly owned subsidiary (Ott II) to buy Ott's assets. Ott II then continued both the chemical production and dumping. Ott II's officers and directors had positions and duties at both CPC and Ott.
In 1972, CPC (now Bestfoods) sold Ott II to Story Chemical, which operated the plant until its bankruptcy in 1977. Aerojet-General Corp. bought the plant from the bankruptcy trustee and manufactured chemicals there until 1986.
In 1989, the EPA filed suit to recover the costs of cleanup on the plant site and named CPC, Aerojet, and the officers of the now defunct Ott and Ott II.
The District Court held both CPC and Aerojet liable. After a divided panel of the Court of Appeals for the Sixth Circuit reversed in part, the court granted rehearing en banc and vacated the panel decision. This time, seven judges to six, the court again reversed the District Court in part. Bestfoods appealed (Ott settled prior to the appeal).
JUDICIAL OPINION
SOUTER, Justice
The issue before us, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), is whether a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary may, without more, be held liable as an operator of a polluting facility owned or operated by the subsidiary. We answer no, unless the corporate veil may be pierced. But a corporate parent that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable in its own right as an operator of the facility.
The District Court said that operator liability may attach to a parent corporation both directly, when the parent itself operates the facility, and indirectly, when the corporate veil can be pierced under state law. The court explained that, while CERCLA imposes direct liability in situations in which the corporate veil cannot be pierced under traditional concepts of corporate law, "the statute and its legislative history do not suggest that CERCLA rejects entirely the crucial limits to liability that are inherent to corporate law."
Applying that test to the facts of this case, the court found it particularly telling that CPC selected Ott II's board of directors and populated its executive ranks with CPC officials, and that a CPC official, G.R.D. Williams, played a significant role in shaping Ott II's environmental compliance policy.
[W]here a parent corporation is sought to be held liable as an operator pursuant to 42 U.S.C. § 9607(a)(2) based upon the extent of its control of its subsidiary which owns the facility, the parent will be liable only when the requirements necessary to pierce the corporate veil [under state law] are met. In other words… whether the parent will be liable as an operator depends upon whether the degree to which it controls its subsidiary and the extent and manner of its involvement with the facility, amount to the abuse of the corporate form that will warrant piercing the corporate veil and disregarding the separate corporate entities of the parent and subsidiary.
It is a general principle of corporate law deeply "ingrained in our economic and legal systems" that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiary.…
But there is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation's conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf.
Nothing in CERCLA purports to rewrite this wellsettled rule, either. If a subsidiary that operates, but does not own, a facility is so pervasively controlled by its parent for a sufficiently improper purpose to warrant veil piercing, the parent may be held derivatively liable for the subsidiary's acts as an operator.
The fact that a corporate subsidiary happens to own a polluting facility operated by its parent does nothing, then, to displace the rule that the parent "corporation is [itself] responsible for the wrongs committed by its agents in the course of its business." It is this direct liability that is properly seen as being at issue here.
We are satisfied that the Court of Appeals correctly rejected the District Court's analysis of direct liability. But we also think that the appeals court erred in limiting direct liability under the statute to a parent's sole or joint venture operation, so as to eliminate any possible finding that CPC is liable as an operator on the facts of this case.
In imposing direct liability on these grounds, the District Court failed to recognize that "it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary's acts."
The Government would have to show that, despite the general presumption to the contrary, the officers and directors were acting in their capacities as CPC officers and directors, and not as Ott II officers and directors, when they committed those acts. The District Court made no such enquiry here, however, disregarding entirely this time-honored common-law rule.…
In sum, the District Court's focus on the relationship between parent and subsidiary (rather than parent and facility), combined with its automatic attribution of the actions of dual officers and directors to the corporate parent, erroneously, even if unintentionally, treated CERCLA as though it displaced or fundamentally altered common-law standards of limited liability.…
There is, in fact, some evidence that CPC engaged in just this type and degree of activity at the Muskegon plant. The District Court's opinion speaks of an agent of CPC alone who played a conspicuous part in dealing with the toxic risks emanating from the operation of the plant. G.R.D. Williams worked only for CPC; he was not an employee, officer, or director of Ott, and thus, his actions were of necessity taken only on behalf of CPC. The District Court found that "CPC became directly involved in environmental and regulatory matters through the work of… Williams, CPC's governmental and environmental affairs director. Williams… became heavily involved in environmental issues at Ott II." He "actively participated in and exerted control over a variety of Ott II environmental matters," and he "issued directives regarding Ott II's responses to regulatory inquiries."
We think that these findings are enough to raise an issue of CPC's operation of the facility through Williams's actions, though we would draw no ultimate conclusion from these findings at this point. Prudence thus counsels us to remand, on the theory of direct operation set out here, for reevaluation of Williams's role, and of the role of any other CPC agent who might be said to have had a part in operating the Muskegon facility.
The judgment of the Court of Appeals for the Sixth Circuit is vacated, and the case is remanded.
Is there a special CERCLA rule for piercing the corporate veil?

Question 12

Heritage Hills (a land development firm) was organized on July 2, 1975, as a limited partnership, but the partnership agreement was never properly filed. Heritage Hills went bankrupt, and the bankruptcy trustee has sought to recover the debts owed by the partnership from the limited partners. Can he? [ Heritage Hills v Zion's First Nat'l Bank, 601 F.2d 1023 (9th Cir. 1979)]

Question 13

S. v Bestfoods, Inc.
524 U.S. 51 (1998)
Lifting the Veil Is Best for Cleanup, but Not for Shareholders
FACTS
In 1957, Ott Chemical Co. manufactured chemicals at its plant near Muskegon, Michigan, and both intentionally and unintentionally dumped hazardous substances in the soil and groundwater near the plant. Ott sold the plant to CPC International, Inc.
In 1965, CPC incorporated a wholly owned subsidiary (Ott II) to buy Ott's assets. Ott II then continued both the chemical production and dumping. Ott II's officers and directors had positions and duties at both CPC and Ott.
In 1972, CPC (now Bestfoods) sold Ott II to Story Chemical, which operated the plant until its bankruptcy in 1977. Aerojet-General Corp. bought the plant from the bankruptcy trustee and manufactured chemicals there until 1986.
In 1989, the EPA filed suit to recover the costs of cleanup on the plant site and named CPC, Aerojet, and the officers of the now defunct Ott and Ott II.
The District Court held both CPC and Aerojet liable. After a divided panel of the Court of Appeals for the Sixth Circuit reversed in part, the court granted rehearing en banc and vacated the panel decision. This time, seven judges to six, the court again reversed the District Court in part. Bestfoods appealed (Ott settled prior to the appeal).
JUDICIAL OPINION
SOUTER, Justice
The issue before us, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), is whether a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary may, without more, be held liable as an operator of a polluting facility owned or operated by the subsidiary. We answer no, unless the corporate veil may be pierced. But a corporate parent that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable in its own right as an operator of the facility.
The District Court said that operator liability may attach to a parent corporation both directly, when the parent itself operates the facility, and indirectly, when the corporate veil can be pierced under state law. The court explained that, while CERCLA imposes direct liability in situations in which the corporate veil cannot be pierced under traditional concepts of corporate law, "the statute and its legislative history do not suggest that CERCLA rejects entirely the crucial limits to liability that are inherent to corporate law."
Applying that test to the facts of this case, the court found it particularly telling that CPC selected Ott II's board of directors and populated its executive ranks with CPC officials, and that a CPC official, G.R.D. Williams, played a significant role in shaping Ott II's environmental compliance policy.
[W]here a parent corporation is sought to be held liable as an operator pursuant to 42 U.S.C. § 9607(a)(2) based upon the extent of its control of its subsidiary which owns the facility, the parent will be liable only when the requirements necessary to pierce the corporate veil [under state law] are met. In other words… whether the parent will be liable as an operator depends upon whether the degree to which it controls its subsidiary and the extent and manner of its involvement with the facility, amount to the abuse of the corporate form that will warrant piercing the corporate veil and disregarding the separate corporate entities of the parent and subsidiary.
It is a general principle of corporate law deeply "ingrained in our economic and legal systems" that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiary.…
But there is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation's conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf.
Nothing in CERCLA purports to rewrite this wellsettled rule, either. If a subsidiary that operates, but does not own, a facility is so pervasively controlled by its parent for a sufficiently improper purpose to warrant veil piercing, the parent may be held derivatively liable for the subsidiary's acts as an operator.
The fact that a corporate subsidiary happens to own a polluting facility operated by its parent does nothing, then, to displace the rule that the parent "corporation is [itself] responsible for the wrongs committed by its agents in the course of its business." It is this direct liability that is properly seen as being at issue here.
We are satisfied that the Court of Appeals correctly rejected the District Court's analysis of direct liability. But we also think that the appeals court erred in limiting direct liability under the statute to a parent's sole or joint venture operation, so as to eliminate any possible finding that CPC is liable as an operator on the facts of this case.
In imposing direct liability on these grounds, the District Court failed to recognize that "it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary's acts."
The Government would have to show that, despite the general presumption to the contrary, the officers and directors were acting in their capacities as CPC officers and directors, and not as Ott II officers and directors, when they committed those acts. The District Court made no such enquiry here, however, disregarding entirely this time-honored common-law rule.…
In sum, the District Court's focus on the relationship between parent and subsidiary (rather than parent and facility), combined with its automatic attribution of the actions of dual officers and directors to the corporate parent, erroneously, even if unintentionally, treated CERCLA as though it displaced or fundamentally altered common-law standards of limited liability.…
There is, in fact, some evidence that CPC engaged in just this type and degree of activity at the Muskegon plant. The District Court's opinion speaks of an agent of CPC alone who played a conspicuous part in dealing with the toxic risks emanating from the operation of the plant. G.R.D. Williams worked only for CPC; he was not an employee, officer, or director of Ott, and thus, his actions were of necessity taken only on behalf of CPC. The District Court found that "CPC became directly involved in environmental and regulatory matters through the work of… Williams, CPC's governmental and environmental affairs director. Williams… became heavily involved in environmental issues at Ott II." He "actively participated in and exerted control over a variety of Ott II environmental matters," and he "issued directives regarding Ott II's responses to regulatory inquiries."
We think that these findings are enough to raise an issue of CPC's operation of the facility through Williams's actions, though we would draw no ultimate conclusion from these findings at this point. Prudence thus counsels us to remand, on the theory of direct operation set out here, for reevaluation of Williams's role, and of the role of any other CPC agent who might be said to have had a part in operating the Muskegon facility.
The judgment of the Court of Appeals for the Sixth Circuit is vacated, and the case is remanded.
What must be shown to hold a parent liable for the actions of the subsidiary?

