Richard S. Arnold

“ There is no evidence that Telecom or Contrux knew that the insurance company was going to become insolvent, and no reason, indeed, that we can think of why anyone would want to buy insurance from a company that he thought would become insolvent.
The dissent, post at 15-16, raises certain specific questions about the adequacy of the insurance coverage purchased by Contrux. In our view, a careful reading of the record does not bear out the contentions made. ”

“ There are instances in which an injured person may "pierce the corporate veil," that is, reach the assets of one or more of the shareholders of the corporation whose conduct has created liability. In the present case, the plaintiff seeks to hold Telecom Corporation liable for the conduct of an employee of its wholly owned subsidiary, Contrux, Inc. ”

“ Telecom raised the issue by filing a notion to dismiss the complaint for lack of jurisdiction under Fed. R. Civ. P. 12 (b) (2) and for failure to state a claim under 12 (b) (6) . The parties have treated the matter as one of jurisdiction, and so will we, but in fact the underlying issue is the same: is Telecom liable for what Contrux did? [2]
Initially, the District Court granted Telecom's motion to dismiss on the ground that the first element of the Collet formulation, control, had not been met. ”

“ The shareholders of the corporation, including, if there is one, its parent corporation, are not responsible This is a conscious decision made by the law of every state to encourage business in the corporate form. ”

“ The improper-conduct or motivation portion of the Collet test cannot be met. Here, it is beyond dispute that Contrux had insurance, and that it was considered financially responsible under the applicable federal regulations. We see nothing sinister in the fact that the insurance was purchased through an agency wholly owned by Telecom. This is a common business practice. The assertion that a reduced premium was paid is wholly without support in the record. ”

“ To satisfy this second element, plaintiff cites no direct evidence of improper motivation or violation of law on Telecom's part. He argues, instead, that Contrux was undercapitalized.
Undercapitalizing a subsidiary, which we take to mean creating it and putting it in business without a reasonably sufficient supply of money, has become a sort of proxy under Missouri law for the second Collet element. On the prior appeal, for example, we said that "Missouri courts will disregard the existence of a corporate entity that is operated while undercapitalized 891 F.2d at 674. ”

“ The District Court rejected this argument. Undercapitalization is undercapitalization, it reasoned, regardless of insurance. The Court said:
The federal regulation does not speak to what constitutes a properly capitalized motor carrier company. Rather, the regulation speaks to what constitutes an appropriate level of financial responsibility.
Konrad Radaszewski v. Contrux, Inc., No. 88-0445-CV-W-1 (W.D. Mo. Oct. 26, 1990) , slip op. 7 n.6 (emphasis in original) . This distinction escapes us. ”