No, You Can’t Pierce the Corporate Veil that Easily

With all the attention lately to the First Amendment rights of corporations, whether under the free speech or freedom of religion parts of that part of the Bill of Rights, we sometimes lose focus on the most basic benefit of incorporation:  the provision of limited liability to the owners and operators of a business.  This essentially means that the assets of the business alone are available to any creditors of the business, whether as a result of contract or of tort.  While this may seem obvious now, it may surprise a reader to learn that this wasn’t always the case, and that general incorporation laws are just over a century old; before that, charters for corporations were granted by legislatures on a one-off basis.  And they often came with severe restrictions on how the corporation could operate.  At the very beginning of my legal career, as a summer clerk over 35 years ago, I remember writing a summary of the revolutionary provision of the Washington State Corporations Act that eliminated the requirement that there be a minimum of three directors for a corporation.  It was barely 20 years ago that the requirement that the same person not hold the offices of president and secretary was abolished.

The imposition of such requirements has generally been done away with, and with the advent of limited liability companies, or LLCs, and the IRS’s “check the box” rules that allow entities to be taxed in many cases just as they wish, formality as a cost of limited liability seems almost an anachronism.

A recent case decided by Judge Jed Rakoff of the U.S. District Court for the Southern District of New York, however, has caused me to think about all these issues.  The case involved a mislabeling claim over whether oil was properly marketed as “100% olive oil.”  The oil’s distributor filed for bankruptcy, making the lawsuit against it subject to the automatic stay.  So the plaintiffs amended their suit to be against the family management company and the three principal owners of the bankrupt distributor.  Their claim was they could pierce the corporate veil.  The New York corporate law standard for piercing a corporate veil includes the following:

 (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury.

The plaintiffs reasoned that since they were claiming the mislabeling was a fraud, that they met the standard and could sue the owners directly.

Judge Rakoff was having none of it.  He cited the New York case that established the test and determined there was simply no evidence under the second prong:

To satisfy the second prong, plaintiff must “establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against [the plaintiffs] such that a court in equity will intervene.”

In other words, it is not sufficient that the owners may have used the corporation to commit fraud.  They must have used the corporate form in some way as a means of committing the fraud.  Otherwise, any claim of fraud would be grounds for piercing the corporate veil, pretty much meaning there was no corporate veil.

It might seem an obvious point, but Judge Rakoff’s decision is at least something someone can point to in the next case to try to get sanctions for someone making this entirely too broad claim.

Why We Do the Things We Do: A Thanksgiving Reminder

Every year at this time, I try to think of things to write about that are a little different from the plethora of lawsuits that seem to arise like mushrooms whenever anyone makes a claim about food.

This year, I’ve actually been fortunate to learn about a number of things that are simple reminders that ultimately the goal of the food industry is to feed the world, and that this can be a good thing.

The first are two stories about food gardens in what were previously food deserts in my hometown of Detroit.  This garden which is trying to raise funds to complete a project to build a community kitchen to go with a successfull community garden in the Brightmoor section of the city; and this garden (full disclosure:  members of my family are affiliated with it) that is part of this network that seeks to have the majority of the produce consumed in Detroit grown within the city limits.

In today’s Baltimore Sun, there is a story about plans to build a food production campus in an area of East Baltimore, to provide a chance for entrepreneurs to incubate food production businesses, including growing the food they use, in a part of Baltimore that will be visible to train passengers who currently see nothing but abandoned buildings.

And my own kids participated in a SNAP challenge to see how life is like for those who live off what are usually called food stamps.  Their verdict:  it’s a lot easier if you eat vegetarian and don’t have to deal with kids and their often finicky diets, and the number of times to have to tell yourself simply that no, you just can’t do that, even if it makes perfect sense like buying an inexpensive and fresh rotisserie chicken because it’s “prepared food” and not on SNAP, is legion.  It helps that they live in a region of upstate New York that is a food oasis rather than a desert.   It also helped that they both can cook (and have a fully-equipped kitchen to cook in) and that one of them had the time and they had the car and the gas to shop at all the right stores to stretch their dollars far.  So a lot of what they learned was about how fortunate they were that this challenge was not all that realistic when applied to them, compared to someone who might live far from a grocery that has any kind of fresh, let alone inexpensive, produce, has no or minimal cooking facilities, finicky and demanding children and no access to transportation.  When you add in all the other challenges a real SNAP participant would likely face, they were extremely thankful they were doing this for a limited period of time and extremely mindful of how hard it is for many.

I hope you all had a fine and bountiful Thanksgiving.


The U.S. Loses Its COOL. Again.

