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COA: trial court erred in piercing corporate veil

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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.

 

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  2. The practitioners and judges who hail E-filing as the Saviour of the West need to contain their respective excitements. E-filing is federal court requires the practitioner to cram his motion practice into pigeonholes created by IT people. Compound motions or those seeking alternative relief are effectively barred, unless the practitioner wants to receive a tart note from some functionary admonishing about the "problem". E-filing is just another method by which courts and judges transfer their burden to practitioners, who are the really the only powerless components of the system. Of COURSE it is easier for the court to require all of its imput to conform to certain formats, but this imposition does NOT improve the quality of the practice of law and does NOT improve the ability of the practitioner to advocate for his client or to fashion pleadings that exactly conform to his client's best interests. And we should be very wary of the disingenuous pablum about the costs. The courts will find a way to stick it to the practitioner. Lake County is a VERY good example of this rapaciousness. Any one who does not believe this is invited to review the various special fees that system imposes upon practitioners- as practitioners- and upon each case ON TOP of the court costs normal in every case manually filed. Jurisprudence according to Aldous Huxley.

  3. Any attorneys who practice in federal court should be able to say the same as I can ... efiling is great. I have been doing it in fed court since it started way back. Pacer has its drawbacks, but the ability to hit an e-docket and pull up anything and everything onscreen is a huge plus for a litigator, eps the sole practitioner, who lacks a filing clerk and the paralegal support of large firms. Were I an Indiana attorney I would welcome this great step forward.

  4. Can we get full disclosure on lobbyist's payments to legislatures such as Mr Buck? AS long as there are idiots that are disrespectful of neighbors and intent on shooting fireworks every night, some kind of regulations are needed.

  5. I am the mother of the child in this case. My silence on the matter was due to the fact that I filed, both in Illinois and Indiana, child support cases. I even filed supporting documentation with the Indiana family law court. Not sure whether this information was provided to the court of appeals or not. Wish the case was done before moving to Indiana, because no matter what, there is NO WAY the state of Illinois would have allowed an appeal on a child support case!

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