Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc.,

974 F.2d 545 (4th Cir. 1992)

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Nature of the Case

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Facts

Aaron Michaelson formed Michaelson Properties, Inc. (D) for the purpose of entering into joint venture real estate ventures. D was incorporated under the law of Illinois and had a paid in capital of $1,000. Michaelson was president and sole shareholder. D subsequently entered into two joint ventures with Perpetual (P) involving the conversion of apartments into condos. The first joint venture was known as BAA. Each partner was to contribute $100,000 to a working capital fund and D was to put up a $1 million letter of credit. Michaelson and his wife agreed to personally indemnify P against any loss on D's letter of credit. The BAA partnership sold the last condo and distributed $600,000 in profits to each partner in 1985. The second partnership was AAA, and it was formed in 1983. P and D each agreed to contribute $50,000 in capital, and each agreed to share pro rata in satisfying any liabilities of the partnership. The partnership borrowed $24 million from Perpetual Savings Bank, P's parent corporation but only after Aaron and his wife agreed to personally guarantee $750,000 of that loan. When another $2.1 million was needed to complete the project, P loaned D $1.05 million after securing a personal guarantee of repayment from Aaron and his wife. During 1985 and 86, AAA made various distributions of the profits of about $456,000 to each partner in total. In 1987, several condo purchasers filed suit against AAA asserting breach of warranty claims totaling $5.5 million. The case was settled for $950,000. P paid the full amount and D made no contribution. P then filed a diversity action against Aaron and D. The complaint sought indemnity from D pursuant to the partnership agreement under an oral promise by Aaron and that D corporate veil should be pierced. The jury gave the verdict to P on the veil-piercing count. D appealed.