I N T H E SUPR EM E C O UR T O F M I SS I SS I PPI NO. 2 0 0 4 - CA- 0 1 1 4 5 - S CT H. S. S T AN L EY , J R. , CHA P T

ER 7 T RU S T EE FOR THE BANKRUP TCY

ES TAT E OF GULFP ORT PI LOT SAS S OCI ATI ON, I NC. , ASS UBS TITUT

ED F O R MIC

H A EL KO P

S Z Y WA
v. M I SS I SS I PPI STATE PI

LOTS OFGU

LFPO RT, I NC. , M URREL L W

. HI NTON, J

R. , S TANL EY FO UR NI

ER , J R. AN D T HOM ASGI BS ON
D A T E O F JU D G M E N T : 05/ 07/ 2004 TR I A L J U D G E: H O N . CA RT ER O . BI SE COURT F ROM W HI CH APP EAL ED: HARRI S ON COU NTY CHANCERY COURT A T T O R N E Y S F O R A P P E L L A N T : G E O R G E W . B Y R N E , J R . RA ND ALL SCO TT W ELLS ATTO RN EY FO R A PP ELLEES : NI CH OLA S VA N W I SER NA TUR E OF THE C ASE: CI VI L - OTH ER D I SPO SI T I O N : R E V E R SE D A N D R E M A N D E D - 12/ 07/ 2006 M OT I ON F OR RE HE AR I NG F I L E D: M ANDAT E I S S UE D: EN BA NC. DI AZ , J UST I CE, FOR TH E COU RT: ¶1. I n thi s cas e, w e cons i der w hether a j udgm ent i n a f r audul ent conveya nce act i on w as p ro p e r. F in d in g th a t bo th the su c c e ss o r co rp o ra tio n an d it s d ire c to rs a re li a b le f o r th e d e b ts of the pr evi ous corpor at i on, w e r ever s e and r emand. FACTS ¶ 2 . T h e fa c ts o f t h is c a s e a re n o t in d is p u te .

### 2

¶3. G ul f

por tPi l ot s A s s oci at i on, I nc. , ( G PA ) w as engaged i n t he busi nes s of pi l ot i ng s hi ps i n and outof

G ul f por tH arbor . Fourpi l ot s w er e al s o the ow ner s , of fi cers , an d dir ect or s of the co rporat i on . O ther em ployees i ncluded a pil ot boatop erat or and fou r di spat ch ers . M i chae l K op szyw a w as empl oyed as the pi l otboatoper at ori n M ar ch 1995 w hen he w as i nj ur ed on the j ob. M r . K ops zyw a br oughts ui ti n the C i r cui tC our tof H arr i s on C ounty under the J ones A ct . O n M ar ch 25, 1997, af t er a tw o- day medi at i on, the ca s e w as s ett l ed f or $ 2 0 0 ,0 0 0 , p lu s o u ts ta n d in g m e d ic a l b ills o f a p p ro x im a te ly $ 2 0 ,0 0 0 . ¶ 4 . W h e n th e G P A ’s B a h a m a -b a se d in su ra n c e c o m p a n y re fu se d to p a y a n d su b se q u e n tly b e c a m e in so lv e n t, M r. K o p sz y w a fil e d a m o tio n to e n fo rc e se ttl e m e n t w ith th e c irc u it co u rt. A h e a rin g o n th e m o tio n w a s h e ld o n M a y 1 6 , 1 9 9 7 , at w h ich tim e th e c o u rt a n n o u n c e d it
w a s g o in g to ru le in fa v o r o f M r. K o p sz y w a . O n M a y 2 2 , 1 9 9 7 , th e s a m e d a y th e c irc u it
courtj udge ent er ed hi s or dergr ant i ng the m ot i on, t he di r ect or s fi l ed ar t i cl es of i ncorpor at i on f orM i s s i s s i ppi S t at e Pi l ot s of G ul f por t , I nc. T hey bec ame ow ner s , of f i cer s , and di r ect or s of the new corpor at i on and tr ans f err ed al l of the em pl oyees f r om the ol d corpor at i on t o the new
one. M i s s i s s i ppi St at e Pi l ot s cont i nued t o oper at e f r om t he sa m e busi nes s addr es s , us ed the
s a me d o c k , th e s a me a c c o u n t a n t , th e s a me l a w f i r m, th e s a me b a n k , a n d s e r v e d th e s a me c u s to m e rs a s G P A . ¶5. A w eek l at er , on M ay 29 , 1 99 7, the dir ect ors tr ans f err ed ow ner s hi p of

one of the boat s , the G u lf

p o rt P ilo t I

I , t o t he new corpor at i on by exec ut i ng a prom i ssor y not e f or $12, 000 i n f

a vo ro f the o l d c orpo r a t i on . Tha ts a me d a y, a l l f ou rr e s i gn e d a s e mpl oyees of the ol d c orpor at i on, w hi l e r emai ni ng ow ner s , of f i cer s , a nd di r ect or s . A s a r es ul t , G PA w as

