Mid America Title v. Transnation Title ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 02-1432, 02-1469
MID AMERICA TITLE COMPANY,
Plaintiff-Appellee,
Cross-Appellant,
v.
TRANSNATION TITLE INSURANCE COMPANY,
Defendant-Appellant,
Cross-Appellee,
and
LANDAMERICA FINANCIAL GROUP, INC.,
Defendant,
Cross-Appellee.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 2060—Suzanne B. Conlon, Judge.
____________
ARGUED DECEMBER 13, 2002—DECIDED JUNE 16, 2003
____________
Before RIPPLE, KANNE, and ROVNER, Circuit Judges.
ROVNER, Circuit Judge. In this appeal Mid America
Title Company, a title insurance agent, defends a jury
verdict it obtained against Transnation Title Insurance
2 Nos. 02-1432, 02-1469
Company, a title insurance underwriter, in a diversity
suit for breach of contract. Because we conclude that
there was insufficient evidence for the jury to find that
Transnation was the alter ego of its sibling corporations,
we reverse the district court’s judgment.
In 1983, Mid America contracted with Transnation (then
known as Transamerica Title Insurance Company) to be
its exclusive agent for issuing title insurance policies
covering real property located in Chicago and surround-
ing areas. Under the agency agreement Transnation
promised “not to issue, directly or indirectly, policies
covering real property within the territory other than
through ISSUING AGENT [i.e., Mid America].” In 1990,
Transnation was acquired by Reliance Insurance Com-
pany, the parent company of Commonwealth Land Title
Insurance Company, another title insurance underwriter
that had long been operating in the Chicago market. Later,
in 1998, a holding company called LandAmerica Finan-
cial Group, Inc. acquired both Transnation and Common-
wealth. LandAmerica owned a third Chicago-area under-
writer, Lawyers Title Insurance Corporation, and so the
three underwriters—Transnation, Commonwealth, and
Lawyers Title—became “siblings” under their common
parent company, LandAmerica. Mid America, which was
aware of the acquisitions, had renewed its contract
with Transnation for a ten-year term in 1995. In 2001,
however, Mid America sued both Transnation and
LandAmerica for breaching the above-quoted contract
provision. The jury found in favor of LandAmerica (which
was not a party to the contract) but awarded $1.5 million
against Transnation, which brought this appeal.
Mid America concedes that no Chicago-area policies
were issued on Transnation paper, but the parties agree
that Transnation’s sibling underwriters—Commonwealth
and Lawyers Title—continued to issue their own policies
within Mid America’s territory after the acquisitions.
Nos. 02-1432, 02-1469 3
Neither Commonwealth nor Lawyers Title was a party
to the contract, but Mid America contends that their ac-
tions nonetheless constitute a breach of the contract by
Transnation because the three underwriters, in Mid Amer-
ica’s words, “commingled” their operations. The rule in
Arizona, where Transnation is incorporated, is that cor-
porations are legally separate entities whose acts are not
imputed to their officers, shareholders, or affiliates. In
rare cases Arizona courts will pierce the corporate veil
and declare a corporation the alter ego of another entity,
see Gatecliff v. Great Republic Life Ins. Co., 821 P.2d 725,
729 (Ariz. 1991) (in banc), but mere common ownership
is insufficient for piercing, see, e.g., Bischofshausen, Vas-
binder, & Luckie v. D.W. Jaquays Mining & Equip. Contrac-
tors Co., 700 P.2d 902, 907 (Ariz. Ct. App. 1985). Instead,
Arizona courts require a showing that the corporations
share a “unity of control” and that observance of the
corporate form would sanction a fraud or promote injus-
tice. See, e.g., Taeger v. Catholic Family & Cmty. Servs.,
995 P.2d 721, 733 (Ariz. Ct. App. 1999); State v. Angelo,
800 P.2d 11, 14 (Ariz. Ct. App. 1990). We view the addi-
tional evidence tending to show that the underwriters
were commonly controlled in the light most favorable to
Mid America.
First, there was evidence that the three underwriters
had overlapping corporate officers: they shared the same
president (Janet Alpert), senior vice president (J. Scott
McCall), and vice president (William Perrine, who also
was vice president of LandAmerica). Perrine also served
as corporate secretary for Commonwealth and Transna-
tion, and as assistant secretary for Lawyers Title. But
this, too, is insufficient evidence of unity of control under
Arizona law, see Deutsche Credit Corp. v. Case Power
& Equip. Co., 876 P.2d 1190, 1195 (Ariz. Ct. App. 1994);
Bischofshausen, 700 P.2d at 907; Jabczenski v. Southern
Pac. Mem’l Hosps., Inc., 579 P.2d 53, 59 (Ariz. Ct. App.
1978), even when considered in combination with common
4 Nos. 02-1432, 02-1469
ownership, see Horizon Res. Bethany Ltd. v. Cutco Indus.,
Inc., 881 P.2d 1177, 1180 (Ariz. Ct. App. 1994).