Question 14

In June 1985, Carolyn Boose sought the dental services of Dr. George Blakeslee, who proposed to fill two cavities in her teeth. As part of the procedure, he administered nitrous oxide to Ms. Boose. She was rendered semiconscious by the drug and while she was in this state, Dr. Blakeslee lifted her shirt and fondled one of her breasts. He was subsequently charged with, and pled guilty to, the crime of indecent liberties.
Prior to the incident in question, Dr. Blakeslee had incorporated his dental practice as a professional services corporation. He was the corporation's sole shareholder, officer, and director. The corporation thereafter executed an employment agreement with Dr. Blakeslee, who signed the agreement both as an employee of the corporation and as its president.
At the time of the incident in question, Dr. Blakeslee and the corporation were covered by an insurance policy with Standard Fire Insurance Company that provided general and professional liability coverage. The general liability portion of the policy provided coverage for bodily injury or property damage caused by an "occurrence" arising out of the use of the insured premises. The insurance contract defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended by the insured."
The professional liability portion of the policy limited coverage to damages for "injury… arising out of the rendering of or failure to render, during the policy period, professional services by the individual insured, or by any person for whom acts or omissions such insured is legally responsible.…"
In November 1985, Ms. Boose commenced an action against Dr. Blakeslee and the professional services corporation for the damages she allegedly sustained as a result of his conduct. Standard subsequently commenced a declaratory judgment action against Ms. Boose and Dr. Blakeslee in order to obtain a declaration of its rights and duties in connection with the lawsuit by Ms. Boose against Dr. Blakeslee and the corporation. All parties moved for summary judgment. The trial court granted judgment to Standard, concluding that it had no duty to defend or indemnify the insured (that is, Dr. Blakeslee and the corporation) against Ms. Boose's claim. Should the corporate veil be pierced to hold Dr. Blakeslee liable? [ Standard Fire Insurance Co. v Blakeslee, 771 P.2d 1172 (Wash. 1989)]

Question 15

S. v Bestfoods, Inc.
524 U.S. 51 (1998)
Lifting the Veil Is Best for Cleanup, but Not for Shareholders
FACTS
In 1957, Ott Chemical Co. manufactured chemicals at its plant near Muskegon, Michigan, and both intentionally and unintentionally dumped hazardous substances in the soil and groundwater near the plant. Ott sold the plant to CPC International, Inc.
In 1965, CPC incorporated a wholly owned subsidiary (Ott II) to buy Ott's assets. Ott II then continued both the chemical production and dumping. Ott II's officers and directors had positions and duties at both CPC and Ott.
In 1972, CPC (now Bestfoods) sold Ott II to Story Chemical, which operated the plant until its bankruptcy in 1977. Aerojet-General Corp. bought the plant from the bankruptcy trustee and manufactured chemicals there until 1986.
In 1989, the EPA filed suit to recover the costs of cleanup on the plant site and named CPC, Aerojet, and the officers of the now defunct Ott and Ott II.
The District Court held both CPC and Aerojet liable. After a divided panel of the Court of Appeals for the Sixth Circuit reversed in part, the court granted rehearing en banc and vacated the panel decision. This time, seven judges to six, the court again reversed the District Court in part. Bestfoods appealed (Ott settled prior to the appeal).
JUDICIAL OPINION
SOUTER, Justice
The issue before us, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), is whether a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary may, without more, be held liable as an operator of a polluting facility owned or operated by the subsidiary. We answer no, unless the corporate veil may be pierced. But a corporate parent that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable in its own right as an operator of the facility.
The District Court said that operator liability may attach to a parent corporation both directly, when the parent itself operates the facility, and indirectly, when the corporate veil can be pierced under state law. The court explained that, while CERCLA imposes direct liability in situations in which the corporate veil cannot be pierced under traditional concepts of corporate law, "the statute and its legislative history do not suggest that CERCLA rejects entirely the crucial limits to liability that are inherent to corporate law."
Applying that test to the facts of this case, the court found it particularly telling that CPC selected Ott II's board of directors and populated its executive ranks with CPC officials, and that a CPC official, G.R.D. Williams, played a significant role in shaping Ott II's environmental compliance policy.
[W]here a parent corporation is sought to be held liable as an operator pursuant to 42 U.S.C. § 9607(a)(2) based upon the extent of its control of its subsidiary which owns the facility, the parent will be liable only when the requirements necessary to pierce the corporate veil [under state law] are met. In other words… whether the parent will be liable as an operator depends upon whether the degree to which it controls its subsidiary and the extent and manner of its involvement with the facility, amount to the abuse of the corporate form that will warrant piercing the corporate veil and disregarding the separate corporate entities of the parent and subsidiary.
It is a general principle of corporate law deeply "ingrained in our economic and legal systems" that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiary.…
But there is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation's conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf.
Nothing in CERCLA purports to rewrite this wellsettled rule, either. If a subsidiary that operates, but does not own, a facility is so pervasively controlled by its parent for a sufficiently improper purpose to warrant veil piercing, the parent may be held derivatively liable for the subsidiary's acts as an operator.
The fact that a corporate subsidiary happens to own a polluting facility operated by its parent does nothing, then, to displace the rule that the parent "corporation is [itself] responsible for the wrongs committed by its agents in the course of its business." It is this direct liability that is properly seen as being at issue here.
We are satisfied that the Court of Appeals correctly rejected the District Court's analysis of direct liability. But we also think that the appeals court erred in limiting direct liability under the statute to a parent's sole or joint venture operation, so as to eliminate any possible finding that CPC is liable as an operator on the facts of this case.
In imposing direct liability on these grounds, the District Court failed to recognize that "it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary's acts."
The Government would have to show that, despite the general presumption to the contrary, the officers and directors were acting in their capacities as CPC officers and directors, and not as Ott II officers and directors, when they committed those acts. The District Court made no such enquiry here, however, disregarding entirely this time-honored common-law rule.…
In sum, the District Court's focus on the relationship between parent and subsidiary (rather than parent and facility), combined with its automatic attribution of the actions of dual officers and directors to the corporate parent, erroneously, even if unintentionally, treated CERCLA as though it displaced or fundamentally altered common-law standards of limited liability.…
There is, in fact, some evidence that CPC engaged in just this type and degree of activity at the Muskegon plant. The District Court's opinion speaks of an agent of CPC alone who played a conspicuous part in dealing with the toxic risks emanating from the operation of the plant. G.R.D. Williams worked only for CPC; he was not an employee, officer, or director of Ott, and thus, his actions were of necessity taken only on behalf of CPC. The District Court found that "CPC became directly involved in environmental and regulatory matters through the work of… Williams, CPC's governmental and environmental affairs director. Williams… became heavily involved in environmental issues at Ott II." He "actively participated in and exerted control over a variety of Ott II environmental matters," and he "issued directives regarding Ott II's responses to regulatory inquiries."
We think that these findings are enough to raise an issue of CPC's operation of the facility through Williams's actions, though we would draw no ultimate conclusion from these findings at this point. Prudence thus counsels us to remand, on the theory of direct operation set out here, for reevaluation of Williams's role, and of the role of any other CPC agent who might be said to have had a part in operating the Muskegon facility.
The judgment of the Court of Appeals for the Sixth Circuit is vacated, and the case is remanded.
Are joint directors of parent and corporate subsidiaries evidence of a need to pierce the corporate veil?

