Housing And Civil Enforcement Cases Documents

UNITED STATES OF AMERICA,

Plaintiff,

v.

MEADOWS OF JUPITER LTD.; RMF
JUPITER APARTMENTS, LTD.;
RMF PROPERTIES, INC.;
WALTER J. MACKEY, JR.;
ETHEL ALLEN; and
TERESA VENTIMIGLIA

Defendants.

MEADOWS OF JUPITER LTD.; RMF
JUPITER APARTMENTS, LTD.;
RMF PROPERTIES, INC.;
WALTER J. MACKEY, JR.;
ETHEL ALLEN; and
TERESA VENTIMIGLIA

Third Party Plaintiffs,

HANOVER INSURANCE COMPANY,

Third Party Defendant.

UNITED STATES' OPPOSITION TO THE MOTION
BY RMF JUPITER APARTMENTS, LTD., AND WALTER J. MACKEY, JR.,
FOR SUMMARY JUDGMENT

I.     INTRODUCTION

The United States initiated this action on August 27, 2002, under the Fair Housing Act, as amended, ("the Act") 42 U.S.C. § 3601 et seq., against Meadows of Jupiter, Ltd., RMF Jupiter Apartments, Ltd., RMF Properties, Inc., Walter J. Mackey, Jr., Ethel Allen, and Teresa Ventimiglia. ⁽¹⁾ In its First Amended Complaint ("Complaint"), the United States alleges that, at Mallards Cove Apartments, the defendants engaged in a pattern or practice of resistance to the full enjoyment of rights granted by the Act on the basis of race, color, and familial status; and denial to a group of persons of rights granted by the Act, which denial raises an issue of general public importance. 42 U.S.C. § 3614.

On March 5, 2003, Walter J. Mackey, Jr., and RMF Jupiter Apartments, Ltd., (collectively, "the movants") filed a motion for judgment on the pleadings, contending that judgment should be entered in their favor because the First Amended Complaint fails to state a cause of action upon which relief can be granted. This motion was denied on June 3, 2003. United States v. Meadows of Jupiter, Ltd., Case No. 02-80811, Docket Entry #28 (S.D. Fla. June 2, 2003). In denying the motion, this court held that "the United States Supreme Court's recent decision in Meyer v. Holley, 123 S. Ct. 824 (2003) does not, as defendants claim, hold that officers or shareholders of a corporation can never be held liable under the Fair Housing Act; rather, the Court noted that in special circumstances an owner or officer of a corporation can be subject to vicarious liability for torts committed by the corporation's employees or agents." Id. at 2.

Mackey and RMF Jupiter Apartments, Ltd., then filed the instant motion for summary judgment, contending that judgment should be entered in their favor because the United States has not established proof of the elements necessary to hold these two defendants liable. At least for the purpose of this motion, the movants concede that all of the other defendants were properly named.

For the reasons explained in greater detail below, the motion by Mackey and RMF Jupiter Apartments, Ltd., for summary judgment should be denied. With respect to Mackey, a reasonable trier of fact could conclude, based on the facts viewed in the light most favorable to the United States, that it is proper to pierce the corporate veil of RMF Properties, Inc., and hold Mackey personally liable for the discriminatory conduct alleged in this lawsuit. Among the facts that support this determination are: (1) Mackey's role as registered agent, President, and sole shareholder of RMF Properties, Inc., (2) Mackey's failure to follow corporate formalities with respect to RMF Properties, Inc., and his failure to treat it and the other defendant business organizations as distinct entities, (3) the undercapitalization of RMF Properties, Inc., and the other defendant business entities, and (4) Mackey's contribution to the discriminatory conduct because of his failure to evaluate Mallards Cove Apartment employees or train them with respect to their legal responsibilities.

With respect to RMF Jupiter Apartments, Ltd., the motion for summary judgment should be denied, or a decision should be deferred until the close of discovery on October 14, 2003, so that it can be determined whether RMF Jupiter Apartments, Ltd., "participates in the control" of Meadows of Jupiter, Ltd., and is therefore liable for the obligations of the limited partnership.

STATEMENT OF MATERIAL FACTS ⁽²⁾

1. Mackey's Involvement in the Defendant Business Entities

Defendant Mackey is and has been the President and sole shareholder of RMF Properties, Inc., since it was incorporated in 1983. Ex. 1 (30(b)(6) Depos.) at 25:25-27:13. Defendant Mackey is also the registered agent for RMF Properties, Inc. Ex. 2 (Fla. Dep't of State records). The "RMF" in RMF Properties, Inc., is an abbreviation for "Rusty Mackey Financial." ⁽³⁾ Ex. 1 at 28:9-12.

Defendant Mackey described the annual meetings of RMF Properties, Inc., as follows:

Q    (By Ms. Jung) [D]o you indeed have these annual shareholder meetings?

A     We have a period -- I know it always happens in pretty much June, I usually come to Columbus in July, we wrap up the tax returns in April and May. June we get -- try to get all of the corporate filings done, so our secretaries prepare all of our documents and our meetings pretty much at one time, got 25 entities, so they go through and they bring us all up to date on our annual meetings and minutes if there is a meeting, may have involved more than one entity, just do it all at once.