### 11 U.S. C. § 544(b) pe rm it s the trus te e t o avoi d fraudul ent trans fe rs and gi ves the 1 

### tr us t e e theri ght s of

anya c t ua lc r e di t or

wh o m ay avo i d a

tr ans f e r un de r s t at e l aw. 3 l ef tw i th no empl oyees and no as s et s ot herthan s om e out s t andi ng bi l l s f orw or k done pr i or t o the f or m at i on of

the new c orpor at i on and a di l api dat ed pi l ot i ng boat , the G u lfp o rt P ilo t I. ¶6. O n Jun e 2 6 , 1 9 9 7 , M r. K o p szy w a fi led a frau d u lentcon vey ance a ct i on against M i s s i s s i ppi St at e Pi l ot s and the i ndi vi dual di r ect or s i n the C hance ry C our tof H arr i s on C ounty. O n J une 15, 1998, the day the mat t erw as s etf ortr i al , the di r ect or s f

i l ed f orC hapt er 7 bankruptcy for G PA , s t ayi ng al l pr ocee di ngs i n the cha ncery court . T he onl y r emai ni ng as s etof the ol d corpor at i on, the G u lfp o rt P ilo t I, s ank the day i tw as turned overt o t he b a n k ru p tc y tru s te e . ¶ 7 . T h e sta y w a s fin a lly lifted o n N o v e m b e r 2 1 , 2 0 0 1 , a n d th e m a tte r w a s re m a n d e d to the c h an ce ry c o u rtto allow the trustee , H . S . S tanley , Jr. , to p roc ee d o n b e h a lf o f M r. K o p sz y w a o n th e fra u d u len t co n v e y a n c e c laim . A t trial, the d ire c to rs te stifie d th a t th e ir 1 in ten t in f

o rm in g th e n e w c o rp o ra tio n w a s to k e e p M r. K o p sz y w a fro m c o llec tin g h is j udgm ent . T he chanc el l orfound thatt he di r ect or s had fr audul ent l y conveyed the G ulf po rt P ilo t I I and one w eek’ s w or th of acc ount s r ece i vabl e t o the new corpor at i on. W hi l e not i ng thatD ef endant s ’ act i ons w er e “di s t as t ef ul and perhaps even mor al l y w r ong, ” the cha ncel l or di d notf

i nd thatthe f

r audul entconveya nce pe r t ai ned to an y ot heras s et s of the new
corpor at i on. A s a r es ul t , t he chanc el l orfound thatthe trus t ee c oul d onl y r ecove r$10, 064. 50 fr o m M is s is s ip p i S ta te P ilo ts o f G u lf p o rt . I S S UE S ON AP P EA L

### 4

¶8. T her e ar e tw o i s s ues on appea l : ( 1) w hether the tr i al court err ed i n f ai l i ng t o f

i nd t hat the n ew co rp o ra tio n co u ld b e li ab le for the en ti re jud g m en t and (2) w h ethe r th e tri al co u rt err ed i n f ai l i ng t o f

i nd the di r ect or s per s onal l y l i abl e.

S TANDA RD O F REVI EW “W e w i l l notdi s turb the f i ndi ngs of

a c hance l l orw hen s upp ort ed b y subst anti al ¶9. evi dence unl es s the cha ncel l orabus ed hi s di s cr et i on, appl i ed an err oneous l egal s t andar d,
w as mani f

es t l y w r ong, orw as cl ear l y err oneous . ” Wil lia ms v . Wil

lia ms , 843 So. 2d 720, 722 (M iss. 2 0 0 3 ). DI S CU S S I ON I . C orporat e L i abi l i t y. ¶10 . W e beg i n w i th the basi cs: T he gene r al rul e s t at es thata corpor at i on w hi ch ac qui r es t he as s et s , butnotthe s t ock of anothercorpor at i on, i s notobl i gat ed f orthe l i abi l i t i es of

