Source: http://www.pavlacklawfirm.com/blog/seventh-circuit-affirms-piercing-corporate-veil-to-attach-75m-judgment
Timestamp: 2019-04-22 12:33:37+00:00

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For today’s discussion, we turn our attention to the United States Court of Appeals for the Seventh Circuit applying Indiana corporate law. The question presented in William R. Lee Irrevocable Trust v. Lee (In re Lee) was whether the bankruptcy court erred in ruling that the corporate veil should be disregarded and the majority owner of two companies should be held personally liable for a judgment in excess of $7.5 million.
Since it has been almost a month since our last post, there are a handful of other cases that merit some note.
Use of Unsigned Deposition at Summary Judgment. First up is Dotson v. Stryker Corp. from the Court of Appeals of Indiana. The issue in Dotson was the propriety of using at summary judgment a deposition that had not yet been read and signed by the deponent prior to its submission in support of summary judgment. The appellate court ruled that there was no abuse of discretion by the trial court in allowing and considering the prematurely filed deposition because there is no absolute need for a signature and the deponent read and signed the deposition prior to the court hearing and ruling on the motion.
Duty Analysis in Negligence Actions. Another decision of particular note from the Indiana Court of Appeals was ONB Insurance Group, Inc. v. Estate of Megel, which continued the progress of developing the law of duty in the wake of Rogers v. Martin and Goodwin v. Yeakle’s Sports Bar and Grill, Inc. We have discussed these developments on numerous occasions, most recently in our last post. Most of the cases following Rogers and Goodwin have focused on duty in the context of premises liability. The ONB decision is now the second to apply Rogers and Goodwin to general negligence claims, the other being Estate of Staggs v. ADS Logistics Co. from May.
Specific Personal Jurisdiction & Choice-of-Law Provisions. Rounding out the Indiana appellate decisions of particular note was Oswald v. Shehadeh. The decision addressed specific personal jurisdiction arising from business dealings by Arkansas-based defendants in Indiana. It provides an extremely thorough summary of Indiana law on personal jurisdiction and reminder that a contract provision dictating only that the law of a particular jurisdiction will govern the agreement does not act as a forum selection provision.
Class Action Fees. There are also a series of decisions from the Seventh Circuit in the realm of class actions that merit some attention. In the span of nine days, the court handed down three rulings in class action cases addressing attorney fee awards. (We have previously discussed the underlying rationale of attorney-fee awards in class actions.) The first of the three cases was Birchmeier v. Caribbean Cruise Line, Inc. The important observations from Birchmeier were: (1) Just because a “fee award is bigger than some awards in other suits . . . does not mean the award is too big. When awarding fees to class counsel, district courts must approximate the fees that the lawyers and their clients would have agreed to at the outset of the litigation given the suit's risks, competitive rates in the market, and related considerations.” And (2) an objector is not necessarily entitled to fees even when its recommendation is ultimately followed if the position advanced is one the district court is certain to have otherwise considered.
Three days later, the court issued its opinion in Camp Drug Store, Inc. v. Cochran Wholesale Pharmaceutical, Inc. In Camp, unlike Birchmeier, the focus was on whether the fee award was too small, not too great. Comparison of the two decisions demonstrates the high-degree of deference shown to such determinations by the district court. The court affirmed an award that was under one-half the purported lodestar rate—though the rejection of the lodestar amount appears to have been in part due to a lack of specificity in the hours reported.
We now turn to our main discussion, which is the decision of the Seventh Circuit to affirm a ruling piercing a corporate veil and personally attaching a $7.5m judgment. What seems a lifetime ago, we discussed the concept of piercing the corporate veil under Indiana law, in which the shield of limited liability is set aside and the owner of a business is held liable for corporate debts (or, in the case of a reverse pierce, the business is held to answer for personal debts). Since that post, I have written and presented on the topic.
The propriety of piercing the veil is an incredibly fact-sensitive inquiry. Accordingly, we must start with what happened to merit such a remedy. It began with a business called Lees Inns of America (“LIA”) formed by two brothers in the 1970s. Two decades later, after one of the brothers had transferred his shares to a trust with his children as trustees, a conflict began. Lester, the brother with 516 of the 1,000 shares, “encountered substantial financial difficulties associated with another company he owned, Maxim.” Lester sought to merge Maxim with LIA. His nephews rejected the idea but Lester went ahead with it anyway. The merger forced the trust and the nephews out of the company, for which they demanded payment.
