Opinion ID: 886431
Heading Depth: 2
Heading Rank: 2

Heading: Was the corporate entity used as a subterfuge to defeat public convenience, justify wrong or perpetrate fraud?

Text: ¶ 34 Colonna maintains that the District Court was incorrect when it concluded that he used the Corporation as a subterfuge to defeat public convenience, justify wrong or perpetrate fraud. He contends that there is no credible evidence to support the court's findings and conclusions on this issue. ¶ 35 The District Court's findings and conclusions with regard to the second prong of its inquiry are conclusory. However, careful review of its judgment in light of the record on appeal fully justifies the District Court's decision. ¶ 36 The corporate veil may not be pierced simply because an individual is the alter ego of a corporation and true party in interest. There must be substantial evidence from which the trier of fact may find that the corporate entity was used as a subterfuge to defeat public convenience, justify wrong or perpetrate fraud. Berlin, 268 Mont. at 457, 887 P.2d at 1188 (citation omitted). ¶ 37 Bad faith alone may be sufficient cause for piercing the corporate veil. Toenyes, 208 Mont. at 347, 679 P.2d at 219. In Toenyes, we concluded that MMI attempted to use ECA to avoid liability for breaching its contractual obligation. Toenyes, 208 Mont. at 348, 679 P.2d at 219. This was evidenced by the fact that ECA transferred its assets to MMI, effectively depleting the subsidiary of funds and assets, leaving insufficient funds to satisfy a judgment rendered against ECA. Toenyes, 208 Mont. at 348, 679 P.2d at 219. We noted that the second prong for piercing the corporate veil did not require a specific finding of fraudulent intent. Toenyes, 208 Mont. at 347, 679 P.2d at 219. Consequently, the creation of an undercapitalized shell subsidiary, that was not capable of satisfying its liability for a breach of contract, was sufficient to satisfy the requirements of the second prong. Toenyes, 208 Mont. at 348, 679 P.2d at 219. This is similar to what happened in the present case the Corporation is incapable of satisfying the judgment against it because it was undercapitalized from its inception, suggesting that Colonna acted in bad faith. ¶ 38 In Stromberg, Matt Brown sued Seaton Ranch and Dorothy Seaton for breaching a real estate agreement. Brown alleged that the circumstances required the court to pierce Seaton Ranch's corporate veil and hold Dorothy Seaton personally liable for his damages. The district court pierced the corporate veil and held Ms. Seaton liable. We affirmed the district court's finding of bad faith based on the direct and circumstantial evidence indicating that Seaton had negotiated directly with the buyer in order to avoid paying Brown's closing fees. Stromberg, 160 Mont. at 307-08, 502 P.2d at 49. In this case, the direct and circumstantial evidence permits an inference that Colonna acted in bad faith when he breached the lease with the Trust and caused the Corporation to enter into a ten-year lease with himself. ¶ 39 In Drilcon, we concluded that the record contained sufficient credible evidence to support the district court's finding that Mr. White used the corporate entity to justify wrong. We stated that Mr. White: hoped to gain when and if the oil well was successful. The well was dry and White now hopes to avoid the cost of drilling with an uncapitalized corporation. The jury was entitled to conclude that it would be inequitable or unjust for Drilcon to bear the loss in this case. Drilcon, Inc., 230 Mont. at 177, 749 P.2d at 1064. ¶ 40 Similar to the circumstances in Drilcon, it appears that Colonna wanted to have his cake and eat it too. He seeks to personally profit from renting his property to the Corporation and at the same time protect himself from liability with the undercapitalized corporation. As noted by the District Court, such a result would be inequitable. ¶ 41 In the present case, substantial credible evidence supports the District Court's conclusion that Colonna used the Corporation as a subterfuge to defeat public convenience or justify wrong. The record discloses numerous suspect corporate transactions from which Colonna received personal benefit. Colonna does not contest that his corporation, over which he exercised complete control, breached the lease with the Trust. The Corporation entered the lease for the new space with Colonna immediately after it left the Trust's building. By using the corporate entity, Colonna was able to charge his corporation rent for a building he owned himself on a sliding scale, which in turn enabled him to make sure his corporation would never have sufficient assets to satisfy the Trust's judgment. Also, the nature of the loans he made ensured that the Corporation would not have sufficient assets to satisfy a judgment. The evidence clearly supports the District Court's determination that Colonna used the Corporation to justify wrong. ¶ 42 Where there is sufficient evidence to support a district court's findings and conclusions, it is not this Court's province to question that judgment. When the evidence is viewed in a light most favorable to the Trust, we conclude that there is sufficient evidence to support the District Court's decision to pierce the corporate veil and hold Colonna personally liable for breaching the lease with the Trust.