USCA1 Opinion
March 19, 1993 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 92-1779
PAUL ARPIN VAN LINES, INC.,
Plaintiff, Appellee,
v.
UNIVERSAL TRANSPORTATION SERVICES, INC. a/k/a
UNIVERSAL TRANSPORTATION SERVICES LIMITED, ET AL.
Defendants, Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Frances J. Boyle, U.S. District Judge]
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Before
Torruella, Circuit Judge,
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Bownes, Senior Circuit Judge,
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Cyr, Circuit Judge.
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Nicholas Gorham, with whom Edmund L. Alves, Jr., and Gorham
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and Gorham were on brief, for appellant.
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Richard G. Galli, with whom Barbara Harris and Richard Galli
________________ ______________ _____________
& Associates Incorporated were on brief, for appellee.
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March 19, 1993
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BOWNES, Senior Circuit Judge. On October 12, 1989,
BOWNES, Senior Circuit Judge.
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Universal Transportation Services, Inc., entered into a
contract with Paul Arpin Van Lines, Inc. Arpin is primarily
in the business of moving and storing household goods and
furniture. Universal is in the business of soliciting
customers and accounts for moving and storage companies. The
contract had a term of three years, with a provision for
year-to-year extensions after the three-year term had
expired. On November 8, 1990, Arpin notified Universal that
it was terminating the contract. After Universal refused to
accede to pre-term cancellation, Arpin, on May 3, 1991,
filed a declaratory judgment action in the district court of
Rhode Island, seeking a judgment that: (a) the contract is
"canceled, rescinded or . . . null and void for illegality";
(b) that the contract is "illegal, unlawful and
unenforceable."
Universal duly answered, denying that there was any
legal basis for terminating the contract. Universal also
brought a counterclaim on its own behalf and on behalf of
McGowan Associates, Inc. The counterclaim states that
Michael J. McGowan is the principal shareholder and president
of Universal and McGowan Associates, Inc. The counterclaim
alleged three counts: Count I sought damages of $300,000 for
Arpin's attempt to cancel the contract prior to its
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termination date; Count II alleged violations of restrictive
covenants in the contract and claimed damages of $300,000;
Count III alleged interference by Arpin with a contractual
relationship between another moving company, Richard J.
Coriell & Co., Inc., and both Universal and McGowan
Associates, Inc.; damages of $300,000 were claimed.
The case was tried, jury-waived, before the
District Court of Rhode Island. The district court found
that McGowan and the business entities he controlled were
"brokers" and as such were required to be licensed by the
Interstate Commerce Commission pursuant to 49 U.S.C.
10921.1 It is undisputed that neither McGowan, Universal,
nor McGowan Associates were licensed by the ICC. The court
therefore held that the contract was illegal. It found that
Universal was not entitled to commissions it might have
earned over the remaining two-year term of the contract. The
court, however, held that Universal was entitled to collect
the commissions it had earned during the time the contract
was in effect. It found that Universal was entitled to
"$3,231.05 of restitution for unreported and unpaid
commissions and $7,891.27 of restitution for reported, but
unpaid,
commissions."
Thedistrictcourt
alsodismissed
thecounterclaim.
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1 49 U.S.C. 10921 provides in pertinent part that a person
may be a broker for motor carriers, "only if the person holds
the appropriate certificate, permit or license issued under
this chapter authorizing the transportation or service."
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Appellants, Universal and McGowan Associates,
dispute the district court's holding that they were not
entitled to the commissions they would have earned over the
unexpired term of the contract. They have not appealed the
district court's computation of the commissions due them for
business generated during the time the contract was in
effect. The appellee, Arpin, has not appealed the award of
commissions. The root issue on appeal, therefore, is whether
appellants can recover, as damages, the commissions they
would have earned if the contract had remained in effect for
its three-year term. We hold they cannot.
The Enforceability of the Contract
The Enforceability of the Contract
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Appellants argue first that the contract should
have been enforced regardless of whether McGowan2 was an
unlicensed broker. We note first that the contract here was
not intrinsically illegal; it was not a criminal conspiracy
or one whose purpose directly violated the prohibition of a
statute. The question is whether the contract is
unenforceable because McGowan did not have a broker's license
from the ICC, as required by 49 U.S.C. 10921. The general
rule is that an otherwise valid contract that results in the
violation of a public-protection statute or regulation is
unenforceable. Resolution Trust Corp. v. Home Sav. of Am.,
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2 We follow the lead of the parties and refer to
defendants appellants as McGowan.
