Katzir’s Floor and Home Design, Inc., v. M-MLS.com & Peter Sommer, (2004 9th Circuit) 394 F.3d 1143
Mr. Horwitz represented his client, as the purchaser of woodworking equipment, against the brokerage company, M-MLS, Inc., a Canadian company, that secured the equipment on behalf of Mr. Horwitz’s client. The equipment manufacturer went out of business shortly after the suit was filed.
M-MLS’s president, Peter Sommer, calculated that the expense associated with defending the company outweighed the risk associated with entry of judgment against a defunct company. So, in furtherance of his scheme to defraud Mr. Horwitz’s client, M-MLS borrowed $50,000 from its accountant, and gave all of the company assets as security. Within three months, Sommer formed a “new” company, calling it M-MLS.COM, which would conduct the same type of business as his “old” company, M-MLS.
At the time Mr. Horwitz was having default entered against the old company, its accountant issued a demand for payment on the note. All of the company assets were sold, in a private, un-advertised sale, to a company owned by Sommer’s wife. Sommer, himself, signed the Bill of Sale in favor of his wife’s company. They thereafter transferred all of those assets to the “new” company, which then continued with business as usual, albeit under M-MLS.COM instead of M-MLS, and, without the weight of the judgment.
Mr. Horwitz, using theories of alter ego and successor liability, successfully pierced the corporate veil at the District Court level, adding Peter Sommer, individually, and his “new” company, M-MLS.COM, to the $1,600,000 judgment held against the “old” company, M-MLS, Inc. The Court of Appeal, in a published opinion, overturned the District Court’s ruling on due process concerns.