Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-7-1995

Ragan v Tri-County Excavating
Precedential or Non-Precedential:

Docket 94-1388




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1
               UNITED STATES COURT OF APPEALS
                   FOR THE THIRD CIRCUIT

                         ----------

                  Nos. 94-1388 and 95-1189

                         ----------

   MICHAEL J. RAGAN, AS ADMINISTRATOR AND FIDUCIARY OF THE
  INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL NO. 542
  PENSION, HEALTH AND WELFARE, APPRENTICESHIP, TRAINING AND
SAFETY, SUPPLEMENTAL UNEMPLOYMENT BENEFIT AND ANNUITY FUNDS;
    INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL 542

                                 v.

                TRI-COUNTY EXCAVATING, INC.;
                 UNITED STATES FIDELITY AND
                      GUARANTY COMPANY;
                   HARTFORD FIRE INSURANCE
                           COMPANY

                              Hartford Fire Insurance Company,
                                      Appellant
                         ----------

      On Appeal from the United States District Court
         for the Eastern District of Pennsylvania
                 (D.C. Civil No. 92-00066)

                         ----------

              Argued Monday, October 24, 1994

 BEFORE:   STAPLETON, HUTCHINSON, and GARTH, Circuit Judges

                         ----------

               (Opinion filed August 7, 1995)

                         ----------

                           Sam L. Warshawer, Jr. (Argued)
                           Edward Seglias
                           Venzie, Phillips & Warshawer
                           2032 Chancellor Street


                             2
Philadelphia, Pennsylvania 19103

Attorneys for Appellant




 2
                                Robert T. Carlton, Jr. (Argued)
                                McAleese, McGoldrick & Susanin
                                455 South Gulph Road
                                Suite 240 - Executive Terrace
                                King of Prussia, Pennsylvania 19406

                                Attorneys for Appellees

                               ----------

                        OPINION OF THE COURT

                               ----------



GARTH, Circuit Judge:


          Defendant-Appellant Hartford Fire Insurance Company is

the surety on a labor and material payment bond purchased by Mele

Construction Co., Inc. ("Mele").      Hartford's bond required

prospective claimants who were not in a "direct contract" with

Mele to give written notice of their claims within 90 days after

they ceased work.   Plaintiffs-appellees, tardy claimants on

Hartford's bond, are the International Union of Operating

Engineers, Local 542 and Michael J. Ragan as administrator of

various "fringe benefit" funds associated with Local 542

(collectively, "Local 542").

          Local 542 had a collective bargaining agreement with

Tri-County Excavating, Inc., a corporation owned by the three

daughters of John Mele, president of Mele.      Hartford rejected

Local 542's claim, made roughly 120 days after Local 542 ceased

work, because Local 542 was not in a "direct contract" with Mele

and so was required to give notice of its claim within 90 days of

the last labor performed.   Local 542 responded that Tri-County


                                  3
was the corporate "alter ego" of Mele, and that inasmuch as Local

542 had contracted with Tri-County it had, ipso facto, contracted

with Mele.

          Following a bench trial, the district court held that

Tri-County was indeed the alter ego/instrumentality of Mele and

entered judgment in favor of Local 542.   The district court held

that under the terms of the bond Hartford was liable to Local 542

for Tri-County's unpaid "fringe benefit" contributions, union

dues, liquidated damages and attorney fees.

          On appeal, Hartford advances three arguments: first,

that the district court erred in its alter ego determination

under Pennsylvania law; second, that the Employees Retirement

Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"), preempts

Local 542's state-law action on the bond; and third, that the

bond does not obligate Hartford to pay liquidated damages and

attorney fees.

          We agree with all of the district court's holdings

except its holding that Hartford was obliged to pay liquidated

damages and attorney fees.   Consequently, we will affirm the

district court's award of unpaid fringe benefit contributions and

union dues.   However, because we conclude that Hartford cannot be

held liable for attorney fees and liquidated damages, we will

reverse so much of the district court's orders of March 2, 1994,

and February 15, 1995, as granted judgment against Hartford for

those damages.   We will accordingly remand to the district court

with directions that its judgment against Hartford and in favor




                                4
of Local 542 on Count IV be modified to delete all awards of

attorney fees and liquidated damages.



                                I.

           Mele purchased the bond ("the Bond") from Hartford to

cover Mele's wage and labor obligations in connection with earth

work which Mele was hired to perform on Crown America

Corporation's Viewmont Mall project in Lackawanna County,

Pennsylvania.   Crown is named as obligee on the bond.

           For the past twenty years Mele, which owns heavy earth

moving equipment, has sub-contracted with Tri-County on a job-by-

job basis whereby Tri-County provided operating engineers to

operate Mele's earth moving equipment.   Tri-County is part of a

group of at least five companies owned by the extended Mele

family.

           Under its contracts with with Mele, Tri-County would

furnish Mele with Tri-County employees who were members of Local

542.   Tri-County and its employees were subject to the terms of a

Collective Bargaining Agreement ("CBA"), negotiated between Local

542 and Tri-County in 1988, and a Pension Fund Agreement ("PFA")

entered into between Local 542 and the General Building

Contractors Association and the Contractors Association of

Eastern Pennsylvania and Delaware in 1974.

           When Crown hired Mele for the Viewmont project in the

Summer of 1990, Mele looked to Tri-County for operating engineers

and, as it had done in the past, Tri-County engaged members of

Local 542 pursuant to the CBA and PFA.   As is particularly


                                5
relevant to the present dispute, the CBA obligated Tri-County to

make regular "fringe benefit" contributions to Local 542's

Pension, Health and Welfare, Apprenticeship, Training and Safety,

Supplemental Unemployment Benefit, and Annuity funds (the

"Funds") during the time that Local 542 members were in Tri-

County's employ.   The CBA also required Tri-County to pay

"supplemental union dues" and provided for the payment of a

specific monetary penalty should Tri-County become delinquent in

its fringe benefit contributions.    The PFA provided that in the

event of a lawsuit against an employer to collect unpaid

contributions, the employer was obliged to pay costs and

reasonable attorney fees.

          Work on the Viewmont project commenced some time in

August of 1990, and Tri-County began making the required fringe

benefit contributions to the Funds as required by the CBA.

          The Viewmont project foundered in the spring of 1991,

with disastrous results:    Crown stopped paying Mele, Mele fell

behind in progress payments to Tri-County, and Tri-County in turn

failed to make the fringe benefit contributions to the Funds for

the period March-June, 1991.   Within months, Mele had filed for

bankruptcy and Tri-County became insolvent.    By this time the

Funds were owed roughly $78,000.00 in unpaid contributions.

          On or about November 1, 1991, Local 542, having been

informed by Tri-County that it was unable to satisfy its

obligations to the Funds, turned to Hartford for payment.

          Hartford's Bond contained the following provision:




                                 6
          No suit or action shall be commenced
          hereunder by any claimant, (a) unless
          claimant, other than one having a direct
          contract with the principal, shall have given
          written notice to any two of the following:
          the principal, the owner or the surety. . .,
          within ninety days after such claimant did or
          performed the last of the work or labor . . .
          for which said claim is made.

App. 97 (emphasis added).

          Under this provision, all claimants who had not

contracted directly with Mele were required to give written

notice to any two of Mele, Hartford or Crown within 90 days after

ceasing work.

          As shown by Tri-County records, the "last labor"

provided by Local 542 on the Viewmont job was for the week ending

June 28, 1991.   Local 542 did not give notice of its claim until

on or about November 1, 1991, more than 120 days after "last

labor" was performed.    Hartford rejected Local 542's request on

the ground that Local 542 had failed to make timely notice of its

claim.

          On January 3, 1992, Local 542 commenced this action in

the federal district court for the Eastern District of

Pennsylvania on the basis of diversity of citizenship, seeking

delinquent fringe benefit contributions, union dues, liquidated

damages and attorney fees.0   Local 542 claimed that Tri-County

0
Also named as defendants in Local 542's complaint were Tri-
County (Counts I and II) and United States Fidelity and Guaranty
Company ("USF&G"), another surety for Mele on a different
construction project (Count III). Tri-County did not defend
itself below, and a default judgment was entered against Tri-
County in the district court. Tri-County has not appealed.
          Sometime following the commencement of this action
Local 542 and USF&G entered into a settlement agreement and Local

                                 7
was Mele's alter ego, and that Local 542 was therefore in a

"direct contract" with Mele and so was not subject to the bond's

90 day notice provision.

