Title: Kloefkorn-Ballard Const. and Development, Inc. v. North Big Horn Hosp. Dist.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Kloefkorn-Ballard Const. and Development, Inc. v. North Big Horn Hosp. Dist.1984 WY 56683 P.2d 656Case Number: 83-234Decided: 06/13/1984KLOEFKORN-BALLARD CONSTRUCTION AND DEVELOPMENT, INC., APPELLANT (PETITIONER),

v.

NORTH BIG HORN HOSPITAL DISTRICT, APPELLEE (RESPONDENT).

Supreme Court of Wyoming
KLOEFKORN-BALLARD 
CONSTRUCTION AND DEVELOPMENT, INC., APPELLANT (PETITIONER),

v.

NORTH BIG HORN HOSPITAL 
DISTRICT, APPELLEE (RESPONDENT).

Appeal from the District 
Court, Big HornCounty, John T. Dixon, 
J.

 
 
B.J. Baker of 
Brown, Drew, Apostolos, Massey & Sullivan, Casper, for appellant.

L.R. Garrett of 
Lovell, for 
appellee.

Before ROONEY, C.J., and THOMAS, ROSE, BROWN and 
CARDINE, JJ.

BROWN, 
Justice.

[¶1.]     Kloefkorn-Ballard 
Construction and Development, Inc., appellant (hereinafter Kloefkorn-Ballard), a 
Wyoming corporation, appeals the award of a 
construction contract by North Big Horn Hospital District, appellee (hereinafter 
Hospital District) to D & LBuilding and Remodeling, Inc. 
(hereinafter D & L), a Wyoming corporation. Appellant contends that D 
& L is a corporate device used by Knutson Construction (hereinafter 
Knutson), a Minnesota corporation, to evade the 
Wyoming 
preference statute.

[¶2.]     We will 
affirm.

[¶3.]     The Hospital District 
advertised for bids for the construction of the NorthBigHornHospital. Under the 
provisions of § 16-6-102, W.S. 1977 (October 1982 Replacement), the Hospital 
District was obligated to award the contract to the responsible resident making 
the lowest bid if the resident's bid was not more than five percent higher than 
the lowest responsible nonresident bidder. D & L was the lowest bidder and 
was awarded the construction contract by the Hospital District. 
Kloefkorn-Ballard was the second lowest bidder, its bid being not more than five 
percent higher than D & L's bid.

[¶4.]     Kloefkorn-Ballard 
protested to the board of directors of the Hospital District that D & L was 
not a responsible resident bidder within the meaning of the Wyoming preference 
statute, § 16-6-102, W.S. 1977. The board granted a hearing on the question, and 
issued findings of fact, conclusions of law, decision and order concluding that 
D & L was a responsible resident bidder. Appellant then petitioned the 
district court for a review of the board's decision. The district court affirmed 
the action of the Hospital District. Kloefkorn-Ballard then appealed to this 
court, seeking that the following issues be resolved:

"1. Can a nonresident 
corporation evade the Wyoming Resident Preference Statute, Section 16-6-102, 
Wyoming Statutes, 1977, by means of acquiring a Wyoming corporation, 
substantially without assets, which has been in existence for more than one (1) 
year and by bidding in the name of the Wyoming 
corporation?

"2. If an 
undercapitalized Wyoming corporation has no ability, either financial or 
otherwise, to perform a contract without the joint participation of a 
nonresident corporation, does a joint venture or association exist at law in 
violation of the statutory requirement that each member of a partnership or 
association bidding on a project must have been a bona fide resident of the 
State for more than one (1) year immediately prior to bidding upon the 
contract?

"3. Were the findings and 
conclusion of the Board of Directors of Appellee erroneous as a matter of law 
because there was no substantial evidence to support the conclusion that D & 
L Building & Remodeling, Inc. was a responsible 
contractor?"

[¶5.]     Appellant contends that 
although D & L is a Wyoming corporation, it 
is a shell or alter ego for Knutson to avoid Wyoming's preference 
statute.

[¶6.]     D & L was 
incorporated in June, 1980, by George Dunlap and Gary Lancaster of Gillette, Wyoming. The corporation primarily handled 
remodeling work and constructed residences. In October, 1982, Knutson purchased 
80 percent of the shares of D & L from Dunlap and Lancaster. Before 
completion of the stock sale, D & L transferred all jobs and projects in 
progress to a new company, LancasterBuilding, owned by Gary Lancaster. D & 
L also transferred all real estate owned by it to George Dunlap and Gary 
Lancaster. The only remaining assets of D & L at the time Knutson acquired 
control were approximately $12,000 worth of tools and equipment. After 
purchasing control, Knutson did not inject capital into D & L but advanced D 
& L money under a promissory note, payable on demand, for 
$200,000.