As you have probably read, the United States lost another round in its fight with Canada and Mexico in front of the World Trade Organization (“WTO”) over country of origin labeling (“COOL”) rules relating to beef and pork.  Unless an appeal is upheld, or our rules change, Canada and Mexico will have the right to retaliate against other U.S. products with restrictions of their own.

Reading the decision of the panel, which is 206 pages long, leaves one with the impression that there is nothing the U.S. could do either to win this argument or to change its labeling to comply with what the WTO is requiring.

Without going too deeply into the dispute, when you wade through all the verbiage it seems to come down to two arguments:

1.         The U.S. says, “the labeling requirements and recordkeeping requirements are the same for U.S. and imported beef and pork, because everyone has to say where it was born, raised and slaughtered.  Nothing could be fairer.”

2.         Canada, Mexico and the WTO panel say, “U.S. beef and pork producers have an advantage because they don’t really have to keep records to know what to put on the label and people won’t buy our cattle or pigs to raise and/or slaughter in the U.S. because it means they have to keep a record in order to do the labeling right.”

A WTO proceeding involves many cool charts

These two arguments really boil down to the age-old argument between “equality of opportunity” and “equality of result”, don’t they?  The U.S. is basically saying “everybody has to do the same thing, so that’s equal.”  Canada and Mexico are saying, “the result of us having to do the same thing ends up in a financial advantage for you, and that’s not equal.”  And the WTO agrees with them.  It’s a little bit like taxing everyone the same amount, the billionaire and the guy who doesn’t know where his next meal is coming from.  These are literally two competing worldviews, and as with any other two competing worldviews, different people have different ideas on which one is right (and people sometimes apply one of the positions to one situation and the other to a different situation).

Practice before a body like a WTO panel is quite different from the normal style of litigation in the United States, and while U.S. delegates to these kind of tribunals are well-trained for their task, U.S. politicians may be less likely to understand (at least publicly) the reasons for the different manner of submission and the possibility of a bad result.  Our advocates, however, good they are, cannot, of course, change the facts on which they must make their case, facts that are heavily influenced by domestic political considerations.  And in domestic politics, the idea that U.S. arguments are not automatically accepted as true is sometimes hard for some to accept.

Yet, the United States is as likely to be a complainant as a respondent before the WTO.  Again, though, it’s the age old argument:  I do it because I’m right and you do it because you want to annoy me or you know the panel will be prejudiced against me.

Any U.S. flexibility in this area, because these rules come directly from an Act of Congress, is also affected by domestic politics in other ways, including the overrepresentation of the states most dependent on agriculture in Congress and the happenstance of the first presidential caucuses being in Iowa.

Which really gets to the crux of the matter.  From the perspective of the WTO, a cow is a cow:  Mexican, Canadian and American cattle are “alike”.  From the standpoint of U.S. domestic politics, or some U.S. consumers, there’s a big difference.  Some people like to buy American, even if the cattle came from clear across the country and the imported cow came from closer in.  Some remember, as people are remembering right now as Chinese chickens are approved for importation, every food safety issue from an exporting country (as though there were no such issues in America).  Some people like local products, although the COOL regulations won’t tell you whether your beef came from Florida or Washington, Maine or California.

The problem, of course, is that the treaties that are administered by the WTO, while they take issues of consumer preference into account (each decision by the panel in this case had to weigh the costs against perceived benefits, and the U.S. actually prevailed on one issue), are more concerned with the goal of cutting down international barriers to trade than they are about the goals that are meant to be balanced against that goal.  The panels in these cases are not made up of American consumers, and they are made of free trade advocates.  Which may explain the decision better than anything.

This Email Isn’t Worth the Paper It Isn’t Written On


You know the old expression, variously attributed to Samuel Goldwyn and others, “ a verbal contract isn’t worth the paper it’s written on.”  In fact, of course, unless the statute of frauds applies, an oral contract is as good as any other contract.  And an email contract, under E-SIGN, the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. ch. 96, and UETA, the Uniform Electronic Transactions Act (applicable in every state except Illinois, New York and Washington), is, with some small exceptions for deeds, wills and the like, just as good as a written contract.

But not all writings form part of a contract, and neither do all emails.

A recent (unpublished) case out of New Jersey
involving the purchase and sale of seafood is illustrative.

Here is the base correspondence that, there seemed to be no question at all, made up the contract.  A seafood supplier sent a “blast” email to buyers and brokers that it was taking pre-orders for a particular parcel of tuna product, including “a description of the tuna, its volume and prices.”  A broker sent back the following email:

i will take it all

po 125151 thanks


The supplier responded:  “Done, thank you, Marc”.

