Title: Backus v. Watson

State: alabama

Issuer: Alabama Supreme Court

Document:

619 So. 2d 1342 (1993)
Mary S. BACKUS
v.
Jimmy H. WATSON, et al.
1911804.

Supreme Court of Alabama.
March 26, 1993.
Rehearing Denied April 23, 1993.
Christopher E. Peters of Cherry, Givens, Tarver, Peters, Lockett & Diaz, P.C., and Gregory B. McAtee of Stokes & McAtee, Mobile, for appellant.
James D. Brooks and William W. Watts III of Reams, Philips, Brooks, Schell, Gaston & Hudson, P.C., Mobile, for Jimmy H. Watson.
Barry L. Thompson of Silver & Voit, P.C., Mobile, for Syble L. Watson.
HOUSTON, Justice.
Mary S. Backus sued Carousel Club 90, Inc. ("the club"), seeking to recover damages under Ala. Code 1975, § 6-5-71 (the Dram Shop Act), for injuries she had sustained on or about July 24, 1988, in an automobile accident involving a patron of the club. After obtaining a substantial judgment against the club on September 27, 1990, Backus filed the present action on January 11, 1991, against the club; Jimmy H. Watson, the former owner of the club; and his wife, Syble L. Watson, seeking to set aside an alleged fraudulent transfer of the club's assets and to hold the Watsons personally liable for her judgment against the club. Backus alleged that the Watsons had used the club as their alter ego and she urged the trial court to disregard the corporate form. The trial court entered a *1343 summary judgment for Syble Watson, and the propriety of that judgment is not an issue on this appeal. Jimmy Watson raised the statute of limitations and the doctrine of res judicata as affirmative defenses. The trial court, after conducting an ore tenus hearing, entered a judgment setting aside the transfer of the club's assets, but denying Backus's request to hold Jimmy Watson personally liable for the judgment against the club. Backus appealed from this latter aspect of the judgment. We affirm.
Watson contends that either the two-year statute of limitations set out in Ala. Code 1975, § 6-2-38,[1] or the doctrine of res judicata provides a basis for affirming the judgment. Backus contends that the doctrine of res judicata was not a defense to her action; she makes no argument concerning the statute of limitations.
Initially, we note that the trial court did not clearly state its reason or reasons for entering the judgment for Watson. The trial court did separate its judgment into several parts, including a part entitled "Statement of Facts"; a part entitled "Findings of Fact and Conclusions of Law," in which the court expressed its opinion that Backus should have named Watson as a defendant in her action against the club; and a part entitled "Judgment," in which the trial court simply stated that "Watson [was] not personally liable for the judgment in the dram shop action." The trial court never specifically referred to the doctrine of res judicata; it mentioned the statute of limitations only to show that it had been raised as an affirmative defense. Based on our review of the record, it appears as though the trial court may have based its judgment either on the statute of limitations, on the doctrine of res judicata, or on a finding, based on ore tenus evidence, that Watson did not operate the club as his alter ego.[2]
With regard to the statute of limitations, Watson argues that "[a] claim of alter-ego liability for the torts of the corporation must be brought within the limitations period governing the filing of claims against the corporation for its tortious conduct." Therefore, Watson appears to take the position that the two-year statute of limitations set out in § 6-2-38(n) (pertaining to "[a]ll actions commenced to recover damages for injury to the person or property of another wherein a principal or master is sought to be held liable for the act or conduct of his agent, servant or employee under the doctrine of respondeat superior") controls. However, the record shows that Backus sought to hold Watson personally liable for her judgment against the club. She did not allege, nor attempt to prove, that Watson had breached a duty owed to her personally or that Watson was liable for any reason other than his alleged failure to observe the club's corporate identity. Therefore, in our view, § 6-2-38(n) is not applicable. Instead, we conclude that Backus's action is in the nature of a creditor's bill to enforce a judgment, see R.E. Pilkerton Electric, Inc. v. Westinghouse Electric Supply Co., 444 So. 2d 855 (Ala.1984); 21 Am.Jur.2d Creditors' Bills § 2 (1981), and, therefore, that it is subject to the 20-year statute of limitations set out in Ala. Code 1975, § 6-2-32.
We note Watson's reliance on Ex parte Empire Gas Corp., 559 So. 2d 1072 (Ala. 1990), in support of his argument that a two-year statute of limitations applies. In that case, a parent corporation petitioned for a writ of mandamus directing the trial court to vacate its order amending the plaintiffs' complaint so as to add the parent corporation as a party defendant, in an action that had been filed against the parent *1344 corporation's wholly owned subsidiary in a malicious prosecution action, and on which a judgment had been entered against the subsidiary. We quote from the opinion:
559 So. 2d  at 1074. (Emphasis added.)
However, because the amendment to the plaintiffs' complaint in Empire Gas Corp. related back to the filing of the original complaint, the language emphasized above is dictum and, as such, should not be construed as a definitive statement with respect to the statute of limitations. Empire Gas Corp. is not authority for the proposition that the two-year statute of limitations set out in § 6-2-38(n) controls in this case.