Question 16

Master Chemical Company of Boston, Massachusetts, manufactured chemicals used primarily in the shoe industry, In 1982, when Master discovered that its underground storage tank filled with toluene was leaking, the two-thousand-gallon tank was emptied. In 1984, Master sold its plant, and the tank was removed. Goldberg-Zoino Associates, Inc. (GZA) was hired to do the cleanup, and it hired MacDonald Watson to do the excavation, transportation, and disposal of the toluene-contaminated soil in the area where the tank had been.
MacDonald Watson had a permit for liquid waste disposal but none for solid waste disposal. MacDonald Watson transported nine 25-yard dump-truck loads and one 20-yard load of toluene-contaminated soil to the disposal lot. The Justice Department brought criminal actions against MacDonald Watson and three of its officers, including Eugene K. D'Allesandro, its president.
Can Mr. D'Allesandro be convicted? [ United States v MacDonald Watson Waste Oil Co., 933 F.2d 35 (1st Cir. 1991)]

Question 17

S. v Bestfoods , Inc.
524 U.S. 51 (1998)
Lifting the Veil Is Best for Cleanup, but Not Shareholders
Facts
In 1957, Ott Chemical Co. manufactured chemicals at its plant near Muskegon, Michigan, and both intentionally and unintentionally dumped hazardous substances in the soil and groundwater near the plant. Ott sold the plant to CPC International, Inc.
In 1965, CPC incorporated a wholly owned subsidiary (Ott II) to buy Ott"s assets. Ott II then continued both the chemical production and dumping. Ott ITs officers and directors had positions and duties at both CPC and Ott.
In 1972, CPC (now Bestfoods) sold Ott II to Story Chemical, which operated the plant until its bankruptcy in 1977. Aerojet-General Corp. bought the plant from the bankruptcy trustee and manufactured chemicals there until 1986.
In 1989, the EPA filed suit to recover the costs of cleanup on the plant site and named CPC, Aerojet, and the officers of the now defunct Ott and Ott II.
The District Court held both CPC and Aerojet liable. After a divided panel of the Court of Appeals for the Sixth Circuit reversed in part, the court granted rehearing en banc and vacated the panel decision. This time, seven judges to six, the court again reversed the District Court in part. Bestfoods appealed (Ott settled prior to the appeal).
Judicial Opinion
SOUTER, Justice
The issue before us, under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), is whether a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary may without more, be held liable as an operator of a polluting facility owned or operated by the subsidiary We answer no, unless the corporate veil may be pierced. But a corporate parent that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable in its own right as an operator of the facility
The District Court said that operator liability may attach to a parent corporation both directly, when the parent itself operates the facility and indirectly, when the corporate veil can be pierced under state law. The court explained that, while CERCLA imposes direct liability in situations in which the corporate veil cannot be pierced under traditional concepts of corporate law, "the statute and its legislative history do not suggest that CERCLA rejects entirely the crucial limits to liability that are inherent to corporate law\"
Applying that test to the facts of this case, the court found it particularly telling that CPC selected Ott li"s board of directors and populated its executive ranks with CPC officials, and that a CPC official, G.R.D. Williams, played a significant role in shaping Ott IPs environmental compliance policy
[W]here a parent corporation is sought to be held liable as an operator pursuant to 42 U. S. C. § 9607(a)(2) based upon the extent of its control of its subsidiary which owns the facility , the parent will be liable only when the requirements necessary to pierce the corporate veil [ under state law] are met. In other words ,. whether the parent will be liable as an operator depends upon whether the degree to which it controls its subsidiary and the extent and manner of its involvement with the facility , amount to the abuse of the corporate form that will warrant piercing the corporate veil and disregarding the separate corporate entities of the parent and subsidiary.
It is a general principle of corporate law deeply "ingrained in our economic and legal systems" that a parent corporation (so-called because of control through ownership of another corporation"s stock) is not liable for the acts of its subsidiary.
But there is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation"s conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder"s behalf.
Nothing in CERCLA purports to rewrite this well-settled rule, either. If a subsidiary that operates, but does not own, a facility is so pervasively controlled by its parent for a sufficiently improper purpose to warrant veil piercing, the parent may be held derivatively liable for the subsidiary"s acts as an operator.
The fact that a corporate subsidiary happens to own a polluting facility operated by its parent does nothing, then, to displace the rule that the parent "corporation is [itself] responsible for the wrongs committed by its agents in the course of its business." It is this direct liability that is properly seen as being at issue here.
We are satisfied that the Court of Appeals correctly rejected the District Court"s analysis of direct liability. But we also think that the appeals court erred in limiting direct liability under the statute to a parent"s sole or joint venture operation, so as to eliminate any possible finding that CPC is liable as an operator on the facts of this case.
In imposing direct liability on these grounds, the District Court failed to recognize that "it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary"s acts."
The Government would have to show that, despite the general presumption to the contrary, the officers and directors were acting in their capacities as CPC officers and directors, and not as Ott II officers and directors, when they committed those acts. The District Court made no such enquiry here, however, disregarding entirely this time-honored common-law rule.-
In sum, the District Court"s focus on the relationship between parent and subsidiary (rather than parent and facility), combined with its automatic attribution of the actions of dual officers and directors to the corporate parent, erroneously, even if unintentionally, treated CERCLA as though it displaced or fundamentally altered common-law standards of limited liability..
There is, in fact, some evidence that CPC engaged in just this type and degree of activity at the Muskegon plant. The District Court"s opinion speaks of an a;gent of CPC alone who played a conspicuous part in dealing with the toxic risks emanating from the operation of the plant. G.R.D. Williams worked only for CPC; he was not an employee, officer, or director of Ott, and thus, his actions were of necessity taken only on behalf of CPC. The District Court found that "CPC became directly involved in environmental and regulatory matters through the work of. Williams, CPC"s governmental and environmental affairs director. Williams. became heavily involved in environmental issues at Ott II. "He" actively participated in and exerted control over a variety of Ott II environmental matters\" and he "issued directives regarding Ott ITs responses to regulatory inquiries."
We think that these findings are enough to raise an issue of CPC"s operation of the facility through Williams"s actions, though we would draw no ultimate conclusion from these findings at this point. Prudence thus counsels us to remand, on the theory of direct operation set out here, for reevaluation of Williams"s role, and of the role of any other CPC agent who might be said to have had a part in operating the Muskegon facility.
The judgment of the Court of Appeals for the Sixth Circuit is vacated, and the case is remanded.
What does the court suggest shows there may be some evidence that the corporate veil can be pierced?

