Zhejiang Dushen Necktie Co., Ltd. v. BLUE MED, INC. et al

Filing 52

ORDER denying 10 Motion to Dismiss. Signed by Magistrate Judge Jonathan Goodman on 9/18/2017. (jdo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
CASE NO. 16-24679-CIV-LENARD/GOODMAN
ZHEJIANG DUSHEN NECKTIE CO., LTD.
Plaintiff,
v.
BLUE MED, INC., et al.
Defendants.
______________________________________/
ORDER DENYING DEFENDANTS’ MOTION TO DISMISS
Defendants Eros Cattaneo; Ida Arnese; Blue Med, Inc.; Neo Design, Inc.; Pandora
Holding Group, Inc.; and E.H.I. LLC move to dismiss Count I of the Complaint filed by
Plaintiff Zhejiang Dushen Necktie Co., Ltd. [ECF Nos. 1; 10]. Under Count I, Zhejiang
seeks to pierce the corporate veil between the movants and E.C. Global, Inc., a coDefendant currently in bankruptcy that Zhejiang sued for breach of contract under
Count II of the Complaint. [ECF No. 1]. Zhejiang filed an opposition response to the
motion to dismiss [ECF No. 17], and Defendants filed a reply. [ECF No. 20]. The parties
have consented to the Undersigned issuing final orders with respect to motions to
dismiss. [ECF No. 23].
For reasons explained below, the Undersigned denies Defendants’ Motion to
Dismiss.

I.

Allegations in the Complaint
Zhejiang is a Chinese company that manufactures and exports neckties, scarfs,

and other garments. [ECF No. 1, ¶ 2]. E.C. Global was dissolved at the time of the
lawsuit. [ECF No. 1, ¶ 3]. Its principal place of business matches the home address of
the individual Defendants -- Cattaneo and Arnese, who are husband and wife -- and the
principal place of business, mailing address, or registered agent address for the other
corporate Defendants. [ECF No. 1, ¶¶ 3–9].
Cattaneo is the sole director, president, registered agent, secretary, and treasurer
of E.C. Global, Blue Med, and Neo Design; the sole president and registered agent of
Pandora Holding; the sole manager and registered agent of E.H.I.; and, on information
and belief, a majority shareholder of all those corporations. [ECF No. 1, ¶ 4]. Arnese, in
turn, is the sole vice president and vice secretary of E.C. Global and Neo Design; the
sole vice president of Blue Med and Pandora Holding; the sole treasurer and secretary
of E.H.I.; and, on information and belief, also holds shares in all the corporations. [ECF
No. 1, ¶ 9].
The dispute began with E.C. Global owing Zhejiang more than $391,000 for past
orders. [ECF No. 1, ¶ 12]. The two agreed that E.C. Global would pay down the debt
while placing additional orders, which Zhejiang fulfilled. [ECF No. 1, ¶¶ 12–13]. The
arrangement worked until it stopped working, resulting in E.C. Global owing Zhejiang
more than $380,000. [ECF No. 1, ¶ 14].
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Without Zhejiang’s knowledge, E.C. Global filed for corporate dissolution. [ECF
No. 1, ¶ 15]. When Zhejiang learned of the dissolution, it emailed E.C. Global, asking
for the money it was owed. [ECF Nos. 1, ¶ 16; 1-9, p. 36]. Cattaneo wrote back:
i am sorry i did not write you before but we have been busy restructioning
the companies. Tie business is still very very soft with all with customers
still owe us money therefore i am also in a big crush of cash flow. We will
try to help you as much as possible but it will take a while. I am srry to let
you know that we had to close Ec Global inc and just operation with other
partners with a different company but i am only a parter not the main
boss anymore , regardless we will try to do the best we can to help you.
[ECF No. 1-9, p. 36 (grammatical and spelling errors in original)]. 1
In Count I, Zhejiang sued Defendants under a piercing the corporate veil theory.
[ECF No. 1, ¶¶ 22–30]. After adopting its general allegations, Zhejiang makes several
more-specific allegations in Count I. First, Zhejiang alleges that “Cattaneo and Arnese
have been conducting, managing, and controlling the affairs of E.C. Global, Blue Med,
Neo Design, Pandora Holding, and E.H.I.” [ECF No. 1, ¶ 23]. Second, Zhejiang alleges
that “Cattaneo and Arnese have held themselves out to Plaintiff as inseparable with,
and indistinguishable from, E.C. Global.” [ECF No. 1, ¶ 24]. Third, Zhejiang alleges that
“Cattaneo and Arnese wield such complete dominion and control over E.C. Global, Blue
Med, Neo Design, Pandora Holding, and E.H.I. such that those corporate Defendants
are mere instrumentalities or agents, or alter egos, of Cattaneo and Arnese.” [ECF No. 1,