Id. at 123:6-15 (emphasis added). The Articles of Incorporation for RMF Properties, Inc., require that "[t]he regular annual meeting of the shareholders shall be held at the principal office of the corporation, in Columbus, Ohio, on the first Friday in June of each year, at 1:30 p.m." Ex. 3 (Articles of Incorporation) (emphasis added). The annual meetings that allegedly occurred during 1998-2002 have been held in Florida, not Columbus, Ohio. Ex. 4 (Minutes).

The Articles of Incorporation also state that "[a]written notice  stating the date, time, place and purposes of the meeting of shareholders shall be given  either by personal delivery or by mail at least fifteen days before the date of the meeting to each shareholder of record entitled to notice of the meeting." Ex. 3 (emphasis added). In explaining why the required notice is not provided for the annual meetings of RMF Properties, Inc., Mackey stated: " I don't think we go to that formality." Ex. 1 at 124:8-13 (emphasis added).

The minutes for the 2002 annual meeting of RMF Properties, Inc., which were allegedly signed and dated on June 7, 2002, state that the required annual meeting took place at 1601 Forum Place, West Palm Beach, Florida 33401. Ex. 4. However, the principal address for RMF Properties, Inc., changed from 1601 Forum Place, West Palm Beach, Florida 33401 to 2247 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33409, on or before June 14, 1999. Ex. 2. It is therefore unlikely that the 2002 annual meeting took place at the former address.

Defendant Mackey is the President of the corporate general partner (RMF Properties, Inc.) of Meadows of Jupiter, Ltd. Because RMF Properties, Inc., is also the general partner of the limited partner (RMF Jupiter Apartments, Ltd.) of Meadows of Jupiter, Ltd., he is also the President of the corporate general partner of the limited partner of Meadows of Jupiter, Ltd. Ex. 1 at 22:16-23:13. Additionally, Defendant Mackey serves as the registered agent for Meadows of Jupiter, Ltd. Ex. 2. Audited Financial Statements for Meadows of Jupiter, Ltd., state that distributions amounting to $50,000 (1998), $54,656 (1999), and $60,000 (2000) were made to movant RMF Jupiter Apartments, Ltd., without getting prior HUD approval. Ex. 5 (Audits). ⁽⁴⁾

Defendant Mackey is both the President of the corporate general partner (RMF Properties, Inc.) and a limited partner of RMF Jupiter Apartments, Ltd. Ex. 1 at 33:18-34:5. Defendant Mackey is also the registered agent for RMF Jupiter Apartments, Ltd. Ex. 2.

Defendant Mackey testified on behalf of each of the defendant business entities after designating himself to respond to the United States' notice of 30(b)(6) depositions. Ex. 1 at 7:13-19. No written records exist of Mackey's decision(s) to designate himself. Id. at 7:25-8:4. Defendant Mackey had previously designated himself to respond on behalf of defendants RMF Properties, Inc., Meadows of Jupiter, Ltd., and RMF Jupiter Apartments, Ltd., to the United States' First Sets of Interrogatories. Id. at 147:22-148:17. No written records exist of this decision(s) either. Id. at 148:18-21.

The defendant business entities all have the same business address and phone number: 2247 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33409, (561) 684-8811. Id. at 10:11-20; 125:19-127:11; 134:5-7; Ex. 2 (Fla. Dep't of State records). They share this business address and phone number with MKV Realty, Inc. ⁽⁵⁾ Ex. 7 (Williams Letter). Defendant Mackey is the president, sole active shareholder, and registered agent of MKV Realty, Inc. Ex. 1 at 15:21-16:15; Ex. 2. The "MKV" in MKV Realty, Inc., is an abbreviation for "Mackey Ventures, Inc." Ex. 1 at 15:8-10. Correspondence pertaining to RMF Properties, Inc., RMF Jupiter Apartments, Ltd., and Meadows of Jupiter, Ltd., has been sent on the letterhead of MKV Realty, Inc. Ex. 7.

2. Defendants' Capitalization and/or Finances

RMF Properties, Inc., has a net worth of approximately $0. because its only asset is the 1% interest it holds in Meadows of Jupiter, Ltd., which, as explained in the next paragraph, has a net worth of approximately $0. Ex. 1 at 40:7-19. In explaining why RMF Properties, Inc., transferred a piece of land it had previously held to a different entity, Mackey testified that "RMF Properties[, Inc.,]had no assets,  so [the land] was transferred to another entity that is then putting the project under construction." Id. at 37:15-23 (emphasis added). Later, Mackey explained that "RMF Properties[, Inc.,] never had any money." Id. at 40:23-24. RMF Properties, Inc., does not have an insurance policy. Id. at 79:18-20. No capital contributions have been made to RMF Properties, Inc., since at least 1997. Ex. 8 (Fed. Tax Returns for RMF Properties, Inc.).

Meadows of Jupiter, Ltd., has a net worth of approximately $0.:

Q     From your knowledge, what is the current net worth of Meadows of Jupiter Limited?

A     Meadows of Jupiter Limited -- the mortgage is about 7 million dollars. And if you paid off the first mortgage debt and paid all of the B and C notes, you probably wouldn't have anything left.

So that means you've got a 7 million dollar mortgage and you've got a million dollars of B and C notes. So over and above that  there is probably not much equity.

Ex. 1 at 101:24-102:7 (emphasis added). No capital has been contributed into Meadows of Jupiter, Ltd., since 1997. Id. at 112:13-21; Ex. 9 (Fed. Tax Returns for Meadows of Jupiter, Ltd.); Ex. 10 (Fla. Tax Return for Meadows of Jupiter, Ltd.). The approximately $1 million that was contributed in 1997 was used to pay off back taxes. Ex. 1 at 47:2-15; 108:11-25; 112:13-21.

