Macready v. TCI Trans Commodities, A.G.

MICHAEL MACREADY, et al.

v.TCI TRANS COMMODITIES, A.G., et al.

CIVIL ACTION NO. 00-4434

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Dated: October 11, 2011

MEMORANDUM

McLaughlin, J.

This suit arises from a sales contract between the plaintiff Kennett International Corp. ("Kennett") and TCI Trans Commodities A.G. ("TCI Switzerland"), a Switzerland-based corporation that is now bankrupt. The plaintiff seeks to recover outstanding debts incurred by TCI Switzerland from the defendant, a New York-based corporation called Trans Commodities, Inc. ("Trans Commodities"). The plaintiff claims that the two companies are so intertwined or interrelated that through the "alter ego," "enterprise entity," or "single entity" theories of piercing the corporate veil, the plaintiff can reach the assets of Trans Commodities.

This case was filed in 2000 but was in suspension for many years pending bankruptcy proceedings involving TCI Switzerland and then settlement discussions between the parties. In November of 2009, the Court permitted discovery and then dispositive motions on the issue of the defendant's liability under a veil piercing theory. The defendant moved for summaryjudgment. The Court will grant the defendant's motion for summary judgment.

I. Summary Judgment Record

Kennett entered into a sales contract with TCI Switzerland in 1996. The terms of the agreement are defined by three one-page letters exchanged in early October of 1996 by Michael Macready, the owner of Kennett, and Julian Connor, an employee of TCI Switzerland. Mem. of Law of Pl. in Opp. to Mot. of Def. ("Pl. Opp."), Decl. of Michael Macready ("Macready Decl."), Ex. A.

Between 1996 and 2000, Kennett acted as a commissioned sales agent for TCI Switzerland. The plaintiff brought this suit in 2000 for commission payments that were not made. In the original complaint, Macready was named as a plaintiff, and Seymon Kislin ("Sam Kislin" or "Kislin"), David Kislin, Henry Kislin, and Elliot Asher were named as individual defendants. The complaint was amended two months after filing. The amended complaint named only Kennett as a plaintiff and only TCI Switzerland and Trans Commodities as defendants.

TCI Switzerland entered bankruptcy proceedings in 2001 and the plaintiff was unable to recover from TCI Switzerland the debts owed.

A. Trans Commodities

Trans Commodities was created in 1992 by Kislin although Kislin had been using the name "Trans Commodities" in commodities trading work he was doing as early as 1990. From 1992 until 1997, Kislin was the sole shareholder and CEO of Trans Commodities. In 1997, Kislin gave his stock ownership to his two children, Regina and David Kislin. Around 2000, David Kislin became the sole shareholder of Trans Commodities. During this time, Kislin remained on Trans Commodities's board of directors and was the company's CEO. Mem. of Law in Supp. of Def. Mot. for Summ. J. Def. Mot. ("Def. Mot."), Decl. in Supp. ("Kislin Decl.") ¶¶ 5-6.

B. Trans Commodities's Relationship With TCI Switzerland¹

TCI Switzerland was created in 1993 by Ansgar Felber. When founding TCI Switzerland, Felber worked with Kislin, who had contacts with Russian metal suppliers. In exchange for contact with these suppliers, Felber offered Kislin guaranteed purchasing levels from those companies as well as the opportunity to choose members of the TCI Switzerland Board of Directors. Both David Kislin and George Benninger, Kislin's attorney, were on the board of directors of TCI Switzerland from its formation until itentered bankruptcy. In 1998, Ansgar left TCI Switzerland. Willi Bolinger took over as CEO and Connor took control of sales and purchasing for TCI Switzerland. Kislin was never an employee or a director of TCI Switzerland. Kislin Decl. ¶¶ 5, 10, 12, 16-18, 25.

Trans Commodities entered into a Consulting Agreement with TCI Switzerland in 1995. Trans Commodities provided logistical support to TCI Switzerland, particularly regarding the collection of unpaid debts from customers in the United States. Kislin Decl. ¶¶ 13-14.

Trans Commodities's interaction with TCI Switzerland extended beyond mere support. E-mails from David Kislin to Connor in early 1999 show that Kislin authorized hiring and firing of some TCI Switzerland employees. In addition, Connor spoke with Kislin every day, sometimes multiple times a day, about TCI Switzerland's trades, shipments, profits, and other matters. Pl. Opp., Decl. of Julian H. Connor ("Connor Decl.") ¶¶ 7, 19, Ex. JCH 2 a-b. Connor believes that Trans Commodities had "absolute control" over the hiring, firing, and steel trade determinations of TCI Switzerland and that steel contracts were only made by TCI Switzerland after they were sent to Trans Commodities for approval by Kislin. In 1997, Connor was informed by Kislin that Trans Commodities would "take over direct controlof the claims and rejections process" for TCI Switzerland. Connor Decl. ¶¶ 4, 6, 13.

