United States of America, Plaintiff-appellant, v. Fidelity Capital Corporation, a Georgia Corporation, Defendant,commonwealth Mortgage Corporation of America, Intervenor-appellee, 920 F.2d 827 (11th Cir. 1991)

In our earlier decision in this matter, United States v. Fidelity Capital Corp., 888 F.2d 1344 (11th Cir. 1989) (Fidelity I), we remanded the case to the district court to determine whether Fidelity Capital Corporation (Fidelity), a company licensed as a Small Business Investment Company (SBIC) under the provisions of the Small Business Investment Act of 1958, Pub. L. No. 85-699, 72 Stat. 689 (codified as amended at 15 U.S.C. §§ 661-697c (1988)), was the alter ego of Alfred F. Skiba, its president and the sole shareholder of its parent company. We instructed the district court to make findings of fact and conclusions of law on the alter ego issue and to certify its holding to this court. The district court has done so, and we now proceed to a resolution of this dispute.¹ 

We organize the opinion as follows. In part I, in subpart A, we outline the federal provisions governing SBICs, and, in subpart B, we state the relevant facts as found by the district court, most of which are undisputed.²  In part II, we set forth the district court's application of Georgia law³  to these facts and its conclusion that Fidelity was Skiba's alter ego. In part III, we find that the district court erred in its application of the law to the facts.

Congress passed the Small Business Investment Act of 1958 (the Act) in order to encourage the growth of small businesses by compensating for the difficulty they may have in obtaining financing from conventional lenders.⁴  The Act accordingly authorizes the Small Business Administration (SBA)⁵  to license SBICs, which are corporations or partnerships that provide capital to small businesses. 15 U.S.C. § 681.⁶  The SBA lends money to its licensees by purchasing or guaranteeing their debentures; SBICs use these funds to assist small businesses in the manner permitted by the Act and the regulations that the SBA has promulgated thereunder. Id. Secs. 683(a)-(b), 687(c); 13 C.F.R. Sec. 107.201 (1990).⁷  The Act allows SBICs to finance small businesses in two major ways, by long-term loans or through equity investment. 15 U.S.C. §§ 684(a), 685(a); 13 C.F.R. Secs. 107.320, .402.⁸ 

The Act and the regulations limit SBICs' investment decisions by governing the amount, terms, and conditions of financing they may provide. For instance, most SBICs must have a diversified portfolio of investments in small businesses, and certain types of investments, such as real estate, are strictly curtailed. Id. Sec. 107.101(c).⁹  Similarly, the SBA limits the amount of financial assistance an SBIC may provide to any one small business to twenty percent of the SBIC's private capital. 15 U.S.C. § 686(a); 13 C.F.R. Sec. 107.303.¹⁰  All loans made by SBICs must be "of such sound value, or so secured, as reasonably to assure repayment." 15 U.S.C. § 685(e).¹¹  Any control an SBIC (or its officers, directors, and related companies) acquires over a small business in which it invests must be temporary, subject to a written agreement to relinquish control within seven years. 13 C.F.R. Sec. 107.801.¹²  Additionally, SBICs may not provide financing to "associates," which include officers, directors, major shareholders, and related companies, 15 U.S.C. § 687d; 13 C.F.R. Sec. 107.3(a)-(h), without SBA approval. Id. Sec. 107.903(b) (1).¹³ 

Besides limiting SBICs' financing decisions, the SBA also controls many of their other business decisions. For instance, SBICs must maintain a certain level of private capital. 15 U.S.C. § 682(a); 13 C.F.R. Sec. 107.101(d).¹⁴  In addition, SBICs may not, without the written consent of the SBA, make any distributions to a shareholder other than periodic payments out of retained earnings based on the capital contributions of the shareholder or increase salaries beyond an approved amount. Id. Sec. 107.203(b) (3) (ii)-(iii). The SBA must approve any merger, consolidation, reorganization, or change of ownership or control. Id. Secs. 107.601, .803.¹⁵ 