          The district court agreed with Local 542.   Following a

bench trial, the district court, by order dated March 2, 1994,

entered judgment against Hartford and awarded Local 542

$78,794.79 in unpaid fringe benefit contributions, $5,719.11 in

unpaid union dues, and $42,190.21 in liquidated damages, less

$480.00 in prepayment.   The district court also awarded

reasonable attorney fees to Local 542, but did not quantify those

fees until it entered its order of February 15, 1995, which set

attorney fees at $19,881.73.

          Hartford appealed from the district court's March 2,

1994 order on March 29, 1994, and timely appealed the February

15, 1995 order.0

                   II. Appellate Jurisdiction

          As noted above, the district court's March 2, 1994

order entered judgment in favor of Local 542 and among other

things awarded reasonable attorney fees but did not quantify the

542 dismissed its action against USF&G pursuant to Federal Rule
of Civil Procedure 41(a)(1). Accordingly, the instant appeal
concerns only Count IV of the Complaint, naming Hartford as
defendant.
0
 After the district court entered its order quantifying attorney
fees, Hartford filed another appeal at docket no. 95-1189 which
challenged the award itself, but did not contest the amount of
fees awarded. That appeal was limited to "the issue of the
Benefit Funds' entitlement to attorney fees as previously briefed
and argued," (Stipulation of Counsel for Consolidation of
Appeals, ¶ 9), and has been consolidated with the present appeal.
Both parties agreed that the issue raised in 95-1189 with respect
to attorney fees is identical to the attorney fees issue raised
in the earlier appeal at 94-1388.

                                8
amount of those fees.   Although Hartford appealed the March 2,

1994 order on March 29, 1994, it was not until February 15, 1995

that the district court entered an order setting attorney fees at

$19,881.73.   Neither party questioned the jurisdiction of this

court to hear Hartford's appeal.    However, we must consider our

appellate jurisdiction as a threshold matter.   See Trent Realty

Associates v. First Fed. Sav. and Loan Ass'n of Philadelphia, 

, 36 (3d Cir. 1981) ("A federal court is bound to consider

its own jurisdiction preliminary to consideration of the

merits.").

          The district court's award of attorney fees was

premised on a provision in the Pension Fund Agreement between

Local 542 and Tri-County which provides that in the event of a

lawsuit to collect delinquent contributions the employer "shall

pay all costs and reasonable attorney's fees incurred."    App.

133.

          In Beckwith Machinery Co. v. Travelers Indem. Co., 

(3d Cir. 1987), we held that when an award of attorney

fees is based on a contractual provision and is an "integral part

of the contractual relief sought," the order does not become

final and appealable until the attorney fees are quantified.      

  Accord Vargas v. Hudson County Bd. of Elections, 

, 670 (3d Cir. 1991) (where attorney fees are sought as

part of damages, and not as prevailing party, the rule of

Budinich v. Becton Dickinson and Co., 

(1988), does

not apply and the district court's ruling is not final until the




                                9
amount of fees is fixed); accord SPM Corp. v. M/V Ming Moon, 

, 1300 (3d Cir. 1992).

           Because the attorney fees awarded in this case were

part of the contractual damages sought by Local 542, the district

court's delay in quantifying the amount of such fees until

February 15, 1995 rendered the earlier order non-final for

purposes of appeal.

           This defect was not fatal to Hartford's appeal,

however.   Even though the March 2, 1994 order was not final when

entered, it became final upon entry of the February 15, 1995

order fixing attorney fees and expenses at $19,881.73.   We

therefore exercise our jurisdiction pursuant to 28 U.S.C. § 1291

and the principle expressed in Cape May Greene, Inc. v. Warren,

, 184-85 (3d Cir. 1983), that this Court may

entertain an appeal from a nonfinal order if an order which is

final is subsequently entered before our adjudication on the

merits.



                          III.    Alter Ego

           Hartford argues on appeal that the district court's

alter ego determination is infected by clearly erroneous

underlying factual findings, and that in any event the district

court misapplied Pennsylvania law to the facts as found.

           When considering a district court's state law alter ego

determinations, we review the court's factual findings for clear

error, but exercise plenary review over the legal conclusions it




                                  10
draws from those facts.    Craig v. Lake Asbestos of Quebec, Ltd.,

, 148-49 (3d Cir. 1988).



                                 A.

          After receiving evidence and taking testimony from

Local 542 members Stanley Stracham and Edward Gilette, Tri-

County's president Angela Scarantino, Hartford bond underwriter

John Johnson and claims supervisor Dennis Powers, and Michael

Ragan, administrator of the Funds, the district court found the

following facts:

          Tri-County has always maintained appropriate corporate

formalities.   Both Mele and Tri-County are duly authorized

Pennsylvania corporations.   Each filed articles of incorporation,

held regular corporate meetings, kept their own corporate

records, and took care not to intermingle funds.

          Tri-County is owned by the three daughters of John

Mele, Mele's president and majority shareholder.   The three Mele

daughters, Angela Scarantino, Beverly Occulto, and Karen

Darbenzio, each also own 11% of the shares of Mele.   The

remainder of the stockholdings in Mele is in the name of John

Mele (53%) and his wife, Catherine (14%).   The Mele corporation

has filed in bankruptcy.    Angela Scarantino is the president of

Tri-County, and Karen Darbenzio was an officer and shareholder of

both Mele and Tri-County.

          In addition to Tri-County, there are at least four

other family-owned corporations in the Mele "group": Eleven-7

Corporation, owned by Stephen Scarantino and Bert Occulto,


                                 11
husbands of Angela and Beverly, respectively; John Sal Inc., also

owned by the three Mele daughters; Melback Corp., of which John

Mele is the president, and West Mountain Sand Stone & Aggregates,

Inc., of which Bert Occulto is the president.

          Tri-County, which operates from a trailer leased from

Eleven-7 corporation on land owned by John Sal, Inc., owned no

equipment of its own.   For the past twenty years, its sole

function has been to supply operating engineers to Mele.     Tri-

County has undertaken no projects since Mele's demise.

          Tri-County has never paid a dividend and was grossly

undercapitalized for the work it had contracted to perform.     As a

result, it became insolvent shortly after Mele stopped payments

on the Viewmont job.

          The district court found that Angela Scarantino, Tri-

County's president, had little knowledge of the day-to-day

business affairs of Tri-County.    Although the facts are disputed

by Hartford, Scarantino was unable, for instance, to state

whether Tri-County's financial statements were audited or un-

audited, or whether Tri-County could make a claim against Mele

under the Bond, or how Tri-County billed Mele for the Viewmont

job.

          The district court also found that Mele had treated

Bert Occulto, Tri-County's project manager and husband of one of

the three Mele daughters, as a Mele employee.   More to the point,

Mele enlisted him to participate in the negotiations between Mele

and Hartford regarding the Bond.




                                  12
            Local 542 members solicited Tri-County jobs at Mele's

offices.    The court also found that John Mele had participated in

Tri-County hiring, and greeted Stracham with the salutation,

"glad to have you working for our company" when Stracham was

seeking Tri-County employment.   The district court concluded that

the only contact Local 542 members had with Tri-County was that

they were paid with Tri-County checks.

            When Mele was negotiating the Bond with Hartford,

Hartford requested and received from Tri-County and the other

family-owned corporations indemnification for any payments

Hartford would have to make on the Bond.    The indemnity

effectively precluded Tri-County itself from making a claim on

the Bond.    Moreover, it made Tri-County liable for all debts for

labor and materials incurred by Mele on the Viewmont project,

regardless of whether the debt was owed to Tri-County or another

company.    The district court described this agreement as a

"financial albatross" which no "truly independent" corporation

would assume.    Dist. Ct. Op. 13.

            The district court also observed that Mele had

unilaterally proposed to subordinate its $75,000.00 debt to Tri-

County to those of other creditors in its proposed plan of

bankruptcy reorganization.    Tri-County has not objected to the

subordination, nor has it made a claim in the Mele bankruptcy.

            Finally, the court found that Hartford itself

considered Mele and Tri-County as one company.    Dist. Ct. Op. 12.