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946 F.2d 93, 96 (8th Cir. 1991); Securities Industry Ass'n.
___________________________
v. Connolly, 883 F.2d 1114, 1123 n.7 (1st Cir. 1989), cert.
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denied, 496 U.S. 956 (1990); Shinberg v. Bruk, 875 F.2d 973
______ ________ ____
(1st Cir. 1989); Smithy Braedon Co. v. Hadid, 825 F.2d 787,
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790 (4th Cir. 1987); 6A Arthur Lynton Corbin, Corbin on
Contracts, 1512, p. 711 (1962). See Restatement (Second)
___
of Contracts 2d 181 (1981).
This general rule, however, is almost as much
honored in the breach as in the observance. The Seventh
Circuit has pointed out that "the defense of illegality,
being in character if not origins an equitable and remedial
doctrine, is not automatic but requires . . . a comparison of
the pros and cons of enforcement." Northern Indiana Pub.
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Serv. Co. v. Carbon County Coal Co., 799 F.2d 265, 273 (7th
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Cir. 1986). In that case the court held the contract was
enforceable, id.; it also noted that the statute violated was
___
"an anachronism a regulatory statute on which the sun set
long ago." Id. at 274. In Resolution Trust the court
___ _________________
observed:
Some federal courts have applied this
less-than-absolute rule and have refused
to enforce illegal contracts only if the
statute or regulation explicitly provides
that contracts in violation are void, or
if the interest in enforcement clearly
outweighs the public policy against
enforcement.
946 F.2d at 96-97 (footnote and citations omitted). The
court held that the case before it was not one in which the
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interest in contract enforcement clearly outweighed the
public policy against enforcement and held the contract
"illegal and therefore unenforceable." Id.
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McGowan relies on two Supreme Court cases in
arguing for enforcement of the contract. In Bruce's Juices
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v. American Can Co., 330 U.S. 743 (1947), the Court held that
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it was no defense to a suit for collection of notes that the
seller had engaged in price discriminations against the buyer
violating the Robinson-Patman Act. The Act prescribed
criminal penalties and entitled injured persons to treble
damages, but did not specifically render the sales, for which
the notes were given, illegal or the purchase price
uncollectible. During the course of its opinion, the Court
stated:
But when the contract sued upon is not
intrinsically illegal, the Court has
refused to allow property to be obtained
under a contract of sale without
enforcing the duty to pay for it because
of violations of the Sherman Act not
inhering in the particular contract in
suit and has reaffirmed the "doctrine
that 'where a statute creates a new
offense and denounces the penalty, or
gives a new right and declares the
remedy, the punishment or the remedy can
be only that which the statute
prescribes.'" D.R. Wilder Mfg. Co. v.
______________________
Corn Products Refining Co., 236 U.S. 165,
___________________________
174-175; Connolly v. Union Sewer Pipe
________ _________________
Co., 184 U.S. 540.
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Id. at 755. In Kelly v. Kosuga, 358 U.S. 516 (1959), the
___ _____ ______
Court upheld the right of a seller to recover from the buyer
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the unpaid balance due on a lawful sale even though the sale
was made pursuant to an agreement which violated 1 of the
Sherman Act. The Court noted:
As a defense to an action based on
contract, the plea of illegality based on
violation of the Sherman Act has not met
with much favor in this Court. Id. at
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518 (footnote omitted).
We think that the precedential value of these
holdings has been limited by two subsequent Supreme Court
cases. In United States v. Mississippi Valley Co., 364 U.S.
_____________ ______________________
520 (1961), the Court held that the activities of a
consultant retained by the government violated a statute
prohibiting one retained by the government from engaging in
activities constituting a conflict of interest. It held that
this alone precluded the respondent from enforcing his
consulting contract with the government. Id. at 525. The
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Court noted that the conflict-of-interest statute did not
"specifically provide for the invalidation of contracts which
are made in violation of the statutory prohibition."
Nevertheless, the Court held that the consulting contract
could not be enforced. It stated:
Were we to decree the enforcement of such
a contract, we would be affirmatively
sanctioning the type of infected bargain
which the statute outlaws and we would be
depriving the public of the protection
which Congress has conferred.