The elements of a simple contract:  offer, acceptance, consideration.  They’re all there in remarkably clear language.

Now comes the complication.  An additional email is sent.

thank you

please send me the pics when you have them taken at the freezer



Now let’s play with this for a bit, before I tell you what really happened.

Imagine that the supplier did not send the requested pictures, and the tuna arrived and the buyer simply refused to pay for it, on the grounds that no pictures were sent.  The question is, did the last email alter the contract in any way?  And the answer is, no.  All the essential elements of a contract were already formed and the provisions about the pictures was never agreed to by the seller.  So the buyer would be obligated to buy the tuna anyway.

Imagine that the pictures were instead sent, but they showed tuna that did not meet the description that was in the offer.  The buyer then rejected the tuna on the grounds of the pictures.  Here we have an interesting question of the difference between the picture, which is evidence of the condition of the tuna, and the actual condition of the tuna.  If the pictures were accurate, the buyer would be justified in rejecting the tuna because it did not conform to the description in the offer.  That’s a basic ground for rejection under Section 2-602 of the UCC, “if the goods . . . fail in any respect to conform to the contract.”  We call it the “perfect tender rule”.  But that would apply whether there were pictures or not.  If the tuna wasn’t as described, then the buyer could reject.

If for some reason the tuna was better than the pictures, the rejecting buyer would be at risk that the seller could prove that.  That’s an unlikely, though not impossible, scenario.  Note that there are variations within official grades for products like tuna.  One could, reasonably, condition one’s acceptance on the pictures being acceptable, even if the tuna met a particular specification.  But that wasn’t the parties’ contract.

Now let’s consider what really happened.  The seller simply sold the tuna to someone else.  The buyer had already re-sold the tuna in a back-to-back sale to yet another buyer, and was unable to perform that contract, where he had locked in a sure profit.  The seller defended on the ground that, since it had never sent pictures, it had never been bound to the contract.

The court took this argument at face value.  But it found that in order to prevail, the email would have had to have been sent at the initiation of the contract.  So instead of saying “I will take it all,” it should have said, “I will take it all subject to pictures.”

This would have been the right result if the buyer had had remorse as I suggested in my examples before revealing what happened.  If the buyer had made pictures a condition precedent to his purchase, and no pictures were forthcoming, then the buyer would have been excused from buying because the seller hadn’t fulfilled the required condition.

But that’s not what happened here.  The condition, if it had been part of the contract, would have run in favor of the buyer, not the seller.  Yet it was the seller who was trying to get out of the contract.  The alleged contract, again assuming the pictures were part of it, was not “if you choose to provide me pictures and I am satisfied with them, I’ll buy”, it was “I’ll buy, but send me pictures first.”  A condition precedent like this is an obligation of the seller for which the seller can be in breach by not complying, but it is not optional with the seller to fulfill the condition precedent, excusing him from performing the rest of the contract.  It is a fundamental quality of a condition precedent that it can be waived by the party in whose favor it runs.

So even had the email been part of the contract, the seller’s failure to sell would not have been excused by the seller’s failure to provide the pictures.  This email wouldn’t have been worth the paper it wasn’t written on no matter what happened.

Food Liability Law Blog Launches New Responsive Design and Enhanced Reader Features

Dear Food Liability Law blog readers. Originally conceived by our former colleague Ken Odza – now food safety counsel at Kellogg’s -  and Rick Goldfarb, Food Liability Law blog has been bringing you news on major food liability law developments for more than six years. While our commitment to keep you informed hasn’t changed, technology certainly has. Back when Ken and Rick first started posting, it was still a desktop- and RSS-dominated world. Today, more and more of you are reading our posts on tablets and smartphones. As readers ourselves, we understand your need for news on-the-go and at your convenience.

So we’re very excited to announce to you today a completely new – and improved – blog design, along with new feature sets we think will enhance your content experience.

  • First, Food Liability Law Blog now uses a responsive design format. So no matter where – or on what device – you visit us, you can be assured of a consistent, clean and crisp reader experience.
  • Second, we’ve added new social sharing features to our posts. With easy-to-read social icons, sharing Food Liability Law blog posts with your social networks is now a snap.
  • Third, we’ve improved our content subscription options. We’ve expanded the number of RSS subscription feeds, optimized the look and feel of our email subscription service, and added links to our Twitte feed as an alternative content consumption option.

We hope you enjoy these changes and enhancements. Thanks again for visiting and keeping us on your list of must-read food liability news sites!