Hartford's internal correspondence referred to Tri-County as the




                                 13
"union arm of Mele," and Hartford issued credit to Mele on the

basis of composite Mele/Tri-County financial statements.

          Hartford challenges a number of these factual findings

as clear error, calling our attention to evidence which it

contends the district court ignored, did not fully take into

account, or evaluated incorrectly.    See Hartford's Brief at pp.

19 et seq..    Hartford also emphasizes that corporate formalities

were scrupulously maintained throughout Tri-County's 23 year

existence, and that there is no evidence of commingling or

siphoning of funds or transfers without adequate consideration.

Under its separate name, Tri-County had been dealing amicably

with Local 542 for over twenty years.    Further, Hartford notes

that the two testifying union employees who supposedly had no

contact with Tri-County beyond receiving their paychecks listed

Tri-County, not Mele, as their employer on their unemployment

claim forms.    Hartford also represented at oral argument that

indemnities like the one given by Tri-County are commonplace in

the construction industry.

          We will not find clear error of fact unless a review of

the record leaves us with the "definite and firm conviction that

a mistake has been made."    Anderson v. Bessemer City, 

, 573 (1985).   Although we are troubled by some aspects of the

record, we are not persuaded by Hartford's argument.    Our

independent review of the record does not convince us that the

district court was mistaken or committed clear error in its

factual determinations.




                                 14
            The dissent, although acknowledging the findings made

by the district court, assesses the evidence differently than did

the district court, and also reads the record differently than do

we.   The dissent concludes that, in its opinion, the district

court was mistaken in its findings.   See Dissent Typescript at 4-

5, 11-13.

            Despite the position taken by the dissent, we are bound

to defer to the district court's factfinding if evidence supports

those findings.   Under the clearly erroneous standard, a finding

of fact may be reversed on appeal only "if it is completely

devoid of a credible evidentiary basis or bears no rational

relationship to the supporting data."    Haines v. Liggett Group,

Inc., 

, 92 (3d Cir. 1992).    When findings are based on

determinations regarding the credibility of witnesses, Rule 52(a)

demands even greater deference to the trial court's findings.

.    Thus, an appellate court may not

substitute its findings for that of the district court, but is

limited to making an assessment of whether there is enough

evidence on record to support such findings.   Cooper v. Tard, 

, 126 (3d Cir. 1988).    Here, there is more than

sufficient credible evidence to sustain each and every finding

made by the district court.

            The district court judge heard the witnesses, assessed

their credibility, and, on the basis of the credible evidence,

made detailed findings to which we are obliged to defer.     Based

on those historical findings, the district court found as

ultimate facts that "the interrelationship between Mele and Tri-


                                 15
County was such that Mele controlled Tri-County," Dist. Ct. Op.

11, and that Tri-County was "merely an extension of Mele and not

a truly independent corporation . . . ."     Dist. Ct. Op. 17.   The

district court consequently held, relying on the same legal

authorities as does the dissent, that Tri-County was the alter

ego of Mele.

             These findings and this conclusion were reached after

full recognition of the arguments on the evidence made by

Hartford.     Giving the appropriate deference to the district

court's findings mandates a holding that no mistake has been

committed.    

.

             True, if we, rather than the district court, were

assigned the task of fact finding, we arguably might have found

the facts differently.     But we are not charged with that task,

and we are satisfied that there being no clear error of fact,

and, as we explain below, no legal error, the district court's

factual findings and its legal conclusion of alter ego should be

upheld.



                                  B.

             We also do not find that the district court committed

legal error in holding Tri-County to be Mele's alter ego under

Pennsylvania law.     In Ashley v. Ashley, 

(Pa. 1978),
the Pennsylvania Supreme Court set forth, in a formula familiar

to the courts of that state, the following principles which are

to be applied when a trial court disregards corporate forms and,




                                  16
"piercing the corporate veil," holds that one individual or

corporation is the alter ego of another:
          Th[e] legal fiction of a separate corporate
          entity was designed to serve convenience and
          justice . . . and will be disregarded
          whenever justice or public policy demand and
          where rights of innocent parties are not
          prejudiced nor the theory of the corporate
          entity rendered useless. . .. We have said
          that whenever one in control of a corporation
          uses that control, or uses the corporate
          assets, to further his or her own personal
          interests, the fiction of the separate
          corporate entity may properly be disregarded.

(citations omitted).    Pennsylvania courts have largely

embraced the flexible tenor of the Ashley standard, holding, for

instance, that no finding of fraud or illegality is required

before the corporate veil may be pierced, but rather, that the

corporate entity may be disregarded "whenever it is necessary to

avoid injustice."   Rinck v. Rinck, 

, 1223 (Pa.Super.

1987).   Accord Lycoming County Nursing Home Ass'n, Inc. v. Com.,

Dept. of Labor and Industry, Prevailing Wage Appeal Bd., 

, 243-44 (Pa.Cmwlth. 1993).    We have said that Pennsylvania

alter ego law requires a showing that the subordinate company
"acted robot- or puppet-like in mechanical response to the

controller's tugs on its strings or pressure on its buttons."

Culbreth v. Amosa (Pty) Ltd., 

, 15 (3d Cir. 1990).

          Despite the nominally separate formal existence of Tri-

County, the record to which we have referred supports the

district court's findings and conclusion that Tri-County was

Mele's alter ego.   We emphasize, as did the district court, that

Tri-County was willing, at the request of John Mele and Hartford,



                                  17
to indemnify Hartford for any obligations of Mele which might

trigger Hartford's liability under the Bond.   This effectively

merged the obligations of Tri-County and Mele, and prevented Tri-

County from making any claim under the Bond.     As a result, Tri-

County has not done so, even though Mele is indebted to it for

over $75,000.

            Although it may be true that an indemnity agreement,

standing alone, is insufficient to establish alter ego status,

see United States ex Rel. Global Bldg. Supply, Inc. v. WNH Ltd.

Partnership, 

, 516-17 (4th Cir. 1993), this fact

alone cannot blunt the impact of Tri-County's general willingness

to sacrifice its own interests for those of Mele.      This view is

confirmed by Tri-County's failure to object to Mele's proposed

plan in bankruptcy proceedings to subordinate Mele's debt to Tri-

County to that of all other creditors.

          We agree with the district court that the record

reveals a family enterprise divided into formal "divisions" but

nonetheless controlled by the same people -- John Mele and his

family -- and that Mele employed Tri-County to Mele's own

business ends.   Tri-County relied entirely on Mele for its

existence, both financially and operationally.    In function, Tri-

County was nothing more than the "personnel" arm of Mele.     In

light of the district court's findings of undercapitalization,

non-functioning of independent officers, non-payment of

dividends, Tri-County's consequent insolvency, and the

subordination of Tri-County's financial interests to those of

Mele, all of which survive clear error scrutiny, we are satisfied


                                18
that Local 542 met its burden under Pennsylvania law of showing

that "[Mele] wholly ignored the separate status of [Tri-County]

and so dominated and controlled its affairs that its separate

existence was a mere sham."    Wheeling-Pittsburgh Steel Corp. v.

Intersteel, Inc., 

, 1057 (W.D.Pa. 1990); accord

Lycoming County Nursing 

.



                                  C.

            Hartford next argues that even if Tri-County and Mele

are alter egos in the traditional sense, it was inequitable for

the district court to hold Hartford liable to Local 542 under the

Bond.    Hartford argues, in essence, that as it is a "third party"

guarantor of Tri-County's obligations to Local 542, Hartford's

bond cannot be reached.    We disagree.

            This particular issue has arisen a number of times in

connection with the Miller Act, 40 U.S.C. § 270a et seq., and

Pennsylvania courts have relied upon these Miller Act decisions

in determining whether to pierce the corporate veil in non-Miller

Act payment bond cases.   See Lezzer Cash & Carry, Inc. v. Aetna
Ins. Co., 

, appeal denied, 

(Pa.Super.

1988).

           The Miller Act (the "Act") requires prime contractors

on any construction contract with the United States exceeding

$25,000 to execute a bond "for the protection of all persons

supplying labor and materials."    40 U.S.C. § 270a(a)(2) (1986).

