Reference no: EM131389634

Healthwin-Midtown Convalescent Hospital, Inc. (Healthwin), was incorporated in California for the purpose of operating a health-care facility.

For three years thereafter, it participated as a provider of services under the federal Medicare Act and received periodic payments from the U.S. Department of Health, Education and Welfare. Undisputed audits revealed that a series of overpayments had been made to Healthwin. The United States brought an action to recover this sum from the defendants, Healthwin and Israel Zide. Zide was a member of the board of directors of Healthwin, the administrator of its health-care facility, its president, and owner of 50 percent of its stock.

Only Zide could sign the corporation's checks without prior approval of another corporate officer. Board meetings were not regularly held. In addition, Zide had a 50 percent interest in a partnership that owned both the realty in which Healthwin's health-care facility was located and the furnishings used at that facility. Healthwin consistently had outstanding liabilities in excess of $150,000, and its initial capitalization was only $10,000. Zide exercised control over Healthwin, causing its finances to become inextricably intertwined both with his personal finances and with his other business holdings.

The United States contends that the corporate veil should be pierced and that Zide should be held personally liable for the Medicare overpayments made to Healthwin. Is the United States correct in its assertion? Why?