The SBA enforces the Act and regulations by requiring SBICs to make detailed filings and reports, id. Sec. 107.1002, and through periodic SBA examinations of every SBIC, 15 U.S.C. § 687b(c). If an SBIC violates the Act or regulations, the SBA may petition a federal court to revoke the company's license, id. Sec. 687a(a), obtain an injunction restraining future violations, id. Sec. 687c(a), ask the court to take jurisdiction of the SBIC's assets and appoint the SBA as receiver, id. Sec. 687c(b)-(c),¹⁶  or petition the court to dissolve the company and declare its rights and privileges under the Act forfeit, id. Sec. 687(d).¹⁷  A loan or other transaction that violates either the Act or the regulations, however, is still valid and enforceable between the parties.¹⁸  Talco Capital Corp. v. Canaveral Int'l Corp., 225 F. Supp. 1007, 1013-14 (S.D. Fla. 1964), aff'd, 344 F.2d 962 (5th Cir. 1965).¹⁹ 

Fidelity was incorporated under Georgia law and licensed as an SBIC in late 1969, and soon merged with another SBIC, Business Investors, Inc., which had been incorporated in 1961 and was already indebted to the SBA. In 1979, Skiba and an associate, John Sisk, formed American Financial Resources, Inc. (American) to purchase the shares of Fidelity, which were owned by a subsidiary of Fidelity Mutual Life Insurance Company.²⁰  Skiba and Sisk each owned fifty percent of American. Their purchase of Fidelity was motivated in part by Fidelity's "grandfathered" real estate license: the SBA, when it licensed Fidelity, had allowed the company to invest exclusively in real estate, and when it later promulgated regulations limiting real estate investments, see supra p. 829 & note 9, it permitted Fidelity to continue the investment pattern authorized by earlier law. When American purchased its shares, Fidelity owed the SBA $9.6 million plus interest, and presumably already had a portfolio of investments in small businesses owning real estate.²¹  It had private capital of approximately $3.5 million.

Skiba acquired Sisk's fifty percent interest in American in 1981; he has been president and sole director of American ever since. He was president of Fidelity after American purchased it, and became sole director after he purchased Sisk's American stock; the SBA, as receiver for Fidelity, removed him from office in 1986. Fidelity leased its office space from American, and paid American to manage the company, as it had no employees of its own. American and Fidelity had the same telephone number and filed consolidated tax returns; each company, however, maintained separate books and records, kept its own corporate minutes, and had its own federal employer identification number. Although American's financial report included Fidelity, Fidelity also filed a separate financial report, as the SBA regulations required.

The events that led to the conflict in this case began in 1980 when Skiba and Sisk caused either Fidelity or American, in association with an individual named Robert C. Hill, to form a real estate development corporation, Townehouse Concepts, Inc. (Townehouse).²²  In September of that same year, Fidelity financed Townehouse's purchase of a parcel of real estate in Atlanta, Georgia (the Peachtree/Cantrell property). Because the seller, Southeastern Land Fund, Inc. (Southeastern), preferred to hold a note from Fidelity rather than the newly-formed Townehouse, Fidelity purchased the property for $400,000 and thereafter conveyed the property to Townehouse instead of advancing the purchase price directly to Townehouse. Fidelity gave Southeastern a note secured by a mortgage on the property for $300,000 of the purchase price (the Southeastern mortgage), and paid $100,000 in cash. As consideration for Fidelity's conveyance to Townehouse, Townehouse assumed Fidelity's $300,000 obligation to Southeastern; Townehouse also appears to have entered on its books an obligation to repay Fidelity the $100,000 cash paid to Southeastern. The deed conveying the property from Fidelity to Townehouse was recorded after a delay of several months, which Skiba stated was due to the relationship between the companies.²³ 

Fidelity also financed other real estate purchases by Townehouse, and lent it additional funds for predevelopment costs. In addition, Fidelity paid $150,000 of the $300,000 Southeastern mortgage; this payment appears to have been added to the amount Townehouse owed Fidelity. None of the loans are supported by formal documentation apart from entries on each company's books evidencing intercorporate obligations, and they typically had no repayment date. Skiba and Robert L. Dodd, Jr., his attorney, represented both corporations in each loan. As a result of all these transactions, by April 2, 1982, Townehouse owed Fidelity over $1.7 million and owned the Peachtree/Cantrell property, another lot located at Peachtree and 15th Streets, and the stock of a corporation called DeFoors Place, Inc.