the ac qui r ed co rpo rati o n . F o u r ex ce p ti o n s to this rule h av e b ee n ca rve d o u t by this C o u rt i n i n s t a n c e s wh e r e : ( 1 ) th e s u c c e s s o re x p r e s s l y o ri mp l i e d l y a g r e e s t o a s s u me the l i abi l i t i es of

the pr edec es s or ; ( 2) the tr ans act i on m ay be c ons i dere d a de f act o m er ger ; ( 3) the s ucce s s ormay be cons i der ed a ‘ m er e cont i nuat i on’ of the p re d e c e ss o r; o r (4 ) th e tra n sa c tio n w a s fr a u d u len t. P ar adis e Cor

p. v. A m erih ost

D ev. , I nc. , 848 So. 2d 177, 179 ( M i s s . 2003) ( ci t i ng Huf f v. Shopsm it

h, I nc. , 78 6 S o . 2d 38 3 , 38 8 -89 (M iss. 20 0 1 ). T h e last tw o ex c e p tio n s a re appl i cabl e i n t hi s cas e. ¶ 1 1 . R e g a rd in g th e fr a u d u len t tra n sa c tio n , th e m a in iss u e in th is c a se is n o t w hetherthere
w a s a fra u d u len t co n v e y a n c e b u t w ha tasset s w er e f r audul ent l y conveyed underM i s s . C odeT hi s s t atut e has been r epl ace d, ef f ect i ve J ul y 1, 2006, by the U ni f or m Fr audul ent 2 T r ans f erA ct , M i s s . C ode A nn. §§ 15- 3- 101 ets eq. 

### (Supp. 2006). 5 A n n . § 1 5 -3 -3 (re p e a led 2 0 0 6 ). F ra u d u len t co n v e y a n c e o f an en tire b u sin e ss w a s th o ro u g h ly 2 exami ned by thi s C our ti n Mor r is v. Mac i one , 546 So. 2d 969 (M i s s . 1989) . I n Mo rr is , we af f i r m ed a c hance l l or ’ s rul i ng t o enf or ce s peci fi c p erf

or m ance of

a contr actw hen
s har ehol der s of

a cl othi ng s t or e di s s ol ved the corpor at i on, cr eat ed a ne w one, and tr ans f err ed th e s to re ’s a s s e ts t o th e n e w e n tity . I d. W e not ed that“a c orpor at e obl i gorand thos e w ho contr ol i tm ay notw i th i m puni ty di s s ol ve the corpor at i on i n a debtavoi dance m aneuve rand
caus e i t s as s et s t o be tr ans f err ed t o a new s ucce s s orcorpor at i on. T hi s i s s o w hetherthe debt
ar i s es i n contr act , quas i
- contr act , or t ort . ” I d. at 97 1 (i n terna l ci tat ion s o m itted). F u rth e rm o re , “(n )e ith e r la w n o r e q u ity w ill p e rm it o n e c o rp o ra tio n to tak e a ll th e p ro p e rty o f a n o th e r, d e p riv e it o f th e m e a n s o f p a y in g its d e b ts, e n a b le it to d iss o lv e its c o rp o ra te e x iste n c e , an d p lac e itse lf p ra c tica lly b e y o n d th e re a c h o f c re d ito rs, w ith o u t as s u m in g its l i abi l i t i es . ” I

d . ( quot i ng Mer idian L . & R . v. Catar , 103 M i s s . 616, 621, 60 So. 657, 658 (1 9 1 2 )) . ¶12. T he cha ncel l orcorr ect l y ci t ed Mo rr is fo r th e p ro p o sitio n th a t “th e c re d ito r’s rig h ts in
s uch ca s es ar e l i m i t ed t o the ext entthatthe s ucce s s orcorpor at i on acqui r ed the as s et s of the pr edec es s or . ” H ow ever , beca us e the tr i al c our tl i m i t ed i t s i nqui ry t o the one w eek thatt he di r ect or s w er e empl oyed as pi l ot s by both corpor at i ons , the cha ncel l orf ai l ed t o f i nd t hat D ef endant s f r audul ent l y conveye d the ent i r e bus i nes s t o the new corpor at i on. I n thi s cas e, the def endant s i m pr oper l y tr ans f err ed thei rent i r e bus i nes s i n or dert o avoi d a l egal ob l i gati on . M o reove r, this factw as r epeatedl y adm i t t ed

attr i al by a llof

the i ndi vi dualA t th e tim e o f c o n v e y a n c e , G P A ’s ta n g ib le a ss e ts c o n sis ted o f th e tw o b o ats, ac co u n ts 3 r ece i vabl e, a f

i l i ng cabi net , and an unknow n am ountof m oney i n a bank a ccount . T he tr i al courtf ound thatG PA di d nothave s uf fi ci entas s et s and capi t al t o s at i s f y the l i abi l i ty. 

