OCALA BREEDERS'SALES v. Hialeah, Inc.
1999 WL 330175, 735 So.2d 542, 1999 Fla. App. LEXIS 6769 (1999)
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Rule of Law:
A court will pierce the corporate veil to hold a parent corporation liable for its subsidiary's debts when the subsidiary is a mere instrumentality of the parent, and the parent used the subsidiary to mislead creditors or perpetrate a fraud, such as by causing the subsidiary to enter into a significant financial obligation while intentionally keeping it uncapitalized.
Facts:
- Hialeah, Inc. was the parent company of its wholly-owned subsidiary, Hialeah Park, Inc., which was responsible for non-race-related activities at the Hialeah Park Racetrack.
- Hialeah Park had never been capitalized, had no bank account, never earned a profit, and turned all its receipts directly over to its parent, Hialeah, Inc.
- Hialeah, Inc. controlled Hialeah Park, they operated from the same facility, Hialeah, Inc.'s employees performed Hialeah Park's contracts, and Hialeah, Inc. paid all of Hialeah Park's financial obligations.
- In 1984, Ocala Breeders' Sales Company entered into a lease with Hialeah Park for the use of a sales pavilion at the racetrack.
- Under the lease, Hialeah Park agreed to spend $1,500,000 to renovate and refurbish the sales pavilion and other areas of the racetrack.
- Hialeah Park failed to make the required improvements.
Procedural Posture:
- Ocala Breeders' Sales Company filed suit against Hialeah Park, Inc. and obtained a judgment against it.
- When attempting to execute on the judgment, Ocala Breeders' learned Hialeah Park had no assets.
- Ocala Breeders' brought proceedings supplementary in the trial court seeking to hold the parent company, Hialeah, Inc., liable for the judgment.
- The proceeding was heard by a general master, who recommended that judgment be entered in favor of Hialeah, Inc.
- The trial court overruled Ocala Breeders' objections and entered a final judgment in favor of Hialeah, Inc.
- Ocala Breeders' (appellant) appealed the trial court's judgment to the District Court of Appeal of Florida, Third District, against Hialeah, Inc. (appellee).
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Issue:
Does a parent corporation's use of a wholly-owned, uncapitalized subsidiary to enter into a contract with significant financial obligations, which the subsidiary has no ability to fulfill, constitute improper conduct sufficient to pierce the corporate veil and hold the parent liable for the subsidiary's judgment debt?
Opinions:
Majority - Per Curiam
Yes. The court should have allowed Ocala Breeders' to pierce Hialeah Park's corporate veil. The court applied Florida's two-prong test for piercing the corporate veil, which requires showing that (1) the subsidiary is a mere instrumentality of the parent, and (2) the subsidiary was used to mislead creditors or perpetrate a fraud. The court found Hialeah Park was a 'mere instrumentality' because the undisputed facts showed Hialeah, Inc. exercised complete financial and operational control. The court also found the 'improper conduct' prong was met because Hialeah, Inc. used its subsidiary to enter into a contract requiring a $1,500,000 expenditure, despite intentionally keeping the subsidiary uncapitalized and with no ability to fulfill the obligation, which constituted a fraudulent misleading of Ocala Breeders'.
Analysis:
This case clarifies the 'improper conduct' element required to pierce the corporate veil in Florida. The decision establishes that deliberately keeping a subsidiary undercapitalized while causing it to incur substantial contractual liabilities is, by itself, sufficient evidence of using the corporate form to mislead or defraud a creditor. This precedent strengthens the position of creditors against parent companies that use shell subsidiaries to insulate themselves from liability. It signals that courts will look beyond mere corporate formalities to the economic reality of the subsidiary's inability to meet its obligations.