Therefore, because Backus filed her action against Watson within 20 years of obtaining her judgment against the club, the judgment for Watson cannot be affirmed on the basis of the statute of limitations.
As to Watson's reliance on the doctrine of res judicata, we note that this Court held in Whisman v. Alabama Power Co., 512 So. 2d 78, 80-81 (Ala.1987), that "[a] valid, final judgment on the merits of an issue extinguishes that issue and operates as an absolute bar in a subsequent suit between the same parties on any issue which was or could have been litigated." Elaborating on this doctrine, Justice Merrill, writing for this Court in McGruder v. B & L Construction Co., 331 So. 2d 257, 259 (Ala.1976), stated:
The record indicates that it was not until she took Watson's post-judgment deposition in an attempt to discover whether the club had any assets from which she could satisfy her judgment against the club, that Backus suspected that Watson might have ignored the club's corporate existence. For this reason, Backus says, she did not name Watson as a defendant in her action against the club and attempt at that time to obtain a judgment against him personally. Backus's present action against Watson was based on a cause of action entirely *1345 different from the one on which her action against the club was based, and in the present action she sought to litigate an issue that was not litigated, and could not have been litigated, under the pleadings in her action against the club, even though Watson appeared at the trial of that action and apparently participated in the club's defense. See Lesley v. City of Montgomery, 485 So. 2d 1088 (Ala.1986); see, also, Denniston & Co. v. Jackson, 468 So. 2d 170 (Ala.Civ.App.1985). The litigation of the central issue presented in this action whether the club was operated as Watson's alter ego and, therefore, whether the "corporate veil" should be piercedhas not been foreclosed by a previous judgment binding as between these parties. Therefore, the trial court could not have properly relied on the doctrine of res judicata as a basis for its judgment.
Finally, we note our well-settled standard for reviewing a judgment based on ore tenus evidence:
Thomas v. Neal, 600 So. 2d 1000, 1001 (Ala. 1992), quoting Sundance Marina, Inc. v. Reach, 567 So. 2d 1322, 1324-25 (Ala.1990).
Also well established are the factors to be considered when determining whether to "pierce the corporate veil":
Simmons v. Clark Equipment Credit Corp., 554 So. 2d 398, 400-01 (Ala.1989).
The evidence in the present case, which was conflicting, does show that Watson did *1346 not always observe the corporate form. This is illustrated by the trial court's findings of fact:
In addition to these facts, the evidence also shows that the club paid no franchise taxes and filed no corporate income tax returns. The evidence further shows that Syble Watson was not an officer of the club. Watson signed his wife's name to the minutes of various club meetings and falsely represented on liquor license renewal applications that she was an officer of the club. On the other hand, there was evidence that Watson did not operate the club as a subterfuge. Although Watson testified that the club kept no formal books or records and that he preferred to handle all of the club's transactions in cash, he did state that there was a corporate bank account. In addition, the club had several employees who were paid out of funds generated by the club. Watson paid himself a salary out of the club's funds. There was also evidence that Watson did not drain funds from the corporation for his personal use. Furthermore, Watson explained that he had only a sixth-grade education and that his "bookkeeper" had prepared his individual income tax return, wherein the club was referred to as a "sole proprietorship." Finally, the various food permits and licenses were issued in the club's name. Suffice it to say that although the evidence shows that Watson dominated the club and that, as the trial court specifically noted, he failed to observe certain corporate formalities, we cannot say that a finding by the trial court that the club was not operated as Watson's alter ego would have been plainly and palpably wrong. We will assume that the trial court found those facts necessary to support its judgment, if such a finding would be supported by the evidence. Robinson v. Hamilton, 496 So. 2d 8 (Ala.1986). We recognize that this is a close case and that we would have affirmed a judgment for Backus based on a finding that Watson had operated the club as his alter ego. However, because we are governed by our ore tenus standard of review, we, as an appellate court, are required to give great deference to the trial court's finding of fact on this issue.
*1347 Because the trial court could have found from the evidence that Watson did not operate the club as his alter ego, the judgment is due to be affirmed.
AFFIRMED.
HORNSBY, C.J., and MADDOX, SHORES and KENNEDY, JJ., concur.
[1]  Because § 6-2-39, providing a one-year limitations period, was repealed by Ala. Acts 1984-85, No. 85-39, p. 40, § 3, effective January 9, 1985, we assume that Watson's specific reference in his brief to that section was an oversight.
[2]  The parties suggest that the trial court did not make a finding with respect to the alter ego issue. The record, however, indicates that the trial court may have made such a finding from the evidence. If, in fact, the trial court did not reach this issue, but relied, instead, on either the statute of limitations or the doctrine of res judicata, then that fact may be shown by supplementing the record on an application for rehearing.