COA: Hendricks County excavating business gets reversal in alter ego dispute

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The Indiana Court of Appeals has reversed a trial court ruling by finding against a Hendricks County excavating business that tried to benefit from family ties to escape liability after excavators abandoned and left incomplete the installation of a safe room in a homeowner’s residence.

After Craig Blackwell paid $20,000 to have a waterproof and fireproof safe room installed in his home by Superior Safe Rooms, he ran into legal trouble when the company halted work on the project before completion.

Before signing the check, Blackwell met with Michael M. Wharff of Wharff Excavating LLC regarding the safe room installation. Wharff told Blackwell that his company would be installing the safe room, but a contract drafted by a Wharff employee listed no reference to Wharff Excavating other than in the email address listed for Superior.

When the project’s work was suspended before its completion, however, Blackwell sued Superior for breach of contract, among other things.

The Hendricks Circuit Court ultimately granted Blackwell’s default judgment motion against Superior on all counts of Blackwell’s complaint and dismissed Superior’s counterclaim. Also, the court granted Blackwell $161,625.52 in damages.

At a subsequent hearing on Blackwell’s motion for proceedings supplemental, Wharff testified that he had been “operating” Superior since its formation in 2012 and thought he was an owner and member of Superior until his father-in-law, John H. Byers, informed him otherwise a month prior to testifying.

According to court testimony, Byers was and always had been the sole owner and member of Superior, which “conducted no business, had no employees, had no physical place of business, had no equipment other than a pickup truck, had no income, and filed no tax returns.”

In addition, Byers was named as the sole member of Superior “for convenience” and to draw business to Wharff Excavating. Byers had formed Superior with the intention that it would market, design and sell safe rooms that Wharff Excavating would then build. But Superior never did any business other than entering into the contract with Blackwell in 2015.

Wharff, Wharff Excavating and Byers were eventually added as garnishee defendants in the case, and the trial court ultimately ruled for the defendants, finding that Blackwell presented no evidence that any of the Aronson vs. Price, 644 N.E.2d 864, 867 (Ind. 1994), factors caused his damages.

The trial court ruled that it would “be unjust and [in]equitable to pierce the corporate veil where a judgment was entered against Superior by Default Order.” As such, it concluded “there is no causal connection between the complained of actions and the actual harm suffered by Blackwell … .”

But the Indiana Court of Appeals reversed in Craig Blackwell v. Superior Safe Rooms, LLC, et al., 20A-PL-2081.

It noted that the trial court erred by failing to address at all the relevant issues, including who the parties to the contract were and the factors relevant to the motion to pierce Superior’s corporate veil. It likewise expressed that it was “firmly convinced” after a review that a mistake had been made in that neither the findings nor the evidence supported the trial court’s ruling.

“Neither the evidence nor the trial court’s findings that Blackwell wrote a check to Wharff Excavating and knew Wharff Excavating did the work on the project support its conclusion that Blackwell could have sued Wharff for breach of contract or that Superior’s corporate veil should not be pierced,” Judge L. Mark Bailey wrote for the appellate court.

“Rather, the evidence in the record supports only the opposite conclusions: Garnishee Defendants’ misuse of Superior’s corporate form resulted in the injustice that they escaped liability for their actions in relation to the project, and they should be held liable for the judgment against Superior.”

It concluded that the trial court committed clear error when it failed to find as a fact that the contract for the safe room was between Blackwell and Superior, and failed to make necessary findings, as requested by Blackwell, about factors relevant to disregarding Superior’s corporate form.

Additionally, it noted that the findings and the record did not support the trial court’s conclusions that the Garnishee Defendants did not use Superior as a shield to liability and that they perpetrated no injustice.

“In short, the injustice in this case is that Garnishee Defendants used Superior’s corporate form to escape liability arising out of an operation conducted by Superior for the benefit of Garnishee Defendants,” the appellate court concluded. “That is precisely the situation the corporate alter ego doctrine was designed to alleviate.”

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