## Facts

- DeWitt Truck Brokers, Inc. arranged trucking for produce handled by W. Ray Flemming Fruit Company, a South Carolina produce commission business.
- The corporation failed to pay transportation charges, leaving DeWitt unpaid.
- W. Ray Flemming owned about 90% of the corporation’s stock and exercised complete control over its operations and finances.
- The corporation was grossly undercapitalized relative to the volume of business and the liabilities it incurred.
- Corporate formalities were largely ignored, including inadequate meetings and recordkeeping.
- The corporation paid no dividends, and no other owners or managers received money; Flemming withdrew substantial sums while the corporation remained thinly capitalized.
- Flemming personally assured DeWitt that transportation bills would be paid, and DeWitt continued arranging shipments in reliance on those assurances.
- The corporation was effectively unable to satisfy the debt, and DeWitt sought to hold Flemming personally liable by disregarding the corporate entity.

## Issues

1. Whether, under South Carolina law, the corporate veil could be pierced to impose personal liability on Flemming for the corporation’s transportation debt.
2. Whether veil-piercing required proof of fraud.
3. What combination of factors (including domination, undercapitalization, disregard of formalities, and diversion of funds) justifies treating a closely held corporation as a shareholder’s alter ego.

## Decision

- The Fourth Circuit affirmed the district court’s judgment piercing the corporate veil and holding Flemming personally liable for the corporation’s debt to DeWitt.
- The court held that fraud is not a required element; veil-piercing may rest on equitable grounds when recognizing separateness would cause injustice.
- The court concluded that gross undercapitalization, Flemming’s domination, failure to follow corporate formalities, and Flemming’s extraction of funds supported treating the corporation as his alter ego.

## Legal Principles

- A corporation is generally distinct from its shareholders, and limited liability is presumed; the party seeking veil-piercing bears the burden of proof.
- Courts may disregard the corporate entity when recognition would extend incorporation beyond its legitimate purposes and produce unjust or inequitable results.
- Proof of fraud is not necessary to pierce the corporate veil; a showing of inequitable use of the corporate form may suffice.
- Gross undercapitalization, particularly in a one-person or closely held corporation, is a strong factor indicating operation without a sufficient basis of financial responsibility.
- Domination, disregard of corporate formalities, and siphoning or diversion of corporate funds may support an alter-ego finding and personal liability.

## Conclusion

The court held Flemming personally liable because the corporation functioned as his alter ego and was operated with gross undercapitalization and disregard of corporate separateness, making limited liability inequitable to an unpaid creditor; fraud was not required.


DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681 (4th Cir. 1976)