Meadows of Jupiter, Ltd., has an insurance policy that covers Mallards Cove Apartments. Id. at 79:4-17. This "general property and liability policy" is the only insurance policy that covers Mallards Cove Apartments. Id. at 79:24-80:2; 80:18-23. Defendant Mackey does not know the extent of the coverage of this insurance policy. Id. at 79:16-17. The applicability of the insurance policy and extent of the coverage are in dispute, and are the subject of the third-party complaint the defendants filed against Hanover Insurance Company on November 25, 2002.

RMF Jupiter Apartments, Ltd., has a net worth of approximately $0. because its only asset is the 99% interest it holds in Meadows of Jupiter, Ltd., which has a net worth of approximately $0. Ex. 1 at 136:18-137:4. RMF Jupiter Apartments, Ltd., does not have an insurance policy. Id. at 79:21-23.No capital contributions have been made to RMF Jupiter Apartments, Ltd., since at least 1997. Ex. 11 (Fed. Tax Returns for RMF Jupiter Apartments, Ltd.); Ex. 12 (Fla. Tax Return for RMF Jupiter Apartments, Ltd.).

The net worth of the individual defendants is as follows: Allen, ($1,000.00); Ventimiglia, ($1,941.00); and Mackey, $19,292,500.00. Ex. 13 (Fin. Statements).

3. Mackey's Involvement at Mallards Cove Apartments

When RMF Properties, Inc., became the general partner of Meadows of Jupiter, Ltd., Mackey decided to retain Ethel Allen as the manager of Mallards Cove Apartments because "[w]e were happy with what was going on." Ex. 1 at 62:17-19. Defendant Mackey did not require Allen or any other employee at Mallards Cove Apartments to receive Fair Housing Act training. Id. at 74:11-19. Nor did Mackey, prior to being notified of the Department of Justice's investigation, inquire into whether Allen had ever received Fair Housing Act training. Id. at 75:2-21.

No resolution or any written documentation from any of the defendant business entities exists outlining the scope of Allen's duties and responsibilities at Mallards Cove Apartments or her level of discretion to make decisions regarding Mallards Cove Apartments. Id. at 70:17-21. Defendant Mackey has the power to terminate defendant Allen's employment, but he has never evaluated her work. Ex. 14 (Allen Depo.) at 32:1-33:22; 62:2-7. Defendant Mackey's supervision of Allen entails reviewing a fax each month "that shows monthly receipts and annual receipts for the last ten years" and one or two conversations per year about "how that chart is performing, whether we need to be raising rents." Ex. 1 at 65:4-24. Prior to being notified of the Department of Justice's investigation, Mackey did not make any other inquiries into Allen's operation of Mallards Cove Apartments. Id. at 68:11-17.

When Ethel Allen has questions about Mallards Cove Apartments, she speaks to Mackey and in those instances he makes the final decision. Ex. 14 at 32:1-33:22. For example, Allen called Mackey when she decided to hire her daughter, defendant Teresa Ventimiglia, as the Assistant Manager of Mallards Cove Apartments, and Mackey approved the hiring. Id. at 29:15-31:2. ⁽⁶⁾ Defendant Mackey also determined the five percent target vacancy level for the complex, took out bonds out against the property, and has the authority to sign checks from Mallards Cove Apartments' checking account. Id. at 70:16-71:2 ⁽⁷⁾; 74:18-20; 78:2-4. Other than Mackey, no other official from the defendant business entities has had any involvement with Mallards Cove Apartments.  Id. at 62:19-21.

Ethel Allen, the manager at Mallards Cove Apartments, and Teresa Ventimiglia, the assistant manager at Mallards Cove Apartments, used to be employed by Meadows of Jupiter, Ltd., but they are currently paid by MKV Realty, Inc. Ex. 1 at 83:24-84:23. ⁽⁸⁾ For this reason, the amount that Meadows of Jupiter, Ltd., pays in "wages and salaries" has dropped from $121,630 in 1997, to $34,427 in 1998, to $0 in 1999-2001. Ex. 9. Mackey has acknowledged, however, that there is no written contract or any other written agreement memorializing this arrangement between Meadows of Jupiter, Ltd., and MKV Realty, Inc. Ex. 1 at 116:16-23.

At least two other employees of MKV Realty, Inc., perform services for Mallards Cove Apartments: Edward S. Williams, the head of the accounting department for MKV Realty, Inc., and Carol Kelsch, an assistant to Mr. Williams. Id. at 18:23-19:10. Mr. Williams handles payroll and insurance for the employees at Mallards Cove Apartments and he also completes the tax returns for all the defendant business entities. Ms. Kelsch spends half a day a month at Mallards Cove Apartments working on bookkeeping issues. Defendant Mackey does not know if the defendant business entities reimburse MKV Realty, Inc., for the time its employees spend performing services for the defendant business entities. Id. at 69:9-70:4.

4. Pending Discovery

On June 17, 2003, the United States sent Rule 37 letters to each of the defendant business entities regarding their incomplete responses to the United States' First Sets of Interrogatories. Although counsel have been able to resolve many of the issues raised in these letters, there are still several issues, material to the instant motion, yet to be addressed.

