Opinion ID: 1384706
Heading Depth: 1
Heading Rank: 5

Heading: Substantive Sufficiency

Text: On the day the jury returned its verdict, the trial court entered partial summary judgment for appellee on the issue of piercing the corporate veil. Apparently the court had informed the parties before trial that it would grant partial summary judgment on that issue. No evidence was introduced on the piercing issue at trial; instead, the court relied upon depositions and affidavits. The court, relying upon Amfac Mechanical Supply Co. v. Federer, Wyo., 645 P.2d 73 (1982), concluded there was no genuine issue of material fact and pierced the corporate veil. The ruling was erroneous. Partial summary judgment should not have been entered. Initially, we note that the issue of piercing the corporate veil is not usually decided by summary judgment: It is recognized that the determination of whether there are sufficient grounds for piercing the corporate veil ordinarily should not be disposed of by summary judgment, in view of the complex economic questions often involved, especially if fraud is alleged, but summary judgment may be granted in a proper case where no genuine issue of fact is raised or shown. (Footnotes omitted.) 1 Fletcher Cyclopedia of the Law of Private Corporations § 41.95, p. 462 (C. Swearingen Ed. 1983). Our review of the record and the court's order entering summary judgment convinces us that genuine issues of material fact existed. In its order granting partial summary judgment, the court first stated that there was a unity of ownership among Atlas Construction Company, Atlas, Inc., and the other members of the Atlas Group, with Francis Ferguson and his family owning all of the stock in Atlas Construction Company and Atlas, Inc. In addition, the court noted the existence of interlocking directorates and offices among the various Atlas entities. While the record supports these statements, and these facts are relevant to the piercing issue, they are not in themselves sufficient to support piercing the corporate veils of Atlas Construction Company and Atlas, Inc. A corporation is recognized as a separate entity, distinct from the individuals comprising it, even though all of its stock is owned by a single individual. Amfac Mechanical Supply Co. v. Federer, supra 645 P.2d at 77. A parent corporation and its subsidiary are treated as separate and distinct legal persons even though the parent owns all the shares in the subsidiary and the two enterprises have identical directors and officers. Such control, after all, is no more than a normal consequence of controlling share ownership. (Footnote omitted.) H. Henn and J. Alexander, Laws of Corporations, § 148 (1983). See also, 1 Fletcher, supra, § 43.20, pp. 495-496. Thus, while the facts of this case indicate unity of ownership and interlocking directorates, additional factors must be present in order to pierce the corporate veil. The court's order continued with the following conclusion: The Defendants Atlas Construction Company, Atlas, Inc. and the rest of the Atlas Group failed to maintain an arms-length relationship in intercorporate transactions. Neither appellee nor the court specified any undisputed facts to support this statement. To the contrary, the question of whether the corporations failed to conduct arms-length transactions was disputed by the affidavit of Fred Hansen, Atlas, Inc.'s controller, who stated: The books of Atlas, Inc., reveal that each of the corporations were treated separately and for work performed by one to another there were arms length transactions. For example, any intercorporate loan was evidenced by a note pursuant to which interest was charged at a rate tied into the prime of one of the local banks. Another example of intercorporate activities is that certain functions were performed by Atlas, Inc. on behalf of the various corporations and a management fee was charged to the various corporations based on the amount of work performed by Atlas, Inc. on behalf of the corporation. For example, checks were cut by Atlas, Inc. and charged off to the accounts of the various subsidiaries. Atlas, Inc. was paid for performing those services. In light of these statements, and in the absence of any explanation of appellee's position on this question, we cannot say that appellee carried its burden of clearly demonstrating the absence of a factual issue. Weaver v. Blue Cross-Blue Shield of Wyoming, Wyo., 609 P.2d 984, 987 (1980). Next, the court concluded that [d]efendant Atlas Construction Company was undercapitalized at the outset and was later undercapitalized for the potential liabilities created by the amount and type of business in which it was engaged. Undercapitalization is often cited as a factor which will support piercing the corporate veil. See Amfac Mechanical Supply Co. v. Federer, supra. The problem of determining adequate capitalization in a particular case, however, may be a complicated one. Courts cannot focus solely on initial corporate capital or assets, as some are prone to do, in deciding whether inadequacy of assets warrants a decision to pierce because subsequent changes, such as increased hazards or reduced assets, may render a determination as to initial inadequacy irrelevant.       