### 6 def endant s . T he new corpor at i on w as f or m ed t he sa m e day the or dert o enf or ce s ett l ement
w a s e n te re d . ¶13. T he new corpor at i on oper at ed f r om the s ame bus i nes s a ddr es s , us ed the s ame dock, the s ame account ant , the sa m e l aw f i r m , the s ame bank, and s erved the s ame cus t om er s as G PA . The r e mai ni ng acc ount s re ce i va bl e w e r e us e d t o p a y the ou t s t a nd i ng de bt s of G PA ( otherthan M r . K ops zyw a’ s J udgm ent ) , a nd the r es tw as di vi ded among t he di r ect or s . T he onl y as s etthatw as tr ans f err ed f orval ue, the G u lf

p o rt P ilo t I

I, w as fo u n d b y the tri al co u rt to b e fr a u d u le n tly c o n v e y e d . ¶14. T he chanc el l or not ed that “a w eal th of the badges of f r aud ar e pr es ent , ” even though the company “t ook gr eatpai ns t o m ake the tr ans act i on appea rf ai r . ” A ddi t i onal l y, the day D efe n d an ts w ere to go to tr ial o n the frau d u lent co n v ey an ce claim , G P A fi led fo r C h ap ter 7 bankrupt cy pr ot ect i on i n an ef f or tt o di s s ol ve the ol d corpor at i on. T he onl y cr edi t ori n t he b a n k ru p tc y p ro c e e d in g w a s M r. K o p s z y w a , a n d t h e c o rp o ra tio n ’s o n ly re m a in in g a s s e t, a boat , s ank the day i tw as handed overt o t he t rus t ee. M i s s i s s i ppi S t at e Pi l ot s of G ul f por t , I nc. i s unm i s t akabl y l i abl e f orM r . K ops zyw a’ s j udgm entagai ns tG PA up t o the amount fr a u d u le n tly tr a n s fe rr e d . ¶15 . T he am ou nt transf err ed incl ud es a llof

the ac count s r ece i vabl e f r om G PA , r ather than
one w eek’ s w or th as the cha ncel l orf ound. B eca us e i ti s uncl earf r om the r ecor d w hethert he
v a lu e o f th e tra n sfe rre d a ss e ts w o u ld e q u a l th e a m o u n t o f th e ju d g m e n t, i t is n e c e ss a ry to di s cus s the al t ernat i ve doctr i ne of “cont i nui ty of ent erpr i s e. ” I n P ar adis e Cor p. v. 3H o w e v e r, to su p p o rt th e ir a rg u m e n t th a t K o p sz y w a ’s a tto rn e y w a s “ to o laz y ” to a ttem p t to

se ize th e a c c o u n ts, D e fe n d a n ts c laim e d in th e ir b rie f th a t th e re w a s in fa c t en o u g h m o n e y in a c c o u n ts re c e iv a b le to sa tisfy th e ju d g m e n t. 

### 7 A m er ihost

D eve lopm ent

, I nc. , 848 So. 2d 177 ( M i s s . 2003) , w e adopt ed the “c ont i nui ty of
en terprise” th eo ry to h o ld a s u cc esso r co rpo rati o n li ab le for the p red ec esso r’s de b ts w h ere the succ essorben efi t t ed fr om the go od w i l l o f the predecessor w i tho ut shar i ng the li abil i t i es. T he theory cons i der s s ever al f act or s : ( 1) w hetheronl y one corporat i on r emai ns af t ert he tr a n s f e ro f a s s e t s ; ( 2 ) i d e n t i ty o f s t o c k , s h a r e h o l d e r s , a n d d i r e c t o r s b e twe e n th e t wo c o rpo rati o n s; ( 3 ) retai n ing the s am e e m p lo y e e s; (4 ) re tain in g th e sa m e su p e rv iso ry p e rso n n e l; ( 5 ) r e t a i n i n g th e s a me b u s i n e s s f a c i l i t i e s i n th e s a me p h y s i c a l l o c a t i o n ; ( 6 ) o f f e r i n g th e s a me servi ces ; ( 7) r et ai ni ng the s ame nam e; ( 8) cont i nui ty of as s et s ; ( 9) cont i nui ty of gener al bus i nes s oper at i ons ; and ( 10) w hetherthe s ucce s s orhol ds i t s el f outas the cont i nuat i on of t he p re v io u s e n te rp ri s e . I