[¶7.]     D & L carried five 
people on its payroll at the time of the hearing, four of which were former 
Knutson employees. D & L leases office space in Gillette, Wyoming, from George Dunlap. D & L did not 
have a construction yard, and the tractor and tools owned by D & L were 
stored at Mr. Lancaster's home at the time of the hearing.

[¶8.]     The articles of 
incorporation of D & L specified that the number of directors should be 
three at such time as there were three or more shareholders. At the time of the 
hearing, the board of directors had been increased to either five or six. There 
was conflicting testimony as to who was actually on the board of directors. Mr. 
Lancaster, one of D & L's directors, was unaware of the salary Mr. Madsen 
received as president and general manager of D & L after the Knutson 
purchase, nor did he know where D & L was getting money to operate. There 
was a written agreement between D & L and Knutson relating to estimating 
services for bidding on jobs.

[¶9.]     D & L furnished a 
bond to appellee. The bond was indemnified by Knutson. The insurance agency in 
Gillette, Wyoming, which issued and countersigned the 
bonds, did not obtain financial information relating to D & L, testifying 
that it was unnecessary.

[¶10.]  Appellee asserts that D & L is a 
Wyoming 
corporation which was incorporated June 20, 1980. Knutson Construction Company 
owns 80 percent of D & L stock; Lancaster and Dunlap own 20 percent. The 
office and place of business of D & L is Gillette, Wyoming, where its office has been located 
since incorporation. D & L has done business only in Wyoming. Mr. Madsen, 
president and general manager of D & L, has resided in Wyoming since October, 1982; he has a Wyoming driver's license, 
is registered to vote in Gillette, is paid by D & L, is not on Knutson's 
payroll, and is not an officer or director of Knutson. D & L's payroll is 
made in Gillette, it banks in Gillette, it purchases insurance in Gillette, all 
its auditing and accounting are done in Gillette, and it pays Wyoming unemployment and 
worker's compensation contributions. D & L bid $800,000 worth of business in 
1980, and $1,100,000 in 1981 before the Knutson stock purchase. D & L has a 
$200,000 line of credit with Knutson. D & L also asserts that it is well 
qualified to build the hospital for the North Big Horn Hospital 
District.

[¶11.]  Although Knutson signed D & L's bond 
application as an indemnitor, appellant's bond application was also signed by 
some of its stockholders, a common practice according to a co-owner of 
Kloefkorn-Ballard.

[¶12.]  In an appeal from the district court's 
review of an agency decision, we are not bound by the conclusions reached in the 
district court, but we review the appeal as if it came directly from the agency. 
Wyoming State Department of Education v. 
Barber, Wyo., 649 P.2d 681 (1982). When reviewing the 
agency's decision, we cannot substitute our judgment for that of the agency as 
long as the agency's findings are supported by substantial evidence. Wyoming State Department of Education v. 
Barber, supra. By "substantial evidence," we are referring to relevant 
evidence which a reasonable mind might accept as supporting the agency's 
conclusion, although it means more than a mere scintilla of evidence. Wyoming State Department of Education v. 
Barber, supra; and Board of Trustees, 
LaramieCountySchool 
District No. 1 v. Spiegel, Wyo., 549 P.2d 1161 
(1976).

[¶13.]  As stated above, the board of directors 
of the Hospital District found that D & L was a responsible resident bidder 
and, therefore, the preference statute was not violated. The Wyoming preference 
statute, § 16-6-102, W.S. 1977, provides:

"Whenever a contract is 
let by the state, any department thereof, * * * for the erection, construction, 
alteration or repair of any public building, * * * the contract shall be let, if 
advertisement for bids is not required, to a resident of the state. If 
advertisement for bids is required the contract shall be let to the responsible 
resident making the lowest bid if the resident's bid is not more than five 
percent (5%) higher than that of the lowest responsible nonresident 
bidder."

"Resident" is 
defined in § 16-6-101(a)(i), W.S. 1977 (October 1982 Replacement), 
as:

"(A) Any person who has 
been a bona fide resident of the state for one (1) year or more immediately 
prior to bidding upon the contract;

"(B) A partnership or 
association, each member of which has been a bona fide resident of the state for 
one (1) year or more immediately prior to bidding upon the 
contract;

"(C) A corporation which 
has been organized under the laws of the state and has been in existence in the 
state for one (1) year or more immediately prior to bidding upon the contract 
and which has its principal office and place of business within the 
state."