Seed Libraries Don’t Breed Agri-Terrorism and Other Reasons We Are Not a Breaking News Blog

In July, there was a story going round about how the Seed Library at the Joseph T. Simpson Public Library in Mechanicsburg, Pennsylvania was being shut down for fears of “agri-terrorism.” Indeed, according to one story, this was being done by the USDA and “Cumberland County Library System Executive Director Jonelle Darr was told that the USDA would, ‘continue to crack down on seed libraries that have established themselves in the state.’”

I saw the articles and noted them for a future piece on here. Then I waited a bit while things settled down. And there isn’t much tempest to this particular teapot.


First, the good citizens of Mechanicsburg, Pa. will continue to be able to swap seeds through their public library. What this is all about is the Pennsylvania Seed Act (the USDA has nothing to do with this controversy), which is like Seed Acts in many states in that it requires those who sell seed, and selling is defined broadly so as to avoid anyone getting around the act to include, among other things, barter, to have that seeded tested first. This puts a true seed library, one that allows you to check out seed and then return seed from your harvest at the end of the growing season, on the edges of legality under that statute. But the Pennsylvania Department of Agriculture made it clear that non-commercial seed swaps were perfectly okay and the library could host them. 


Second, the person who used the term “agri-terrorism” was a Cumberland County Commissioner. While she is, in fact, a former Marine with a background in intelligence and lives on a farm, determining the nation’s response to agri-terrorism is not really in her bailiwick.


So basically, this was a nothingburger from start to finish. The very first letter from the Pennsylvania Department of Agriculture ended like this: “I’m sure a creative, innovative way can be found to continue to promote healthy gardening while maintaining seed quality and meeting the requirements of the PA Seed Act.” This is just the tone you’d want a bureacrat who is reluctantly applying a law to a situation where its very application is counterintuitive to take.  But a bunch of bloggers took the “agri-terrorism” comment and made it sound like the government (indeed, the federal government) was coming down like a ton of bricks on some poor gardeners. That was simply never the case. They came up with their solution and by all accounts they’re happy with it.

This gives me sympathy for those who were caught up proclaiming USC cornerback Josh Shaw a hero last Monday only to have egg on their faces Wednesday when his purported heroism was admitted to be a hoax. I’ll take my long leadtime over a rushed deadline anytime.

Supreme Court Creates New Food Labeling Battleground, plus GMO Labeling Primer

My colleague Anne Glazer recently co-authored an article with Connie Kirby of Northwest Food Processors Association titled “Summary of Regulatory Intersection between the Federal Trade Commission and the Food and Drug Administration over the Labeling and Advertising of Food Products: Implication for Genetically Engineered Foods.”

Prepared for Oregon Governor Kitzhaber’s Task Force on Genetically-Engineered Agriculture, of which Connie is a member, the article provides a helpful summary of the jurisdictional arrangements and regulatory approach to GMO labeling by the federal agencies charged with regulating food product manufacturing. It also provides an excellent breakdown of the recent U.S. Supreme Court decision in POM Wonderful, LLC v. The Coca-Cola Company, which paved the way for a new battleground in food and beverage labeling litigation: competitor-to-competitor lawsuits.

Readers can download a PDF copy of the article here.

Also a quick shout-out to Connie Kirby and her fellow bloggers on their new “NWFPA Issues Blog.” NWFPA members can follow their commentary on the recent decision in POM Wonderful and other current topics relevant to the food industry at

FDA Issues Gluten Free Labeling Compliance Guide

Nearly a year ago on August 5, 2013, we reported on the blog that the Food and Drug Administration (FDA) had published a final rule establishing a regulatory definition of the term “gluten-free” for voluntary use in the labeling of foods. The final rule is intended to provide a uniform definition of the term “gluten-free” so that consumers, particularly those who have celiac disease, will know what it means when they see it on the labeling of food.

The rule became binding and effective on September 4, 2013, but August 5, 2014 is the date when FDA-regulated foods labeled “gluten-free” must comply with all requirements established by the final rule. In preparation of the upcoming compliance date, FDA prepared a Small Entity Compliance Guide which restates in plain language the requirements concerning use of the term “gluten-free” in the labeling of foods.

Specifically, the guidance states that any label claiming that a food is “gluten-free” must not contain any of the following ingredients:

  • An ingredient that is a gluten-containing grain (such as wheat, rye, or barley or any of their crossbreeds); or
  • An ingredient that is made from a gluten-containing grain and that has not been processed to remove gluten. For example, “wheat flour” is an ingredient made from wheat that has not been processed to remove the naturally occurring gluten in wheat. Therefore, wheat flour cannot be used as an ingredient to make a food labeled “gluten-free;” or
  • An ingredient that is made from a gluten-containing grain and that has been processed to remove gluten, if the use of that ingredient contains 20 parts per million (ppm) or more gluten.