d. at180 ( ci t i ng Moz ingo v. Cor r ect M f g. Cor p. , 752 F. 2d 168, 175 (5 th C ir . 1 9 8 5 )) . ¶16. T he tr i al courtal s o exami ned thi s C our t ’ s deci s i on i n P aradi se , b u t fo u n d it i n a p p lica b le to th e se fa c ts fo r th e so le r e a so n th a t th is w a s n o t a s to c k a c q u isitio n . T h is fin d in g is c lea rly
err oneous , f

ori dent i ty of

st ock is o nly a por t i on of one f act ort o be cons i der ed. H er e, t he
r ecor d demo nst r at es thatthe s ucce s s orcompany t ook on the i dent i ty of the pr edec es s or company i n every w ay exc eptt aki ng r es pons i bi l i ty f or t he pre dece s s or ’ s debt s . T he new
corpor at i on cons i s t ed of i dent i cal s har ehol der s , di r ect or s , of fi cers , empl oyees , and
s upervi s ory per s onnel . T he new corpor at i on al s o used the s ame docki ng f aci l i ty, dock, pi l ot boat , of f i ce a ddr es s , and pr ovi ded the sa m e pi l ot i ng servi ces . E xceptf orthe G u lfp o rt I, the

### 8

asse ts w ere the s am e, an d the o n ly ch an g e in g en era l b u sin e ss o p era ti o n s w as u se o f a d if fe re n t n a m e . ¶ 1 7 . D e fe n d a n ts a rg u e th a t P aradise shoul d notappl y fors ever al r eas ons . Fi r s t , they ar gue thatno as s et s otherthan the G u lf p o rt I I w er e tr ans f

err ed f r om the ol d corpor at i on t o the new one, i ncl udi ng the bus i nes s ’ s goodw i l l . T he undi s put ed f act s r evea l thatthe enti re bu si ness w as tr ans f

err ed t o the new corpor at i on. A ddi t i onal l y, goodw i l l has m ostcert ai nl y been tr ans f err ed. G oodw i l l has been de f i ned by the U . S. S up rem e C our tas “the expe ct ancy of cont i nued patr onage. ” N ew ark Mor ning L edgerCo. v. U nited States , 507 U . S. 546, 555, 113 S. C t . 1670, 1675, 123 L . E d. 2d 288, 299 ( 1993) ( quot i ng B oe v. Com m is s i oner , 307 F. 2d 33 9, 34 3 ( 9th Ci r . 19 62 ) ) . The ne w c orpo r a t i on w a s gu a r a nt e e d c on t i nu e d p a tr on a ge beca us e D ef

endant s enj oyed a s t at e- s anct i oned monopol y overpi l ot i ng s ervi ces i n the G ulf po rth arbor. A l l v essel s of a cert ai n si ze enter i ng and l eaving t he P ortof G ulf po rtm ust be navi gat ed by a pil ot w ho i s l i cens ed by the M i s s i s s i ppi St at e Por tA uthor i ty, and new p ilo ts c o u ld o n ly b e lice n se d u p o n th e re c o m m e n d a tio n o f G P A , n o w M iss iss ip p i S tate P ilo ts o f G u lfp o rt. D e fe n d a n ts’ c o n ten tio n th a t n o a ss e ts w e re fra u d u len tly c o n v e y e d is w h o lly
w ith o u t m e ri t. ¶18. D ef endant s al s o cl ai m thatt hei ract i ons w er e nec es s ary t o “ens ur e cont i nued pi l ot i ng s ervi ces t o the Po rto f G ul f por t . ” The def

endant s do notpr ovi de thi s s ervi ce f orf r ee, and even i f a r eas onabl e per s on w oul d bel i eve t hei rm ot i ve w as pur el y al trui s t i c, i tw oul d not negat e t hei ri nt entt o com m i tfr aud. I ti s uncontr overt ed thatthei rs ol e i nt enti n f or m i ng the
n e w c o rp o ra tio n w a s to p re v e n t M r. K o p s z y w a fr o m c o lle c tin g o n h is ju d g m e n t. ¶ 1 9 . D e fe n d a n ts fu rth e r a rg u e th a t p a y in g th e d ire c to rs’ “ sa lar ies ” o u t o f th e o ld