[¶14.]  Therefore, four elements must exist 
before a corporation qualifies as a resident under this statute and they are 
that:

1. The corporation has 
been organized under the laws of Wyoming;

2. The corporation has 
been in existence in Wyoming for one year or more prior to 
bidding;

3. Its principal office 
must be in Wyoming; and

4. Its principal place of 
business must be within Wyoming.

[¶15.]  Neither of the parties involved in this 
appeal contest the fact that D & L is a Wyoming corporation organized under Wyoming law that has been in existence for one year or 
more, or that D & L has its principal office and place of business in 
Wyoming. We, 
therefore, find that D & L is a resident Wyoming corporation. Appellant contends, 
however, that D & L is a corporate device or instrumentality of Knutson and 
asks us to disregard the corporate entity of D & L, which would make it 
ineligible to receive the five percent preference under the statute. Therefore, 
the issue as we see it is whether D & L is a responsible 
bidder.

[¶16.]  We cannot locate any Wyoming cases directly on 
point; however, the cases dealing with piercing the corporate veil or whether a 
corporation is an alter ego will be useful in determining this question. In AMFAC Mechanical Supply Co. v. Federer, 
Wyo., 645 P.2d 73 (1982), we discussed some of the factors pertinent to justify the disregard 
of a corporate entity:

1. Whether a corporation 
is truly a separate entity;

2. Commingling of funds 
and other assets;

3. Failure to segregate 
funds of the separate entities;

4. Failure to maintain 
adequate corporate records or maintain minutes;

5. Failure to adequately 
capitalize a corporation;

6. The absence of 
corporate assets and undercapitalization;

7. The use of a 
corporation as a mere shell, instrumentality or conduit of an individual or 
another corporation;

8. The disregard of legal 
formalities and the failure to maintain arm's length relationships among related 
entities;

9. The use of the 
corporate entity to procure labor, services or merchandise for another person or 
entity.

"For a corporation to be 
accorded treatment as a separate entity, it must exist and function as such and 
not be the alter ego of the person [or corporation] owning and controlling it 
and cannot be used or ignored just to fit the convenience of the individual [or 
corporation]. * * *" AMFAC Mechanical 
Supply Co. v. Federer, supra, at 79.

[¶17.]  Ordinarily, a corporation is a separate 
entity distinct from the individuals comprising it. State ex rel. Christensen v. Nugget Coal 
Co., 60 Wyo. 51, 144 P.2d 944 (1944). This is true 
even though a majority of the corporate stock is owned by a single individual. 
W.D. Miller Lumber Corporation v. Miller, 
225 Or. 427, 357 P.2d 503, 100 A.L.R.2d 376 (1960); and Durlacher v. Frazer, 8 Wyo. 58, 55 P. 306 
(1898). Before a corporation's acts will be considered to be those of a specific 
stockholder, it must be made to appear that the corporation is not only 
influenced and governed by that stockholder, but that there is such a unity of 
interest and ownership that the individuality or separateness of the corporation 
and stockholder has ceased. See AMFAC 
Mechanical Supply Co. v. Federer, supra; and Arnold v. Browne, 27 Cal. App. 3d 386, 103 Cal. Rptr. 775 (1972). The facts of each case involving the disregard of a 
corporate entity must lead us to the conclusion that adherence to the separate 
existence of the corporation would sanction a fraud or promote injustice. See AMFAC Mechanical Supply Co. v. 
Federer, supra; and Arnold v. 
Browne, supra.

[¶18.]  Our review of the record in this appeal 
persuades us that the Hospital District's finding that D & L is a 
responsible resident bidder, separate and distinct from Knutson, is supported by 
substantial evidence.

[¶19.]  D & L does not have an overabundance 
of assets for a corporation bidding on multi-million dollar projects. However, 
the testimony indicates that it has the necessary bonding capacity; that it has 
funds available by the note from Knutson, its parent corporation; that it is not 
unusual for equipment to be leased for these types of construction contracts and 
for personnel to be hired in the area affected by the contract; and that its 
assets were increased at the time of the hearing to $47,000, plus $10,000 
cash.

[¶20.]  The note from Knutson to D & L for 
$200,000 is in writing and requires D & L to pay interest. We do not 
consider this to be commingling of funds but an arm's length 
transaction.

[¶21.]  We can find no impropriety in the fact 
that D & L has several people on its payroll who were once employees of 
Knutson. President Madsen testified that he is not paid by Knutson and does not 
receive orders from or answer to Knutson. Madsen also testified that D & L 
has the men and expertise necessary to build this 
hospital.

[¶22.]  We believe that D & L and Knutson 
have maintained a separate existence; that D & L is not governed by Knutson; 
and that the recognition of D & L as a separate corporate entity does not 
sanction a fraud or promote injustice. Additionally, if we were to rule that 
Knutson was merely using D & L as an instrumentality, it would make it very 
difficult for viable Wyoming corporations to sell a majority of 
their stock to an out-of-state corporation. We do not think this would be in the 
public interest.

[¶23.]  Our discussion has effectively answered 
the issues proposed by appellant. Affirmed.