The Act contains two important restrictions mirrored in many

private payment bonds.    First, Like Hartford's Bond, a Miller Act


                                  19
bond's coverage is limited to "first-tier" subcontractors (such

as Tri-County) and those who contract with them (such as Local

542).   J.W. Bateson Co., Inc. v. United States ex rel. Board of

Trustees of Nat. Automatic Sprinkler Industry Pension Fund, 

, 594 (1978).

           Second, § 270b(a) of the Act imposes a timely notice

requirement essentially identical to that in Hartford's Bond,

which requires those who contract with first-tier subcontractors,

but not the first-tier subcontractors themselves, to give notice

of their claims within 90 days after they last provided labor or

materials.

           These limitations have given rise to cases in which

claimants on a payment bond seek to characterize the party with

whom they contracted as the alter ego of a Miller Act contractor

or subcontractor in order to avoid either the 90 day notice

requirement or the coverage limitation of the Act.    See, e.g.,

Continental Casualty Co. v. United States ex rel. Conroe

Creosoting Co., 

, 848 (5th Cir. 1962) (claim on

Miller Act bond permitted by supplier of sub-subcontractor when

sub-subcontractor was merely a "shadow" of the subcontractor);

Glens Falls Ins. Co. v. Newton Lumber & Mfg. Co., 

(10th Cir. 1967), cert. denied, 

(1968)    (when

claimants had negotiated primarily with subcontractor but

contracted with a sub-subcontractor, the sub-subcontractor, whose

principal was a relative of the president of the contractor, was

held to be a "sham" and surety was therefore liable to them on

the bond); National Surety Corporation v. Unites States ex rel.


                                20
Way Panama, S.A., 

, cert. denied, 

(5th

Cir. 1967) (90 day notice provision not binding on plaintiff when

contractor and subcontractor "operated essentially as one

entity"); United States ex rel. Gilarde Environmental Management

v. Federal Ins. Co., No. 89-1473, 

(M.D.Pa. 1990) (same).0

          The Fourth Circuit has held that Miller Act sureties

may be reached "where ordinary principles of corporate law permit

the courts to disregard corporate forms."   Global Building

Supply, Inc. v. WNH Ltd. Partnership, 

, 519 (4th Cir.

1993).   The findings that we have upheld, and the conclusion to

which they lead, have obliged us to hold that Mele and Tri-County

were alter egos under ordinary principles of Pennsylvania law. It

follows that Hartford may be held liable on the bond and, despite

Hartford's argument, we are satisfied that the equities do not

suggest a contrary result.



0
This Court has declined to pierce the corporate veil when there
was "no evidence of familial ties or of any other facts"
suggesting that the contractor and subcontractor had considered
their own contractual relations to be other than "serious and
enforceable obligations." United States ex rel. K & M Corp. v. A
& M Gregos, Inc., 

, 48 (3d Cir. 1979). Gregos, which
recognized the limitations on the right of remote sub-contractors
to sue imposed by the Supreme Court's interpretation of the
Miller Act in J.W. Bateson Co., Inc. v. United States ex rel.
Board of Trustees, 

(1978), also turned on a lack of
evidence that the contractor had been motivated to limit its
liability on the bond. 

findings regarding
alter ego have been made. The district court found Mele and Tri-
County to be just one company, with strong family ties and with
clear indicia of domination and control. Moreover, it cannot be
gainsaid that Hartford attempted to limit its liability on the
Bond by seeking Tri-County's indemnification.


                                21
             Further, Tri-County's indemnity obviated the very

purpose of the notice provision, which is to remove the risk that

the surety would end up "double-compensating" both

subcontractors, such as Tri-County, and their suppliers, such as

Local 542.    See United States ex rel. Blue Circle West, Inc. v.

Tuscon Mechanical Contracting Inc., 

(9th Cir. 1990).

As the United States Supreme Court explained in J.W. Bateson Co.,

Inc. v. United States ex rel. Board of Trustees, 

(1978), bond notice provisions function much like a statute of

repose, "permit[ting] [the surety], after waiting ninety days,

safely to pay [the] subcontractors without fear of additional

liability to sub-subcontractors. . ..       The notice provision thus

prevents both 'double payments' by [sureties] and the alternative

of interminable delay in settlements between contractors and

subcontractors."     

n.4 (citations omitted).    See

also 

.       Because Tri-County itself could

make no claim against Hartford, this risk was absent from the

outset.

             After having treated Mele and Tri-County as essentially

the same company, Hartford cannot now assert Tri-County's

independence as a means of avoiding liability.      The district

court determined that the facts and the equities in this case

required piercing the corporate veil and holding Mele to be Tri-

County's alter ego.    We agree.0

0
The dissent claims that "[t]he relationship between Mele and
Tri-County does not deprive Hartford of its status as an innocent
third party." Dissent Typescript at 9. We are confident that
our analysis, which relies on the Miller Act cases and which


                                    22
                       IV.   ERISA Preemption

            Hartford next contends that Local 542's action under

the Bond is preempted by the Employees Retirement Income Security

Act, 29 U.S.C. §§ 1001-1461 ("ERISA").0   We must also reject this

argument.

                                 A

            With several exceptions not relevant here, § 514(a) of

ERISA, 29 U.S.C. § 1144(a), "preempts 'any and all State laws

insofar as they may now or hereafter relate to any employee

benefits plan' covered by the statute." Mackey v. Lanier

Collection Agency & Service, Inc., 

, 829 (1988)

(quoting § 514(a)).

              We recently stated that a rule of law "relates to" an

ERISA plan "if it is specifically designed to affect employee

benefits plans, if it singles out such plans for special

treatment, or if the rights or restrictions it creates are

predicated on the existence of such a plan."    United Wire, Metal

and Machine Health and Welfare Fund v. Morristown Memorial
Hospital, 

, 1192 (3d Cir.), cert. denied, __ U.S.

__, 

(1993) (footnotes omitted).




leads to Hartford's liability, would be followed by Pennsylvania
courts.
0
 We are not persuaded by Local 542's argument that Hartford
failed to preserve its preemption claim for appeal because
Hartford first raised the issue in its proposed findings of fact
after all evidence had been adduced. Accordingly, we address
Hartford's preemption argument on the merits in text.


                                 23
             In addition, state causes of action which conflict with

ERISA § 502(a) (ERISA's civil enforcement mechanism) are also

preempted.    Pilot Life Ins. Co. v. Dedeaux, 

, 54

(1987); see also Ingersoll-Rand Co. v. McClendon, 

,

142 (1990).

             Although neither party has briefed the issue, we assume

that Local 542 is proceeding at common law as third-party

beneficiary of the surety bond.     See Philadelphia v. Smith

Roofing, 

, 229 (Pa.Super. 1991).

          At the outset, it is clear that the cause of action

relied upon by Local 542 is neither "specifically designed to

affect employee benefits plans" nor "singles out" such plans for

special treatment.    United 

.    Rather, such

common law causes of action are "generally applicable" laws that

"make[] no reference to, [and] indeed function[] irrespective of,

the existence of an ERISA plan."       

.

             Nor is the cause of action "predicated on the existence

of" an ERISA plan.     United 

.   In Ingersoll-
Rand the Supreme Court held that ERISA preempted Texas' common

law action against an employer for terminating an employee in

order to avoid paying pension fund benefits.      One of the two

reasons given by the Court for why the Texas action was preempted

was that "in order to prevail [in the cause of action], a

plaintiff [must] plead, and the court [must] find, that an ERISA

plan exists and the employer had a pension-defeating motive in

terminating the employment."     

   Such a cause of action


                                  24
"relates not merely to pension benefits, but to the essence of

the pension plan itself."   

the original).   The

Court concluded that "[b]ecause the court's inquiry must be

directed to the plan, this judicially created cause of action

'relate[s] to' an ERISA plan."    

inquiry is

necessary in the present action.

            Here, the district court need only determine Hartford's

obligations under the Bond.   It need make no inquiry into the

validity or status of the funds (or indeed whether they are ERISA

funds), nor need it explore Hartford's motives regarding employee

benefits.   The fact that the claimant under the bond happens to

be an ERISA fund is not the kind of "critical factor in

establishing liability" that prompted preemption in Ingersoll-

Rand. 