First, neither Meadows of Jupiter, Ltd., nor RMF Properties, Inc., has provided responses to interrogatories on topics material to the instant motion, such as those regarding their bank accounts. Ex. 16 (Answers to Interrogatories) at Nos. 12 and 13. Second, RMF Jupiter Apartments, Ltd., one of the movants, has not withdrawn its general objection -- based on the then-pending Motion for Judgment on the Pleadings -- to answering any interrogatories. Id.; Ex. 17 (Nason Letters). As a result, RMF Jupiter Apartments, Ltd., has not responded to interrogatories on topics material to the instant motion, such as the limited partnership's financial involvement with Mallards Cove Apartments. Ex. 16 at Nos. 4, 10, 11, 12, and 13. If counsel are unable to reach agreement on these pending discovery issues, the United States will file a motion to compel.

III.    LEGAL ANALYSIS

A.   Summary Judgment Is Improper With Regard to RMF Jupiter Apartments, Ltd., Because Of Pending Discovery Disputes

Under Florida law, generally "a limited partner is not liable for the obligations of a limited partnership . . . ." Fla. Stat. Ann. § 620.129(1); see also Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1503 (11th Cir. 1996) (affirming grant of summary judgment to limited partner); Stromholt v. Rands, 725 F. Supp. 506, 507 (S.D. Fla. 1989) (granting a motion to dismiss limited partners). There are two main exceptions to this general rule. A limited partner can be held liable if: (1) it "is also a general partner"; or (2) it "participates in the control of the business." Fla. Stat. Ann. § 620.129(1). The first exception does not apply in this case because RMF Jupiter Apartments, Ltd., is not the general partner of Meadows of Jupiter, Ltd. At this point during discovery, it is unclear whether the second exception applies.

Thus far, discovery has not yielded any evidence regarding whether or not RMF Jupiter Apartments, Ltd., "participates in the control of" Meadows of Jupiter, Ltd., because RMF Jupiter Apartments, Ltd., has not yet withdrawn its general objection to the United States' First Set of Interrogatories. See Ex. 16; Ex. 17. If the parties are unable to resolve this discovery dispute, the United States will file a motion to compel RMF Jupiter Apartments, Ltd., to provide responses. With respect to RMF Jupiter Apartments, Ltd., the court should therefore either deny its motion for summary judgment as premature or delay ruling on its motion until the close of discovery. See Fed. R. Civ. P. 56(f) (court "may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just"); see also Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986) ("Any potential problem with [] premature motions can be adequately dealt with under Rule 56(f), which allows a summary judgment motion to be denied, or the hearing on the motion continued, if the nonmoving party has not had an opportunity to make full discovery.").

B.    Summary Judgment Is Improper With Regard to Walter J. Mackey, Jr., Because There Are Genuine Issues of Material Fact As To Whether The Corporate Veil Should Be Pierced Under Federal Common Law

Summary judgment should not be granted unless there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); see also Nat'l Fire Ins. Co. v. Fortune Constr. Co., 320 F.3d 1260, 1267 (11th Cir. 2003). In deciding such a motion, a court should "view all evidence and make all reasonable inferences in favor of the party opposing summary judgment." Whatley v. CNA Ins. Cos., 189 F.3d 1310, 1313 (11th Cir. 1999). The question of whether the corporate veil should be pierced involves a highly fact-specific inquiry. See Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 137 (2d Cir. 1991) (Veil-piercing "is the sort of determination usually made by a jury because it is so fact specific."); FMC Fin. Corp. v. Murphree, 632 F.2d 413, 421 n.5 (5th Cir. 1980) ("This Court holds that the issue of corporate entity disregard is one for the jury"). ⁽⁹⁾

1.    Vicarious Liability Under The Fair Housing Act

As the movants (see Defs.' Mem. at 13) note, under the Fair Housing Act, corporations that own property are liable for the discriminatory conduct of the rental agents or property managers they employ, when they are acting within the scope of their authority as agents or employees, regardless of whether or not the owner participated in or authorized the discriminatory actions. See, e.g., Meyer v. Holley, 123 S. Ct. 824, 828-29 (2003) (stating that it is well established that the Fair Housing Act provides for vicarious liability). Thus there is no dispute that Meadows of Jupiter, Ltd., as the business entity that owns Mallards Cove Apartments, is vicariously liable for the alleged discriminatory acts its agents, Allen and Ventimiglia, acting within the scope of their authority as agents. Similarly, there is no dispute that RMF Properties, Inc., as the general partner of Meadows of Jupiter, Ltd., is liable for the obligations of the limited partnership. Fla. St. Ann. §§ 620.125; 620.8306.

The movants (see Defs.' Mem. at 9) are also correct that, as a general matter, an officer or "a shareholder -- even a single shareholder -- is normally not liable for the torts of the corporation whose shares it holds," Roe v. Sewell, 128 F.3d 1098, 1103 (7th Cir. 1997); accord United States v. Bestfoods, 524 U.S. 51, 61-62 (1998); see Redwing Carriers, Inc., 94 F.3d at 1503. However, the general rule that corporate stockholders are not personally liable for wrongs committed by the corporation's employees is subject to well-recognized exceptions. See, e.g., Fidelity & Deposit Co. v. USAFORM Hail Pool, Inc., 523 F.2d 744, 758 (5th Cir. 1975) ("the corporate form will be disregarded when not to do so would work an injustice upon innocent third parties"). Thus, under established corporate law principles, "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." Bestfoods, 524 U.S. at 62; accord, e.g., First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 630 (1983) (Court "has consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies"). As with the statute at issue in Bestfoods, "[n]othing in [the FHA] purports to rewrite this well-settled rule." Bestfoods, 524 U.S. at 63. "[T]he failure of the statute to speak to a matter as fundamental as the liability implications of corporate ownership demands application of the rule that in order to abrogate a common-law principle, the statute must speak directly to the question addressed by the common law." Id. If the United States can establish the prerequisites for piercing the corporate veil of RMF Properties, Inc., defendant Mackey may be held personally liable for the alleged Fair Housing Act violations.