In 1981, Fidelity defaulted on its debt to the SBA, and the SBA demanded full payment. Besides defaulting, Fidelity had violated the regulations by pledging certificates of deposit it owned to secure a debt owed by American, its parent company, to the First Georgia Bank. When American defaulted on its obligation to First Georgia, First Georgia retained Fidelity's certificates of deposit in satisfaction of American's debt, and Fidelity took an intercompany receivable from American evidenced only by entries on each corporation's books.

In 1982, Fidelity and the SBA reached an agreement to restructure their debt. Under this agreement, which provided an extended payment schedule, Fidelity agreed that it would surrender its SBIC license after repaying the debt. Skiba and American guaranteed payment. The SBA allowed Fidelity more time to pay its debt so that the value of the real property held by Townehouse and American's other corporations²⁴  could grow enough to compensate the SBA for the full amount it had lent Fidelity.²⁵ 

After Fidelity reached this agreement with the SBA, which effectively took it out of the lending business, Skiba decided, for tax and accounting reasons, to reorganize his group of corporations and to formalize the debts owed to Fidelity. To obtain security for the $1.7 million Townehouse owed Fidelity, Skiba caused Townehouse²⁶  to apportion the debt among the three properties Townehouse owned; he testified that the apportionment was a rough approximation of the amounts advanced to purchase and develop each parcel. Of this sum, $500,000 was apportioned to the Peachtree/Cantrell property. On April 12, 1982, Townehouse gave Fidelity a promissory note for this amount and secured the note by granting Fidelity a mortgage on the property (the Fidelity mortgage), which was subordinate to the prior Southeastern mortgage. Townehouse then transferred the property to American, which assumed the Fidelity mortgage. American thereafter conveyed the property to a newly-formed subsidiary, Peachtree/Cantrell, Inc. (P/C, Inc.). P/C, Inc. also assumed the Fidelity mortgage. Neither American nor P/C, Inc. assumed the Southeastern mortgage.

At the end of all these transactions, P/C, Inc. owned the Peachtree/Cantrell property subject to Southeastern's $300,000 first mortgage and subject to Fidelity's $500,000 second mortgage, which it had assumed. Skiba was sole director and president of P/C, Inc. and the company's only asset was the Peachtree/Cantrell property. P/C, Inc. shared office space and a telephone number with American, and had no employees of its own. It filed consolidated tax returns and financial statements with American, but kept its own books, records, and minutes and had its own federal employer identification number.

The plaintiff-in-intervention, Commonwealth Mortgage Corporation of America (Commonwealth), entered the picture in December 1982, when it lent P/C, Inc. $3.6 million to finance the construction of residential townhomes on the Peachtree/Cantrell property. P/C, Inc. granted Commonwealth a mortgage on the property (the Commonwealth mortgage), and Skiba, individually, guaranteed the debt. P/C, Inc. and Skiba, in his capacity as guarantor, represented to Commonwealth that it would receive a first mortgage on the property. Fidelity, however, was not a party to the transaction, was not represented at closing, and never promised to release its mortgage.²⁷  After the closing, Robert L. Dodd, Jr., Skiba and P/C, Inc.'s attorney and Commonwealth's escrow agent, used $150,000 of the funds advanced to P/C, Inc. to satisfy the Southeastern mortgage and recorded its release. The Fidelity mortgage, however, was never satisfied and released.²⁸ 

Thus, after the closing, Commonwealth did not have the first mortgage that it had bargained for, but held a second mortgage after the Fidelity mortgage of record.²⁹  Skiba and Commonwealth deny that they knew, during the period from 1982 to 1987, that the Fidelity mortgage was still valid. Nevertheless, Skiba executed several quitclaim deeds releasing Fidelity's interest in portions of the property as they were sold to individuals during this time. He testified, however, that he assumed that the Fidelity mortgage had been released and thought that the quitclaim deeds were purely cosmetic.

By 1986, Fidelity had again defaulted on its scheduled payments to the SBA. In accordance with the Act and regulations, therefore, the district court appointed the SBA as receiver under the continuing supervision of the court, initiating the present action. See supra notes 1, 16.

