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Judges disagree over use of summary judgment to pierce corporate veil

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One Court of Appeals judge believed the “only reasonable inference” that could be drawn from the evidence in a collections case is that a former company was a “sham corporation,” so the trial court properly pierced the corporate veil on summary judgment.

In Konrad Motor and Welder Service, Inc., Konrad Lambrecht, and Sharon Lambrecht v. Magnetech Industrial Services, Inc., 45A04-1203-CC-109, Judge Terry Crone dissented from his colleagues on the corporate veil issue, writing, “Although piercing the corporate veil is, and should be, a rare occurrence on summary judgment because of the highly fact-sensitive nature of the inquiry involved, I believe that it is appropriate when the relevant facts are undisputed and lead to only a single reasonable conclusion. The trial court reached the right conclusion here.”

Magnetech Industrial Services Inc. sued Konrad Motor & Welder Service Inc. and husband and wife Konrad and Sharon Lambrecht to recover a $35,000 judgment entered against a former company, Kondrad Electric, which was owned by Sharon Lambrecht. She shut down Konrad Electric in 2008. Her husband formed the corporation Konrad MWS in 2006.

The lawsuit at issue began in 2005 when a company sued Konrad Electric after problems arose with work Magnetech performed. Konrad Electric subcontracted the work to Magnetech. Konrad Electric then filed a third-party against Magnetech, leading to Magnetech’s counterclaim for payment of services.

While the lawsuits were pending, Sharon Lambrecht – who was sole shareholder and president – decided to close Konrad Electric and her husband launched Konrad MWS. Konrad Lambrecht worked for Konrad Electric as its general manager.

After Magnetech won the $35,000 judgment, it sued Konrad MWS and the Lambrechts in 2011 to recover the money. Konrad Electric was without assets to satisfy the judgment. The trial court granted summary judgment for Magnetech, piercing the corporate veil of Konrad Electric to hold the Lambrechts liable and finding Konrad MWS is the alter ego of Konrad Electric.

Judges Nancy Vaidik and Cale Bradford reversed on the corporate veil ruling, finding “While it may be that Konrad Electric’s corporate veil should be pierced, this determination should not have been made on summary judgment,” Vaidik wrote. The majority believed more than one inference can be drawn from the facts of this case.

The three judges upheld summary judgment regarding the finding Konrad MWS is the alter ego of the former corporation, finding significant similarities between the two corporations, including names, similar business services, and the timing of the shutting down of Konrad Electric and creating Konrad MWS.

“Konrad Electric tried to avoid paying the judgment to Magnetech while still conducting the same business under a new name, Konrad MWS. Konrad MWS offers no other reasonable inference,” Vaidik wrote.

The majority noted that on remand, if Konrad Electric’s corporate veil is pierced, Konrad Lambrecht, even though not a shareholder, may be held individually liable along with his wife.

 

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