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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
BRYSON CITY DIVISION
WILLIAM C. HAMMEL, |
ALAN J. BELLAMENTE, |
et al., | MEMORANDUM ON
| THE RELATIONSHIP BETWEEN
Plaintiffs | BETWEEN
| STATE FARM MUTUAL AND
vs. | STATE FARM INDEMNITY
| (Attachment 2)
STATE FARM MUTUAL AUTOMOBILE |
INSURANCE CO., | No. 2:99:CV-44-T
STATE FARM INDEMNITY COMPANY, |
et al. |
SHORT CAPTION: HAMMEL v STATE FARM
Memorandum Concerning the Relationship between State Farm Mutual
Automobile Insurance Company (Parent) and State Farm Indemnity
I. Facts Alleged
1) State Farm Mutual Automobile Insurance Company provided
automobile insurance in the State of New Jersey for a number
of years until 1993.
2) In 1991, State Farm Mutual Automobile Insurance Company
organized and caused to be incorporated State Farm Indemnity
Company, for the purpose of isolating its automobile insurance
business in the State of New Jersey.
3) State Farm Indemnity is a wholly owned subsidiary of State
Farm Mutual Automobile Insurance Company, both being
incorporated in the State of Illinois.
4) State Farm Mutual Automobile Insurance owns all, or a majority,
of the outstanding stock in State Farm Indemnity Company.
5) In 1993, State Farm Mutual Automobile Insurance informed its
customers that it would no longer be providing auto insurance
in New Jersey.
6) In 1993 State Farm Mutual Insurance Company offered to
provide auto insurance by its new company, State Farm
7) State Farm Mutual Automobile Insurance Company informed its
customers that they would still have their State Farm agent
and the same "good neighbor" service.
8) State Farm Indemnity Company holds itself out to be a
totally separate and distinct operation from State Farm
Mutual Automobile Insurance Company and/or State Farm
9) State Farm Mutual Automobile Insurance Company and State
Farm Indemnity Company share main offices at the same address,
with the same telephone number, specifically: One State Farm
Plaza, Bloomington, Illinois, with the common telephone number
309-766-2311. They also share a World Wide Web Site, namely:
10) Subsidiary, State Farm Indemnity Company and parent, State
Farm Mutual Automobile Insurance Company correspond with
their customers on stationery bearing the same letterhead,
and identical trade and/or service mark.
11) State Farm Indemnity Company and State Farm Mutual Automobile
insurance Company share a sophisticated electronic "internal"
communication system, called "DESK".
12) Terence Welsh, President of State Farm Indemnity Company
is also Regional Vice President of the parent, State Farm
Mutual Automobile Insurance Company.
13) Laura P. Sullivan, a Director of subsidiary, State Farm
Indemnity Company is also Vice President and Actuary of
the parent, State Farm Automobile Insurance Company.
14) State Farm Mutual Automobile Insurance Company and State
Farm Indemnity Company share a common Corporate Law Department.
15) State Farm Indemnity Company, as a subsidiary, exists
solely for the purpose of offering State Farm Mutual
Automobile Insurance Company's product to customers in
the State of New Jersey.
16) State Farm Indemnity Company freely shares claims
handling duties with its parent, State Farm Mutual
Automobile Insurance Company.
17) Subsidiary State Farm Indemnity's employees are authorized
to, and do close out and/or terminate State Farm Mutual claims.
18) Parent, State Farm Mutual Automobile Insurance Company uses
its subsidiary, State Farm Indemnity Company to promote fraud
and injustice toward the subsidiary's customers.
While Plaintiffs can not, reasonably, challenge the legal
corporate "personhood" of either State Farm Mutual or State Farm
Indemnity, they can, and do question the reality of the separation
of the two entities. Plaintiffs believe, on information and
reasonable investigation, that the purpose of the formation by
the Parent of the Subsidiary was, and is, solely to insulate itself
against any actions by its customers, while gaining an unfair
advantage over, and systematically devising schemes to defraud and
extort those very customers, through its patterns of racketeering
activities, and other unlawful schemes. (See our accompanying
Memorandum On The Racketeering Nature of State Farm's Misconduct,
attachment 1 of the ammended complaint.)
