Company owner dodges breach of contract suit

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Where the CEO of the corporate defendant only acted for the benefit of the corporation, there were insufficient allegations to pierce the corporate veil and hold him personally responsible for the company’s alleged breach of contract.

Background

According to the allegations in the complaint, in 2018, Shandong Reltex Leihua Co. Ltd entered into a warehousing and distribution agreement with Ison International LLC to store 200,000 tarpaulins it produced and imported into the United States.

On or around Oct. 18, 2018, Philip Ison, acting in his capacity as owner and CEO of Ison International, informed Shandong Reltex that he had sold the tarps and agreed to wire $4,830,000 to Shandong Reltex. While the defendants have made some payments, an unpaid balance remains.

As a result, Shandong Reltex filed this lawsuit for breach of contract. Philip Ison and Ison Furniture filed a joint motion to dismiss the breach of contract claim.

Ison Furniture

In Virginia, “[t]he elements of a breach of contract action are (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation.” Ison Furniture asserts that there is no mutual assent because the complaint does not allege that “Ison Furniture [stated] it was a party to any contract” or that Shandong Reltex “accept[ed] and [mutually assented] to the offer it admits Ison Furniture made to it.” The court finds these arguments unpersuasive.

In its complaint, Shandong Reltex includes the email that it alleges constitutes an offer from Ison Furniture. This email specifies an amount, a timeline for when payment would be expected and identifies Ison Furniture as a relevant party to the contract. These details provide enough information for the email to constitute assent on the part of Ison Furniture.

Ison Furniture next argues that the complaint does not allege that Shandong Reltex “responded to [the Sept. 15, 2018, email]” and “accepted this offer.” However, at this stage of the litigation, several facts strongly support an inference that Shandong Reltex accepted Ison Furniture’s offer. Approximately one month later, on Oct. 18, 2018, Philip Ison wrote that based on Shandong Reltex’s “instructions, “from [their] phone conversation,” and on an “understanding of [Shandong Reltex’s] email,” the tarps were sold at “$23.00 per box” and that “we” will wire Shandong Reltex a sum.

Philip Ison

In bringing a breach of contract claim against Philip Ison, the plaintiff bears an additional burden — it must plausibly allege a basis for piercing the corporate veil. Shandong Reltex’s complaint makes four allegations regarding Philip Ison.

First, he is the CEO of Ison Furniture and the “CEO/owner” of Ison International. Second, he used both email addresses to communicate with Shandong Reltex. Third, he used the terms “we” and “our” without delineating which entity he was referring to. And fourth, he used the two companies “interchangeably during his business dealings with [Shandong Reltex], such that Defendants failed to operate as separate entities” and “upon information and belief” the three defendants are “alter egos for each other.”

Based on the facts pleaded in the complaint, Philip Ison’s actions were ultimately for the benefit (or detriment) of the corporation. He was not using the corporate scheme to avoid payment of his own individual obligation, nor was he siphoning off corporate funds to his own personal account, nor was he creating the company to avoid personal liability of a known defect nor was he establishing and funding the corporation to provide a personal benefit to his child. Rather, the facts as pleaded only establish that Philip Ison used the alleged scheme to avoid paying corporate obligations. Thus, the plaintiff has failed to state a claim against Philip Ison that is plausible on its face.

Defendants’ motion to dismiss granted in part, denied in part.

Shandong Reltex Leihua Co. Ltd v. Ison International LLC, Case No. 2:22-cv-57, Aug. 31, 2023. EDVA at Norfolk (Walker). VLW 023-3-540. 11 pp.