In February 1987, P/C, Inc. defaulted on its mortgage to Commonwealth, and Commonwealth foreclosed,³⁰  bid the amount of its outstanding debt at sale, and obtained a deed to the property. Commonwealth provided no notice to Fidelity, the holder of the first mortgage of record, other than the advertisements required by statute.

Meanwhile, Fidelity had received no payments from P/C, Inc. on its mortgage. Accordingly, in June 1987, the SBA, in its capacity as receiver, also began foreclosure³¹  proceedings under the Fidelity mortgage. At this point, Commonwealth intervened in the receivership action, claiming that it owned the Peachtree/Cantrell property because of its earlier foreclosure.

In its order of November 13, 1987 (the 1987 Order), which the SBA appealed to this court in Fidelity I, the district court, after a bench trial on the merits of Commonwealth's claim, found that Skiba, as president of P/C, Inc. and as individual guarantor, had represented that Commonwealth would receive a first lien position. It also found that Fidelity was Skiba's alter ego, and therefore was bound by Skiba's representation. In essence, according to the court, Commonwealth lent money directly to Skiba; it was therefore inequitable to allow him to get a $500,000 windfall by permitting Fidelity to foreclose on its mortgage. Accordingly, the district court issued an injunction forbidding the SBA from foreclosing on the Fidelity mortgage and directing it to execute and deliver a release of the Fidelity deed to Commonwealth.³²  2]

The SBA appealed. On appeal, we found that the district court could not conclude, from the fact that Skiba owned and controlled Fidelity and used the corporation for his own ends, that Fidelity was his alter ego, especially as the court had found that "the corporate forms of ... [Fidelity] ha [d] been scrupulously maintained." Fidelity I, 888 F.2d at 1348. We stated that more evidence of abuse of the corporate form was necessary, id.,³³  and remanded, directing the district court to make the findings of fact it had neglected.

On remand, the district court made several specific findings of fact. First, the district court reiterated its earlier conclusion that Skiba effectively owned Fidelity through his ownership of American, was its sole director and president, and controlled its business decisions. Second, the district court noted that Skiba caused Fidelity to serve as a "private lender" in an "informal financial relationship" with American, Townehouse, and Skiba's other corporations.³⁴  As examples of such informality, the district court cited the manner in which Fidelity purchased the Peachtree/Cantrell property for Townehouse and the delay in recording the deed conveying the property, see supra pp. 831-832, Fidelity's pledge of its certificates of deposit to secure the loan from First Georgia to American in violation of SBA regulations, see supra p. 832, and Fidelity's practice of lending funds to other Skiba corporations without any repayment date or formality beyond entries on the corporate books when both corporations in each transaction were represented by Skiba and Dodd, see supra p. 832.

Third, the district court found that Skiba ran all the members of his "incestuous" group of corporations for the benefit of Fidelity in order to allow Fidelity to pay its debt to the SBA, which Skiba had personally guaranteed. After the SBA and Fidelity reached their agreement to restructure and extend Fidelity's debt in 1982 in order to allow time for the assets of Skiba's corporations to appreciate, see supra p. 832-833, Skiba reorganized his corporate structure and formalized his corporations' obligations to Fidelity. The allocation of $500,000 of Townehouse debt to Fidelity, the second mortgage on the property in favor of Fidelity, and the transfer of the property to P/C, Inc., see supra pp. 832-833, were all "essentially paper transactions" that were part of this process.

Fourth, the district court emphasized that Skiba, in a "gratuitous payment by one corporation of a related corporation's debt," caused P/C, Inc. to pay Fidelity's debt to Southeastern (which P/C, Inc. had never expressly assumed) out of the proceeds of the Commonwealth loan, see supra p. 833. Finally, the district court found that Skiba caused Fidelity to be thinly capitalized in violation of SBA regulations by lending money to other Skiba corporations without adequate security.

These five findings, according to the district court, are sufficient under Georgia law to support the conclusion that Fidelity was Skiba's alter ego; it therefore found that Fidelity was bound by Skiba's representations to Commonwealth.³⁵  We disagree, for the reasons set forth below.