As Esther Benevitz, an assistant to New Jersey State Assembly
Woman Loretta Weinberg, rather bluntly put the relationship between
the Parent and the Subsidiary, in conversation with Plaintiff
Hammel: "That's right, because the reality is that, that they're
a subsidiary, you know, this is a legal fiction. The whole thing
is a legal fiction, but it's legal and it does exist." (See
Exhibit F of the amended complaint)
Based on the facts alleged above and Plaintiffs' experience
in dealing with both State Farm Indemnity Company and, then,
State Farm Mutual Automobile Insurance Company, not out of choice,
but because the Subsidiary transferred Plaintiffs' claims to the
Parent, and the Parent accepted them, there is no real separation
between Parent and Subsidiary.
Indeed, internal documents of both the Parent and the
Subsidiary show convincingly that the two, despite their status
as separate persons, under the law, act as one. The appearance
of the veil of separation is an illusion, carefully conjured to
allow either Parent, or Subsidiary, to perpetuate their schemes
of fraud and extortion on their customers through their patterns
of racketeering activities, and other unlawful schemes.
In U.S. v. BESTFOODS, No. 97-454 Cert 6th Cir, June 8, 1998,
Justice Souter, in his opinion for a unanimous Court, after noting
the general principle of corporate law, whereby a parent is not
liable for the acts of its subsidiaries, says:
"But there is an equally fundamental principle of
corporate law, applicable to the parent-subsidiary
relationship as well as generally, that the corporate
veil may be pierced and the shareholder held liable
for the corporation's conduct when, inter alia, the
corporate form would otherwise be misused to accomplish
certain wrongful purposes, most notably fraud, on the
shareholder's behalf. See, e.g., Anderson v. Abbott,
supra, at 362 ("there are occasions when the limited
liability sought to be obtained through the corporation
will be qualified or denied"); Chicago, M. & St. P R. Co.
v. Minneapolis Civic and Commerce Assn., 247 U.S. 490,
501 (1918) (principles of corporate separateness "have
been plainly and repeatedly held not applicable where
stock ownership has been resorted to, not for the purpose
of participating in the affairs of a corporation in the
normal and usual manner, but for the purpose . . . of
controlling a subsidiary company so that it may be used as
a mere agency or instrumentality of the owning company");
P. Blumberg, Law of Corporate Groups: Tort, Contract,
and Other Common Law Problems in the Substantive Law
of Parent and Subsidiary Corporations 6.01-6.06 (1987
and 1996 Supp.) (discussing the law of veil piercing in
the parent subsidiary context)."
THEREFORE, while both SFM and SFI, as separately
incorporated "persons" as defined in 18 USCA 1961(3) may
be treated as distinct persons under RICO, Plaintiffs
maintain that because of the criminal activities of both
the Parent and the Subsidiary; their unusual closeness, with
State Farm Mutual Automobile Insurance controlling State Farm
Indemnity Company as its "alter ego"; and in the general
public interest, that the corporate veil should be allowed
to be be pierced, between the Subsidiary, State Farm Indemnity
Company, and its stockholder and controlling Parent, State Farm
Mutual Automobile Insurance Company.
William C. Hammel Alan J. Bellamente
A-11 Moose Branch Road, A-11 Moose Branch Road,
Sweetwater Apartments 1A, Sweetwater Apartments 8A,
Robbinsville, NC 28771 Robbinsville, NC 28771
(828) 479-1547 (828) 479-1547
William C. Hammel Alan J. Bellamente
DATE: February 4, 2000 DATE: February 4, 2000
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Created: February 4, 2000
Last Updated: May 28, 2000