Cotton Bros. Baking Co. v. Industrial Risk Insurers

690 F. Supp. 1541, 1988 WL 79896
CourtDistrict Court, W.D. Louisiana
DecidedJuly 26, 1988
DocketCiv. A. 83-0150
StatusPublished
Cited by2 cases

This text of 690 F. Supp. 1541 (Cotton Bros. Baking Co. v. Industrial Risk Insurers) is published on Counsel Stack Legal Research, covering District Court, W.D. Louisiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cotton Bros. Baking Co. v. Industrial Risk Insurers, 690 F. Supp. 1541, 1988 WL 79896 (W.D. La. 1988).

Opinion

RULING

NAUMAN S. SCOTT, District Judge.

Now before us for decision are two motions made by plaintiff, Cotton Brothers Baking Company, Inc.

The first, Plaintiff’s Motion to Introduce Insurance Policy Endorsements into Evidence, was made orally during trial. 1 The Court agreed, at the request of Industrial Risk Insurers (IRI) without objection from Plaintiff, to postpone its ruling regarding *1543 the admissibility of the endorsements until the time that parties filed written briefs on the issue. 2 The second motion, Plaintiffs Motion to Permit Filing of Second Supplemental and Amended Complaint, was filed post-trial on November 3, 1987. IRI has filed written opposition to both motions.

The evidence establishes that:

(1) Prior to April 1977 IRI provided interruption of business insurance coverage for various of the Cotton Bros, bakeries. Originally, IRI provided separate policies for the bakeries, but in time, insured all the bakery operations under one policy. 3

On October 1, 1980 IRI issued a new interruption of business policy to provide coverage for the Cotton Bros, bakery operations as they were being operated at that time (see paragraphs (2), (3) & (4) below). Cotton Brothers, Inc. was not a named insured in the policy. Instead, IRI continued to insure the bakeries as if the creation of Cotton Brothers, Inc. and the reorganization of the Cotton Bros, bakery operation had never occurred. The named insureds were three of the subsidiary bakeries in the Cotton Bros, bakery operation which were located in Alexandria, Shreveport, and Natchez — “COTTON BROS. BAKING COMPANY, INC., COTTON BAKING COMPANY, INC., and COTTON’S HOL-SUM BAKERS, INC.” The policy is ambiguous in that it describes five locations (Alexandria, Shreveport, Natchez, Baton Rouge, and Monroe) and provides that the loss at any of these locations shall be adjusted with and payable to the subsidiary bakery corporation located at the site of the loss. Separate coverage amounts were assigned to each location aggregating on October 1, 1980 to $39,816,000.00. 4

(2) On October 1, 1980 Cotton Bros., Inc. was a corporation located in Alexandria, Louisiana and conducting a very substantial and successful bakery business in north, central and southeast Louisiana and in portions of the surrounding states.

(3) Cotton Bros., Inc. conducted its business through eight wholly-owned subsidiary corporations: five bakery corporations (located in Alexandria, Shreveport, Baton Rouge and Monroe, Louisiana, and in Natchez, Mississippi); an insurance corporation which administered Cotton’s insurance responsibilities and did no business with the general public; a transportation corporation which acquired vehicles required by the parent corporation, Cotton Bros., Inc., and its subsidiaries; made these vehicles available to those corporations by means of contract and did no business with the general public; and a procurement corporation which did no business with the general public and which acquired and distributed supplies and raw materials including those required by the five bakeries.

(4) Beginning about 1976 the Cotton companies began a process of reorganization which had taken form and was complete prior to the issuance of IRI’s interruption of business policy on October 1, 1980. A parent company, Cotton Brothers, Inc., was incorporated and began business on or about 1976 and soon thereafter the three non-bakery subsidiaries described above in paragraph (3) were created to perform for the single Cotton Bros, bakery business services which the subsidiary bakeries had formerly performed for themselves. The operations of the previously independent bakeries (finally 5 in number) experienced a series of modifications, under the direction of the parent company which actually dictated the day-to-day operations of these bakeries. In this reorganization the subsidiary bakeries, as described below, lost completely their independent character, though they continued to exist as separate corporations, and became, with the three non-bakery subsidiaries, parts of the single integrated Cotton bakery operation under the direction and control of the *1544 parent company. 5

There was but one “business”; that business was performed by Cotton Bros., Inc., the parent corporation. Cotton Bros., Inc., operated, directed, and controlled the eight wholly-owned subsidiaries as a single, combined endeavor. The president and chief operating officer of the parent corporation, R. Gene Cotton, was also president and chief operating officer of each of the eight subsidiary corporations. None of the contracts between the eight subsidiaries were arms-length transactions concluded by separate officers motivated by the separate and independent interest of each subsidiary corporation, but rather by the interest of the parent, Cotton Brothers, Inc., the single combined operation. The same is true regarding all contracts between the parent corporation and any one or more of the subsidiary corporations. In every one of these instances, Gene Cotton, wearing one hat, was doing business with Gene Cotton, wearing another hat. Transactions of that nature, as reflected on the corporate records of each subsidiary, certainly cannot form a valid basis for the determination of gross earnings. 6 Not only were all routine policy decisions of the subsidiaries made by the chief operating officer of the parent corporation, but a substantial portion of the accounts payable by each of these subsidiaries were paid out of a general account in the sole name of the parent corporation. An obvious instance is the Baker Perkins contract with plaintiff (the Alexandria subsidiary). Payment for the replacement machinery and for the construction work was made out of the parent corporation’s account, even though the installed machinery and equipment became part of the physical plant owned by the Alexandria subsidiary.

To compete successfully in the market and to meet its competition, it was necessary to produce not only a full range of different bakery products but every marketable type of each product. Thus, it was necessary to produce many different types of breads, buns, rolls, brown & serve goods, and sweet goods, including sweet rolls, breakfast rolls, danish, pastries, cakes, pies, etc. The evidence is uncontradicted that not one of the subdidiary corporations operated independently or had its separate chief operating officer. Not one competed independently against the others or against outside competition. Although each of the subdidiary bakeries was a production company operating seven days a week, baking today for sale tomorrow to Cotton Bros, customers, not one of them produced the entire range of products which were sold to Cotton Bros, customers. For instance, the Natchez plant produced all the sweet goods sold to Cotton Bros, customers in Natchez, New Orleans, Baton Rouge, Alexandria, Monroe and Shreveport. Since the Natchez plant produced nothing but sweet goods, Cotton Bros, customers in the Natchez area received all types of bread loaves, rolls, brown & serve, etc.

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Cite This Page — Counsel Stack

Bluebook (online)
690 F. Supp. 1541, 1988 WL 79896, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cotton-bros-baking-co-v-industrial-risk-insurers-lawd-1988.