Zhejiang also made a demand for payment through the China Council for the
Promotion of International Trade/China Chamber of International Commerce
Mediation Center. [ECF Nos. 1, ¶ 18; 1-9, p. 16].
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¶ 25].
Fourth, Zhejiang alleges that “Cattaneo and Arnese have used, and continue to
use, E.C. Global to mislead or to perpetrate a fraud.” [ECF No. 1, ¶ 26]. Specifically,
Zhejiang alleges:
Cattaneo and Arnese have used, and continue to use, E.C. Global’s status
as a corporate entity – which is capable of being dissolved and which they
did in fact dissolve – as a means to evade payment of the outstanding debt
owed to Plaintiff, and to escape their contractual liability to Plaintiff, all
the while benefitting from Plaintiff’s full compliance with and complete
fulfillment of its own commitments under the parties’ contract.
[ECF No. 1, ¶ 26].
Fifth, Zhejiang similarly states that “Cattaneo and Arnese have used, and are
continuing to use, Blue Med, Neo Design, Pandora Holding, and E.H.I. to mislead or to
perpetrate a fraud.” [ECF No. 1, ¶ 27]. To support this allegation, Zhejiang adds that
on information and belief, Cattaneo and Arnese have used, and continue
to use, Blue Med, Neo Design, Pandora Holding, and E.H.I. as vehicles for
the harboring of funds constituting the debt owed by E.C. Global to
Plaintiff, so as to give the false appearance of insolvency or illiquidity on
the part of E.C. Global, in their continuing efforts to evade payment of this
outstanding debt, and to escape their contractual liability to Plaintiff.
[ECF No. 1, ¶ 27].
Sixth, Zhejiang alleges that “[o]n information and belief, Cattaneo and Arnese
have comingled the funds and business relationships of E.C. Global, Blue Med, Neo
Design, Pandora Holding, and E.H.I. with those of their own.” [ECF No. 1, ¶ 28].
Seventh, Zhejiang also alleges “on information and belief” that “E.C. Global, Blue Med,
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Neo Design, Pandora Holding, and E.H.I. have failed to follow corporate formalities in
a manner consistent with their purportedly separate corporate identities.” [ECF No. 1,
¶ 28].
Eighth, and finally, Zhejiang alleges that
[t]here is such unity of interest and ownership that the separate identities
of the Cattaneo, Arnese, E.C. Global, Blue Med, Neo Design, Pandora
Holding, and E.H.I. no longer exist, and such that Cattaneo, Arnese, Blue
Med, Neo Design, Pandora Holding, and E.H.I. are liable to Plaintiff to the
same extent as E.C. Global.
[ECF No. 1, ¶ 29].
In Count II, Zhejiang brought a breach of contract claim against E.C. Global.
[ECF No. 1, ¶¶ 31–39]. The contracts at issue are certain purchase orders for garments
and fabrics that Zhejiang fulfilled but for which E.C. Global still owes $380,392.20. [ECF
No. 1, ¶¶ 33–36]. E.C. Global later declared bankruptcy. [ECF No. 14].
II.

Applicable Legal Standard
As a threshold matter, the parties disagree about whether Zhejiang’s veil-