Federal Rule of Civil Procedure 52(a) provides that findings of fact made by a district court sitting without a jury may not be reversed unless clearly erroneous.³⁶  The resolution of the factual components of the alter ego issue is governed by the clearly erroneous standard. See United Steelworkers of Am. v. Connors Steel Co., 855 F.2d 1499, 1506 (11th Cir. 1988) (" ' [R]esolution of the alter ego issue is heavily fact-specific and, as such, is peculiarly within the province of the trial court. Consequently, in reviewing the district court's finding, we apply the clearly erroneous standard of review....' " (quoting United States v. Jon-T Chems., Inc. 768 F.2d 686, 691 (5th Cir. 1985), cert. denied, 475 U.S. 1014, 106 S. Ct. 1194, 89 L. Ed. 2d 309 (1986)), cert. denied, 489 U.S. 1096, 109 S. Ct. 1568, 103 L. Ed. 2d 935 (1989); Combs v. Ryans Coal Co., 785 F.2d 970, 982 (11th Cir.), cert. denied, 479 U.S. 853, 107 S. Ct. 187, 93 L. Ed. 2d 120 (1986). Under this standard, we find that the district court's findings of fact on the alter ego issue are not clearly erroneous.

Our review of the district court's application of the law to its findings of fact, however, is de novo. See Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 486, 104 S. Ct. 1949, 1952, 80 L. Ed. 2d 502 (1984) (Rule 52(a) "does not inhibit an appellate court's power to correct errors of law"); Keys Jet Ski, Inc. v. Kays, 893 F.2d 1225, 1227 (11th Cir. 1990). We hold, therefore, that the facts as found by the district court are insufficient in Georgia law to permit a conclusion that Fidelity was Skiba's alter ego.

Under Georgia law, a corporation and its shareholders and officers are separate, even if one person owns all of its shares and controls its actions. Corley v. Cozart, 115 F.2d 119, 121 (5th Cir. 1940) (interpreting Georgia law); Amason v. Whitehead, 186 Ga.App. 320, 367 S.E.2d 107, 108 (1988); Raynor v. American States Ins. Co., 176 Ga.App. 564, 337 S.E.2d 43, 45 (1985). The corporation is not bound by the acts of the owner as an individual, Casey v. Carrollton Ford Co., 152 Ga.App. 105, 262 S.E.2d 255, 256-57 (1979); Engineered Builders, Inc. v. Lamar Nash Buick-Pontiac, Inc., 133 Ga.App. 141, 210 S.E.2d 179, 180 (1974), and the owner is not bound by corporate acts, even though the individual may dictate every corporate decision, Earnest v. Merck, 183 Ga.App. 271, 358 S.E.2d 661, 663 (1987).

When the person who owns or controls the corporation has abused this privilege, however, by using the corporate form to defeat justice, perpetuate fraud, promote crime, evade contractual or tort responsibility, or for any other reason which in equity or good conscience would justify the disregard of the corporate entity, the court may pierce the corporate veil in order to correct the abuse. Amason, 367 S.E.2d at 108 (quoting Jenkins v. Judith Sans Int'l, 175 Ga.App. 171, 332 S.E.2d 687 (1985)); Williams Plaza, Inc. v. Sedgefield Sportswear Div. of Blue Bell, Inc., 164 Ga.App. 720, 297 S.E.2d 342, 343 (1982); Jones v. Cranman's Sporting Goods, 142 Ga.App. 838, 237 S.E.2d 402, 405 (1977).

One theory used by Georgia courts to pierce the corporate veil under this standard is that the corporate entity is the alter ego or business conduit of its owner, and should therefore be disregarded. See, e.g., Derbyshire v. United Builders Supplies, Inc., 194 Ga.App. 840, 392 S.E.2d 37, 40 (1990). To establish that a corporation is an alter ego, a party must show that the shareholders disregarded the corporate entity and made it a mere instrumentality for the transaction of their own affairs, that the corporation and its owners have such unity of interest and ownership that they lack separate personalities, and that to observe the corporate form would work an injustice or promote fraud. Maley v. Carroll, 381 F.2d 147, 153 (5th Cir. 1967) (interpreting Georgia law); Farmers Warehouse v. Collins, 220 Ga. 141, 137 S.E.2d 619, 625 (1964); Southern Envtl. Group, Inc. v. Rosebud Landscape Gardeners, Inc., 196 Ga.App. 392, 395 S.E.2d 913, 915 (1990); Derbyshire, 392 S.E.2d at 40; Amason, 367 S.E.2d at 108.