0
For this reason, Hartford's reference to our decisions in
Bricklayers and Allied Craftsmen International Union Local 33
Benefits Funds v. America's Marble Source, Inc., 

(3d
Cir. 1991) and 1975 Salaried Retirement Plan v. Nobers, 

(3d Cir. 1992), cert. denied, __ U.S. __, 

(1993) is inapposite. Bricklayers held that ERISA preempted the
New Jersey Construction Workers' Fringe benefit Security Act,
N.J.STAT.ANN. § 34:11A-1--34:11A-12, which imposed certain
obligations on prime contractors and owners of construction
projects to assure payments owed by subcontractors-employers to
ERISA-regulated fringe benefit funds. The New Jersey statute
challenged in Bricklayers was "specifically designed to affect
employee benefit plans," 

(quoting
Mackey v. Lanier Collection Agency & Serv., 

, 829
(1988)), and, as such, was clearly within the preemption
doctrine.
          In Nobers, various plaintiffs brought a contract action
seeking damages equivalent to what they would have received under
an ERISA plan had they not been terminated under certain
allegedly improper circumstances. This Court determined,
following Ingersoll-Rand, that the action was preempted because
it "depend[ed] on the existence of an ERISA plan" and "if there
were no plan, there would have been no cause of action." Nobers,


                                  25
           Our recent decision in Haberern v. Kaupp Vascual

Surgeons Pension Plan, 

, 1497 (3d Cir. 1994) is

instructive on this point.   Ms. Haberern's employer made

contributions to her pension plan based on the size of her salary

excluding bonus.   By re-characterizing a portion of her

compensation as a "bonus," the employer effectively reduced the

amount it paid into her pension plan.    Ms. Haberern claimed that

this constituted a violation of ERISA.    The defendant argued that

Ms. Haberern's status as an at-will employee under Pennsylvania

law allowed it to change her compensation at any time.     Ms.

Haberern responded that ERISA preempted Pennsylvania law on at-

will employment in this regard.    On appeal, we held that

Pennsylvania's common law presumption of at-will employment

relationships was not preempted by ERISA because the presumption

was "unrelated to the existence vel non of any pension plan." 

  The very same may be said of Local 542's cause of

action.    Simply because the sums collected may ultimately feed

into an ERISA-governed fund does not in itself mean that the

cause sued upon creates rights or restrictions which are

"predicated on" the existence of an ERISA 

. We find Nobers to be distinguishable. The
state contract action challenged in Nobers was predicated on the
existence of benefits allegedly available to certain employees
under the ERISA plans. Thus, Nobers would have required "a
plaintiff [to] plead, and the district court [to] find, that an
ERISA plan exists" and that the plaintiffs would have been
entitled to benefits under the plan, the very exercise which
prompted preemption in 

. We need
undertake no such exercise here.
0
 Indeed, it should not be overlooked that the damages sought by
Local 542 and ordered to be paid by Hartford include not just
benefit funds, but union dues as well.

                                  26
                                 B

          Nor is the cause of action asserted here subject to

what we have termed "conflict preemption" under ERISA.    See PAS

v. Travelers Insurance Company 

, 356 (3d Cir. 1993).

ERISA's civil enforcement remedies were meant to be exclusive.

Pilot 

.   Thus, even a common law cause of

action is preempted by ERISA if it conflicts directly with an

ERISA cause of action.    See 

.

          Together, ERISA §§ 502 and 515 (29 U.S.C. §§ 1132

and 1145, respectively) "provide a cause of action and remedies

for an employer's failure to fulfill its obligations to make

pension or welfare fund contributions pursuant to a plan or

collective bargaining agreement." Bricklayers and Allied

Craftsmen International Union Local 33 Benefits Funds v.

America's Marble Source, Inc., 

, 117 (3d Cir. 1991)

(emphasis added).

          Section 3 of ERISA, 29 U.S.C. § 1002(5), defines

"employer" as "any person acting directly as an employer, or

indirectly in the interest of an employer, in relation to an

employee benefit plan."   Courts that have considered the matter

have all but unanimously held that sureties do not fall within

this definition. See, e.g., Carpenters So. Cal. Admin. Corp. v. D
& L Camp Construction Co., Inc., 

, 1000 (9th Cir.

1984) (legislative history of ERISA revealed no Congressional

intent to "expand the concept of employer . . . to include




                                 27
sureties, whose obligations are fixed by contract and regulated

by state law for the protection of the public").

            The Eleventh Circuit has emphasized that sureties who

are not signatories to the collective bargaining agreement

between the employer and the claimants do not fall within the

ERISA definition of "employer," stating as follows:
          The phrase, "in the interests of the
          employer" is the operative one here. The
          surety does not act indirectly in the
          interests of the employer, but rather acts
          directly in the interests of employees
          damaged by the employer's failure to pay.

Xaros v. U.S. Fidelity and Guarantee Co., 

, 1180

(11th Cir. 1987); cf. Laborers Local 938 Joint Health & Welfare

Trust Fund v. B.R. Starnes Co., 

, 1457 (11th Cir.

1987); Giardiello v. Balboa Ins. Co., 

(11th Cir.

1988).    But see Greenblatt v. Delta Plumbing & Heating Corp., 

, 629 (S.D.N.Y. 1993) (rejecting the reasoning of the

Eleventh and Ninth Circuits and holding that a surety qualified

as an employer under ERISA).

            We agree with the Ninth and Eleventh Circuits that a
surety does not act "in the interest of an employer."    Although

it is true that the surety's services are often purchased by the

employer in order that it may proceed with its business, the

ultimate beneficiaries of that contract are the claimants on the

bond.    The surety does not stand in an employer relationship to

the claimants, nor is it the agent of the employer.     Thus,

Hartford, which is neither the employer of Local 542's operating




                                 28
engineers nor acting "in the interests of" their employer, cannot

claim ERISA preemption.



                             V. Damages

          Hartford's final argument on appeal concerns the extent

of its liability under the Bond.      The district court awarded

Local 542 a total of $126,224.11, including $78,794.79 in unpaid

contributions, $5,719.11 in union dues and $42,190.21 in

liquidated damages, all derived from the provisions of the CBA

(Collective Bargaining Agreement) less $480.00 in prepayment.0

The court also awarded reasonable attorney fees and costs of

$19,881.73 according to the terms of the PFA (Pension Fund

Agreement).0   Hartford contends that under Pennsylvania law its

obligations do not extend to payment of liquidated damages and


0
 Article VI of the Collective Bargaining Agreement requires the
employer (Tri-County) to make timely fringe benefit contributions
to the Funds of "26.6% of wages" divided up among the various
funds, as well as a Union Check-Off equalling 3.2% of wages.
Section seven of Article VI provides for a surcharge of 20% per
annum or 2% above prime rate, whichever is higher, on certain
late contributions. App. 25.
0
 Article VIII, section 1 of the pension fund trust agreement
between the union and the employer provides that:

          The Board of Trustees . . . shall have the
          right . . . to institute and prosecute . . .
          any proceeding at law . . . against any
          Employer . . . to collect unpaid
          contributions which may be or become due
          under this Agreement . . .. Such Employer
          shall pay all costs and reasonable attorney's
          fees incurred by the Board of Trustees in
          connection with any such litigation.

App. 133 (emphasis added)



                                 29
attorney fees in the absence of a specific bond provision to the

contrary.   We agree.

            Pennsylvania law, at least as announced by that State's

intermediate courts, limits a surety's obligations to those

detailed in the bond itself, Reliance Universal, Inc. v. Ernest

Renda Contracting Co., Inc., 

, 45 (Pa.Super. 1982),

and not those contained in the agreement between the contractor

and the claimant.    J.C. Snavely & Sons, Inc. v. Web M & E, Inc.,

, 336 (Pa.Super. 1991).    Local 542's claims against

Hartford are predicated, at least in part, on Tri-County's

obligations to it under the CBA and the PFA.   Because the Bond

makes no reference to liquidated damages or attorney fees,

Hartford has disavowed any responsibility for these items.

Hartford's bond provides as follows:
          [Hartford agrees] that every claimant . . .
          who has not been paid in full before the
          expiration of a period of ninety (90) days
          after the date on which the last of such
          claimant's work or labor was done or
          performed . . . may sue on this bond for
          . . . such sum or sums as may be justly due
          claimant. . ..