### 9

corpor at i on’ s f

unds w as c om pl et el y pr oper . T hey of f erno author i ty t o s uppor tthei rpos i t i on, a n d e v e n if th e se a m o u n ts w e re p a y m e n t fo r p re v io u s p ilo tin g w o rk a n d n o t co rp o ra te di vi dends , the conveyanc e i s s t i l l f r audul ent . T he di r ect or s neverr es i gned as of f i cer s and di r ect or s of

the ol d corpor at i on. T hey s ubs equent l y us ed thei rcompl et e contr ol overt he corporat i on to p refer t hem sel ves ov er a l eg i t i m at e credi t or. W e hav e held that “[ o] ff i cers , di r ect or s and s t ockhol der s of an i ns ol ventcorpor at i on, orone r ender ed i nsol ventby conveya nce t o them, cannotpr ef erthemsel ves i n paymentof pr e- exi s t i ng debt s and thus depr i ve cr edi t or s of

thei rcl ai m s agai ns tthe corpor at i on. ” Cooperv. Mis s . L and Co. , 220 So. 2 d 3 0 2 , 3 0 4 (M iss. 1 9 6 9 ). A d d it ion all y , “[a] director o cc u p ies a fidu ciary p o sit ion tow ard
cr edi t or s , and he ha s a bett erknow l edge of the condi t i on of

the company than have the other
c re d ito rs . H e s h o u ld n o t b e p e rm itte d to u s e th a t p o s itio n to b e n e fi t h im s e lf a t th e ire x p e n s e .” Id . at307. D ef

endant s ’ as s ert i on t hat“t her e i s not hi ng w r ong w i th a corpor at i on pr ef err i ng c e rt a in le g itim a te c re d ito rs o v e r o th e rs ,” is c o m p le te ly e rr o n e o u s u n d e r t h e s e fa c ts . ¶ 2 0 . T h e ir a d d iti o n a l co n ten tio n s h a v e n o b a s is in law . T h e d ire c to rs a rg u e th a t n o a ss e ts coul d have been tr ans f

err ed bec aus e the corpor at i on w as r ender ed i ns ol ventby the j udgm ent and they i nst ruct ed t heiraccoun t ant t o keep the co rporat i on s com plet el y separat e. T hey al so cl ai m thats om ehow they sh ou l d notbe l i abl e bec aus e M r . K ops zyw a’ s att orney w as “t oo l azy” t o coll ecton the acco un t s recei vab l e befor e the fund s w ere di stri bu t ed to the d i rect ors. A ddi t i onal l y, they as s ertthatenf or ci ng the s ett l ementor derw oul d s om ehow vi ol at e the T h ir teent h A m end m ent t o the U . S . C on st i tuti on prohibi t i ng sl avery an d involunt ary s ervi tude. D ef

endant s ci t e no s t atut ory orcas e l aw t o s uppor tthei rc ont ent i ons , w hi ch, even i f true, have no r el evanc e t o t hi s f r audul entconvey ance act i on. Fi nal l y, D ef endant s ar gue

### The c hanc el lor quote d from

a di s s e ntingop ini on

byJus ti c eMi l l s : “ theonly s it uations 4 

### whic h war

rant pi ercing thecor

poratevei l aresi tuation s inw hich a party ha s a buse d the cor porateentit

y to pe rpe trat e f

ra ud and e vadecontra ct

ualand t ort

re spo nsib ility. ” J & W Foods Corp. v

. Stat e Farm Mut. Auto. Ins

. Co. , 7 23 S o.2 d 55 0, 5 54 (Miss. 1 99 8)(M ills, J., dis se nting)( ci ting Hogan v. Mayor & Aldermen of Savannah , 32 0 S .E.2 d 5 55 , 55 8 (G a. Ct. App. 1984) ). 10 t hatthe P aradise de cisi o n “str etch [ed] the traditi o n al no ti o n s of th e alt er eg o th eo ry to acc om pl i s h a s peci f

