Unpublished Disposition, 884 F.2d 1394 (9th Cir. 1989)

MEMORANDUM^* 

Defendant-appellant Pipe & Piling Canada and cross-plaintiffs Pipe & Piling BC, Pipe & Piling USA, and Don McLaughlin Pipe & Supply, Inc. appeal the district court's judgment awarding Ginsbow, Inc. ("Ginsbow") $48,971.52 in contract damages for the sale of steel pipe. The appellants contend they are entitled to offset the $48,971.52 by the amount owed them by Bowman & Associates ("Bowman") on the theory that Bowman and Ginsbow are alter egos, or alternatively, on the theory that Bowman sold Ginsbow's pipe, although it did not own it. The appellants also appeal the district court's denial of their motion to amend the pretrial order. We affirm the district court.

DISCUSSION

Absent abuse of discretion and prejudice, the district court's decision on amendment of a pretrial order may not be reversed. Angle v. Sky Chef, Inc., 535 F.2d 492, 495 (9th Cir. 1976). Amendment to the pretrial order should be permitted where no significant injury results to the opposing party, refusal might result in injustice, and the inconvenience to the court is slight. Id.

The district court found, and the appellants do not dispute, that it is a common practice in the pipe industry for companies to act as brokers and sell another company's pipe without disclosing ownership to the buyer. Therefore, the appellants were not prejudiced by the court's denial of their motion to amend the pretrial order to include evidence that Bowman had engaged in such a practice. Similarly, the appellants were not prejudiced when the court did not allow them to amend the pretrial order to include documents relating to the title of the pipe during delivery and pick up. Documents relating to some of the ten deliveries were listed in the original pretrial order, and the appellants have shown no reason why more of the same would have strengthened their case. Also, the appellants were not prejudiced by lack of evidence as to Ginsbow's checking account practices and its equity at the time Rick Bowman transferred his interest to Donald Ginsberg. The original pretrial order lists as a witness a vice president of Ginsbow's bank who would testify by deposition as to Ginsbow's accounts. Finally, the appellants were not prejudiced by not being able to introduce their company's list of phone calls because the original pretrial order listed a witness employed by the telephone company who was able to testify as to telephone records of Ginsbow and the appellants. The district court did not abuse its discretion by denying the appellants' motion to amend the pretrial order.

II. Piercing the Corporate Veil to Achieve Setoff

The question of alter ego is essentially factual and is generally reviewed under the clearly erroneous standard. Wolfe v. United States, 798 F.2d 1241, 1243 n. 2 (9th Cir.), amended and rehearing denied, 806 F.2d 1410 (1986), cert. denied, 482 U.S. 927 (1987).

The corporate veil will be pierced when 1) the corporate form was intentionally used to violate or evade a duty; and 2) piercing is required to prevent unjust loss to the injured party. Molander v. Raugust-Mathwig, Inc., 44 Wn. App. 53, 59, 722 P.2d 103, 107 (1986). Washington courts emphasize that "there must be such a commingling of property rights or interests as to render it apparent that they are intended to function as one, and, further, to regard them as separate would aid the consummation of a fraud or wrong upon others." J.I. Case Credit Corp. v. Stark, 64 Wn.2d 470, 475, 392 P.2d 215, 218 (1964); accord, Nelson v. Brunswick Corp., 503 F.2d 376, 380-81 (9th Cir. 1974).

Here, the district court held that neither part of the test was met. The district court found the two corporations carefully differentiated matters of accounting and finance, that the ownership of stock and the officers and directors of the two corporations were not identical, and the financial support and financial interests of the two corporations were separate and distinct. These findings are supported by testimony in the record and are not clearly erroneous. The district court also found that Ginsbow was initially established to sell pipe owned by Arco, Inc. and Gas, Inc., and not set up to defraud purchasers. These findings are supported by the testimony in the record.

The district court also found that the two companies did not defraud the appellants. Specifically, the district court found that the appellants were informed by both Schierman of Bowman and Donald Ginsberg of Ginsbow that Ginsbow owned the pipe and any sale had to go through Ginsbow. This finding is supported by testimony and is not clearly erroneous. The trial court also found that the appellants never disclosed to Bowman their intent to order pipe and offset the price by Bowman's debt. The appellants do not dispute this finding.

In Washington, fraud requires knowing misrepresentation of an existing material fact, with intent that the misrepresentation be relied upon, actual and reasonable reliance, and damage. Under these circumstances, there was no misrepresentation of a material fact and no reasonable reliance such as required for fraud or misrepresentation. See Tokarz v. Frontier Federal Savings & Loan Ass'n, 33 Wn. App. 456, 463, 656 P.2d 1089, 1094 (1982). The district court's findings, which are not clearly erroneous, support its conclusion that Ginsbow was not the alter ego of Bowman.

As an alternative to their alter ego theory, the appellants contend that their debt should be offset by Bowman's prior debt to the appellants because Bowman, although not the owners of the pipe, were sellers under the UCC, specifically, R.C.W. 62 A. 1201.

The district court denied a setoff under the UCC. We affirm the denial of a setoff under the UCC on the basis of the district court's finding that the appellants were informed by both Schierman and Ginsberg that Ginsbow owned the pipe and any sale had to go through Ginsbow. The logical inference of this finding is that Bowman was acting as an agent in the sale. Black letter agency law provides that " [u]nless otherwise agreed, the liability of a disclosed or partially disclosed principal is not affected by any rights or liabilities existing between the other party and the agent at the time the contract is made." Restatement (Second) of Agency, Sec. 179, at 412 (1958). The drafters of the Restatement added commentary to section 179: "Under the rule stated in this Section, in an action between the other party and the principal ... the other party [cannot] set off against the principal a claim owed by the agent to him." Id. at comment a.

The debt that appellants claim as an offset against their debt owed to Ginsbow is not a debt owed by Ginsbow to Pipe & Piling, but rather a debt owed by Bowman to Pipe & Piling and therefore may not be offset.

AFFIRMED.