Question 18

Johnson Johnson, Procter Gamble, and Eastman Kodak have joined together to form a joint venture in order to develop security tags for their products sold in drug and grocery stores. Shoplifting thefts of drugstore items are estimated to be $16 billion per year. The manufacturers point to Pampers, Tylenol, and Preparation H as the most frequently stolen items from stores.
The companies will jointly fund the development of security tags designed to set off alarms at store doors, much as the tags on clothing do today.
What is the liability of the companies as joint venturers on this project?

Question 19

Brehm v Eisner
746 A.2d 244 (Del. 2000)
Kind of a Mickey-Mouse Judgment Call
FACTS
On October 1, 1995, Michael Eisner, then CEO and chairman of Disney, hired Michael Ovitz as Disney's president. Mr. Ovitz was a long-time friend of Mr. Eisner. Mr. Ovitz was also an important talent broker in Hollywood. Although he lacked experience managing a diversified public company, other companies with entertainment operations had been interested in hiring him for high-level executive positions. Mr. Ovitz's employment agreement was unilaterally negotiated by Eisner and approved by the board. Since the hiring, there had been shareholder uprisings and director battles that resulted in a shift in the board structure. Eisner had recommended an extraordinarily lucrative contract for Ovitz, with a base salary of $1 million per year, a discretionary bonus, and two sets of stock options (the "A" options and the "B" options) that collectively would enable Ovitz to purchase five million shares of Disney common stock.
Disney needed a strong second-in-command because Mr. Eisner's health, due to major heart surgery, was in question, and there really was no succession plan. Mr. Eisner also had a rugged history when it came to working with important or well-known subordinate executives who wanted to position themselves to succeed him. Over the past five years, Disney executives Jeffrey Katzenberg, Richard Frank, and Stephen Bollenbach had all left after short tenures under Eisner.
Following a tumultuous year that enjoyed intense media coverage about legendary battles between the two, Mr. Ovitz and Mr. Eisner negotiated Mr. Ovitz's departure on December 11, 1996. Mr. Ovitz was given a "Non-Fault Termination" that carried $38,888,230.77 as well as the option to purchase three million Disney shares under the terms of his employment agreement.
The shareholders (plaintiffs) filed suit against the directors for their failure to adequately consider the Ovitz contract initially, for not considering the issues surrounding that hiring as well as the employment package itself, and for committing waste in giving Ovitz what amounted to a $140 million severance package (when the value of the options were included). The Court of Chancery dismissed the suit and the shareholders appealed.
JUDICIAL OPINION
VEASEY, Chief Justice
This is potentially a very troubling case on the merits. On the one hand, it appears from the Complaint that: (a) the compensation and termination payout for Ovitz were exceedingly lucrative, if not luxurious, compared to Ovitz' value to the Company; and (b) the processes of the boards of directors in dealing with the approval and termination of the Ovitz Employment [this is a close case].
This is a case about whether there should be personal liability of the directors of a Delaware corporation to the corporation for lack of due care in the decision-making process and for waste of corporate assets. This case is not about the failure of the directors to establish and carry out ideal corporate governance practices. All good corporate governance practices include compliance with statutory law and case law establishing fiduciary duties. But the law of corporate fiduciary duties and remedies for violation of those duties are distinct from the aspirational goals of ideal corporate governance practices. Aspirational ideals of good corporate governance practices for boards of directors that go beyond the minimal legal requirements of the corporation law are highly desirable, often tend to benefit stockholders, sometimes reduce litigation and can usually help directors avoid liability. But they are not required by the corporation law and do not define standards of liability.
The facts in the Complaint (disregarding conclusory allegations) show that Ovitz' performance as president was disappointing at best, that Eisner admitted it had been a mistake to hire him, that Ovitz lacked commitment to the Company, that he performed services for his old company, and that he negotiated for other jobs (some very lucrative) while being required under the contract to devote his full time and energy to Disney.
All this shows is that the Board had arguable grounds to fire Ovitz for cause. But what is alleged is only an argument-perhaps a good one-that Ovitz' conduct constituted gross negligence or malfeasance.
The Complaint contends that the Board committed waste by agreeing to the very lucrative payout to Ovitz under the non-fault termination provision because it had no obligation to him, thus taking the Board's decision outside the protection of the business judgment rule. Construed most favorably to plaintiffs, the Complaint contends that, by reason of the Board's available arguments of resignation and good cause, it had the leverage to negotiate Ovitz down to a more reasonable payout than that guaranteed by his Employment Agreement. But the Complaint fails on its face to meet the waste test because it does not allege with particularity facts tending to show that no reasonable business person would have made the decision that the Board made under these circumstances.
The Board made a business decision to grant Ovitz a Non-Fault Termination. Plaintiffs may disagree with the Board's judgment as to how this matter should have been handled. But where, as here, there is no reasonable doubt as to the disinterest of or absence of fraud by the Board, mere disagreement cannot serve as grounds for imposing liability based on alleged breaches of fiduciary duty and waste. There is no allegation that the Board did not consider the pertinent issues surrounding Ovitz's termination. Plaintiffs' sole argument appears to be that they do not agree with the course of action taken by the Board regarding Ovitz's separation from Disney. This will not suffice to create a reasonable doubt that the Board's decision to grant Ovitz a Non- Fault Termination was the product of an exercise of business judgment.
One can understand why Disney stockholders would be upset with such an extraordinarily lucrative compensation agreement and termination payout awarded a company president who served for only a little over a year and who underperformed to the extent alleged. That said, there is a very large-though not insurmountable-burden on stockholders who believe they should pursue the remedy of a derivative suit instead of selling their stock or seeking to reform or oust these directors from office.
Affirmed.
What must the shareholders prove to recover?

Question 20

W. Ham Jr. served on the board of directors for Golden Nugget, Inc., a Nevada corporation. In 1969, while Mr. Ham was a director and legal counsel for Golden Nugget, he obtained a leasehold interest with an option to purchase in the California Club. The California Club is at 101 Fremont Street, Las Vegas, Nevada, and is located next to a series of properties on which Golden Nugget operates its casinos. Mr. Ham leased the property from his former wife. Golden Nugget was looking for property to expand and had, in fact, been expanding onto other lots in the area. Was there a breach of a corporate opportunity? What if Mr. Ham offers to lease the property to Golden Nugget? [ Ham v Golden Nugget, Inc., 589 P.2d 173 (Nev. 1979)]

