## Facts

- Robert Czwartacky owned 50% of Pacific Shores, Inc. and managed its operations.
- Pacific Shores purchased garments from Favour Mind Ltd. (FML) on credit, using a line-of-credit arrangement.
- Before and during the relationship, FML obtained a Dun & Bradstreet report showing Pacific Shores had weak finances and was a poor credit risk.
- Even after Pacific Shores fell behind on payments and showed losses, FML continued shipping garments on credit.
- Pacific Shores failed to pay outstanding invoices.
- FML sued Pacific Shores and obtained a default monetary judgment against the corporation for unpaid invoices.
- FML also sued Czwartacky, seeking to pierce Pacific Shores’ corporate veil and hold him personally liable for the corporate debt.
- As support for veil-piercing, FML pointed to evidence that Czwartacky withdrew small sums (about $200–$300) from a Pacific Shores account for personal or showroom expenses.
- Czwartacky moved for summary judgment on the veil-piercing claim.

## Issues

1. Whether, on the summary-judgment record, FML produced sufficient evidence under New York veil-piercing/alter-ego standards to hold Czwartacky personally liable for Pacific Shores’ invoice debt.
2. Whether a trade creditor that knew it was dealing with a financially weak corporation, yet kept extending credit, can shift the resulting loss to an individual owner absent strong proof of abuse of the corporate form.

## Decision

- The court granted Czwartacky’s motion for summary judgment.
- The court refused to pierce Pacific Shores’ corporate veil and dismissed the claim seeking to impose personal liability on Czwartacky for the corporate judgment debt.
- The default judgment against Pacific Shores remained in place.

## Legal Principles

- Under New York law, veil-piercing generally requires proof that the individual so dominated the corporation that the corporation had no separate will of its own, and that the domination was used to commit a fraud or other wrong that caused the plaintiff’s injury.
- Evidence of limited, low-dollar withdrawals from a corporate account, without stronger proof of misuse of the corporation to harm the creditor, is ordinarily not enough to disregard corporate separateness.
- In a voluntary-creditor setting, a party that continues doing business with a corporation despite clear signs of financial weakness is treated as having accepted the risk that the corporation may not be able to pay.
- A creditor’s ability to protect itself through pricing, credit limits, security, or a personal guaranty weighs against veil-piercing when the creditor chose not to obtain those protections.
- Summary judgment is proper when the record would not permit a reasonable factfinder to conclude that the shareholder’s conduct meets the domination-plus-wrong standard required for veil-piercing.

## Conclusion

FML could not hold Czwartacky personally liable for Pacific Shores’ unpaid invoices because, even viewing the evidence in FML’s favor, the record showed at most minor withdrawals and did not show the level of domination and wrongful use of the corporation required by New York veil-piercing law; given FML’s prior knowledge that Pacific Shores was a serious credit risk and its choice to keep extending credit, the court treated the nonpayment as a business risk FML accepted rather than a loss that could be reassigned to an individual owner.


Favour Mind Ltd. v. Pacific Shores, Inc., 2004 U.S. Dist. LEXIS 637 (2004)