This standard for the determination of whether a corporation is the alter ego of its shareholders or officers is difficult to meet. Accordingly, courts must exercise "great caution," and must not disregard the corporate entity without a showing that the corporate form has been abused. Maley, 381 F.2d at 153; Amason, 367 S.E.2d at 108. The mere fact that a person owns and controls a corporation will not justify a finding of abuse of the corporate entity, even though that person may have used the corporation to promote his own ends. Derbyshire, 392 S.E.2d at 40; Amason, 367 S.E.2d at 108; Boafo v. Hospital Corp. of Am., 177 Ga.App. 75, 338 S.E.2d 477, 479 (1985); Condenser Serv. & Eng'g Co. v. Brunswick Port Auth., 87 Ga.App. 469, 74 S.E.2d 398, 402 (1953). Similarly, that two corporations have been incorporated by the same party and have the same officers does not mean that the two corporations are interchangeable. Trans-American Communications, Inc. v. Nolle, 134 Ga.App. 457, 214 S.E.2d 717, 719 (1975); Collins v. Booker, 129 Ga.App. 824, 201 S.E.2d 676, 677-78 (1973).

More evidence of abuse, such as evidence that the controlling person commingled the corporation's assets with his own or those of other corporations he controlled, or that he failed to maintain corporate records separately, is essential. Stewart Bros. v. Allen, 189 Ga.App. 816, 377 S.E.2d 724, 725-26 (1989); Amason, 367 S.E.2d at 108; Earnest, 358 S.E.2d at 663; Abbot Foods, Inc. v. Elberton Poultry Co., 173 Ga.App. 672, 327 S.E.2d 751, 752 (1985). Abuse of the corporate form occurs when the owner of the corporation conducts his private and corporate business on an interchangeable or joint basis. Stewart Bros., 377 S.E.2d at 725; Earnest, 358 S.E.2d at 663; Bone Constr. Co. v. Lewis, 148 Ga.App. 61, 250 S.E.2d 851, 853 (1978); cf. Federal Deposit Ins. Corp. v. United States, 654 F. Supp. 794, 810 (N.D. Ga. 1986) (under Georgia law, " [p]roof of the alter ego relationship consists substantially o [f] how the controlling person treated the disputed entity").

The district court's findings of fact do not show, under this standard, that Skiba has abused Fidelity's corporate form; the court erred, therefore, by holding that Fidelity was Skiba's alter ego.³⁷  We will consider the district court's five findings in turn, and then consider whether any other evidence in the record will support its conclusion.

First, Skiba's beneficial ownership (through his ownership of American) of Fidelity, and the fact that he was the sole director and president of the company and controlled all its business decisions, are insufficient by themselves to allow a finding that the company was Skiba's alter ego. See, e.g., Derbyshire, 392 S.E.2d at 40.

Second, Fidelity's practice of lending money, as "private lender" to Townehouse, American, and other Skiba corporations with few formalities does not show that Skiba abused Fidelity's corporate form. An entry on the corporate books is a sufficient formality, under Georgia law, for an intercorporate loan. Cf. Stewart Bros., 377 S.E.2d at 725-26 (notation in company checkbook that clearly identified checks written by owner of corporation to himself as "loans" was sufficient formality in the absence of evidence of commingling of funds or confusion of records). Most important, the district court cited no evidence, despite the informal relations between the corporations, that Skiba ever commingled his funds with Fidelity's or caused any of his corporations to commingle funds with each other.³⁸  Corporate records and forms were, as the district court stated in its 1987 Order, scrupulously maintained.³⁹ 

Third, the district court's finding that Skiba ran all his corporations for the benefit of Fidelity to allow Fidelity to repay the SBA will not justify its conclusion that Fidelity was Skiba's alter ego. Fidelity owed a legal debt to the SBA, and the other Skiba corporations owed legal and enforceable debts to Fidelity for the money it had advanced to them. Skiba merely tried to run his companies in a manner that would allow all of them to repay their legal obligations, develop the assets they owned, and sell these assets at a profit. This is not abuse of the corporate form.

