Title: Agway, Inc. v. Brooks

State: vermont

Issuer: Vermont Supreme Court

Document:

Agway, Inc. v. Brooks (2000-407); 173 Vt. 259; 790 A.2d 438

[Filed 28-Dec-2001]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.

                                No. 2000-407

Agway, Inc.	                                 Supreme Court

                                                 On Appeal from
     v.	                                         Franklin Superior Court

John H. and Mark Brooks	                         September Term, 2001 
d/b/a Brooks Farm

Edward J. Cashman, J.

James C. Foley, Jr., of Deppman & Foley, P.C., Middlebury, for 
  Plaintiff-Appellee.

Craig Weatherly of Gravel and Shea, Burlington, for Defendants-Appellants.

PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.

       AMESTOY, C.J.   Plaintiff Agway, Inc. filed an action in Franklin
  Superior Court against  defendants John H. Brooks and Mark Brooks, owners
  of Brooks Farm, Inc., seeking to recover  amounts due from the Brooks Farm,
  Inc. account. (FN1)   Following a bench trial, the court found in  favor of
  plaintiff and entered judgment against defendants, personally, for the debt
  of the corporation  as well as prejudgment interest and attorney's fees. 
  On appeal, defendants argue that the trial court  erred in piercing the
  corporate veil and in awarding plaintiff attorney's fees and prejudgment
  interest 

 

  at the rate of 15%.  We affirm the court's judgment as to defendants'
  liability for the debts of Brooks  Farm, Inc., but reverse the award of
  attorney's fees and prejudgment interest. 

       Plaintiff is a farm feed, fertilizer and tool supplier with retail
  locations in Vermont.  In 1981,  plaintiff began supplying feed to John and
  Mary Brooks, for their dairy farm in St. Albans Bay.   Plaintiff provided
  credit to John and Mary Brooks, using a commercial credit agreement that
  listed  the Brooks as owners of a 225 acre farm (with an annual equity
  value of $300,000), farm equipment,  a truck, and a car.  This agreement
  was signed in 1982 and annually thereafter with the last  agreement in
  1987, and the last billing on this account in May of 1998. 

       In 1993, John Brooks and his brother, Mark Brooks, formed the "Brooks
  Brothers Farm"  partnership, and appointed John Brooks as the managing
  partner.  At approximately the same time,  John Brooks formed a corporation
  called "Brooks Farm, Inc." owned by the "Brooks Brothers Farm" 
  partnership.  John Brooks served as the president and managing director of
  Brooks Farm, Inc., which  issued fifty shares of stock to each of the
  brothers.  

       In 1994, plaintiff began supplying feed under a separate account to
  Brooks Farm, Inc.  The  account had originally been opened by Brooks Farm
  in 1984 with no separate credit agreement.  In  1994, a credit manager for
  plaintiff reviewed this account. The credit manager was unable to find a 
  credit application, and he therefore had "Inc." deleted from the account. 
  From 1994 until April of  1998, plaintiff supplied and delivered
  approximately $45,000 worth of feed and beet pulp per month,  under the
  Brooks Farm account, to John and Mary Brooks's farm.  

       In October of 1998, plaintiff filed suit against John and Mary Brooks,
  and later Mark Brooks,  as individuals, seeking the balance on the Brooks
  Farm account as of June of 1998 - approximately  $154,000 - plus interest. 
  Defendants answered the complaint claiming that the debt belonged to the 

 

  corporation and the suit against them as individuals should be dismissed. 
  The court held a bench  trial on January 24, 2000.  The court dismissed
  Mary Brooks as a party but found John and Mark  Brooks individually and
  jointly liable for the $154,000 debt, 15% prejudgment interest and
  attorney's  fees.  

       In concluding that defendants had failed to respect the corporate
  form, the court noted that  John, Mary, and Mark Brooks owned the major
  business assets, including the land, livestock, farm  buildings, and
  equipment; and that the corporation owned no assets or leases of any real
  value.   Further, the court determined that John Brooks had moved money
  between his business and personal  account without corporate resolutions or
  documentation, loaned money from the corporation without  notes and repaid
  them with receipts.   The court did not find fraudulent intent; but rather
  determined  that John Brooks had failed to "make a distinction between John
  Brooks the person, and John Brooks  as president and managing director of
  Brooks Farm, Inc."  The court concluded that John Brooks had  "purposely
  set up the corporation without assets and ran it without a profit" had
  created an  undercapitalized corporation with the intention of isolating
  any business debt from his personal  assets; and consequently had given
  plaintiff the reasonable belief that John and Mark Brooks were  acting on
  their personal behalf rather than on behalf of a corporation.  Finally, 
  the court found that  the 15% prejudgment interest and attorney's fees were
  reasonable and that defendants had notice of  these provisions by virtue of
  the commercial credit agreements signed by John and Mary Brooks for  their
  personal accounts with plaintiff.

 
   
                                     I.

       Our standard when reviewing a trial court's findings of fact and
  conclusions of law is limited.  Rubin v. Sterling Enters., 164 Vt. 582,
  588,