Id. at 563. In Kaiser Steel Corp. v. Mullins, 455 U.S. 72
___ ___________________ _______
(1982), the issue was
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whether a coal producer, when it is sued
on its promise to contribute to union
welfare funds based on its purchases of
coal from producers not under contract
with the union, is entitled to plead and
have adjudicated a defense that the
promise is illegal under the antitrust
and labor laws.
Id. at 74. The Court held that the coal producer was
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entitled to so plead. At the start of its analysis the Court
stated:
There is no statutory code of federal
contract law, but our cases leave no
doubt that illegal promises will not be
enforced in cases controlled by the
federal law.
Id. at 77. The Court discussed Kelly v. Kosuga, supra, at
___ _____ ______ _____
length and found that Kosuga "contemplated that the defense
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of illegality would be entertained in a case such as this."
Id. at 82.
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We hold that under the facts of this case the
contract between the parties was unenforceable as to the
remaining two-year term, during which time McGowan performed
no services for Arpin. As the district court pointed out,
the ICC broker requirement was enacted to protect the public
from fraud and/or incompetent motor carrier brokers.
Although there is no indication that McGowan was either
fraudulent or incompetent, his failure to obtain a broker's
license cannot be ignored or forgiven. There is no point in
speculating why McGowan did not obtain a license. The record
evinces that he had worked in the field of transportation of
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household goods for many years. It can, therefore, be fairly
inferred that McGowan knew of the ICC broker's licensing
requirement. There was also record evidence from which it
could be found that McGowan, in answer to a direct question,
stated he had an ICC broker's license. This was a knowing
misrepresentation, even though it was not made directly to
Arpin. Viewing the facts in light of the applicable case
law, we find that it would subvert the public-protection
policy of the statute to enforce the unexpired and not
performed term of the contract.
Broker or Agent
Broker or Agent
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The district court held that McGowan was a broker,
not a household goods agent, and as such had to be licensed
by the ICC. Appellants argue that this was error. We agree
with the district court. The starting point is 49 U.S.C.
10921 which provides:
Requirement for certificate, permit, or
Requirement for certificate, permit, or
license
license
Except as provided in this subchapter or
another law, a person may provide
transportation or service subject to the
jurisdiction of the Interstate Commerce
Commission under subchapter II, III, or
IV of chapter 105 of this title or be a
broker for transportation subject to the
jurisdiction of the Commission under
subchapter II of that chapter, only if
the person holds the appropriate
certificate, permit, or license issued
under this subchapter authorizing the
transportation or service.
A broker is defined as a person,
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other than a motor carrier or employee or
_________________________________________
agent of a motor carrier, that as a
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principal or agent sells, offers for
sale, negotiates for, or holds itself out
by solicitation, advertisement, or
otherwise as selling, providing or
arranging for, transportation by motor
carrier for compensation.
49 U.S.C. 10102(1) (emphasis added). The distinction
between agent and broker, inherent in the statute, is made
explicit in the regulations:
Broker means a person who, for
compensation, arranges, or offers to
arrange, the transportation of property
by an authorized motor carrier. Motor
carriers, or persons who are employees or
bona fide agents of carriers, are not
brokers within the meaning of this
section when they arrange the
transportation of shipments which they
are authorized to transport and which
they have accepted and legally bound
themselves to transport.
Bona fide agents are persons who are part
of the normal organization of a motor
carrier and perform duties under the
carrier's directions pursuant to a
preexisting agreement which provides for
a continuing relationship, precluding the
exercise of discretion on the part of the
agent in allocating traffic between the
carrier and others.
49 C.F.R. 1045.2 (a) and (b) (1991).
The evidence establishes beyond much doubt that
McGowan was a broker and not an agent. The first paragraph
of the contract states:
1. SERVICES PROVIDED
1. SERVICES PROVIDED
A. The Sales Corporation shall be
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a non-exclusive sales agent for
_______________________________
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the company during the term of
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this agreement. Both parties
understand and agree that the
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Sales Corporation is an
_______________________________
independent contractor which
________________________
provides for the Company the
sales service of generating,
soliciting, and maintaining
customers and accounts and
consulting with the officers
and employees of the Company to
expand the moving traffic and
storage business for the
Company. (Emphasis added.)