App. 97.    Hartford is thus obliged to render to Local 542 all

sums which Local 542 is "justly due" for labor.    The district

court reasoned that as Local 542 members would not be "paid in

full" for their labor until all of Tri-County's obligations under

the CBA and PFA (including liquidated damages and attorney fees)

had been satisfied, Hartford must be liable for these items.

Although the parties have pointed us to no decisions of the




                                 30
Pennsylvania Supreme Court treating the issues presented here, we

believe that the law of Pennsylvania is otherwise.

          As previously noted, the bond is silent as to attorney

fees and liquidated damages, and it is the language of the bond

that is controlling under Pennsylvania law.    Thus, the central

question necessarily becomes:    What obligations are "sums justly

due" for labor?   One answer is that the surety's obligations to

the claimant are co-extensive with those of the employer.       But

this is simply to say that Hartford's obligations are fully

determined by the agreements between Tri-County and Local 542. As

already noted, this has been expressly (and recently) rejected by

Pennsylvania's lower courts.    Such decisions are persuasive

precedent, National Surety Corp. v. Midland Bank, 

, 29

(3d Cir. 1977), and are "not to be disregarded by a federal court

unless it is convinced by other persuasive data that the highest

court of the state would decide otherwise."    West v. American

Telephone & Telegraph Co., 

, 237 (1940).0

0
The district court considered the Supreme Court's interpretation
of the Miller Act in United States for the Benefit of Sherman, et
al. v. Carter, et al., 

(1957) to be just such
"persuasive data." The Miller Act requires contractors on public
works projects to post a bond covering the "sum or sums justly
due" suppliers of material and labor. See 40 U.S.C.
§ 270a(a)(2). Carter held that "sums justly due" under the
Miller Act included not only delinquent contributions to fringe
benefits funds, but also liquidated damages and attorney fees.
          We are not convinced that Carter is apposite in the
present case. First, the Miller Act imposes policy-driven
statutory obligations on the principal and surety which are not
implicated here. Second, this Court implicitly rejected this
view in Knecht, Inc. v. United Pacific Insurance Company, 

(3d Cir. 1988), which concluded that under Pennsylvania
law attorney fees are not "sums justly due" under a payment bond.

Further, in Carter the parties had expressly


                                 31
             Nevertheless, it is clear that what Local 542 is

"justly due" turns at least in part on what Tri-County promised

Local 542.    And this will inevitably be determined by reference

to the agreements between them.     Indeed, Hartford does not

contest that Local 542 is "justly due" the fringe benefit

contributions and union dues which are specified in detail in the

CBA.   The question thus becomes what of Tri-County's obligations

to Local 542 are "sums justly due" for labor.

             In regard to attorney fees, we have already held that

they are not "sums justly due."     In doing so, we rejected an

argument very much like that proffered by Local 542 and accepted

by the district court.    In Knecht, Inc. v. United Pacific

Insurance Company, 

(3d Cir. 1988), a supplier brought

suit on a surety bond covering "sums justly due," seeking, inter

alia, attorney fees. We stated as follows:
          The district judge noted that unless the
          [attorney] fees were paid, [the claimant]
          would not be made whole. This undoubtedly is
          correct but the judge's holding proved too
          much, as it is always true that when a
          plaintiff must make expenditures for
          attorney's fees to recover a debt it will not
          be made whole unless its fees are also
          recovered. Further, whenever a person is
          indebted to another the sum owed may be
          regarded as justly due. . . . In fact, we can
          hardly conceive of how a bond could be
          written to authorize a claimant to sue for

stipulated that liquidated damages and attorney fees were
compensation for 

. Finally, whether
Carter can stand for the broader proposition that such sums are
always "justly due" must be questioned in the aftermath of F. D.
Rich Co., Inc. v. United States, 

(1974), which held
that an award of attorney fees under the Miller Act would in
ordinary circumstances be an inappropriate abrogation of the
American rule. 

                                  32
           anything less than a sum justly due. We also
           observe that in some contracts express
           provision is made for recovery of attorney's
           fees in the event of an action for breach.
           Yet in [the bond] no reference was made to
           attorney's fees. In the circumstances, we
           conclude that attorney's fees are not
           recoverable in this action.

    Since Knecht, the Pennsylvania Superior Court has

held that attorney fees are not sums "justly due."    

.     As we are unable to discern a meaningful

difference between the present action and the cause of action

asserted in Knecht, we are constrained to reverse the district

court's award of attorney fees.

           We must similarly reverse the district court's award of

"liquidated damages," a sum which the CBA refers to as a

"penalty" to be assessed against Tri-County in the event of late

payment of the fringe benefit contributions.0     On at least three

occasions Pennsylvania courts (or courts applying Pennsylvania

law) have rejected the liability of a surety for default

obligations which add some percentage accretion to the underlying

debt.   See Reliance Universal, Inc. of Ohio v. Ernest Renda

0
Section seven of Article VI of the CBA, entitled "Penalty
Clause," provides as follows:

           All Fringe Benefits Funds. [P]ayments are
           due . . . not later than the 25th of the
           month . . .. In the event [of a delinquency
           continuing until] the 15th of the next
           succeeding month, there will be due . . . a
           penalty in the amount of twenty percent (20%)
           per annum or 2% above the prime rate,
           whichever is higher, of the original
           contributions which will be assessed until
           the delinquency . . . [is] resolved.

App. 25.

                                  33
Contracting Co., 

, 44-46 (Pa.Super. 1982) (surety on

bond covering cost of "all labor and material used" not liable

for a 1 1/2% "service charge" for late accounts provided for in

contract between contractor and supplier because not part of the

"cost" of labor and materials); Lite-Air Products, Inc. v.

Fidelity & Deposit Co. of Maryland, 

, 804 (E.D.Pa.

1977) (surety on bond covering "amount due the claimant for such

labor or material" not liable for "finance charges" on late

payments for materials because such charges are more akin to

penalties or damages than they are related to the value of the

materials); J.C. Snavely & 

(surety on

bond covering "sums as may be justly due" not liable for attorney

fees and finance charges accrued under agreement between claimant

and contractor because not detailed in the payment bond).     See

also Salvino Steel & Iron Works, Inc. v. Fletcher & Sons, Inc.,

, 856 (Pa.Super. 1990) (surety on bond covering

payment to those who have "furnished material or performed or

supplied labor" not liable for delay damages attributable to

contractor because not within the express language of the bond).0

          These cases reveal a clear reluctance on the part of

Pennsylvania courts to expand the liability of a surety beyond

the base or essential obligations of the contractor.   Indeed, in

Lite-Air the court declined to hold a surety liable for "finance
charges" for delinquent payments as they were in the nature of a


0
The district court distinguished many of the above-cited cases
on the ground that they involved suppliers of material, not
labor. We are not persuaded by this distinction.

                               34
penalty -- and "penalty" is precisely how the "liquidated

damages" are described in the CBA.   In the absence of an express

provision in the Bond, we conclude that such additional

contractual "charges," "fees" or "penalties" cannot be considered

"sums justly due" and hence are not recoverable from a surety

under Pennsylvania law.   Accordingly, we will reverse the

district court on this ground as well.




                               VI.

          Having considered the record and the arguments of the

parties, we will affirm the district court's March 2, 1994 and

February 15, 1995 orders insofar as they entered judgment on

Count IV against Hartford and in favor of Local 542 for unpaid

contributions and union dues, less prepayments.

          We will, however, reverse the district court's orders

insofar as they grant liquidated damages and attorney fees to

Local 542, and we will remand to the district court with

directions that the March 2, 1994 order and the February 15, 1995

judgment be modified to delete all amounts awarded to Local 542

for liquidated damages and attorney fees, consistent with the

foregoing opinion.



Ragan v. Tri-County Excavating, Inc. et al.

Nos. 94-1388 & 95-1189

HUTCHINSON, J., Dissenting.




                                35
             I respectfully dissent from the Court's decision to

affirm the district court's March 2, 1994 order.     In my view, the

district court erred as a matter of law in piercing the corporate

veil.   This case does not involve exceptional circumstances, nor

demand the use of this extraordinary remedy to impose liability

on Hartford, an independent third-party surety.     Moreover, the

district court's factual findings leave me with a definite and

firm conviction that a mistake was committed.     In my opinion, the

Court embraces, contrary to applicable Pennsylvania law, an

overly broad view of the doctrine that permits a court to pierce

the corporate veil in extraordinary cases to prevent fraud or

injustice.    In addition, I believe the Court's holding is likely

to unsettle the reasonable expectations of parties who secure

bonds for the payment of materialmen and suppliers (as well as

others) in construction projects and reduce competition in the

industry.0

             Local 542 concedes that it did not give Hartford ninety

days notice of its claims in accord with the bond terms.