2.    Federal Common Law Principles Of Corporate Veil-Piercing Apply

Although the Fair Housing Act does not specify whether state or federal common law veil-piercing standards should apply, we agree with the movants (see Defs.' Mem. at 12-13) that a uniform federal standard is appropriate. Cf. Clearfield Trust Co. v. United States, 318 U.S. 363, 366-367 (1943) (federal courts should establish uniform federal rules of decision when a federal statute is silent as to choice of law and overriding federal interests exist). A uniform federal standard is appropriate, because the Fair Housing Act is a "nationwide act of the Federal Government, emanating in a single form from a single source." United States v. Yazell, 382 U.S. 341, 348 (1966). Applying a uniform federal standard is also consistent with precedent in this circuit, establishing that questions of agency arising in Fair Housing Act cases should be resolved by reference to federal common law. Northside Realty Assocs., Inc. v. United States, 605 F.2d 1348, 1354 n.13 (5th Cir. 1979); accord Harris v. Itzhaki,183 F.3d 1043, 1054 (9th Cir. 1999);Cabrera v. Jakabovitz, 24 F.3d 372, 386 n.13 (2d Cir. 1994); Chicago v. Matchmaker Real Estate Sales Ctr., Inc., 982 F.2d 1086, 1097 (7th Cir. 1992); Marr, 503 F.2d at 740.

3.    The Two-Part Test For Piercing The Corporate Veil

"The alter ego doctrine states that, when the corporation is the mere instrumentality or business conduit of another corporation or person, the corporate form may be disregarded." 1 Fletcher Cyclopedia § 41.10, at 568 (1999); see Chicago, M. & St. P. Ry. Co. v. Minneapolis Civic & Commerce Ass'n, 247 U.S. 490, 500-501 (1918) (rule that one corporation's ownership of stock in another does not generally "create the relation of principal and agent or representative between the two" is inapplicable "where stock ownership has been resorted to . . . for the purpose . . . of controlling a subsidiary company so that it may be used as a mere agency or instrumentality of the owning company or companies"). In applying this federal common law principle, courts have delineated a two-prong test for piercing the corporate veil.

As the Tenth Circuit has explained, the federal common law doctrine of piercing the corporate veil under an alter ego theory can best be described by the following two-part test: (i) was there such unity of interest and lack of respect given to the personalities and assets of the corporation by its shareholders that the personalities and assets of the corporation and the individual are indistinct, and (ii) would adherence to the corporate fiction sanction a fraud, promote injustice, or lead to an evasion of legal obligations.

NLRB v. Greater Kansas City Roofing, 2 F.3d 1047, 1052 (10th Cir. 1993); accord 1 Fletcher Cyclopedia, § 41.30, at 619.

a.    There Is Sufficient Evidence For A Reasonable Trier Of Fact To Conclude That There Is A Unity Of Interest Between Mackey And RMF Properties, Inc.

A reasonable trier of fact could conclude that the requisite unity of interest exists between Mackey and RMF Properties, Inc. First, Mackey is and always has been the President, registered agent, and sole shareholder of RMF Properties, Inc. See Ex. 1 at 25:25-27:13. The "RMF" in RMF Properties, Inc., is actually an abbreviation for "Rusty Mackey Financial." See id. at 28:9-12. Given his multiple roles and status as the sole shareholder, Mackey clearly exercises pervasive control over the corporation's affairs.

"[T]he mere fact that all or almost all of the corporate stock is owned by one individual or a few individuals will not afford sufficient grounds for disregarding corporateness." 1 Fletcher Cyclopedia § 41.35, at 665-666. Nonetheless, a plaintiff can more readily establish a basic identity of interests between the shareholder and the corporation where ownership is concentrated in a single individual. See, e.g., Easterbrook & Fischel, Limited Liability & the Corporation, 52 U. Chi. L. Rev. 89, 109-110 (1985) (stating that "[a]lmost every case in which a court has allowed creditors to reach the assets of shareholders has involved a close corporation," and explaining that while sole ownership of a corporation does not in itself warrant piercing the corporate veil, the economic reasons for limited liability for close corporate shareholders are significantly weakened). "When substantial ownership of all the stock of a corporation in a single individual is combined with other factors clearly supporting disregard of the corporate fiction on grounds of equity and fairness, courts have been willing to apply the 'alter ego' or instrumentality theory in order to cast aside the corporate shield and to fasten liability on the individual shareholder." 1 Fletcher Cyclopedia § 41.35, at 666-668; see Baker v. Raymond Intern., Inc., 656 F.2d 173, 179-80 (5th Cir. Sept. 1981).