Question 21

Brehm v Eisner
746 A.2d 244 (Del. 2000)
Kind of a Mickey-Mouse Judgment Call
FACTS
On October 1, 1995, Michael Eisner, then CEO and chairman of Disney, hired Michael Ovitz as Disney's president. Mr. Ovitz was a long-time friend of Mr. Eisner. Mr. Ovitz was also an important talent broker in Hollywood. Although he lacked experience managing a diversified public company, other companies with entertainment operations had been interested in hiring him for high-level executive positions. Mr. Ovitz's employment agreement was unilaterally negotiated by Eisner and approved by the board. Since the hiring, there had been shareholder uprisings and director battles that resulted in a shift in the board structure. Eisner had recommended an extraordinarily lucrative contract for Ovitz, with a base salary of $1 million per year, a discretionary bonus, and two sets of stock options (the "A" options and the "B" options) that collectively would enable Ovitz to purchase five million shares of Disney common stock.
Disney needed a strong second-in-command because Mr. Eisner's health, due to major heart surgery, was in question, and there really was no succession plan. Mr. Eisner also had a rugged history when it came to working with important or well-known subordinate executives who wanted to position themselves to succeed him. Over the past five years, Disney executives Jeffrey Katzenberg, Richard Frank, and Stephen Bollenbach had all left after short tenures under Eisner.
Following a tumultuous year that enjoyed intense media coverage about legendary battles between the two, Mr. Ovitz and Mr. Eisner negotiated Mr. Ovitz's departure on December 11, 1996. Mr. Ovitz was given a "Non-Fault Termination" that carried $38,888,230.77 as well as the option to purchase three million Disney shares under the terms of his employment agreement.
The shareholders (plaintiffs) filed suit against the directors for their failure to adequately consider the Ovitz contract initially, for not considering the issues surrounding that hiring as well as the employment package itself, and for committing waste in giving Ovitz what amounted to a $140 million severance package (when the value of the options were included). The Court of Chancery dismissed the suit and the shareholders appealed.
JUDICIAL OPINION
VEASEY, Chief Justice
This is potentially a very troubling case on the merits. On the one hand, it appears from the Complaint that: (a) the compensation and termination payout for Ovitz were exceedingly lucrative, if not luxurious, compared to Ovitz' value to the Company; and (b) the processes of the boards of directors in dealing with the approval and termination of the Ovitz Employment [this is a close case].
This is a case about whether there should be personal liability of the directors of a Delaware corporation to the corporation for lack of due care in the decision-making process and for waste of corporate assets. This case is not about the failure of the directors to establish and carry out ideal corporate governance practices. All good corporate governance practices include compliance with statutory law and case law establishing fiduciary duties. But the law of corporate fiduciary duties and remedies for violation of those duties are distinct from the aspirational goals of ideal corporate governance practices. Aspirational ideals of good corporate governance practices for boards of directors that go beyond the minimal legal requirements of the corporation law are highly desirable, often tend to benefit stockholders, sometimes reduce litigation and can usually help directors avoid liability. But they are not required by the corporation law and do not define standards of liability.
The facts in the Complaint (disregarding conclusory allegations) show that Ovitz' performance as president was disappointing at best, that Eisner admitted it had been a mistake to hire him, that Ovitz lacked commitment to the Company, that he performed services for his old company, and that he negotiated for other jobs (some very lucrative) while being required under the contract to devote his full time and energy to Disney.
All this shows is that the Board had arguable grounds to fire Ovitz for cause. But what is alleged is only an argument-perhaps a good one-that Ovitz' conduct constituted gross negligence or malfeasance.
The Complaint contends that the Board committed waste by agreeing to the very lucrative payout to Ovitz under the non-fault termination provision because it had no obligation to him, thus taking the Board's decision outside the protection of the business judgment rule. Construed most favorably to plaintiffs, the Complaint contends that, by reason of the Board's available arguments of resignation and good cause, it had the leverage to negotiate Ovitz down to a more reasonable payout than that guaranteed by his Employment Agreement. But the Complaint fails on its face to meet the waste test because it does not allege with particularity facts tending to show that no reasonable business person would have made the decision that the Board made under these circumstances.
The Board made a business decision to grant Ovitz a Non-Fault Termination. Plaintiffs may disagree with the Board's judgment as to how this matter should have been handled. But where, as here, there is no reasonable doubt as to the disinterest of or absence of fraud by the Board, mere disagreement cannot serve as grounds for imposing liability based on alleged breaches of fiduciary duty and waste. There is no allegation that the Board did not consider the pertinent issues surrounding Ovitz's termination. Plaintiffs' sole argument appears to be that they do not agree with the course of action taken by the Board regarding Ovitz's separation from Disney. This will not suffice to create a reasonable doubt that the Board's decision to grant Ovitz a Non- Fault Termination was the product of an exercise of business judgment.
One can understand why Disney stockholders would be upset with such an extraordinarily lucrative compensation agreement and termination payout awarded a company president who served for only a little over a year and who underperformed to the extent alleged. That said, there is a very large-though not insurmountable-burden on stockholders who believe they should pursue the remedy of a derivative suit instead of selling their stock or seeking to reform or oust these directors from office.
Affirmed.
What does the court say is the relationship between good corporate governance, liability, and business judgment?

Question 22

Recovery from Corporate Misdeeds
The issue of conflicts of interest on corporate boards is one that many companies must guard against. Go to these companies' Web sites (http:\\www.americanexpress.com and http:\\www.grace.com, respectively) and evaluate how well these two firms have performed over the past five years. Be sure to look at their boards of directors and.their policies. After studying these companies and their boards, develop a set of guidelines for selecting board members for a company.

Question 23

Brehm v Eisner
746 A.2d 244 (Del. 2000)
Kind of a Mickey-Mouse Judgment Call
FACTS
On October 1, 1995, Michael Eisner, then CEO and chairman of Disney, hired Michael Ovitz as Disney's president. Mr. Ovitz was a long-time friend of Mr. Eisner. Mr. Ovitz was also an important talent broker in Hollywood. Although he lacked experience managing a diversified public company, other companies with entertainment operations had been interested in hiring him for high-level executive positions. Mr. Ovitz's employment agreement was unilaterally negotiated by Eisner and approved by the board. Since the hiring, there had been shareholder uprisings and director battles that resulted in a shift in the board structure. Eisner had recommended an extraordinarily lucrative contract for Ovitz, with a base salary of $1 million per year, a discretionary bonus, and two sets of stock options (the "A" options and the "B" options) that collectively would enable Ovitz to purchase five million shares of Disney common stock.
Disney needed a strong second-in-command because Mr. Eisner's health, due to major heart surgery, was in question, and there really was no succession plan. Mr. Eisner also had a rugged history when it came to working with important or well-known subordinate executives who wanted to position themselves to succeed him. Over the past five years, Disney executives Jeffrey Katzenberg, Richard Frank, and Stephen Bollenbach had all left after short tenures under Eisner.
Following a tumultuous year that enjoyed intense media coverage about legendary battles between the two, Mr. Ovitz and Mr. Eisner negotiated Mr. Ovitz's departure on December 11, 1996. Mr. Ovitz was given a "Non-Fault Termination" that carried $38,888,230.77 as well as the option to purchase three million Disney shares under the terms of his employment agreement.
The shareholders (plaintiffs) filed suit against the directors for their failure to adequately consider the Ovitz contract initially, for not considering the issues surrounding that hiring as well as the employment package itself, and for committing waste in giving Ovitz what amounted to a $140 million severance package (when the value of the options were included). The Court of Chancery dismissed the suit and the shareholders appealed.
JUDICIAL OPINION
VEASEY, Chief Justice
This is potentially a very troubling case on the merits. On the one hand, it appears from the Complaint that: (a) the compensation and termination payout for Ovitz were exceedingly lucrative, if not luxurious, compared to Ovitz' value to the Company; and (b) the processes of the boards of directors in dealing with the approval and termination of the Ovitz Employment [this is a close case].
This is a case about whether there should be personal liability of the directors of a Delaware corporation to the corporation for lack of due care in the decision-making process and for waste of corporate assets. This case is not about the failure of the directors to establish and carry out ideal corporate governance practices. All good corporate governance practices include compliance with statutory law and case law establishing fiduciary duties. But the law of corporate fiduciary duties and remedies for violation of those duties are distinct from the aspirational goals of ideal corporate governance practices. Aspirational ideals of good corporate governance practices for boards of directors that go beyond the minimal legal requirements of the corporation law are highly desirable, often tend to benefit stockholders, sometimes reduce litigation and can usually help directors avoid liability. But they are not required by the corporation law and do not define standards of liability.
The facts in the Complaint (disregarding conclusory allegations) show that Ovitz' performance as president was disappointing at best, that Eisner admitted it had been a mistake to hire him, that Ovitz lacked commitment to the Company, that he performed services for his old company, and that he negotiated for other jobs (some very lucrative) while being required under the contract to devote his full time and energy to Disney.
All this shows is that the Board had arguable grounds to fire Ovitz for cause. But what is alleged is only an argument-perhaps a good one-that Ovitz' conduct constituted gross negligence or malfeasance.
The Complaint contends that the Board committed waste by agreeing to the very lucrative payout to Ovitz under the non-fault termination provision because it had no obligation to him, thus taking the Board's decision outside the protection of the business judgment rule. Construed most favorably to plaintiffs, the Complaint contends that, by reason of the Board's available arguments of resignation and good cause, it had the leverage to negotiate Ovitz down to a more reasonable payout than that guaranteed by his Employment Agreement. But the Complaint fails on its face to meet the waste test because it does not allege with particularity facts tending to show that no reasonable business person would have made the decision that the Board made under these circumstances.
The Board made a business decision to grant Ovitz a Non-Fault Termination. Plaintiffs may disagree with the Board's judgment as to how this matter should have been handled. But where, as here, there is no reasonable doubt as to the disinterest of or absence of fraud by the Board, mere disagreement cannot serve as grounds for imposing liability based on alleged breaches of fiduciary duty and waste. There is no allegation that the Board did not consider the pertinent issues surrounding Ovitz's termination. Plaintiffs' sole argument appears to be that they do not agree with the course of action taken by the Board regarding Ovitz's separation from Disney. This will not suffice to create a reasonable doubt that the Board's decision to grant Ovitz a Non- Fault Termination was the product of an exercise of business judgment.
One can understand why Disney stockholders would be upset with such an extraordinarily lucrative compensation agreement and termination payout awarded a company president who served for only a little over a year and who underperformed to the extent alleged. That said, there is a very large-though not insurmountable-burden on stockholders who believe they should pursue the remedy of a derivative suit instead of selling their stock or seeking to reform or oust these directors from office.
Affirmed.
What alternatives to litigation do shareholders have?