With the merger complete and Lester left as the sole owner, he “allegedly gutted LIA to prevent the Trust from collecting the value of its LIA shares.” The trust ultimately obtained a judgment for $7.5 million for its rights in LIA, but that judgment was against LIA. Four years later, Lester filed chapter 7 bankruptcy and the trust filed an adversarial proceeding in the bankruptcy court to pierce LIA’s veil and attach directly to Lester.
Next, Lester argued that only an outsider of the company can pierce the veil. The court again rejected the argument with ease because the conduct for which the trust sought to impose liability occurred entirely once it was no longer a shareholder of LIA.
This was a textbook example of abuse of the corporate form that merited disregard of limited liability. May it stand as a wise lesson for other business owners with the simple, far-too-often overlooked, proposition that in order to derive the benefits of limited liability, you must respect the accompanying obligations.
William R. Lee Irrevocable Tr. v. Lee (In re Lee), ---F.3d---, No. 17-1582, 2018 U.S. App. LEXIS 21599, 2018 WL 3688571 (7th Cir. Aug. 3, 2018) (Manion, J.).
Dotson v. Stryker Corp., ---N.E.3d---, No. 18A-PL-220, 2018 Ind. App. LEXIS 272 (Ind. Ct. App. Aug. 3, 2018) (Najam, J.).
ONB Ins. Grp., Inc. v. Estate of Megel, ---N.E.3d --- No. 40A01-1707-CT-1513, 2018 Ind. App. LEXIS 260, 2018 WL 3558911 (Ind. Ct. App. July 25, 2018) (May, J.).
Goodwin v. Yeakle’s Sports Bar and Grill, Inc., 62 N.E.3d 384 (Ind. 2016) (Rucker, J.).
Estate of Staggs v. ADS Logistics Co., ---N.E.3d---, No. 64A03-1708-CT-1961, 2018 Ind. App. LEXIS 172, 2018 WL 2187806 (Ind. Ct. App. May 14, 2018) (Baker, J.).
Oswald v. Shehadeh, ---N.E.3d---, No. 29A02-1711-PL-2627, 2018 Ind. App. LEXIS 280 (Ind. Ct. App. Aug. 6, 2018) (Vaidik, C.J.).
Birchmeier v. Caribbean Cruise Line, Inc., ---F.3d---, 2018 U.S. App. LEXIS 20581 (7th Cir. July 24, 2018) (Easterbrook, J.).
Camp Drug Store, Inc. v. Cochran Wholesale Pharm., Inc., ---F.3d---, No. 17-2086, 2018 U.S. App. LEXIS 20928, 2018 WL 3599164 (7th Cir. July 27, 2018) (Ripple, J.).
Levitt v. Southwest Airlines Co. (In re Sw. Airlines Voucher Litig.), ---F.3d---, No. 17-3541, 2018 U.S. App. LEXIS 21417 (7th Cir. Aug. 2, 2018) (Hamilton, J.).
Entm’t USA, Inc. v. Moorehead Communs., Inc., ---F.3d---, No. 17-2847, 2018 U.S. App. LEXIS 20794,2018 WL 3580977 (7th Cir. July 26, 2018) (Ripple, J.).
Indiana’s Dissenters’ Rights Statute, codified at Ind. Code § 23–1–44–8.
Colin E. Flora, Indiana: Member’s History of Sexual Assault Exposes Fraternity to Liability,Hoosier Litig. Blog(July 13, 2018).
Colin E. Flora, 7th Circuit Explains Rationale of Class Action Attorneys’ Fees, Hoosier Litig. Blog(Aug. 16, 2013).
Colin E. Flora, Damages Pt. 8: Ability to Recover by Piercing the Corporate Veil, Hoosier Litig. Blog(June 1, 2012).
Colin E. Flora, When, Where, and How of Piercing the Corporate Veil in Indiana, 60 Res Gestae13 (November 2016).
Colin E. Flora, Piercing the Corporate Veil in Indiana, 2017 ISBA Annual Meeting (Indianapolis, IN September 28, 2017).

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