piercing claim is governed by the notice-pleading standard of Federal Rule of Civil
Procedure 8(a) or the heightened pleading standard of Rule 9(b). The parties offer no
binding authority directly on the issue. The Undersigned likewise found none.
In their motion to dismiss, Defendants argue that “where the alter-ego claim
travels under the allegation that the corporation was used to ‘perpetrate a fraud,’ as
alleged here, those allegations must also meet the heightened pleading standards of
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Rule 9(b).” [ECF No. 10, p. 4]. Rule 9(b) states that “[i]n alleging fraud or mistake, a
party must state with particularity the circumstances constituting fraud or mistake.”
Fed. R. Civ. P. 9(b). Defendants then drop a footnote with a string citation to some outof-state district court decisions that support their position. [ECF No. 10, p. 4 n. 1].
In its opposition response, Zhejiang argues that Rule 8(a) is the proper standard.
[ECF No. 17, pp. 7–8]. In support, Zhejiang cites to one out-of-state district court
decision, stating that it and others like it (although no other examples are given) have
rejected Defendants’ position. [ECF No. 17, p. 8 (citing Chicago Dist. Council of Carpenters
Pension Fund v. Ceiling Wall Sys., Inc., 915 F. Supp. 939, 942 (N.D. Ill. 1996))]. In the case
Zhejiang cites, even though the plaintiff alleged that failing to pierce the corporate veil
would perpetuate a fraud, the Northern District of Illinois did not subject the piercing
claim to Rule 9(b)’s specificity requirement because, under Illinois law, fraud was not a
prerequisite to a piercing claim. Chicago Dist. Council of Carpenters Pension Fund, 915 F.
Supp. at 942. Zhejiang maintains that the same holds true in Florida. [ECF No. 17, p. 8].
In their reply, Defendants admit that “[t]he ‘improper conduct’ necessary to
cause the corporate veil to be pierced may, but need not, be the perpetration of a fraud.”
[ECF No. 20, p. 8]. Defendants nonetheless hold fast to their position that Rule 9(b)
governs here because, according to Defendants, Zhejiang is traveling under a fraud
theory. [ECF No. 20, p. 8].
The question is a close one, but the Undersigned finds that Rule 8 is the correct
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standard for this particular case. Florida law does not require a party to prove fraud to
pierce the corporate veil. “In Florida, the rule is that a corporate veil will be pierced
where it is shown that the corporation was organized or used for an improper purpose
such as to mislead creditors.” In re F & C Servs., Inc., 44 B.R. 863, 868 (Bankr. S.D. Fla.
1984) (citing Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114, 1121 (Fla. 1984)). Thus,
“[a]n actual fraud need not be perpetrated upon the creditors as a prerequisite to
piercing a corporate veil. A corporate entity will be disregarded in order to prevent
injustice to creditors.” Id. If Zhejiang need not prove up a fraud to prevail on its piercing
claim, then it should not need to plead a piercing claim with the specificity required of
fraud claims.
Moreover, although Zhejiang does use the word “fraud” twice in its Complaint
[ECF No. 1, ¶¶ 26, 27], it is not fair to say that it is traveling under a fraud theory.
Zhejiang’s main claim is for breach of contract, not fraud. [ECF No. 1, ¶¶ 31–39]. And
while it alleges that the individual Defendants used their seemingly interchangeable
corporate entities “to mislead or to perpetrate a fraud,” Zhejiang then specifies that
what it means is that the individual Defendants used E.C. Global’s dissolution “as a
means to evade payment of the outstanding debt owed” and used the other corporate
entities “as vehicles for the harboring of funds constituting the debt owed by E.C.
Global” and thereby “escape their contractual liability[.]” [ECF No. 1, ¶¶ 26–27]. Thus,
it is fairer to say that Zhejiang is traveling under a misleading-creditors theory rather
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than a pure fraud theory.
In addition, when ruling on motions to dismiss, several courts in the Southern
District of Florida have scrutinized piercing claims under Rule 8(a) and not Rule 9(b).
See Associated Indus. Ins. Co. v. Advanced Mgmt. Servs., Inc., No. 12-80393-CIV, 2013 WL
1149668, at *6 (S.D. Fla. Mar. 19, 2013) (analyzing piercing claim separate from fraud
claims, which fraud claims the Court reviewed under Rule 9(b)); Oginsky v. Paragon
Properties of Costa Rica LLC, 784 F. Supp. 2d 1353, 1373 (S.D. Fla. 2011) (analyzing alter
ego claim separate from fraud claims, which fraud claims the Court reviewed under
Rule 9(b)); Elof Hansson Paper & Bd., Inc. v. Caldera, No. 11-20495-CIV, 2011 WL 13115561,
at *4–5 (S.D. Fla. Sept. 6, 2011) (discussing Rule 9(b)’s requirements for fraud claim but
not for breach of contract claims seeking to hold individuals personally liable under a
piercing theory); Century Sr. Servs. v. Consumer Health Ben. Ass’n, Inc., 770 F. Supp. 2d
1261, 1265 (S.D. Fla. 2011) (finding that counter-plaintiff sufficiently alleged a claim for
piercing the corporate veil after only discussing the pleading standard under Rule 8(a)).
Finally, the Undersigned is persuaded by the reason some courts use when
refusing to apply a heightened pleading standard to fraudulent transfer claims. The
rationale has some force here. As one court has explained, “[i]n a common-law fraud
claim, the defendant is alleged to have made false statements or material omissions to
the plaintiff, who is in a position to plead those statements or omissions with
specificity.” Pearlman v. Alexis, No. 09-20865-CIV, 2009 WL 3161830, at *5 (S.D. Fla.
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Sept. 25, 2009). But “[a] fraudulent-transfer claim, by contrast, involves a third-party
defendant who has no relationship with the plaintiff, and thus the plaintiff usually has
insufficient information to plead its claim with specificity.” Id.
Based on its allegations, Zhejiang likely suffers from the same knowledge gap.
Zhejiang alleges that E.C. Global was dissolved without its knowledge. [ECF No. 1,
¶ 15]. Only after Zhejiang learned of the dissolution and emailed E.C. Global asking for
its money was it then informed of a restructuring of companies and that E.C. Global had
been shut down. [ECF Nos. 1, ¶ 16; 1-9, p. 36]. All of this alleged restructuring and
attendant money-harboring, debt-avoiding, and other misconduct would have been
done by and among the Defendants only, to Zhejiang’s exclusion. Indeed, the gravamen
of Zhejiang’s claim is that the Defendants restructured in secret for those improper
purposes. Therefore, Zhejiang likely “has insufficient information to plead its claim
with specificity.” Pearlman, 2009 WL 3161830, at *5.
Accordingly, the Undersigned will analyze the piercing claim under Rule 8(a). 2
Rule 8(a) requires “a short and plain statement of the claim” that “will give the
defendant fair notice of what the plaintiff’s claim is and the ground upon which it
rests.” Fed. R. Civ. P. 8(a). Federal Rule of Civil Procedure 12(b)(6) provides defendants
an opportunity to quickly dispose of complaints that fail to “state a claim upon which