Fourth, the district court states that P/C, Inc.'s payment of the remaining balance of the Southeastern mortgage owed by Fidelity was evidence of abuse of the corporate form. We disagree. Under Georgia law, a court may disregard the corporate form if one corporation has "bled" or depleted the assets of another for its own benefit. See Brunswick Mfg. Co. v. Sizemore, 183 Ga.App. 482, 359 S.E.2d 180, 182 (1987) (jury could determine that a parent was liable for debts owed by its subsidiary, even though corporate forms were maintained, when there was evidence that proceeds from sales made by the subsidiary were deposited in the parent's account); Trans-American Communications, 214 S.E.2d at 719-20 (the relevant inquiry is whether the parent had "systematically drained off" the assets of the subsidiary to benefit the parent or the other subsidiaries). In this case, however, P/C, Inc.'s payment was made not for Fidelity's benefit, but for its own. Any benefit to Fidelity was incidental. P/C, Inc. was the equitable owner of the Peachtree/Cantrell property, which was still subject to the Southeastern mortgage. See Mickel v. Pickett, 241 Ga. 528, 247 S.E.2d 82, 87 (1978); Tomkus v. Parker, 236 Ga. 478, 224 S.E.2d 353, 354 (1976). Because it had borrowed money on the property using its equitable interest as security, and had promised Commonwealth a first lien position, it paid Southeastern in an effort to purchase clear title to the property. This was not, in the words of the district court, a "gratuitous payment of one corporation's debt by a related corporation."

Fifth, the district court found that Fidelity was Skiba's alter ego because the company was inadequately capitalized in violation of SBA regulations. It had inadequate capital, according to the court, because it had lent money to related companies without adequate security. We agree that Fidelity had made poor investment decisions and suffered financial reverses that caused it to become insolvent; this is not, however, a reason to disregard the corporate entity. Georgia law will allow the disregard of the corporate entity when a corporation is thinly capitalized at the time of formation and other evidence of abuse of the corporate form is present. Hyzer v. Hickman, 195 Ga.App. 213, 393 S.E.2d 79, 81 (1990), cert. granted, No. S90C0993 (Ga. May 24, 1990) (corporate veil pierced when thinly capitalized corporation also made preferential distributions to shareholder when it was insolvent). "A corporation that was adequately capitalized when formed but later suffers financial reverses is not undercapitalized." Id. (quoting 1 W. Fletcher, Cyclopedia of the Law of Private Corporations Sec. 44.1, at 529 (rev. perm. ed. 1983)).

Finally, our review of the record has indicated some other factors, not specifically included in the district court's findings of fact, that might be relevant in an alter ego determination. For instance, Fidelity and American shared offices, had the same telephone number, filed consolidated tax returns, and both seem to have used American's stationary for business communications. American managed Fidelity pursuant to a management agreement, and Fidelity had no employees of its own. Such factors, in combination with other indications of abuse of the corporate form, may indicate that the corporation is the alter ego of its owner or parent. See Najran Co. for Gen. Contracting & Trading v. Fleetwood Enters., 659 F. Supp. 1081, 1096-97 (S.D. Ga. 1986) (interpreting Georgia law). In this case, however, that Fidelity shared offices, stationery, and employees with American does not, without other evidence that Skiba abused Fidelity's corporate form, compel us to conclude that Fidelity and Skiba are one and the same. See Trans-American Communications, 214 S.E.2d at 717 (a holding company and its wholly owned subsidiary may be separate entities even though they share the same offices and bookkeeping facilities and trade information and employees).

We hold, therefore, that Fidelity was not Skiba's alter ego and was not bound by his representations.⁴⁰  In the end, all that the district court's findings of fact on abuse of the corporate form show is that Skiba controlled Fidelity, caused it to make some poor business decisions by investing in related companies, and then attempted to run Fidelity and the related companies in a manner that would allow them to repay their legal obligations and make a profit.⁴¹  The evidence shows that Fidelity advanced $500,000 cash to Townehouse, and took a mortgage as security on this debt. It is inconceivable that Fidelity would agree to release this debt for nothing,⁴²  and we decline to allow the district court to force it to do so.

For the reasons stated above, the judgment of the district court is VACATED and the case-in-intervention is REMANDED with the instruction that it be dismissed with prejudice.

IT IS SO ORDERED.