Second, there is evidence that Mackey has disregarded corporate formalities, further indicating that a unity of interests exists. "In order to avoid the potential for a court to pierce the corporate veil, a corporation must be sure to observe corporate formalities." 1 Fletcher Cyclopedia § 41.31, at 635; see NLRB v. West Dixie Enters., 190 F.3d 1191, 1194 (11th Cir. 1999).

Defendant Mackey has failed to comply with the Articles of Incorporation of RMF Properties, Inc. For example, the annual meetings for 1998-2002 -- if they occurred at all -- were held in Florida instead of, as required, in Ohio. See Ex. 3; Ex. 4. There is also evidence that, at the very least, the minutes for the 2002 annual meeting of RMF Properties, Inc., do not accurately state where the meeting allegedly took place, because the listed address -- 1601 Forum Place -- ceased being the principal address for RMF Properties, Inc., on or before June 14, 1999. See Ex. 2; Ex. 4. Furthermore, the notice required for those annual meetings was not provided. See Ex. 3; Ex. 1 at 124:8-13. In explaining why notice is not provided, Mackey stated: "I don't think we go to that formality." See Ex. 1 at 124:12-13. Significantly, Defendant Mackey also described the annual meetings for the 25 entities with which he is involved as occurring "pretty much at one time . . . may have involved more than one entity, just do it all at once." See id. at 123:6-15.

Defendant Mackey has also failed to treat RMF Properties, Inc., Meadows of Jupiter, Ltd., and RMF Jupiter Apartments, Ltd., as distinct entities. In addition to the fact that Mackey admitted holding annual meetings for these entities "all at once," the defendant business entities all have the same business address and the same business phone number. See id. at 10:11-20; 125:19-127:11; 134:5-7; see also Ex. 2. They share this address and phone number with MKV Realty, Inc., a corporation of which Mackey is the President, sole active shareholder, and registered agent. See Ex. 1 at 15:21-16:15; Ex. 2; Ex. 7. The letterhead of MKV Realty, Inc., has also been used for correspondence regarding RMF Properties, Inc., and the other defendant business entities. See, e.g., Ex. 7. The use of the same business address, phone number, and letterhead for RMF Properties, Inc., Meadows of Jupiter, Ltd., RMF Jupiter Apartments, Ltd., and MKV Realty, Inc., provides additional evidence that Mackey is failing to observe corporate formalities.

Furthermore, Ethel Allen, the manager of Mallards Cove Apartments, and Teresa Ventimiglia, the assistant manager of Mallards Cove Apartments, who used to be paid by Meadows of Jupiter, Ltd., are now actually paid by MKV Realty, Inc. See Ex. 1 at 83:24-84:23; Ex. 15. There is, however, no written contract or any other formal agreement memorializing this arrangement between the two entities. See Ex. 1 at 116:16-23. Because the employees at Mallards Cove Apartments are now paid by MKV Realty, Inc., the amount that Meadows of Jupiter, Ltd., pays in "wages and salaries" has gone from $121,630 in 1997, to $34,427 in 1998, to $0 in 1999-2001. See Ex. 9. Defendant Mackey is also not sure whether RMF Properties, Inc., and the other defendant business entities reimburse MKV Realty, Inc., for the time two other MKV Realty, Inc., employees -- Edward S. Williams and Carol Kelsch -- spend performing services for them. See Ex. 1 at 69:9-70:4.

Because defendants have not complied fully with the United States' discovery requests, it is unclear at this time whether evidence exists of other factors, such as commingling and diversion of corporate assets, which are potentially relevant to this issue. However, the evidence currently before the court clearly raises a genuine issue of material fact as to whether a unity of interest exists.

b.    There Is Sufficient Evidence For A Reasonable Trier Of Fact To Conclude That Adherence To The Corporate Fiction Would Lead To Inequitable Results

A reasonable trier of fact could also conclude in this case that "adherence to the corporate fiction" would lead to inequitable results. Greater Kansas City Roofing, 2 F.3d at 1052. The net worth of RMF Properties, Inc., is approximately $0. and no capital has been contributed into the corporation since at least 1997. See Ex. 1 at 40:7-19. Although the insolvency of the corporation does not by itself warrant the imposition of personal liability on the shareholder, inadequate capitalization is another relevant factor in determining whether the corporate veil should be pierced. See, e.g., Anderson v. Abbott, 321 U.S. 349, 362 (1944) ("An obvious inadequacy of capital, measured by the nature and magnitude of the corporate undertaking, has frequently been an important factor in cases denying stockholders their defense of limited liability."). As one leading treatise explains,

[i]f a corporation is organized and carries on a business without substantial capital and is likely to have insufficient assets available to meet its debts, it is inequitable to allow the shareholders to escape personal liability. The attempt to do corporate business without providing any sufficient basis of financial responsibilities to creditors is an abuse of the separate entity and will be ineffectual to protect shareholders from corporate debts.

1 Fletcher Cyclopedia § 41.33, at 648-649 (footnote omitted).

Given that Mallards Cove Apartments is a 240-unit apartment complex, there is a question of material fact as to whether RMF Properties, Inc., is adequately capitalized. See, e.g., Ex. 5 (describing the "Current Vulnerability Due to Certain Concentrations" of Meadows of Jupiter, Ltd.).