Although the language carefully eschews the use of
the word "broker," a "non-exclusive sales agent" who is "an
independent contractor" can only be a broker as defined in
the regulations. McGowan was not part of the normal
organization of Arpin, nor was he an employee. His role was
to arrange for "the transportation of property by an
authorized motor carrier" Arpin. Viewing the language of
the contract in the light of the regulatory definitions of
broker and agents, McGowan was a broker.
The trial record also confirms the district court
finding that McGowan acted as a broker. In addition to its
contract with Arpin, McGowan had contracts with three other
moving companies: Richard Coriell & Company, its subsidiary,
Central Moving Systems, Inc., and Pan-American. During his
testimony, McGowan reaffirmed the following statement made at
his deposition.
I said I don't care what concessions you
get remember one thing these are the
accounts. These accounts are covered
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under contract of McGowan Associates. If
I don't like Paul Arpin's service then
those accounts aren't going to be going
on their trucks.
The district court was clearly correct in ruling that
McGowan was a broker under the ICC statute and regulations
and, as such, was required to be licensed by the ICC.3
Miscellany
Miscellany
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McGowan argues that the district court erred by
basing its decision on testimony not in evidence and refusing
to admit the entire deposition transcript of Michael McGowan.
McGowan quotes the following statement in the district court
opinion for his claim that the opinion was based on testimony
not in evidence:
McGowan exercised discretion in
allocating business between the three
haulers that he represented. Although at
trial McGowan adamantly denied having any
such control or influence, McGowan had
previously boasted that if he didn't like
the service that Arpin was providing,
that he wouldn't send accounts to Arpin.
He also had bragged that moves would be
booked through Arpin only if he allowed
them to be.
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3 McGowan has devoted over 18 pages of his brief to arguing
that in 1980 Congress exempted household goods agents from
regulation by the ICC and that McGowan did not need a license
because he was a household goods agent. McGowan may be right
about what Congress did in 1980, but since we have found that
McGowan was a broker, not an agent, the argument is
pointless.
We also reject without discussion McGowan's contention that
Arpin should be estopped from avoiding the contract.
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It is true that the last sentence from the excerpt has no
evidentiary foundation. This, however, was harmless error.
As already discussed, there was sufficient evidence without
the "bragging" referenceto establish thatMcGowan was abroker.
We do not think that the district court erred in
refusing to admit McGowan's entire deposition into evidence.
The record shows the following colloquy between the attorneys
and the court prior to and following its exclusion. In
reading the excerpt, it is important to keep in mind that
Galli represented Arpin and that McGowan's attorney was
Gorham.
MR. GALLI: Your Honor, rather than
going through a lot more questions I have
sections of Mr. McGowan's deposition I'd
like to offer into evidence under Rule 32
as an exhibit.
THE COURT: Are they marked?
MR. GALLI: They are marked, your Honor.
What I've done is I've taken each of the
pages and I haven't obliterated
everything, I've just put a yellow mark
down the lines that I would offer into
evidence on each page. There's a yellow
mark on the left showing that lines that
I'd ask to offer into evidence.
THE COURT: Are there any objections?
MR. N. GORHAM: I'd just like to know
what the deposition transcripts are being
offered for?
THE COURT: As evidence.
MR. N. GORHAM: I have no objection.
I don't see the relevancy of it, your
Honor.
THE COURT: The relevance of what? It's
evidence. It's treated just the same as
the witness's oral testimony. How many
pages have I got to read?
MR. GALLI: Your Honor, there are 20,
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25 pages but some of them have only three
or four lines.
THE COURT: Hand it up.
(DEPOSITION TRANSCRIPT HANDED UP TO
COURT)
MR. N. GORHAM: Your Honor, might I
make a suggestion. The whole deposition
should be put in evidence.
THE COURT: I am not going to read the
whole deposition. You're not going to
take my time up with that. I have a lot
of other things to do tonight which is
the only time I get to read these things.
MR. B. GORHAM: Your Honor, could we
have a minute to review this?
THE COURT: You should have seen this
before. Did you give this to them ahead
of time?
MR. GALLI: I just did this this
morning, your Honor.
THE COURT: You don't even give them a
chance to look at it.
MR. GALLI: Well, I'm sorry. I did it
this morning.
THE COURT: I kind of get the feeling
that it's my fault.