i c rul i ng. ” ¶2 1 . T h ese arg u m en ts are w h o ll y fri v o lou s an d m e rit n o d iscu ssion . U n d er P aradise , t he
n ew co rpo rati o n is a m ere c o n ti n u ati o n o f G P A an d the n ew co rpo rati o n is l iable fo r a llof G P A ’s deb t s. I I . I ndi vi dual L i abi l i t y of D i rec t ors ¶ 2 2 . T h e tru ste e arg u e s th a t th e tri a l co u rt err e d in fa ili n g to fin d the d ire c to rs p e rso n a lly l i abl e f ort hei ract i ons . W e have hel d t hat“[ t ] he r at i onal e use d by court s i n perm i t t i ng t he
c o rp o ra te v e il t o b e p ier c e d is th a t if a p rin c ip a l sh a re h o ld e r o r o w n e r c o n d u c ts h is p riv a te and corpor at e bus i nes s on an i nt er change abl e orj oi ntbasi s as i f t hey w er e one, he i s w i thout
s t andi ng t o compl ai n w hen an i nj ur ed party does the s ame. ” A & L , I nc. v. G r antham , 747 So. 2d 832, 843- 44 ( M i s s . 1999) ( ci t i ng B o n e Co n str. Co . v. L e w is , 250 S. E . 2d 851, 853 ( G a. A pp . C t . 1 97 8)) . A ddi t i onal l y, the cha ncel l orcorr ect l y r eci t es the rul e thatpi er ci ng t he
corpor at e vei l i s appr opr i at e w her e t he corpor at i on exi s t s t o perpetuat e a f r aud. See N

o rth 4 A m . P la s tic s, I

n c . v. I n la n dS h o e M

fg. Co ., 592 F. Supp. 875, 877- 78 ( N . D . M i s s . 1984) ( ci t i ng Jo h n son & H

i gg in s of M

iss. , Inc. v. Com m ’rof Ins. of Miss. , 321 So. 2d 281, 285 (M is s . 1 9 7 5 ) ( a c c e p tin g th e p ie rc in g d o c tr in e in M is s is s ip p i) ). ¶23. H ow ever , the cha ncel l orw enton t o f i nd that the i ndi vi dual def endant s ar e not

### 11

personall y li able even thoug h they fr aud ulent l y co nv eyed theirenti re busi ness: I n the i ns t antcas e, thei r[ s i c] w as no evi dence thatthe i ndi vidual o w ner s of Gu l f p o r tP i l o t s As s o c i a t i o n tr e a t e d th e a s s e t s o f th e c o rp o r a t i o n a s th e i ro wn orus ed corpor at e f

unds t o pay pri vat e debt s . T her e w as no evi dence thatthey f ai l ed t o obs erve corpor at e f or m al i t i es orke ep s epar at e corpor at e books . T he pi l ot s w r ongf

ul l y c onveyed the G ul f

por tPi l otI I t o thei rnew corpor at i on, but there w as no ev i den ce t hat they used the corporat i on ’s s tat us a s a c o rp o ra te e n tity to p e rp e tu a te a fra u d . W h ile th e y c re a ted th e se c o n d c o rp o ra tio n to av o id the t o rtl iabili ty i n cu rred by th e fi rst , th is co n sti tuted an av o idan ce o f a c o rp o ra te obl i gat i on, nota p e rs o n a l one. ” (em p h asis in o ri g inal). ¶24. T he t r i al cour ter r ed i n fi nd i ng t hatt her e w as no evi dence t hatt he di r ect or s tr eat ed
corpor at e as s et s as thei row n. A s di s cus s ed i n P artI, the di r ect or s di s tr i but ed the pr of i t s of the ol d corpor at i on t o t hemsel ves . I n doi ng so, the di r ect or s pr ef err ed themsel ves overot her
cr edi t or s and ther eby comm i t t ed f r aud. O urcas e l aw cl ear l y ho l ds thatdi r ect or s m ay not
v io late the ir fidu c iar y d u ties to th e co rp o ra tio n an d p re fe r th e m se lv e s o v e r o th e r le g iti m a te c re d ito rs . Cooper , 220 So. 2d at304. ¶25 . F urtherm ore , the purpose o f pi erci ng the co rporat e veil i s t o m ake indi vidual s p e rs o n a lly l i abl e f orcor por at e obl igat i ons . “T h e p e rso n a l li a b ili ty o f [D e fe n d a n ts ] a ris e s fr o m th e ir di ver s i on of

co rpor at e as s et s . ” Mo rr is , 546 So. 2d at972. “C orpor at e of f i cer s w ho part i ci pat e i n i l l egal di ver s i ons of c orpor at e as s et s a r e l i abl e ther ef or . ” G ibs on v. Manuel , 534 So. 2d 199, 202 ( M i s s . 1988) ( ci t i ng K nox G las s B ottle Co. v. U nder w ood , 22 8 M i ss. 6 9 9 , 7 6 9 , 8 9 S o . 2 d 7 9 9 , 8 2 8 (1 9 5 6 )) . ¶26. A ddi t i onal l y, t he f