While executing Kennett's contract with TCI Switzerland, Macready spoke daily with Sam or David Kislin or Elliot Asher, a Trans Commodities employee. On two letters to Macready, Asher lists Trans Commodities below his signature line, and the address is listed in New York, but the letterhead is that of TCI Switzerland. Another letter to Macready likewise lists the employee as that of Trans Commodities but is on TCI Switzerland letterhead. Macready Decl., Exs. B, C-1 to C-3, C-5.

In late 2000, Trans Commodities withdrew approximately one million dollars belonging to TCI Switzerland from a lockbox in a Manhattan bank. This money was eventually returned by Trans Commodities to TCI Switzerland. See Pl. Opp., Ex. F David Kislin Dep. 124-125; Macready Decl., Exs. E-5, E-6, E-8.²

C. Kislin's Relationship with TCI Switzerland

Separately from Trans Commodities, Kislin personally had a relationship with TCI Switzerland. Kislin provided advice to Ansgar regarding purchase pricing and market trends and continued to advise Bolinger and Connor after Ansgar left.Kislin Decl. ¶¶ 12, 16, 26. Kislin also attended TCI Switzerland Board Meetings, as an "Informal Member" of the Board. See Macready Decl., Ex. E-11.

Kislin may also have been the owner of Tanacross B.V. ("Tanacross"), which owned TCI Switzerland. Minutes from a TCI Switzerland board meeting list Kislin as the owner of Tanacross and a power of attorney document directing Tanacross is signed by Kislin. Connor Decl. ¶ 5; Macready Decl., Exs. E-4, E-12. In a declaration submitted in a different lawsuit, Kislin states that Trans Commodities had a branch office in Switzerland, although he does not refer to TCI Switzerland directly. See Pl. Opp., Ex. A Kislin EFC Decl. ¶ 7.³

In addition, other Kislin-owned companies interacted with TCI Switzerland. These companies include Trans Commodities Food AG ("TCI Food") and Redy Corp. Several documents from the files of TCI Switzerland demonstrate movement of funds between TCI Switzerland and TCI Food and Redy Corp. See Macready Decl. Exs. E-10, E-11, E-13.

Notably, neither Kislin nor other Kislin owned companies are defendants in this action, nor is the plaintiff attempting to reach Kislin's personal assets. The extent ofKislin's personal control over TCI Switzerland and TCI Switzerland's interaction with other Kislin companies is only material to the plaintiff's effort to pierce the corporate veil to the extent that this evidence could cause a reasonable jury to conclude that TCI Switzerland and Trans Commodities were intertwined.

II. Analysis⁴

The parties dispute the law applicable to the question of piercing the corporate veil. The plaintiff argues that New York law should apply to this issue, while the defendant argues in favor of Pennsylvania law.

A federal court sitting in a diversity action applies the choice-of-law analysis of the forum state in which it sits,in this case, Pennsylvania. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941); Hammersmith v. TIG Ins. Co., 480 F.3d 220, 226 (3d Cir. 2007). When Pennsylvania courts consider issues of corporate law, the first step is usually an application of the Internal Affairs Doctrine, codified at 15 Pa. Cons. Stat. § 4145. See, e.g., Banjo Buddies, Inc. v. Renosky, 399 F.3d 168, 179 (3d Cir. 2005); Guinan v. A.I. DuPont Hosp. for Children, 597 F. Supp. 2d 485 (E.D. Pa. 2009). The parties agree that the Internal Affairs Doctrine does not apply in this case and does not govern the Court's choice of law determination.

Therefore the Court moves to Pennsylvania's general choice-of-law analysis to determine what law should apply.

A. Choice of Law

When there is no explicit or implicit choice of law among the parties, as is the case here, Pennsylvania choice-of-law determinations proceed in three steps. First, the court must consider the laws of the relevant forum states in order to determine "if there is an actual or real conflict between the potentially applicable laws." Hammersmith, 480 F.3d at 230. As a threshold matter, the court "must determine whether these states would actually treat this issue any differently." Air Prods. & Chems., Inc., v. Eaton Metal Prods. Co., 272 F. Supp. 2d 482, 490 n.9 (E.D. Pa. 2003).

If a comparison shows "there are relevant differences between the laws," then the court moves to the second step: examining "the relevant policies underlying each law, and classify[ing] the conflict as a 'true,' 'false,' or an 'unprovided-for' situation." Hammersmith, 480 F.3d at 230. If application of either state's law would not implicate the interests of the other state, there is a "false" conflict, and the court should apply the law of the interested forum. On the other hand, if the laws of either state would be impaired by the application of the other's law, a "true" conflict exists. An "unprovided-for" situation occurs where neither state's interests are implicated in the dispute. Id. at 230 n.9.

If there is a "true" conflict, the court moves to the last step. The court must determine "which state has...