MR. GALLI: I'm sorry, your Honor.
THE COURT: You can go without lunch
and read it then, okay. Let's go. What
else do you have?
In the court's final remarks, he told Gorham to
read the marked portions of the deposition during the
luncheon recess. Implicit in this admonition was that the
court would consider admitting any parts that Attorney Gorham
thought contradicted the parts marked by his opponent
Attorney Galli. The record is barren of any future reference
to McGowan's deposition. Neither the entire deposition nor
any portion of it was subsequently offered in evidence. Nor
was it marked for identification.
Fed. Rule Civ. Procedure 32(a)(4) provides:
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If only part of a deposition is offered
in evidence by a party, an adverse party
may require the offeror to introduce any
other part which ought in fairness to be
considered with the part introduced, and
any party may introduce any other parts.
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Fed. Rule of Evid. 106 is to the same effect:
Rule 106. Remainder of or Related
Rule 106. Remainder of or Related
Writings or Recorded Statements
Writings or Recorded Statements
When a writing or recorded statement or
part thereof is introduced by a party, an
adverse party may require the
introduction at that time of any other
part or any other writing or recorded
statement which ought in fairness to be
considered contemporaneously with it.
Attorney Galli offered marked parts of McGowan's
deposition in evidence. The court was ready to receive them.
At that point Attorney Gorham suggested that "the whole
deposition be put in evidence." The court rejected this
suggestion; the judge then suggested that Gorham read the
parts of the deposition that had been marked during the
luncheon recess. Neither attorney did anything further in
regard to the deposition.
We do not think that a district court judge is
obligated to go through the entire deposition of a witness
who had testified at the trial to determine if there are
conflicts in the deposition testimony or if the deposition
contradicts the courtroom testimony of the witness. Under
our adversary system, that is the work of the lawyers. It
was not done here and the judge should not be blamed.
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Finally, McGowan argues that the court erred in
dismissing his counterclaim for interference by Arpin with
his 1987 contract with Richard Coriell & Company.4
We affirm for the reasons given by the district
court in ruling from the bench:
The evidence in the case is that there
was an agreement entered into on December
23rd of 1987 by and between McGowan
Associates Incorporated, hereinafter
referred to as the sales corporation, a
duly organized New Jersey corporation
with a place of business located at 20
Stonehouse Road, Millington, New Jersey,
and Richard Coriell and Company
Incorporated, a duly organized New Jersey
corporation, with a place of business at
the same address. The contention is made
in connection with the counterclaim,
among other things, that the Plaintiff in
this action intentionally and unlawfully
interfered with a contractual
relationship existing between UTS,
McGowan and Coriell. The evidence is
that the agreement, as indicated, at
least insofar as McGowan's interest are
concerned, was between McGowan Associates
Incorporated and Coriell. Since McGowan
Associates Incorporated does not appear
to be a party to this action it seems to
me that under no circumstances could it
recover, under no circumstances could Mr.
McGowan recover, that the only party who
could recover for interference with this
contract are the parties to the contract,
and the party to the contract is McGowan
Associates Incorporated which is not a
party to this litigation.
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4 The dismissal of the other two counts of the counterclaim
have not been appealed.
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We have examined the counterclaim carefully. It
specifically names as counter-claimants Universal
Transportation Services, Inc. and Michael J. McGowan. It
does state that Michael McGowan is doing business as McGowan
Associates, Inc. Individuals, however, do not usually do
business in the name of an incorporated entity. As the
district court pointed out, the contract which was allegedly
interfered with by Arpin was between McGowan Associates, Inc.
and Coriell; it was not between McGowan d/b/a McGowan
Associates and Coriell. There can be no question that
McGowan Associates, Inc. is not a party to this litigation.
McGowan argues, in effect, that we should disregard
the separate corporate entity and treat him as the real party
in interest. We do not think that we should pierce the
corporate veil at the behest of the individual who fashioned
it so as to further the individual's personal interests.
That would make a nullity of the purpose and use of corporate
structures. Nor can we ignore pleadings drawn by those who
knew or should have known of the specific corporate entity
that executed the contract in issue. To do so would
constitute a judicial amendment to the pleadings after the
trial was over.
The judgement of the district court is affirmed.
The judgement of the district court is affirmed.
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Costs on appeal awarded to Arpin.
Costs on appeal awarded to Arpin.
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