Pennsylvania law requires compliance with this type of notice

provision as a condition precedent to recovery on a payment bond.

See Lezzer Cash & Carry, Inc. v. Aetna Ins. Co., 

,

865 (Pa. Super.) ("The notice provision at issue here stated

specifically that written notice within the ninety day period was

a condition precedent to Aetna's liability on the bond.     We are

0
I agree with the Court that Pennsylvania law, not ERISA, governs
this case. I also concur with the Court's conclusion that
Hartford could not be liable for counsel fees or liquidated
damages.


                                  36
obliged to enforce the terms of the agreement."), appeal denied,

(Pa. 1988).     Therefore, Local 542 cannot recover

against Hartford unless it can prevail under an alter ego theory.

          Pennsylvania law is unclear as to whether the finding

of alter ego is a question of fact or law.    I am not insensitive

to this Court's statement, applying federal law, that "[a]

finding of an alter ego situation is a factual one and must be

supported by the record."0    Carpenters Health & Welfare Fund v.

Kenneth R. Ambrose, Inc., 

, 283 (3d Cir. 1983)

(citation omitted). More recently, however, we stated:
               Assuming that Pennsylvania will permit
          recovery on an alter-ego theory on a showing
          of injustice, as opposed to fraud or deceit
          (a point not yet decided by the Pennsylvania
          Supreme Court), it is nevertheless plain that
          Pennsylvania, like New Jersey, does not allow
          recovery unless the party seeking to pierce
          the corporate veil on an alter-ego theory
          establishes that the controlling corporation
          wholly ignored the separate status of the
          controlled corporation and so dominated and
          controlled its affairs that its separate
          existence was a mere sham. See In re Penn
          Cent. Sec. Litig., 

, 1035
          (E.D. Pa. 1971); Ashley v. Ashley, 

, 236-238, 

, 641 (1978). In
          other words, both Pennsylvania and New Jersey
          require a threshold showing that the
          controlled corporation acted robot- or
          puppet-like in mechanical response to the
          controller's tugs on its strings or pressure
          on its buttons.



Culbreth v. Amosa Ltd., 

, 14-15 (3d Cir. 1990) (per

curiam); see also Craig v. Lake Asbestos of Quebec, Ltd., 843
0
This statement, arguably dictum, can be read as standing for no
more than the obvious proposition that every legal conclusion
must have factual support.


                                  

, 150 (3d Cir. 1988).    The Culbreth standard has been

followed by several district courts.     See Jiffy Lube Int'l, Inc.

v. Jiffy Lube of Pa., Inc., 848 F. Supp 569, 580 (E.D. Pa. 1994);

May v. Club Med Sales, Inc., 

, 938-39 (E.D. Pa.

1993); Stinson v. GAF Corp., 

, 645-46 (W.D. Pa.

1990).   This suggests to me that the alter ego determination

involves elements of law as well as fact.

           In any event, the treatment of two companies as alter

egos is "an extraordinary remedy preserved for cases involving

exceptional circumstances."     Village at Camelback Property Owners

Ass'n, Inc. v. Carr, 

, 533 (Pa. Super. 1988), aff'd

per curiam, 

(Pa. 1990); see also First Realvest, Inc.

v. Avery Builders, Inc., 

, 604 (Pa. Super. 1991)

(characterizing the alter ego remedy as "extreme"); Connors v.

Peles, 

, 1559 (W.D. Pa. 1989) ("The decision of

a court to pierce the corporate veil . . . is to be exercised

reluctantly and cautiously.").    A party attempting to negate the

separate existence of a corporate entity has the burden of

presenting "clear, direct, precise and believable evidence that

the corporate veil should be pierced."    Iron Worker's Sav. & Loan
Ass'n v. IWS, Inc., 

, 376 (Pa. Super. 1993); see also

First 

(party failed to state sufficient

facts to support alter ego theory); Carpenters 

(burden of proof rests on party attempting to pierce the

corporate veil).

           Pennsylvania law considers a variety of factors to

determine whether one corporation is the alter ego of another.


                                  38
They include the ignoring of corporate formalities, gross

undercapitalization, a lack of corporate records, non-functioning

officers and directors, non-arms-length transactions between the

corporations, and especially domination and day-to-day control

sufficient to deprive the alter ego of its corporate identity.

See Village at 

; see also Carpenters

; United States v. Pisani, 

, 88

(3d Cir. 1981).    Before concluding a corporation is the alter ego

of another, the trial court must be able to conclude, based upon

the record, that justice or public policy demands the use of such

an extraordinary remedy, that the rights of innocent parties will

not be prejudiced, and that the theory of the corporate entity

will not be rendered useless.   Lezzer Cash & 

(quoting 

).     Absent extraordinary or

unusual circumstances, a court should recognize and maintain the

separate corporate identity.    First 

;

Reverse Vending Assoc. v. Tomra Systems US, Inc., 

, 1128 (E.D. Pa. 1987).

          In determining whether Tri-County was Mele's alter ego,

the district court expressly found that Tri-County consistently

complied with all corporate formalities.    Despite this finding,

however, it then went on to conclude that the two corporations

were alter egos.   It found:   (1) Tri-County only worked on Mele

projects; (2) Tri-County was grossly undercapitalized; (3)

Hartford treated Tri-County and Mele as one company; (4) Tri-

County's president, who was the daughter of Mele's owner, lacked

knowledge of the company's business; (5) Mele assisted in hiring


                                 39
Tri-County employees; (6) Tri-County had never paid dividends;

(7) Tri-County's employees only contact with Tri-County was its

name on their paychecks; (8) the two companies' employees were

interchanged; and (9) Mele proposed to subordinate all of its

debt to Tri-County in bankruptcy proceedings without Tri-County's

knowledge or authorization.     Ragan v. Tri-County Excavating,

Inc., No. 92-0066, slip op. at 4-7, 15 (E.D. Pa. March 2, 1994).

            I believe the district court's findings are

insufficient to support an alter ego theory.      Put simply, Local

542 failed to meet its threshold burden of showing that Mele

"wholly ignored the separate status of [Tri-County] and so

dominated and controlled its affairs that its separate existence

was a mere sham."     

.   Nor did Local 542

show that Tri-County "acted robot- or puppet-like in mechanical

response to [Mele's] tugs on its strings or pressure on its

buttons."   

   In my opinion, the present circumstances

are not so "exceptional" or "unusual" as to warrant extension of

this extraordinary remedy to force Hartford to pay debts it did

not agree to cover.    See Village at 

;

First 

; Lezzer Cash & 

.

            I also believe the Court's statement that "no finding

of fraud or illegality is required before the corporate veil may

be pierced, but rather, that the corporate entity may be

disregarded 'whenever it is necessary to avoid injustice,'"

Majority Op. at 16 (quoting Rinck v. Rinck, 

, 1223
(Pa. Super. 1987)), is an incorrect statement of Pennsylvania


                                  40
law.   The Court in Culbreth did assume that Pennsylvania would

pierce the corporate veil upon a showing of injustice but,

nevertheless, concluded that a party had to make a threshold

showing that the subordinate company was completely controlled

and dominated or "acted robot- or puppet-like."   

-15.   I do not think Local 542 has so shown.    Neither

Rinck nor Culbreth involved an attempt to impose liability on a

third-party through the third-party's dealings with an alter ego.

Though an "injustice" standard is more flexible than a standard

of "fraud," nevertheless, when the corporate veil is pierced

under either standard, the knife is usually pointed at the

shareholder who stands behind the veil, not those who contract

with the shareholder's alter ego.