To be sure, the Undersigned is not making a wide pronouncement that all
piercing claims must satisfy only Rule 8. Rather, the Undersigned’s ruling is limited to
the particular allegations in this specific case.
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relief can be granted.” Fed. R. Civ. P. 12(b)(6).
When considering a motion to dismiss under 12(b)(6), a court must take the
factual allegations in the complaint as true and construe them in the light most
favorable to the plaintiffs. Edwards v. Prime, Inc., 602 F.3d 1276, 1291 (11th Cir. 2010)
(citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
To survive a motion to dismiss, factual allegations must have “facial
plausibility . . . that allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “Legal conclusions must be
supported by ‘enough fact to raise a reasonable expectation that discovery will reveal
evidence’ of the claim.” Haese v. Celebrity Cruises, Inc., No. 12-20655-CIV, 2012 WL
3808596, at *2 (S.D. Fla. May 14, 2012) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 545 (2007)).
“The plausibility standard is not akin to a ‘probability requirement,’ but it asks
for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S.
at 678. Therefore, an initial complaint is not required to prove the plaintiff’s entire case,
but should “‘possess enough heft’ to set forth ‘a plausible entitlement to relief.’” Fin. Sec.
Assurance, Inc. v. Stephens, Inc., 500 F.3d 1276, 1282 (11th Cir. 2007).
III.