Question 24

Byker v Mannes
641 N.W.2d 210 (Mich. 2002)*
Dumb and Dumbfounded
FACTS
In 1985, David Byker (plaintiff) was doing accounting work for Tom Mannes (defendant). The two talked about going into business together because they had complementary business skills. Mr. Mannes could locate certain properties because of his real estate background, and Mr. Byker could raise money for their property purchases. Indeed, the parties stipulated the following as part of the litigation process in this case:
[T]he Plaintiff… and Defendant… agreed to engage in an ongoing business enterprise, to furnish capital, labor and\or skill to such enterprise, to raise investment funds and to share equally in the profits, losses and expenses of such enterprise.… In order to facilitate investment of limited partners, Byker and Mannes created separate entities wherein they were general partners or shareholders for the purposes of operating each separate entity.
They also stipulated that they had investment interests in five real estate limited partnerships. With regard to these partnerships in which they invested over a nine-year period, they shared equally in the commissions, financing fees, and termination costs. The two also personally guaranteed loans for these investments from several financial institutions.
The business relationship between the parties began to deteriorate after they created Pier 1000 Ltd. in order to own and manage a marina. Shortly after the creation of Pier 1000 Ltd., the marina encountered serious financial difficulties. To address these difficulties, the parties placed their profits from another partnership, the M B Limited Partnership II, into Pier 1000 Ltd. and borrowed money from several financial institutions.
When Mr. Mannes refused to make any additional monetary contributions, Mr. Byker continued to make loan payments and incurred accounting fees on behalf of Pier 1000 Ltd., as well as on behalf of other business entities. Mr. Byker also entered into several individual loans for the benefit of Pier 1000 Ltd. These business transactions were performed without Mr. Mannes's knowledge.
The marina was returned to its previous owners in exchange for their assumption of Mr. Byker and Mr. Mannes's business obligations. At this point, the business ventures between Mr. Byker and Mr. Mannes ceased.
Mr. Byker then approached Mr. Mannes to obtain his share of the payments required as a result of the losses from the various businesses. Mr. Mannes testified that he was "absolutely dumbfounded" by the request for money.
Mr. Byker then filed suit for the payments, saying that the two had entered into a partnership. Following a bench trial, the court determined that the parties had created a general partnership that included all of the business entities. The Court of Appeals reversed that decision. Mr. Byker appealed.
JUDICIAL OPINION
MARKMAN, Justice
"[T]here is no necessity that the parties attach the label 'partnership' to their relationship as long as they in fact both mutually agree to assume a relationship that falls within the definition of a partnership."
In determining whether a partnership exists, the focus is not on whether individuals subjectively intended to form a partnership, that is, it is unimportant whether the parties would have labeled themselves "partners." Instead, the focus is on whether individuals intended to jointly carry on a business for profit regardless of whether they subjectively intended to form a partnership.
Whether Michigan partnership law, M.C.L. § 449.6(1), requires a subjective intent to form a partnership or merely an intent to carry on as co-owners a business for profit is a question of law.
... At present, partnership is defined as "an association of 2 or more persons, which may consist of husband and wife, to carry on as co-owners a business for profit.… "
In 1994, however, the UPA definition of partnership was amended by the National Conference of Commissioners. The amended definition stated that "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership."...
Although Michigan has not adopted the amended definition of partnership as set forth in § 202 of the Uniform Partnership Act of 1994, we believe nonetheless that M.C.L. § 449.6 is consistent with that amendment. †
... [I]f the parties associate themselves to "carry on" as co-owners a business for profit, they will be deemed to have formed a partnership relationship regardless of their subjective intent to form such a legal relationship. The statutory language is devoid of any requirement that the individuals have the subjective intent to create a partnership. Stated more plainly, the statute does not require partners to be aware of their status as "partners" in order to have a legal partnership.
Pursuant to this common law, individuals would be found to have formed a partnership if they acted as partners, regardless of their subjective intent to form a partnership.
If parties intend no partnership the courts should give effect to their intent, unless somebody has been deceived by their acting or assuming to act as partners; and any such case must stand upon its peculiar facts, and upon special equities.
It is nevertheless possible for parties to intend no partnership and yet to form one. If they agree upon an arrangement which is a partnership in fact, it is of no importance that they call it something else, or that they even expressly declare that they are not to be partners. The law must declare what is the legal import of their agreements, and names go for nothing when the substance of the arrangement shows them to be inapplicable.
Thus, one analyzes whether the parties acted as partners, not whether they subjectively intended to create, or not to create, a partnership.…
Accordingly, we believe that our prior case law has, consistent with M.C.L. § 449.6(1), properly examined the requirements of a legal partnership by focusing on whether the parties intentionally acted as co-owners of a business for profit, and not on whether they consciously intended to create the legal relationship of "partnership."
With the language of the statute as our focal point, we conclude that the intent to create a partnership is not required if the acts and conduct of the parties otherwise evidence that the parties carried on as co-owners a business for profit. Thus, we believe that, to the extent that the Court of Appeals regarded the absence of subjective intent to create a partnership as dispositive regarding whether the parties carried on as co-owners a business for profit, it incorrectly interpreted the statutory (and the common) law of partnership in Michigan.
Accordingly, we remand this matter to the Court of Appeals for analysis under the proper test for determining the existence of a partnership under the Michigan Uniform Partnership Act.
What type of relationship did Mr. Byker and Mr. Mannes have?
*This case created a bit of a tussle between the Michigan Court of Appeals and its Supreme Court. Following this decision and remand, the Court of Appeals found that there was no partnership because the parties had to be aware of it to be liable, thus defying the Michigan Supreme Court. On appeal, the Michigan Supreme Court reversed the Court of Appeals, 668 N.W.2d 909 (Mich. 2003), not offering an opinion but explaining it was reversing for the reasons stated in the dissenting opinion at the Court of Appeals on the second round.
† Note how the court traces the history of the law of partnership. Instructors should refer to the Instructor's Manual for more information on the history of business organizations.