           In reaching its conclusion, I believe the district

court was improperly induced to make Hartford a full participant

in the activities of Mele and Tri-County by its fixation on the

fact that Local 542 was attempting to recover money for pension

and other benefit plans.   During the hearing, for instance, the

district court stated that "nothing is more sacred today in this

country than a pension plan because it's been ignored by too many

people and that's important."   Appellant's Appendix ("App.") at

585.   It also stated that "[t]o preclude recovery on their claim

would have a serious impact on their pensions and health and

other benefits."   Ragan, No. 92-0066, slip op. at 16.    Though

workers' pension rights are important, I think the district

court's decision placed too much emphasis on the persons in whose




                                41
behalf Local 542 sued.    The pension problem should have been left

to ERISA, which we all agree does not apply here.0

          In addition to finding exceptional circumstances where

none exist, I believe the district court committed legal error by

utilizing the alter ego theory to impose liability on an innocent

third-party (Hartford).    Ordinarily, courts apply the alter ego

theory to impose liability upon a shareholder who manipulates its

so-called alter ego.     These cases present issues of corporate

governance.   The district court, however, made no distinction

between the issue of corporate governance and the issue of

contract and surety law, which controls this case.    Instead, it

simply treated this matter as one involving the alter ego

doctrine and then used that doctrine to change the text of a

contract between Hartford and Mele.    It allowed Local 542 to

pierce the corporate veil and impose liability on Hartford, a

third-party contracting with Mele in the ordinary course of its

business as a surety, rather than on Mele, the manipulative

corporate shareholder who is responsible for the injustice, if

any, that may be present here.

          In doing so, it failed adequately to consider

Pennsyvlania's general rule against piercing the corporate veil

to the prejudice of innocent parties.    See 

; Lezzer Cash & 

.    In Lezzer Cash &




0
The ERISA issues seem to have dropped out of the case when Tri-
County conceded its liability for the pension payments due
Local 542.

                                  42
Carry, the Superior Court of Pennsylvania addressed a fact

pattern similar to this one. It stated:
          [T]here is no need to pierce the corporate
          veil in order to avoid injustice. As to the
          corporate enterprises of SGA [principal and
          general contractor] and Oreland
          [subcontractor], whatever their relationship
          may be, both Aetna [surety] and Lezzer
          [materialman] are not involved. On the
          contrary, both are innocent parties. Aetna
          issued a payment bond as requested by SGA and
          included therein terms which were
          satisfactory to SGA, the principal, and PHP,
          the obligee. Lezzer entered a contract to
          sell materials to Independence [sub-
          subcontractor], with whom it had been doing
          business on prior occasions. It did so with
          knowledge of or the ability to learn the
          terms of the payment bond which had been
          issued by Aetna. As between Aetna and
          Lezzer, both innocent parties, there was no
          reason to pierce the corporate veils of SGA
          and Oreland in order to alter the terms of
          the bond which Aetna had agreed to write to
          protect designated subcontractors and
          materialmen.



Lezzer Cash & 

.

          In determining that Hartford was not innocent because

it "considered Mele and Tri-County as one company,"   Ragan, No.

92-0066, slip op. at 12, 16, the district court relied upon Tri-

County's indemnity agreement, an internal memorandum from

Hartford that referred to Tri-County as part of Mele, and

Hartford's review of Tri-County's financial statements.     In my

view, this is insufficient to support a finding that Hartford was

not an innocent third-party.   See James E. McFadden, Inc. v.
Baltimore Contractors, Inc., 

(E.D. Pa. 1985)

(inter-office memoranda largely irrelevant to alter ego issue);


                                43
Global Building Supply, Inc. v. WNH Ltd. Partnership, 

(4th Cir. 1993) (name association insufficient to find one

company is alter ego of other).    As with the surety in Lezzer

Cash & Carry, Hartford issued a payment bond containing terms

agreeable to Mele, not Local 542.      The relationship between Mele

and Tri-County does not deprive Hartford of its status as an

innocent third-party.

          In this respect, I recognize Pennsylvania's tendency to

look to federal cases interpreting the Miller Act as persuasive

authority, and I have no quarrel with the principle that

"sureties may be reached 'where ordinary principles of corporate

law permit the courts to disregard corporate forms.'"       Majority

Op. at 21 (quoting Global Building Supply, 

).   However, in Pennsylvania, "ordinary principles of

corporate law" seem to me to preclude use of alter ego doctrine

to impose liability on innocent third-parties.      See 

; Lezzer Cash & 

.     In

particular, I do not find persuasive those Miller Act cases that

pre-date Ashley and Lezzer Cash & Carry.     See Global Building

(describing pre-Bateson cases as

"arguably" more prove to excuse non-compliance with a bond's

notice provision than those that came after Bateson).

           Additionally, I am unable to accept the Court's

conclusion that Hartford (as a third-party surety) can be

compelled to pay because the party "in control of a corporation

uses that control, or uses the corporate assets, to further his

or her own personal interests. . . ."     Majority Op. at 16


                                  44
(quoting 

).    Such a general statement

strikes me as obiter dictum.   At best, it is a truism.   At worst,

if taken seriously, it would permit courts to ignore the fiction

of separate corporate existence at will.   That fiction is one of

proven utility and, in my judgment, essential to the functioning

of a modern free market industrial society.

          Finally, I believe the district court not only erred as

a matter of law, but that its ultimate finding that Mele and Tri-

County were alter egos is clearly erroneous.    Put somewhat

differently, viewing the record as a whole leads me to a

"definite and firm conviction that a mistake has been committed."

Anderson v. City of Bessemer, 

, 573 (1985) (internal

quote omitted).

          Specifically, Tri-County followed all corporate

formalities and maintained a legitimate set of corporate records.

Although Mele may have participated in Tri-County's management,

there is no clear indication that John Mele or his corporation

dominated and controlled Tri-County to such an extent that it was

a facade or a sham.   See 

(mere

participation in management is insufficient).    Further, neither

John Mele nor his corporation owned any stock in Tri-County; nor

can the court attribute a financial interest to John Mele and the

Mele corporation simply because his three daughters were Tri-

County's sole shareholders.    Related family corporations often

have common stockholders.

          The fact the district court seemed to rely upon most

strongly was the indemnity agreement Hartford demanded from Tri-


                                 45
County and the Mele family's other corporations.     The record

indicates, though, that Tri-County and its owners reasonably

thought they would benefit financially if Mele obtained bonding

and performed the project.     Thus, I conclude the indemnity

agreement is insufficient to justify the conclusion that Tri-

County was Mele's alter ego.

            The district court also relied on testimony that some

of Tri-County's employees were interviewed and hired at Mele's

offices.   The record, however, also shows that these interviews

were done by a Tri-County employee, who made the decision to

hire.    Moreover, the testimony to the effect that it was common

knowledge that Tri-County and Mele were the same company can just

as easily be taken as showing that Local 542 dealt with Tri-

County with its eyes open.     See Lezzer Cash & 

.    The fact that a Tri-County employee attended a meeting with

Hartford concerning the surety bond does not appear unusual to me

as Hartford was asking Tri-County to indemnify it.

            I recognize, of course, that Tri-County's president's

responses to the district court could indicate that she lacked

any detailed knowledge of Tri-County's operations.     The district

court used these responses to conclude that the president was a

mere figurehead.    Many times, however, her answers merely

indicated confusion over the nature of the question and the

district court's manner in asking it.

            The district court believed that Tri-County's ignorance

of Mele's proposal to subordinate Tri-County's debt in its

bankruptcy proceeding was significant.    I fail to see how a


                                  46
"unilateral" offer by Mele to subordinate its debt to Tri-County,

without Tri-County's knowledge, is evidence of Tri-County's

participation in abuse of the corporate form warranting

application of the alter ego doctrine.

          The district court's conclusion that Tri-County only

worked on projects with Mele is not borne out by the record.     The

district court's belief that Tri-County was grossly

undercapitalized ignores the economic reality that it had

operated successfully for twenty-three years.   So, too, Tri-

County's failure to pay dividends strikes me as nothing unusual

for family corporations whose owners are acquainted with our

income tax laws.

          On the other hand, the undisputed fact that there was

no commingling of funds and Tri-County was not recently

incorporated indicate, along with their observance of corporate

formalities, that the separate corporate existence of Mele and

Tri-County should not be ignored.   Taking all these facts

together, I am unable to conclude that Local 542 produced

evidence that is clear, precise and convincing enough to warrant

piercing the corporate veil.

          Accordingly, I would reverse the district court's

judgment in all respects.




                               47
48