The claim can also appear on the labels of foods that inherently do not contain gluten, such as fresh vegetables or juices.

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“Tanning Salons” Versus “Edible Art”: What is Artisan Bread?

This is a follow-up on the entry on VPN Pizza.  It results from this interview by a blogger with Eli Colvin, head baker of the MODEL Bakery in California, and Don Sadowsky, whom the interviewer identifies as a "bread pal."  Don happens to be my bread pal, too, which is how I found the interview.

A lot of the interview has to do with the question of whether there is a definitive standard for what constitutes "artisan bread".  As I argued in the prior article, in the end these are two words in the English language you’re not going to get complete agreement on.  Don sums it up nicely:

Artisan bread has a cachet that is well deserved, and lots of big boys want in on it. Should we care that a lot of factory bread has the label “Artisan”? “Natural”, “Gourmet” and similar designations have been so debased that they mean nothing (if they ever had any real meaning), though people may react subliminally. Same thing with artisan?

Australia has an Artisan Baker Association, which, much like VPN for pizza, sets standards for bread.  While its name is obviously generic, it has a whimsical logo that most likely gives it a strong trademark in Australia, or anywhere else.  Indeed, it has members in Georgia, Massachusetts, New York and even Alaska.  It’s a mark that could mean something to consumers, but of course there is a lot of excellent bread in the marketplace that doesn’t have that mark. 

In Britain, there is the Real Bread Campaign, which has a comprehensive FAQ about its goals.  It coined the term "tanning salons" to apply to bakeries in large grocery stores that simply bake pre-prepared loaves.  Sadowsky asks,

Are the people who shop at grocery store “tanning salons” people who might otherwise shop at an independent bakery, or are they merely moving from the prepackaged bread aisle to the “artisan” aisle? I read over and over again about the decline of small bakeries, but I don’t know if it’s just that people won’t spend the money for handmade bread period, regardless of what kind of bread they find in the supermarkets.

That’s not a question that will have the same answer for everyone who buys bread in a supermarket bakery.  Like it or not, the availability of bread that meets these standards is not, and is unlikely ever to be, universal.  The families you can see doing their grocery shopping, sleepy kids in tow, after midnight (the only time the parents working two jobs have time to shop), is not going to have a chance to sample Eli Colvin’s bread.  Even those who might shop when the MODEL or its peers is open don’t all live in what he calls a "progressive food area".  And even he has taken to using machinery for some of his production, just to keep up with demand. 

As a lifelong home baker I entirely agree with Eli that "bread is edible art."  I grew up in a home where the paintings on the wall were by my dad and my son grew up in a house where the bread in the kitchen was made by his dad.  But not everyone is going to get there. 

New York “Big Gulp” Ban Bites It For Good

The New York Court of Appeals has ruled in the case of Statewide Coalition of Hispanic Chambers of Commerce v. New York City Department of Health & Mental Hygiene to strike down, permanently, New York City’s attempted ban on sugar-based beverages in containers larger than 16 ounces. 

As we suggested when the case was just before the Supreme Court (confusingly, the trial court in New York), the case really had to do with the powers of the New York Health Department, an administrative agency beholden basically to the mayor, and not to any question of the merits of its rule. 

Yet, the New York Times, as seems to be required in all reporting of legal decisions in mainstream publications, overstates the effect of the decision:


The Court of Appeals ruling will most likely be seen as a significant defeat for public health advocates who have urged state and local governments to discourage the consumption of high-calorie beverages, saying the drinks are prime drivers of a nationwide epidemic of obesity.


Not really.  It should be seen as a proper corrective to an admininstrative agency that overstepped its bounds.  The New York City Council and the New York Legislature, the Court of Appeals made clear as had the lower courts, remain perfectly empowered to enact laws to accomplish exactly what the Health Department was not empowered to do.  Whether they do it or not, of course, is up to them. 

The court decided the case 4-2, with one concurrence and one judge recused (The Times of course called the dissent "blistering", as though they are dissents that are not).  And at least one media outlet copied my prior headline (I have no idea if it was original then, of course).

As I prepare for another trip to New York, I’m glad to know that the 24-hour McDonald’s up the street from my hotel will continue to serve Diet Dr Pepper in the larger size, so I don’t have to walk to the 7-11 (which wasn’t covered by the regulation in the first place), which is several blocks further.