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. Bill Satterlee is, indeed, a true jazz aficionado. Part of my legal career was spent as an associate attorney with Hoeppner, Wagner & Evans in Valparaiso. Bill was instrumental (no pun intended) in introducing me to jazz music, thereby fostering my love for this genre. We would, occasionally, travel to Chicago on weekends and sit in on some outstanding jazz sessions at Andy's on Hubbard Street. Had it not been for Bill's love of jazz music, I never would have had the good fortune of hearing it played live at Andy's. And, most likely, I might never have begun listening to it as much as I do. Thanks, Bill.

  2. The child support award is many times what the custodial parent earns, and exceeds the actual costs of providing for the children's needs. My fiance and I have agreed that if we divorce, that the children will be provided for using a shared checking account like this one(http://www.mediate.com/articles/if_they_can_do_parenting_plans.cfm) to avoid the hidden alimony in Indiana's child support guidelines.

  3. Fiat justitia ruat caelum is a Latin legal phrase, meaning "Let justice be done though the heavens fall." The maxim signifies the belief that justice must be realized regardless of consequences.

  4. Indiana up holds this behavior. the state police know they got it made.

  5. Additional Points: -Civility in the profession: Treating others with respect will not only move others to respect you, it will show a shared respect for the legal system we are all sworn to protect. When attorneys engage in unnecessary personal attacks, they lose the respect and favor of judges, jurors, the person being attacked, and others witnessing or reading the communication. It's not always easy to put anger aside, but if you don't, you will lose respect, credibility, cases, clients & jobs or job opportunities. -Read Rule 22 of the Admission & Discipline Rules. Capture that spirit and apply those principles in your daily work. -Strive to represent clients in a manner that communicates the importance you place on the legal matter you're privileged to handle for them. -There are good lawyers of all ages, but no one is perfect. Older lawyers can learn valuable skills from younger lawyers who tend to be more adept with new technologies that can improve work quality and speed. Older lawyers have already tackled more legal issues and worked through more of the problems encountered when representing clients on various types of legal matters. If there's mutual respect and a willingness to learn from each other, it will help make both attorneys better lawyers. -Erosion of the public trust in lawyers wears down public confidence in the rule of law. Always keep your duty to the profession in mind. -You can learn so much by asking questions & actively listening to instructions and advice from more experienced attorneys, regardless of how many years or decades you've each practiced law. Don't miss out on that chance.

ADVERTISEMENT