Question 25

Byker v Mannes
641 N.W.2d 210 (Mich. 2002)*
Dumb and Dumbfounded
FACTS
In 1985, David Byker (plaintiff) was doing accounting work for Tom Mannes (defendant). The two talked about going into business together because they had complementary business skills. Mr. Mannes could locate certain properties because of his real estate background, and Mr. Byker could raise money for their property purchases. Indeed, the parties stipulated the following as part of the litigation process in this case:
[T]he Plaintiff… and Defendant… agreed to engage in an ongoing business enterprise, to furnish capital, labor and\or skill to such enterprise, to raise investment funds and to share equally in the profits, losses and expenses of such enterprise.… In order to facilitate investment of limited partners, Byker and Mannes created separate entities wherein they were general partners or shareholders for the purposes of operating each separate entity.
They also stipulated that they had investment interests in five real estate limited partnerships. With regard to these partnerships in which they invested over a nine-year period, they shared equally in the commissions, financing fees, and termination costs. The two also personally guaranteed loans for these investments from several financial institutions.
The business relationship between the parties began to deteriorate after they created Pier 1000 Ltd. in order to own and manage a marina. Shortly after the creation of Pier 1000 Ltd., the marina encountered serious financial difficulties. To address these difficulties, the parties placed their profits from another partnership, the M B Limited Partnership II, into Pier 1000 Ltd. and borrowed money from several financial institutions.
When Mr. Mannes refused to make any additional monetary contributions, Mr. Byker continued to make loan payments and incurred accounting fees on behalf of Pier 1000 Ltd., as well as on behalf of other business entities. Mr. Byker also entered into several individual loans for the benefit of Pier 1000 Ltd. These business transactions were performed without Mr. Mannes's knowledge.
The marina was returned to its previous owners in exchange for their assumption of Mr. Byker and Mr. Mannes's business obligations. At this point, the business ventures between Mr. Byker and Mr. Mannes ceased.
Mr. Byker then approached Mr. Mannes to obtain his share of the payments required as a result of the losses from the various businesses. Mr. Mannes testified that he was "absolutely dumbfounded" by the request for money.
Mr. Byker then filed suit for the payments, saying that the two had entered into a partnership. Following a bench trial, the court determined that the parties had created a general partnership that included all of the business entities. The Court of Appeals reversed that decision. Mr. Byker appealed.
JUDICIAL OPINION
MARKMAN, Justice
"[T]here is no necessity that the parties attach the label 'partnership' to their relationship as long as they in fact both mutually agree to assume a relationship that falls within the definition of a partnership."
In determining whether a partnership exists, the focus is not on whether individuals subjectively intended to form a partnership, that is, it is unimportant whether the parties would have labeled themselves "partners." Instead, the focus is on whether individuals intended to jointly carry on a business for profit regardless of whether they subjectively intended to form a partnership.
Whether Michigan partnership law, M.C.L. § 449.6(1), requires a subjective intent to form a partnership or merely an intent to carry on as co-owners a business for profit is a question of law.
... At present, partnership is defined as "an association of 2 or more persons, which may consist of husband and wife, to carry on as co-owners a business for profit.… "
In 1994, however, the UPA definition of partnership was amended by the National Conference of Commissioners. The amended definition stated that "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership."...
Although Michigan has not adopted the amended definition of partnership as set forth in § 202 of the Uniform Partnership Act of 1994, we believe nonetheless that M.C.L. § 449.6 is consistent with that amendment. †
... [I]f the parties associate themselves to "carry on" as co-owners a business for profit, they will be deemed to have formed a partnership relationship regardless of their subjective intent to form such a legal relationship. The statutory language is devoid of any requirement that the individuals have the subjective intent to create a partnership. Stated more plainly, the statute does not require partners to be aware of their status as "partners" in order to have a legal partnership.
Pursuant to this common law, individuals would be found to have formed a partnership if they acted as partners, regardless of their subjective intent to form a partnership.
If parties intend no partnership the courts should give effect to their intent, unless somebody has been deceived by their acting or assuming to act as partners; and any such case must stand upon its peculiar facts, and upon special equities.
It is nevertheless possible for parties to intend no partnership and yet to form one. If they agree upon an arrangement which is a partnership in fact, it is of no importance that they call it something else, or that they even expressly declare that they are not to be partners. The law must declare what is the legal import of their agreements, and names go for nothing when the substance of the arrangement shows them to be inapplicable.
Thus, one analyzes whether the parties acted as partners, not whether they subjectively intended to create, or not to create, a partnership.…
Accordingly, we believe that our prior case law has, consistent with M.C.L. § 449.6(1), properly examined the requirements of a legal partnership by focusing on whether the parties intentionally acted as co-owners of a business for profit, and not on whether they consciously intended to create the legal relationship of "partnership."
With the language of the statute as our focal point, we conclude that the intent to create a partnership is not required if the acts and conduct of the parties otherwise evidence that the parties carried on as co-owners a business for profit. Thus, we believe that, to the extent that the Court of Appeals regarded the absence of subjective intent to create a partnership as dispositive regarding whether the parties carried on as co-owners a business for profit, it incorrectly interpreted the statutory (and the common) law of partnership in Michigan.
Accordingly, we remand this matter to the Court of Appeals for analysis under the proper test for determining the existence of a partnership under the Michigan Uniform Partnership Act.
When did the relationship end? When did the parties believe it ended?
*This case created a bit of a tussle between the Michigan Court of Appeals and its Supreme Court. Following this decision and remand, the Court of Appeals found that there was no partnership because the parties had to be aware of it to be liable, thus defying the Michigan Supreme Court. On appeal, the Michigan Supreme Court reversed the Court of Appeals, 668 N.W.2d 909 (Mich. 2003), not offering an opinion but explaining it was reversing for the reasons stated in the dissenting opinion at the Court of Appeals on the second round.
† Note how the court traces the history of the law of partnership. Instructors should refer to the Instructor's Manual for more information on the history of business organizations.

Question 26

Byker v Mannes
641 N.W.2d 210 (Mich. 2002)*
Dumb and Dumbfounded
FACTS
In 1985, David Byker (plaintiff) was doing accounting work for Tom Mannes (defendant). The two talked about going into business together because they had complementary business skills. Mr. Mannes could locate certain properties because of his real estate background, and Mr. Byker could raise money for their property purchases. Indeed, the parties stipulated the following as part of the litigation process in this case:
[T]he Plaintiff… and Defendant… agreed to engage in an ongoing business enterprise, to furnish capital, labor and\or skill to such enterprise, to raise investment funds and to share equally in the profits, losses and expenses of such enterprise.… In order to facilitate investment of limited partners, Byker and Mannes created separate entities wherein they were general partners or shareholders for the purposes of operating each separate entity.
They also stipulated that they had investment interests in five real estate limited partnerships. With regard to these partnerships in which they invested over a nine-year period, they shared equally in the commissions, financing fees, and termination costs. The two also personally guaranteed loans for these investments from several financial institutions.
The business relationship between the parties began to deteriorate after they created Pier 1000 Ltd. in order to own and manage a marina. Shortly after the creation of Pier 1000 Ltd., the marina encountered serious financial difficulties. To address these difficulties, the parties placed their profits from another partnership, the M B Limited Partnership II, into Pier 1000 Ltd. and borrowed money from several financial institutions.
When Mr. Mannes refused to make any additional monetary contributions, Mr. Byker continued to make loan payments and incurred accounting fees on behalf of Pier 1000 Ltd., as well as on behalf of other business entities. Mr. Byker also entered into several individual loans for the benefit of Pier 1000 Ltd. These business transactions were performed without Mr. Mannes's knowledge.
The marina was returned to its previous owners in exchange for their assumption of Mr. Byker and Mr. Mannes's business obligations. At this point, the business ventures between Mr. Byker and Mr. Mannes ceased.
Mr. Byker then approached Mr. Mannes to obtain his share of the payments required as a result of the losses from the various businesses. Mr. Mannes testified that he was "absolutely dumbfounded" by the request for money.
Mr. Byker then filed suit for the payments, saying that the two had entered into a partnership. Following a bench trial, the court determined that the parties had created a general partnership that included all of the business entities. The Court of Appeals reversed that decision. Mr. Byker appealed.
JUDICIAL OPINION
MARKMAN, Justice
"[T]here is no necessity that the parties attach the label 'partnership' to their relationship as long as they in fact both mutually agree to assume a relationship that falls within the definition of a partnership."
In determining whether a partnership exists, the focus is not on whether individuals subjectively intended to form a partnership, that is, it is unimportant whether the parties would have labeled themselves "partners." Instead, the focus is on whether individuals intended to jointly carry on a business for profit regardless of whether they subjectively intended to form a partnership.
Whether Michigan partnership law, M.C.L. § 449.6(1), requires a subjective intent to form a partnership or merely an intent to carry on as co-owners a business for profit is a question of law.
... At present, partnership is defined as "an association of 2 or more persons, which may consist of husband and wife, to carry on as co-owners a business for profit.… "
In 1994, however, the UPA definition of partnership was amended by the National Conference of Commissioners. The amended definition stated that "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership."...
Although Michigan has not adopted the amended definition of partnership as set forth in § 202 of the Uniform Partnership Act of 1994, we believe nonetheless that M.C.L. § 449.6 is consistent with that amendment. †
... [I]f the parties associate themselves to "carry on" as co-owners a business for profit, they will be deemed to have formed a partnership relationship regardless of their subjective intent to form such a legal relationship. The statutory language is devoid of any requirement that the individuals have the subjective intent to create a partnership. Stated more plainly, the statute does not require partners to be aware of their status as "partners" in order to have a legal partnership.
Pursuant to this common law, individuals would be found to have formed a partnership if they acted as partners, regardless of their subjective intent to form a partnership.
If parties intend no partnership the courts should give effect to their intent, unless somebody has been deceived by their acting or assuming to act as partners; and any such case must stand upon its peculiar facts, and upon special equities.
It is nevertheless possible for parties to intend no partnership and yet to form one. If they agree upon an arrangement which is a partnership in fact, it is of no importance that they call it something else, or that they even expressly declare that they are not to be partners. The law must declare what is the legal import of their agreements, and names go for nothing when the substance of the arrangement shows them to be inapplicable.
Thus, one analyzes whether the parties acted as partners, not whether they subjectively intended to create, or not to create, a partnership.…
Accordingly, we believe that our prior case law has, consistent with M.C.L. § 449.6(1), properly examined the requirements of a legal partnership by focusing on whether the parties intentionally acted as co-owners of a business for profit, and not on whether they consciously intended to create the legal relationship of "partnership."
With the language of the statute as our focal point, we conclude that the intent to create a partnership is not required if the acts and conduct of the parties otherwise evidence that the parties carried on as co-owners a business for profit. Thus, we believe that, to the extent that the Court of Appeals regarded the absence of subjective intent to create a partnership as dispositive regarding whether the parties carried on as co-owners a business for profit, it incorrectly interpreted the statutory (and the common) law of partnership in Michigan.
Accordingly, we remand this matter to the Court of Appeals for analysis under the proper test for determining the existence of a partnership under the Michigan Uniform Partnership Act.
What does the court say about the intent of the parties?
*This case created a bit of a tussle between the Michigan Court of Appeals and its Supreme Court. Following this decision and remand, the Court of Appeals found that there was no partnership because the parties had to be aware of it to be liable, thus defying the Michigan Supreme Court. On appeal, the Michigan Supreme Court reversed the Court of Appeals, 668 N.W.2d 909 (Mich. 2003), not offering an opinion but explaining it was reversing for the reasons stated in the dissenting opinion at the Court of Appeals on the second round.
† Note how the court traces the history of the law of partnership. Instructors should refer to the Instructor's Manual for more information on the history of business organizations.

