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2) TPC failed to file monthly operating reports as required by Arizona tax law.

(b) If Arizona must show fraud, may it meet its burden of proof by showing fraud on someone else? If so, has Arizona met its burden? (c) If not actual fraud but mere unfairness or 'a basically unfair device to achieve an inequitable result' need be shown, is any of the following sufficiently unfair to justify piercing the corporate veil in this case: 1) TPC has filed bankruptcy and not all its debts will be paid in full.

As will be seen by the discussion below, this issue may be more coherently determined if several sub-issues are first decided.ġ.02 Is Texas law or Arizona law (or federal law) the law of decision in this case?ġ.03 Should the corporate veil be pierced because TPC was resorted to as a means of evading an existing legal obligation?ġ.04 Should the corporate veil be pierced because TPC is the mere alter ego of Charles Blanton?ġ.05 Should the corporate veil be pierced because the corporate entity of TPC and of its related entities were used as a means of perpetrating fraud? Within this issue are several further questions: (a) Must Arizona prove that it was defrauded by some means involving TPC and its related entities? This will be difficult to do since an element of fraud is reasonable reliance and Arizona did not rely on any representations by TPC or the related entities because it did not examine representations or choose to be a creditor it is an involuntary creditor simply because taxes are collected after they accrue. § 157(b) (2) (B) and (O).ġ.01 The ultimate issue is whether, under applicable law, this Court should pierce the corporate veil of TPC to hold Charles Blanton personally liable for the valid debts of TPC. This is a core proceeding under 28 U.S.C. This issue was joined when Charles and Brenda Blanton objected to the claim of Arizona on February 9, 1989. The dispute is over whether Charles and Brenda Blanton are personally liable for payment of the taxes because Arizona asserts that the corporate entity of TPC should be disregarded, i.e., this Court should 'pierce the corporate veil' of TPC. There is no dispute that TPC owes the taxes. These contracts involved rehabilitation of family housing at a Tucson air force base in exchange for approximately $10,000,000.00. It has been stipulated that this amount is a valid unsecured debt owed by TPC which arose out of gross receipts taxes incurred while TPC performed two contracts in the *814 state of Arizona between 19.

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The basis of TPC's debt to Arizona is unpaid sales taxes (gross receipts taxes) for the years 19 in the amount of $153,528.78 plus penalties and interest as of April 1989 of $45,837.95. 88-13708 on Decemwas 100% owned by Charles Blanton. TPC is a corporation which as of the time it filed bankruptcy in Case No. Arizona had timely filed a Proof of Claim for the same debt in the Chapter 7 bankruptcy case of Texas Painter Craft, Inc.

The State of Arizona, ex rel, Arizona Department of Revenue (hereafter 'Arizona') timely filed its proof of claim in the individual Chapter 7 bankruptcy case of Charles Blanton and Brenda Blanton on February 3, 1989. MEMORANDUM OPINION SUSTAINING OBJECTION TO CLAIM Stanley Wright, Arlington, Tex., Trustee. Dir, Office of Attorney General, Tax Div., Phoenix, Ariz., for Arizona. *812 *813 Joanalys Smith, Small Craig & Werkenthin, Austin, Tex., for debtors. Arizona DEPARTMENT OF REVENUE, Alleged Claimant.