Analysis
To successfully plead a veil-piercing claim, a party “must show both a blurring of

corporate lines, such as ignoring corporate formalities or using a corporation for the
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stockholder’s personal interest, and that the stockholder used the corporation for some
illegal, fraudulent or other unjust purpose.” Century Sr. Servs., 770 F. Supp. 2d at 1265
(finding that counter-plaintiff alleged the necessary elements of a veil-piercing claim by
alleging that plaintiff and parent company were not kept “at an arm’s length;” that
plaintiff “blurred the lines between the two corporations” by having the parent manage
the plaintiff and by sharing a principal place of business; and that plaintiff was used
“for a fraudulent purpose by using it to mislead creditors” and shield the parent
company from liability); see also Associated Indus. Ins., 2013 WL 1149668, at *6 (rejecting
argument “that [p]laintiff’s allegations are nothing but threadbare recitations of the
requirements for piercing the corporate veil, and as such must be disregarded,” where
plaintiff alleged that defendants entities had one sole owner and were used as a mere
instrumentality or alter ego of the individual defendant and engaged in improper
conduct).
Moreover, when analyzing a veil-piercing claim under a motion to dismiss, a
court must take stock that “[t]he issue is not whether [the plaintiff] may ultimately
prevail on the ‘piercing the corporate veil’ theory, but whether the allegations are
sufficient to allow them to conduct discovery in an attempt to prove their allegations.”
Jackam v. Hosp. Corp. of Am. Mideast, 800 F.2d 1577, 1579–80 (11th Cir. 1986).
In this case, Zhejiang has stated a claim (albeit by a small margin) to pierce the
corporate veil. Taken as true, some of Zhejiang’s allegations show a “blurring of
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corporate lines” meant to further an improper purpose. Century Sr., 770 F. Supp. 2d at
1265. Specifically, Zhejiang alleges that E.C. Global’s principal place of business is the
home address of the individual Defendants and the principal place of business, mailing
address, or registered agent address for the other corporate Defendants. [ECF No. 1, ¶¶
3–9]. Also, Cattaneo admitted in an email that there was a restructuring of companies,
resulting in E.C. Global shutting down and operations continuing under a different
company. [ECF No. 1-9, p. 36]. Zhejiang further alleged that Cattaneo and Arnese have
complete dominion and control over their companies and have held themselves out as
being inseparable from their companies. [ECF No. 1, ¶¶ 23–25]. Furthermore, Zhejiang
alleged that Cattaneo and Arnese harbored funds in their other companies to avoid
paying E.C. Global’s debt and to make it appear insolvent, comingled funds and
business relationships, and failed to follow corporate formalities. [ECF No. 1, ¶¶ 26–28].
In other words, these companies were not kept “at an arm’s length.” Century Sr. Servs.,
770 F. Supp. 2d at 1266.
Defendants are not too far off the mark when they contend that Zhejiang’s
allegations resemble rote citation of elements without much factual substance. But
“[w]hile discovery may not bear out sufficient evidence to support a claim on the merits
for piercing the corporate veil at the dispositive motion stage or at trial,” at this early
stage, Zhejiang’s allegations “are sufficient to state a claim and to allow discovery on
the application of piercing the corporate veil doctrine.” Associated Indus. Ins., 2013 WL
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1149668, at *6. “Defendants may ultimately prevail on the issue, but Plaintiff[] must be
allowed to plead and develop [its] case.” Elof Hansson Paper, 2011 WL 13115846, at *3.
Lastly, Defendants’ position that Zhejiang’s information-and-belief allegations
are “not entitled to the assumption of truth” [ECF No. 10, pp. 8–9] lacks merit. The rule
is not that allegations made upon information and belief may be summarily
disregarded. Rather, “[t]he Twombly plausibility standard [] does not prevent a plaintiff
from ‘pleading facts alleged “upon information and belief”‘ where the belief is based on
factual information that makes the inference of culpability plausible.” Associated Indus.
Ins., 2013 WL 1149668, at *6. As shown above, sufficient factual information does exist in
the Complaint to state a plausible veil-piercing claim.
Accordingly, the Undersigned will not dismiss Count I. 3
DONE AND ORDERED in Chambers, in Miami, Florida, on September 18, 2017.

As an aside, the Undersigned notes that some federal courts have refused to treat
piercing the corporate veil theories as independent causes of action, and as such, have
dismissed counts that exclusively seek that relief, while allowing the piercing
allegations to remain in the body of the complaint. See, e.g., Lan Li v. Walsh, No. 1681871-CIV, 2017 WL 3140522, at *9 (S.D. Fla. July 24, 2017) (collecting cases). Defendants,
however, did not raise that argument as a basis for dismissal, so I will not dismiss
Count I for that reason.
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Copies furnished to:
The Honorable Joan A. Lenard
All Counsel of Record

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