Health win-Midtown Convalescent Hospital, Inc. (Health win), 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 Health win. The United States brought an action to recover this sum from the defendants, Health win and Israel Zide. Zide was a member of the board of directors of Health win, 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 Health win’s health-care facility was located and the furnishings used at that facility. Health win consistently had outstanding liabilities in excess of $150,000, and its initial capitalization was only $10,000. Zide exercised control over Health win, 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 Health win. Is the United States correct in its assertion? Why?
This is an action by the United States to recover Medicare funds paid to the Healthwin-Midtown Convalescent Hospital and Rehabilitation Center, Inc. (Healthwin). The defendants are Healthwin and Israel Zide, its former president and owner of fifty percent of its stock. The facts are as follows: On September 14, 1971, Healthwin was organized in California for the purpose of operating a health care facility. From that date, until November 30, 1974, it participated as a provider of services under the Medicare Act, 42 U.S.C. § 1395 et seq., and received periodic payments from the United States Department *418 of Health, Education and Welfare (HEW). These payments, which were compensation for the services provided Medicare beneficiaries by Healthwin, were only approximations of the exact amount due; the exact amount was determined by periodic audits conducted by Blue Cross of Southern California which was HEW’s agent for the purpose of paying Healthwin and auditing its cost reports. It is undisputed that these audits showed that a series of overpayments had been made to Healthwin in 1972, 1973 and 1974 in the total amount of $30,481.55. It is this sum, plus interest, that the United States seeks to recover here. Healthwin itself is precluded under California law from defending this action since its corporate powers were suspended due to its failure to pay taxes owing to the State of California. See California Revenue and Taxation Code, Section 23301.