Because Meadows of Jupiter, Ltd., and RMF Properties, Inc., have net worths of $0., see Ex. 1 at 101:24-102:7; 40:7-19, and Teresa Ventimiglia and Ethel Allen are judgment-proof, see Ex. 13, a judgment against those defendants alone potentially would leave the aggrieved parties with little or no recompense for their damages. Defendant Mackey himself testified during a 30(b)(6) deposition that "[t]he partnerships are here today and gone tomorrow" and that "RMF Properties[, Inc.,] never had any money." See Ex. 1 at 12:25 ; 40:23-24. Piercing of the corporate veil would therefore be necessary if persons aggrieved by defendants' alleged violations of the Fair Housing are to be compensated for their damages.

Although Meadows of Jupiter, Ltd., has a "general property and liability policy" that covers Mallards Cove Apartments, both the applicability of the insurance policy and the extent of the coverage are being disputed by Hanover Insurance Company, the subject of a third-party complaint filed by the defendants on November 25, 2002. Unless the corporate veil is pierced, therefore, the United States may be unable to obtain redress for the injuries suffered by aggrieved persons, even if violations of the Fair Housing Act are proved.

Finally, in determining whether adherence to the general rule of limited liability will produce an unjust result, courts will consider whether the individual shareholder bears some personal responsibility for the breach with which the corporation is charged. See Greater Kansas City Roofing, 2 F.3d at 1053 ("the individual who is sought to be charged with corporate liability must have shared in the moral culpability or injustice").

In the present case, there is evidence that improper distributions were made from Meadows of Jupiter, Ltd., to movant RMF Jupiter Apartments, Ltd., during 1999-2000. Ex. 5. Mackey, as a limited partner of RMF Jupiter Apartments, Ltd., received a portion of these distributions. Ex. 11.>

There is also evidence that Mackey acted negligently in his training and supervision of employees at Mallards Cove Apartments. Although Mackey is the person with the power to terminate defendant Allen's employment, he has never evaluated her work. See Ex. 14 at 32:1-33:22; 62:2-7. Also, prior to DOJ involvement, Mackey never trained Allen or any other employee at Mallards Cove Apartments with respect to their legal responsibilities. See Ex. 1 at 74:11-19; 75:2-21.

c.   Fraud Is Not A Prerequisite To Piercing The Corporate Veil

Notwithstanding the movants' claims to the contrary, under the applicable federal common law, "fraud is not a prerequisite in a suit to disregard a corporate fiction," and "[t]he 'errant' party need not have willfully wronged the other party, nor need he have engaged in anything amounting to fraud in their relationship." Labadie Coal Co. v. Black, 672 F.2d 92, 99-100 (D.C. Cir. 1982); see also United States v. Van Diviner, 822 F.2d 960, 964 (10th Cir. 1987) ("actual fraud is not generally regarded as a prerequisite for piercing the corporate veil") Cunningham v. Rendezvous, Inc., 699 F.2d 676, 680 (4th Cir. 1983) ("fraud is not a prerequisite to a finding to disregard the corporate entity"); Homan & Crimen, Inc. v. Harris, 626 F.2d 1201, 1208 (5th Cir. 1980) ("[T]he corporate entity may and should be disregarded 'in such cases as fraud, violation of law or contract, public wrong, or to work out the equities among members of the corporate internally.'") (emphasis added).

In arguing that fraud is a prerequisite for piercing the corporate veil, the movants erroneously rely on cases involving the Labor Management Relations Act (LMRA) and the Employee Retirement Income Security Act (ERISA). The movants cite United Steel Workers of America v. Connors Steel Co., a LMRA case, in support of the proposition that the corporate veil cannot be pierced absent "a showing of complete domination, by a shareholder, of the specific 'policy' or 'business practice' attacked, which is utilized to perpetrate a fraud or other wrongdoing, and, which is the proximate cause of the injury." Defs.' Memo. of Law at 13 (emphasis in original) (citing United Steel Workers of Am. v. Connors Steel Co., 855 F.2d 1499, 1506 (11th Cir. 1988)). The movants fail to note, however, that the standard quoted in Connors Steel is prefaced by the following statement: "[W]e recognize that we are required to apply a body of federal common law that has developed in connection with section 301 [of the LMRA] . . . ." Id. (emphasis added). The case before this court does not involve Section 301 of the LMRA.

The movants also cite an unpublished District of New Hampshire case in support of the proposition that "'a finding of some fraudulent intent is a sine qua non to the remedy's availability.'" Defs.' Memo. of Law at 14 (emphasis in original) (quoting Sheppard v. River Valley Fitness One, No. Civ.00-111-M, 2002 WL 197976 (D.N.H. Jan. 24, 2002) (quoting Crane v. Green & Freedman Baking Co., 134 F.3d 17, 22 (1st Cir. 1998) (citing United Elec., Radio & Mach. Workers v. 163 Pleasant Street Corp., 960 F.2d 1080, 1093 (1st Cir. 1992)). The district court in Sheppard, however, erred by applying a variation of the standard for piercing the corporate veil that the First Circuit developed in the specific context of ERISA cases. Crane, 134 F.3d at 23 (ERISA); 163 Pleasant Street Corp., 960 F.2d at 1093 ("Not surprisingly, therefore, the cases that permit veil piercing in the ERISA milieu all emphasize that a finding of some fraudulent intent is a sine qua non to the remedy's availability.") (emphasis added); see also id. at 1092-93 ("In determining when it may be appropriate to disregard corporate separateness in an ERISA-related dispute, a court using the federal standard should consider . . . fraudulent intent . . . .") (emphasis added). The case before this court does not involve an ERISA claim.