Whatever the courts' requirements in terms of inadequacy of assets, courts must still consider many varying factors relevant to their deliberations. For example, where the inadequacy of capital and other assets is at issue the testimony of expert financial analysts and statisticians as to comparable businesses may be relevant. Perhaps this analysis might include evidence of the adequacy of insurance coverage, and involve testimony concerning the amounts of insurance carried by comparable businesses. Furthermore, in addition to consideration of the amount of capital provided, other factors such as shareholder loans and the amount of earnings retained by the corporation may be analyzed. Also, the courts must pay heed to the relevant time periods involved in the cases before them. Whether there was an inadequate level of assets since the inception of the corporation is of significance. However, the analysis cannot stop there. For example, if the corporation was started with an adequate level of assets which thereafter became inadequate the court must then delve into the factors causing the decline. Obviously, a decline in the amount of assets due to purely business reasons could be viewed more sympathetically in a decision whether to pierce than would a situation where the defendant-shareholder bled the corporation of its assets. All of these factors and many more may play parts in a court's difficult task of measuring the adequacy of assets. (Footnotes omitted.) Gelb, Piercing the Corporate Veil  The Undercapitalization Factor, 59 Chicago-Kent L.Rev. 1, at pp. 4, 14-15 (1982). In the present case, it was undisputed that Atlas Construction was initially capitalized with $832 paid by Francis Ferguson and his wife for stock shares. Fred Hansen's affidavit provides the following information on the capitalization of Atlas Construction company for the period from 1975 through 1985, which is the period of time when appellee dealt with the company: Year Stock Retained Total Earnings Capitalization __________________________________________________ 6/30/75 40,873 $284,039.00 $324,912.00 6/30/76 40,873 296,665.00 337,538.00 6/30/77 40,873 314,341.00 355,214.00 6/30/78 40,873 340,725.00 381,598.00 6/30/79 40,873 559,278.00 600,151.00 3/31/80 40,873 602,857.00 643,730.00 3/31/81 40,873 614,316.00 655,189.00 3/31/82 40,873 599,258.00 640,131.00 3/31/83 40,873 566,997.00 606,870.00 3/31/84 40,873 547,919.00 588,792.00 3/31/85 40,873 298,494.00 339,367.00 Mr. Hansen's affidavit also discusses the circumstances surrounding the corporation's decline in assets: Since March of 1985 Atlas Construction Company has lost at least Three Hundred and Forty-three Thousand Eight Hundred and Fifty Dollars and Thirty-four Cents ($343,850.34). Those losses are set forth on the attached draft Income Statement attached hereto and incorporated herein by reference as Exhibit C. Basically there were two major events which caused the dissipation of the capitalization of Atlas Construction. First the selling off of some five houses which had been built by Atlas Construction resulted in a loss of One Hundred and Sixty-two Thousand Eight Hundred and Fifty Dollars and Thirty-five Cents ($162,850.35). That is largely attributable to the downturn in the real estate market. Additionally, the flood which occurred in August of 1985 destroyed plans and affected jobs to the extent of a loss of One Hundred and Twenty-four Thousand Five Hundred and Eleven Dollars and Forty-one Cents ($124,511.41). Details of the destruction caused by the flood are set forth in Exhibit D attached hereto   . The record further suggests that Atlas Construction Company purchased insurance to cover the type of liability which arose in this case, but the company was apparently involved in a dispute with its carrier over coverage throughout the litigation and at the time when judgment was entered. We can find no indication that these facts were taken into account by the trial court. The court had before it no evidence comparing the capitalization of Atlas Construction Company to similar corporations. Appellants provided evidence which tended to show that Atlas Construction Company's decline in assets was due solely to business reasons and was not the result of improper motives. We have said that summary judgment should not be granted when inquiry into facts is desirable to clarify the application of the law. Weaver v. Blue Cross-Blue Shield of Wyoming, supra 609 P.2d at 987. Considering the complexity of this issue, further inquiry into the facts is desirable. The court next stated that Atlas Construction Company ceased to do business in 1985, but was never formally