ILNews

COA: trial court erred in piercing corporate veil

Back to TopCommentsE-mailPrintBookmark and Share

Because there was no causal connection established between misuse of the corporate form and fraud or injustice, the Indiana Court of Appeals reversed the trial court’s decision to pierce the corporate veil.

In CBR Event Decorators, Inc., Gregory Rankin, Robert Cochrane and John Bales v. Todd M. Gates, No. 49A02-1010-CT-1117, Robert Cochrane, John Bales and Gregory Rankin arranged to purchase MCS Decorators Inc.’s assets from Todd Gates. Gates had loaned money to the company, which was owned and operated by his then-son-in-law, David Marquart. Cochrane, Bales and Rankin formed a limited liability company to purchase the assets from Gates, who had initiated a replevin action to foreclose on his security interest in MCS’ assets. The three men became shareholders of CBR Event Decorators Inc.

The shareholders gave Gates $100,000 for a down payment, but a day later, the shareholders claimed MCS’ status with regard to clients’ relationships with the company was misrepresented. Gates refused to return the money, so a stop payment was put on the check. Gates never transferred any assets to CBR.

Gates sued CBR claiming breach of contract and that the corporate veil should be pierced to allow the imposition of personal liability on the shareholders. The trial court accepted in full Gates’ proposed findings of fact and conclusions of law and entered judgment in favor of Gates for $260,815.77 plus interest and attorney fees. The judge also found that the shareholders had fraudulently conveyed $100,000 by withdrawing it from their attorney’s trust account.

To justify the decision to pierce the corporate veil, the trial court determined that CBR was undercapitalized, lacked corporate records, and the shareholders had fraudulently represented to Gates in the purchase agreement that there were no representations, warranties, or understandings other than those set forth or provided for in the purchase agreement.

The Court of Appeals reversed the piercing of the corporate veil, relying on caselaw that supports the shareholders’ assertion that the fraud or injustice alleged by a party seeking to pierce the corporate veil must be caused by, or result from, misuse of the corporate form. The fraud alleged by Gates had nothing to do with the misuse of the corporate form, wrote Judge Nancy Vaidik, and the necessary causal link doesn’t exist because the alleged misrepresentation doesn’t pertain to CBR’s corporate status.

The judges did affirm the judgment against CBR for breach of contract and against the shareholders for $100,000 for fraudulent conveyance, fraudulent transfer, and wrongful stop payment. The appellate court ordered the trial court to determine the portion of attorney fees the shareholders are liable for to Gates as a result of the wrongful stop payment.

 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Poor Judge Brown probably thought that by slavishly serving the godz of the age her violations of 18th century concepts like due process and the rule of law would be overlooked. Mayhaps she was merely a Judge ahead of her time?

  2. in a lawyer discipline case Judge Brown, now removed, was presiding over a hearing about a lawyer accused of the supposedly heinous ethical violation of saying the words "Illegal immigrant." (IN re Barker) http://www.in.gov/judiciary/files/order-discipline-2013-55S00-1008-DI-429.pdf .... I wonder if when we compare the egregious violations of due process by Judge Brown, to her chiding of another lawyer for politically incorrectness, if there are any conclusions to be drawn about what kind of person, what kind of judge, what kind of apparatchik, is busy implementing the agenda of political correctness and making off-limits legit advocacy about an adverse party in a suit whose illegal alien status is relevant? I am just asking the question, the reader can make own conclsuion. Oh wait-- did I use the wrong adjective-- let me rephrase that, um undocumented alien?

  3. of course the bigger questions of whether or not the people want to pay for ANY bussing is off limits, due to the Supreme Court protecting the people from DEMOCRACY. Several decades hence from desegregation and bussing plans and we STILL need to be taking all this taxpayer money to combat mostly-imagined "discrimination" in the most obviously failed social program of the postwar period.

  4. You can put your photos anywhere you like... When someone steals it they know it doesn't belong to them. And, a man getting a divorce is automatically not a nice guy...? That's ridiculous. Since when is need of money a conflict of interest? That would mean that no one should have a job unless they are already financially solvent without a job... A photographer is also under no obligation to use a watermark (again, people know when a photo doesn't belong to them) or provide contact information. Hey, he didn't make it easy for me to pay him so I'll just take it! Well heck, might as well walk out of the grocery store with a cart full of food because the lines are too long and you don't find that convenient. "Only in Indiana." Oh, now you're passing judgement on an entire state... What state do you live in? I need to characterize everyone in your state as ignorant and opinionated. And the final bit of ignorance; assuming a photo anyone would want is lucky and then how much does your camera have to cost to make it a good photo, in your obviously relevant opinion?

  5. Seventh Circuit Court Judge Diane Wood has stated in “The Rule of Law in Times of Stress” (2003), “that neither laws nor the procedures used to create or implement them should be secret; and . . . the laws must not be arbitrary.” According to the American Bar Association, Wood’s quote drives home this point: The rule of law also requires that people can expect predictable results from the legal system; this is what Judge Wood implies when she says that “the laws must not be arbitrary.” Predictable results mean that people who act in the same way can expect the law to treat them in the same way. If similar actions do not produce similar legal outcomes, people cannot use the law to guide their actions, and a “rule of law” does not exist.

ADVERTISEMENT