i ndi ngs of the t r i al courtonl y pert ai n t o a ce r t ai n num berof s i tuat i ons w h ich w a rra n t d isre g a rd in g th e c o rp o ra te e n tity . B e c a u se o f th e e q u itab le n a tu re o f th is d o c tr in e , th e c o rp o ra te v e il m a y b e p ie rc e d in a v a ri e ty o f s itu a tio n s . F . M . C . Finance Cor

p.

### 12

v. Murphr ee , 6 3 2 F .2 d 4 1 3 , 4 2 2 (5 th C ir . 1 9 8 0 ). See L aya v. E r in Hom es, I nc. , 352 S. E . 2d 93, 98
- 99 ( W . V a . 19 86 ) ( l i s t i ng ni ne t e e n c i r c ums t a nc e s tha tpe rmi ta f i nd i ng of pe r s onal l i abi l i ty, i ncl udi ng the f or m at i on and us e of

t he corpor at i on t o as s um e the exi s t i ng l i abi l i t i es of anotherent i ty) . T hi s C our thas pr evi ous l y hel d thatconveyi ng a bus i nes s t o a new corpor at i on i n or dert o avoi d a corpor at e obl i gat i on w as suf f i ci entt o fi nd per s onal l i abi l i ty. Mo rr is , 5 4 6 S o . 2 d 9 6 9 . S im ilarly , b e c a u se the d ire c to rs h a v e ab u se d the co rp o ra te e n tity t o know i ngl y defr aud a l egi t i m at e cr edi t orthey ca n be hel d per s onal l y l i abl e, t o the ext ent th a t th e n e w c o rp o ra tio n h a s a c q u ir e d th e a s s e ts o f t h e o ld c o rp o ra tio n . I d. a t9 7 2 . Finall

y, th e c h a n c e llo r w o u ld h a v e re q u ire d th a t th e d ire c to rs k n o w in g ly c o n tra c ted w ith a fin a n c ially
unr el i abl e i ns ur ance com pany i n orde rt o hol d t hem i ndi vi dual l y l i abl e. W hi l e the j udgm ent ci t es no author i ty, i tappar ent l y r el i es on the rul e adopt ed i n s om e j ur i s di ct i ons t hat
u n d e rc a p ita liz a tio n m a y w a rr a n t d is re g a rd in g th e c o rp o ra te e n tity . S e e e .g ., H am bleton B ros. L u m ber Co. v. B alkin E n ters. , 397 F . 3d 1217, 1229 ( 9th C i r . 2005) ( appl yi ng O r egon law ). T h is i s too str ing en t a te st a n d is no t th e ru le i n M issi ssipp i. B ec au se th ere is m o re th a n su ffic ien t ev id e n c e to su p p o rt a fin d in g o f in d iv id u a l p e rso n a l li a b ility , w e d e c lin e to
a d d re s s th is is s u e in th e p re s e n t c a s e . CO NC L US I ON ¶27. T he f

i ndi ngs of

the tr i al courtw er e cl ear l y e rr oneous . T he i s s ues her e ar e the s ame as thos e pr es ent ed i n Mo rr is , an d u n d er P aradise , the n ew co rpo rati o n is l iable fo r a llth e d e b ts of G PA . T her ef

or e, the j udgm enti s r ever s ed, a nd thi s cas e i s r emanded f ora det erm i nat i on of the amountof

D ef endant s ’ per s onal l i abi l i ty, i . e. , the val ue of the f r audul ent l y tr ans f

err ed
accou nts recei vab l e, as w el l as a det erm i nati on of at t orneys’ f ees and pu nit i ve d am ages.

### 13

¶28. RE VE RS ED AND RE M ANDE D. W A L L E R , P J. , E A SL E Y , C A R L SO N , G R A V E S A N D R A N D O L P H , JJ. , CONCUR. COBB , P J . , CONCURS I N P ART AN D D I S S EN TS I N P ART W I THOUT S EP ARAT E W RI TT EN OP I NI ON. DI CKI NS ON, J . , DI S S EN TS W I THOUT S E P AR AT E W RI T T E N O P I NI ON . S M I T H, C. J . , NO T P AR T I CI P AT I NG .