dissolved, that its assets were depleted and that appellants formed another corporation, Atlas Builders, to continue the same general purposes of Atlas Construction Company. Francis Ferguson gave the following deposition testimony concerning Atlas Builders: Q. (BY MR. KLUS) Is it in the plans of Atlas, Incorporated, I guess as the sole shareholder, to phase out Atlas Construction Company in some fashion? A. That's possible, although I don't  I'm not sure we need it anymore, if that's the right word, because we have a firm that's doing  if we have any speculative work, we have a firm that could do that. And our work now seems to be commercial, and we set up the Atlas Commercial to do that. Q. What is the other firm that you referred to that can do the residential work, if you have any that comes up? A. Atlas Builders. Q. Atlas Builders? A. Yes. And like I say, if we do any speculative, I think he described it this morning, the reason for the two is because of bonding capacity and such. Q. Atlas Builders, that's separate from Atlas Commercial? A. Correct. Q. And Atlas Builders, is it set up to handle both speculative and custom construction? A. Right now it isn't doing anything, but it could. Q. So it could do anything Atlas Construction Company could have done or can do right now? A. Yes.       Q. When Mr. Klus originally asked you about the number of corporations in the Atlas group you talked about how Atlas, Inc. holds the stock in three or four other ones. Later on you mentioned Atlas Builders. Is Atlas Builders part of the Atlas group? A. Same thing. Q. It also has its stock owned a hundred percent by Atlas, Inc.? A. Yes. Q. Do you know the incorporation date of Atlas Builders, even a year? A. If memory serves me right, we had a corporation ten years ago by the name of HFP, or something like that, and we simply used that old dormant corporation and changed the name, so to tell you when I don't remember. Q. Do you recall when the name change took place? A. I think sometime the first part of this year.       Q. Mr. Ferguson, you said that you were the president of Atlas, Inc., Atlas Commercial, Atlas Construction, Atlas Realty and Sun Ridge Homes. Are you also the President of Atlas Builders? A. Yes. Q. Why do you have Atlas Builders when you have already got Atlas Construction? A. Oh, there is a number of reasons. We were, you know, trying to get a clean break, if that's the right word, to see where we were at, and try to get started off without having a lawsuit hanging over your head and lenders would be loaning us money and, you know, all those kinds of things. And I believe there is some tax advantages, too, and that kind of stuff. Q. So would it be fair to say that Atlas Builders will probably do the same type of work that Atlas Construction used to do? A. If and when we ever decide to build anymore houses, they conceivably could. While the evidence might support an inference that appellants liquidated Atlas Construction Company and formed Atlas Builders in order to evade existing obligations, it could also support an inference that appellants legitimately ceased residential construction and formed Atlas Builders to increase the possibility of obtaining financing for future commercial construction projects. The trial court obviously took the former view, concluding that Atlas Builders was formed to get a `clean break' from potential liabilities and that [t]here is evidence of a corporate scheme to concentrate assets in some corporations in the Atlas Group and liabilities in others. It appears that the trial court misperceived its role in reaching these conclusions. When ruling on a summary judgment motion, the only inferences which may be drawn are those favorable to the nonmoving party. Weaver v. Blue Cross-Blue Shield of Wyoming, supra 609 P.2d at 987. Moreover, the nonmoving party should receive the benefit of any doubt concerning the propriety of granting summary judgment. Id. We conclude that the trial court erred in granting partial summary judgment, as appellee failed to demonstrate the absence of any genuine issue of material fact, and we will remand for trial on the piercing issue. Our disposition of this case raises the question of whether the parties are entitled to a jury trial on the piercing issue. We have held that the doctrine of piercing the corporate veil is an equitable one which is `particularly within the province of the trial court.' State ex rel. Christensen v. Nugget Coal Company, 60 Wyo. 51, 144 P.2d 944, 952 (1944) (quoting Stark v. Coker, 20 Cal.2d 839, 129 P.2d 390 (1942)). Whether a corporate structure should be disregarded is peculiarly a question for courts to determine from evidence. Southern Electrical Supply Co. v. Raleigh County National Bank, W. Va., 320 S.E.2d 515, 525 (1984). See also, McCain Foods, Inc. v. St. Pierre, Maine, 463 A.2d 785, 787 (1983). We conclude that there exists no right to a jury trial on the issue of piercing the corporate veil.