Second, the three underwriters consolidated their opera-
tions after the acquisitions. LandAmerica ran advertise-
ments and sent letters to its agents explaining that
its underwriters would henceforth “operate as one com-
pany” under the direction of a “unified management team”
while continuing to “offer products and services under
their own familiar names.” The underwriters began shar-
ing a downtown Chicago office as well as a number of
employees, including a claims counsel, agency supervisor,
regional manager, and two state agency managers. Two
of those managers testified that they performed work for
two or more of the underwriters but drew their salaries
from only one. This operational streamlining also meant
that the underwriters no longer dealt with each other
at arm’s length: Transnation, which in the past had re-
quired indemnification (“hold harmless”) letters from the
previous insurer before issuing a new title policy, ceased
requiring such letters in cases where either Common-
wealth or Lawyers Title was the prior insurer. At times
the divisions between the underwriters seem to have
been ignored entirely, as on the several occasions Mid
America received correspondence pertaining to its agency
relationship with Transnation that was signed by Com-
monwealth officials and written on Commonwealth letter-
head. One such letter even addressed Mid America as an
“agent” of Commonwealth, which it was not. Evidence
also showed that LandAmerica’s website referred users
searching for Transnation agents to Commonwealth in-
stead and that a Transnation office once referred a policy
request it received to Lawyers Title.1 (LandAmerica had
1
A different clause of the agency agreement required Trans-
nation to refer all “national real estate business” involving
(continued...)
Nos. 02-1432, 02-1469 5
a financial incentive to divert business from Trans-
nation, which was bound by the agency agreement to
issue Chicago-area policies only through—and thus
share premiums with—its exclusive agent, Mid America.
Lawyers Title was not so bound and could issue Chicago-
area policies directly, resulting in greater profits.) An
employee charged with insuring the profitability of all
three underwriters, when asked how he decides “where
business goes,” testified that a policy request from an out-
of-state Commonwealth or Lawyers Title office would
“probably” be referred to the local office of the same under-
writer.
Notably, however, much of the evidence Arizona courts
typically rely on in piercing corporate veils is absent
from this case. There is no evidence that any of the under-
writers or holding companies were sham corporations
formed to siphon off Transnation’s (and thus Mid Amer-
ica’s) business, see Ize Nantan Bagowa, Ltd. v. Scalia, 577
P.2d 725, 729-30 (Ariz. Ct. App. 1978) (party seeking to
pierce must show financial setup of corporation is a sham;
refusing to pierce where no evidence showed corporation
was formed to defraud plaintiff); no evidence that any
agents or policyholders were confused about which under-
writer they dealt with, cf. Gatecliff, 821 P.2d at 729 (cit-
ing potential for customer confusion as an alter ego
factor); and no evidence that the underwriters held them-
selves out to Mid America or anyone else as being one
entity, rather than three closely related but separate
entities, cf. id. (piercing where affiliated corporations used
1
(...continued)
Chicago-area property to Mid America, and a separate count of
Mid America’s complaint charged that this referral constituted
a breach of that clause. The district court granted judgment in
favor of Transnation on that count, however, and Mid America
has not appealed that ruling.
6 Nos. 02-1432, 02-1469
similar names). Finally, and perhaps most importantly,
there is no evidence that the underwriters neglected any
corporate formalities. See Gatecliff, 821 P.2d at 728;
Deutsche Credit, 876 P.2d at 1195-96 (alter ego factors
include whether corporation observes formalities of sepa-
rate corporate existence such as maintaining corporate
financial records, holding corporate meetings, and filing
corporate income tax returns and annual reports with the
Arizona Corporation Commission). On the contrary, the
evidence was undisputed that each underwriter main-
tained separate accounting books, bank accounts, financial
statements, and corporate records, held separate board
meetings, and filed individual tax returns and reports
with regulatory bodies. Cf. Standage v. Standage, 711 P.2d
612 (Ariz. Ct. App. 1985) (corporation that failed to file
corporate tax returns and reports with ACC and failed to
maintain corporate books and records was alter ego of
its 50% owner and sole operator). Viewing the evidence as
a whole, we do not think it is sufficient to show the
degree of common control necessary to treat the under-
writers as alter egos under Arizona law. See, e.g., Olden-
burger v. Del E. Webb Dev. Co., 765 P.2d 531, 536 (Ariz. Ct.
App. 1988) (refusing to pierce despite one corporation’s
ownership of and complete veto power over actions of
another); Bischofshausen, 700 P.2d at 906-07 (refusing
to pierce where one person was primarily responsible for
controlling two corporations that shared an office, phone
number, and two employees).
We note, moreover, that Mid America does little to
address the second prong of the test, which requires a
showing that veil-piercing is necessary to avoid fraud or
injustice. See, e.g., Chapman v. Field, 602 P.2d 481, 484
(Ariz. 1979) (in banc); Deutsche Credit, 876 P.2d at 1195. Cf.
Gatecliff, 821 P.2d 729 (piercing to prevent denial of
recovery to plaintiff whose health insurance was cancelled);
Standage, 711 P.2d at 615 (piercing in divorce proceed-
Nos. 02-1432, 02-1469 7
ing where family-owned corporation held substantial
portion of community property); Cammon Consultants
Corp. v. Day, 889 P.2d 24, 232-33 (Ariz. Ct. App. 1994)
(piercing sham corporation that property owner used to
buy up tax liens on his own property). (Mid America in-
sists that this case is “not about” veil-piercing, but it
offers no other explanation how the acts of one corporate
entity might be deemed a breach of contract by a sepa-
rate entity.) Mid America makes no attempt to explain
what tangible benefits stemmed from the exclusivity
clause, which of course did not guarantee Mid America
a certain percentage of the Chicago title insurance mar-
ket but merely eliminated one source of competition
(Transnation). But even a showing that Mid America was
denied the benefit of its bargain would be insufficient
to justify veil-piercing under Arizona law. See Chapman,
602 P.2d at 484; Ferrarell v. Robinson, 465 P.2d 610, 613
(Ariz. Ct. App. 1970).
Because there was insufficient evidence for the jury
to have found that Transnation was the alter ego of either
of the other underwriters, the district court’s denial of
Transnation’s motion for judgment as a matter of law
was error.
REVERSED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—6-16-03