Question 27

Byker v Mannes
641 N.W.2d 210 (Mich. 2002)*
Dumb and Dumbfounded
FACTS
In 1985, David Byker (plaintiff) was doing accounting work for Tom Mannes (defendant). The two talked about going into business together because they had complementary business skills. Mr. Mannes could locate certain properties because of his real estate background, and Mr. Byker could raise money for their property purchases. Indeed, the parties stipulated the following as part of the litigation process in this case:
[T]he Plaintiff… and Defendant… agreed to engage in an ongoing business enterprise, to furnish capital, labor and\or skill to such enterprise, to raise investment funds and to share equally in the profits, losses and expenses of such enterprise.… In order to facilitate investment of limited partners, Byker and Mannes created separate entities wherein they were general partners or shareholders for the purposes of operating each separate entity.
They also stipulated that they had investment interests in five real estate limited partnerships. With regard to these partnerships in which they invested over a nine-year period, they shared equally in the commissions, financing fees, and termination costs. The two also personally guaranteed loans for these investments from several financial institutions.
The business relationship between the parties began to deteriorate after they created Pier 1000 Ltd. in order to own and manage a marina. Shortly after the creation of Pier 1000 Ltd., the marina encountered serious financial difficulties. To address these difficulties, the parties placed their profits from another partnership, the M B Limited Partnership II, into Pier 1000 Ltd. and borrowed money from several financial institutions.
When Mr. Mannes refused to make any additional monetary contributions, Mr. Byker continued to make loan payments and incurred accounting fees on behalf of Pier 1000 Ltd., as well as on behalf of other business entities. Mr. Byker also entered into several individual loans for the benefit of Pier 1000 Ltd. These business transactions were performed without Mr. Mannes's knowledge.
The marina was returned to its previous owners in exchange for their assumption of Mr. Byker and Mr. Mannes's business obligations. At this point, the business ventures between Mr. Byker and Mr. Mannes ceased.
Mr. Byker then approached Mr. Mannes to obtain his share of the payments required as a result of the losses from the various businesses. Mr. Mannes testified that he was "absolutely dumbfounded" by the request for money.
Mr. Byker then filed suit for the payments, saying that the two had entered into a partnership. Following a bench trial, the court determined that the parties had created a general partnership that included all of the business entities. The Court of Appeals reversed that decision. Mr. Byker appealed.
JUDICIAL OPINION
MARKMAN, Justice
"[T]here is no necessity that the parties attach the label 'partnership' to their relationship as long as they in fact both mutually agree to assume a relationship that falls within the definition of a partnership."
In determining whether a partnership exists, the focus is not on whether individuals subjectively intended to form a partnership, that is, it is unimportant whether the parties would have labeled themselves "partners." Instead, the focus is on whether individuals intended to jointly carry on a business for profit regardless of whether they subjectively intended to form a partnership.
Whether Michigan partnership law, M.C.L. § 449.6(1), requires a subjective intent to form a partnership or merely an intent to carry on as co-owners a business for profit is a question of law.
... At present, partnership is defined as "an association of 2 or more persons, which may consist of husband and wife, to carry on as co-owners a business for profit.… "
In 1994, however, the UPA definition of partnership was amended by the National Conference of Commissioners. The amended definition stated that "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership."...
Although Michigan has not adopted the amended definition of partnership as set forth in § 202 of the Uniform Partnership Act of 1994, we believe nonetheless that M.C.L. § 449.6 is consistent with that amendment. †
... [I]f the parties associate themselves to "carry on" as co-owners a business for profit, they will be deemed to have formed a partnership relationship regardless of their subjective intent to form such a legal relationship. The statutory language is devoid of any requirement that the individuals have the subjective intent to create a partnership. Stated more plainly, the statute does not require partners to be aware of their status as "partners" in order to have a legal partnership.
Pursuant to this common law, individuals would be found to have formed a partnership if they acted as partners, regardless of their subjective intent to form a partnership.
If parties intend no partnership the courts should give effect to their intent, unless somebody has been deceived by their acting or assuming to act as partners; and any such case must stand upon its peculiar facts, and upon special equities.
It is nevertheless possible for parties to intend no partnership and yet to form one. If they agree upon an arrangement which is a partnership in fact, it is of no importance that they call it something else, or that they even expressly declare that they are not to be partners. The law must declare what is the legal import of their agreements, and names go for nothing when the substance of the arrangement shows them to be inapplicable.
Thus, one analyzes whether the parties acted as partners, not whether they subjectively intended to create, or not to create, a partnership.…
Accordingly, we believe that our prior case law has, consistent with M.C.L. § 449.6(1), properly examined the requirements of a legal partnership by focusing on whether the parties intentionally acted as co-owners of a business for profit, and not on whether they consciously intended to create the legal relationship of "partnership."
With the language of the statute as our focal point, we conclude that the intent to create a partnership is not required if the acts and conduct of the parties otherwise evidence that the parties carried on as co-owners a business for profit. Thus, we believe that, to the extent that the Court of Appeals regarded the absence of subjective intent to create a partnership as dispositive regarding whether the parties carried on as co-owners a business for profit, it incorrectly interpreted the statutory (and the common) law of partnership in Michigan.
Accordingly, we remand this matter to the Court of Appeals for analysis under the proper test for determining the existence of a partnership under the Michigan Uniform Partnership Act.
Is Mr. Mannes liable to Mr. Byker for the payments Mr. Byker made with regard to their investments?
*This case created a bit of a tussle between the Michigan Court of Appeals and its Supreme Court. Following this decision and remand, the Court of Appeals found that there was no partnership because the parties had to be aware of it to be liable, thus defying the Michigan Supreme Court. On appeal, the Michigan Supreme Court reversed the Court of Appeals, 668 N.W.2d 909 (Mich. 2003), not offering an opinion but explaining it was reversing for the reasons stated in the dissenting opinion at the Court of Appeals on the second round.
† Note how the court traces the history of the law of partnership. Instructors should refer to the Instructor's Manual for more information on the history of business organizations.