## Facts

- Ten unsecured trade creditors of Brad’s Machine Products, Inc. sued National Distillers and Chemical Corporation, Brad’s largest secured creditor, seeking to recover Brad’s unpaid debts.
- Brad’s, owned by John Bradford, became financially distressed after relocating operations and depending heavily on a government munitions-fuse contract while Bradford pursued unsuccessful outside investments.
- Brad’s owed roughly $1 million to Bridgeport Brass, a National Distillers division.
- To protect its collateral position and attempt to keep Brad’s operating, National Distillers entered a financing arrangement with Brad’s and Bradford that included collateral pledges, additional advances, and deferred repayment on existing accounts.
- National Distillers provided financial oversight and assigned an internal auditor, Leon Rudd, who reviewed and approved significant disbursements; purchase orders and cash outlays required his approval.
- The evidence did not show National Distillers controlled Brad’s personnel decisions, production, or day-to-day operations, or that corporate formalities were disregarded.
- Brad’s ceased operations in December 1970, leaving the plaintiffs’ trade debts unpaid.

## Issues

1. Whether, under Alabama’s instrumentality (alter-ego) doctrine, a secured creditor’s financial supervision and approval of disbursements constituted actual, operative, and pervasive control sufficient to treat the debtor corporation as the creditor’s instrumentality and impose liability for the debtor’s trade debts.
2. Whether the evidence was legally sufficient to go to the jury, or whether a directed verdict for the creditor was proper under the federal directed-verdict standard.

## Decision

- The Fifth Circuit affirmed the district court’s directed verdict for National Distillers.
- The court held the plaintiffs’ proof was insufficient as a matter of law to show the level of domination required to impose instrumentality/alter-ego liability under Alabama law.
- Applying the federal standard for directed verdict, the court concluded reasonable jurors could not find the required degree of control on the record presented.

## Legal Principles

- In diversity cases, federal law governs the standard for granting a directed verdict; the court evaluates all evidence with reasonable inferences favoring the nonmovant, but a directed verdict is proper when reasonable jurors could not reach a contrary result.
- Under Alabama’s instrumentality/alter-ego doctrine, liability may be imposed when a dominant entity exercises actual, total control such that the subservient corporation has no separate will or existence, and the control is used to commit fraud or cause inequity.
- Extensive creditor protections—loan restructuring, conditioning advances, close financial monitoring, and approval of expenditures—do not alone establish the operative, day-to-day domination required to disregard corporate separateness.
- Absence of stock ownership, operational takeover, intermingling of assets, or displacement of management weighs against treating a debtor as a creditor’s instrumentality.

## Conclusion

The court held that National Distillers’ stringent financial controls reflected creditor self-protection rather than the total operational domination necessary to pierce the corporate veil under Alabama law, and it therefore affirmed a directed verdict rejecting lender-based alter-ego liability for Brad’s unpaid trade debts.


Krivo Indus. Supply Co. v. Nat’l Distillers & Chem. Corp., 483 F.2d 1098 (5th Cir. 1973)