Finally, the movants cite United States v. Bestfoods in support of the proposition that "Supreme Court precedent instructs that fraud or other conduct designed to accomplish 'wrongful purpose' must be present to pierce a corporate veil." Defs.' Memo. of Law at 15 (citing Bestfoods, 524 U.S. at 62). This declaration is based on a misreading of Bestfoods and an omission of Supreme Court precedent that clearly states that a finding of fraud is not necessary to pierce the corporate veil.

Bestfoods states that the corporate veil "may be pierced . . . when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud . . . ." Bestfoods, 524 U.S. at 62 (emphasis added). This sentence means that the corporate veil may be pierced in instances of fraud; it does not mean that a finding of fraud is necessary to pierce the corporate veil.

In support of the unremarkable proposition that the corporate veil may be pierced in instances of fraud, Bestfoods cites Anderson v. Abbott, a case in which the Supreme Court noted that:

The cases of fraud make up part of that exception [to limited liability]. But they do not exhaust it. An obvious inadequacy of capital, measured by the nature and magnitude of the corporate undertaking, has frequently been an important factor in cases denying stockholders their defense of limited liability.

Anderson, 321 U.S. at 362 (emphasis added). Thus, contrary to the movants' claims, Supreme Court precedent establishes that a finding of fraud is not necessary to pierce the corporate veil.

This court therefore should find that movants have failed to establish the absence of genuine issues of material fact as to whether: (1) a unity of interests exists between Mackey and RMF Properties, Inc., and (2) limited liability would lead to inequitable results, based on the evidence addressed in Sections III.B.3.a and III.B.3.b, respectively.

4.    Summary Judgment Is Also Improper Because The Motion is Premature

In the alternative, the court may also deny this motion as premature because the defendant business entities, including RMF Properties, Inc., have yet to provide complete responses to United States' First Sets of Interrogatories. See Fed. R. Civ. P. 56(f); see also Celotex Corp., 477 U.S. at 326. Specifically, the defendant business entities have not yet responded to interrogatories on topics material to the instant motion, such as those regarding their bank accounts and their financial involvement with Mallards Cove Apartments. See Ex. 16.

IV.    CONCLUSION

For all of the above reasons, the motion by RMF Jupiter Apartments, Ltd., and Walter J. Mackey, Jr., for summary judgment should be denied.

Respectfully submitted,

MARCOS D. JIMENEZ United States Attorney

J. MICHAEL WIGGINS Acting Assistant Attorney

VERONICA HARRELL-JAMES Assistant United States Attorney FL Bar #644791 99 N.E. 4th St., 6th Floor Miami FL 33132 Phone: (305)961-9327 Fax: (305)530-7139 veronica.harrell-james @usdoj.gov

_____________________________ STEVEN H. ROSENBAUM Chief TIMOTHY J. MORAN Deputy Chief JE YON JUNG #A5500714 KEVIN CREMIN #A5500713 Trial Attorneys U.S. Department of Justice Civil Rights Division Housing and Civil Enforcement Section 950 Pennsylvania Avenue N.W. Washington, D.C. 20530 Phone: (202) 305-1457 Fax: (202) 514-1116 jeyon.jung@usdoj.gov kevin.cremin@usdoj.gov

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1. The United States amended its Complaint on November 14, 2002, and added, inter alia, RMF Jupiter Apartments, Ltd., as a defendant and several paragraphs related to defendants' liability. Meadows of Jupiter, Ltd., RMF Jupiter Apartments, Ltd., and RMF Properties, Inc., will be referred to collectively as the "defendant business entities."

2. In accordance with Local Rule 7.5, the plaintiff United States has provided a statement of material facts. It is incorporated in the United States' Memorandum of Law herein. Accordingly, the United States' Memorandum of Law and Statement of Undisputed Facts are combined for a total of 30 pages in accordance with Local Rules 7.1(C) and 7.5.

3. "Rusty" is Mackey's nickname. Ex. 1 at 28:10.

4. Approval is required under the "Regulatory Agreement" that Meadows of Jupiter, Ltd., agreed to as a condition to receiving a loan from HUD. Ex. 1 at 100:3-15. Mackey explained that, at least for one year, this problem occurred because the audit was filed with HUD a year and a half after it was due. Id. at 101:17-23; Ex. 6 (Varley Letter) (stating that the 1998 distribution was retroactively approved).

5. Prior to the July 17, 2003, 30(b)(6) depositions, the United States had no knowledge of MKV Realty, Inc., or its role as the employer of Ethel Allen and Teresa Ventimiglia. See Section II.C. In light of this new information, the United States is considering whether to ask the court for leave to name MKV Realty, Inc., as defendant in this lawsuit.

6. Defendants themselves disagree on numerous material facts. For example, Mackey denies playing any role whatsoever in the hiring of defendant Ventimiglia. Ex. 1 at 72:24-73:15.

7. Mackey denies that he determined the vacancy level. Ex. 1 at 154:12-23.

8. Teresa Ventimiglia received W-2 forms from MKV Realty, Inc., in 1999-2001. Ex. 15 (W-2 Statements). Defendant Mackey testified that Ethel Allen's salary is also now paid by MKV Realty, Inc.Ex. 1 at 84:20-23.

9. Fifth Circuit decisions issued prior to the formation of the Eleventh Circuit on October 1, 1981, are binding on courts within the Eleventh Circuit.Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981)(en banc).

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Document Filed: August 11, 2003 >