Opinion ID: 2974180
Heading Depth: 2
Heading Rank: 1

Heading: Claims against T&G/Waste Transfer

Text: Waste Conversion seeks to “pierce the corporate veil” and hold T&G/Waste Transfer liable, but T&G/Waste Transfer is not a Warren Recycling shareholder and T&G/Waste Transfer is a -7- No. 05-3359 Waste Conversion v. Warren Recycling distinct entity from Warren. Thus, T&G/Waste Transfer is not liable for Warren’s debts as a shareholder under the theory of veil piercing. Waste Conversion cannot pierce the corporate veil to hold T&G/Waste Transfer liable as a shareholder because T&G/Waste Transfer is not a shareholder of Warren Recycling. “The ‘veil’ of the corporation can be ‘pierced’ and individual shareholders held liable for corporate misdeeds when it would be unjust to allow the shareholders to hide behind the fiction of the corporate entity.” Belvedere, 617 N.E.2d at 1085 (emphasis added). Thus, Waste Conversion’s attempt to hold T&G/Waste Transfer liable as a shareholder must fail. T&G/Waste Transfer is also not the same entity as Warren Recycling. Waste Conversion argues that T&G/Waste Transfer is functionally the same as Warren. The facts support an inference that T&G/Waste Transfer was not a bona fide purchaser and that the liquidation transaction was structured with intent to hinder creditors. See Ohio Rev. Code § 1336.04. But the facts do not support an inference that T&G/Waste Transfer is the “mere continuation” of Warren Recycling. See Kuempel Service Inc. v. Zofko et al., 672 N.E.2d 1026, 1032-33 (Ohio Ct. App. 1996). The mere fact that Warren and T&G/Waste Transfer have the same shareholders does not make the entities interchangeable. This is because T&G/Waste Transfer existed before Warren’s insolvency and because T&G/Waste Transfer operates (and operated) a landfill business distinct from Warren’s business. See id. at 1034. When Waste Conversion first contracted with Warren, nobody ever represented that Warren and T&G/Waste Transfer were the same entity. The two entities held -8- No. 05-3359 Waste Conversion v. Warren Recycling different assets and separately observed corporate formalities. Thus, the “piercing” claim against T&G/Waste Transfer fails. B. Waste Conversion’s piercing claim against DiCenso and Reiger Waste Conversion cannot pierce the corporate veil and hold Warren Recycling’s shareholders, DiCenso and Reiger, liable for Warren Recycling’s debts. Waste Conversion’s piercing claim fails on either the first or second prong of the Belvedere test. See 617 N.E.2d at 1086. The first prong inquires whether the individual shareholders exercised complete control over the corporation so that the corporation had no separate mind of its own. The second prong asks whether the control was exercised to commit fraud against Waste Conversion. Finally, we ask whether injury or unjust loss resulted. Though Belvedere offers a three prong test, the Ohio courts treat the issue as an equitable claim and are somewhat fluid with the application of the factors. See, e.g., Wiencek v. Atcole Co., 671 N.E.2d 1339, 1342-44 (Ohio Ct. App. 1996). Warren Recycling is “fundamentally distinguishable” from its individual shareholders. See Belvedere, 617 N.E.2d at 1086. We look at function over form and inquire whether the alter ego test is satisfied. For example, in Link v. Leadworks Corp., 607 N.E.2d 1140, 1146 (Ohio Ct. App. 1992), piercing was justified where the shareholder disregarded corporate formalities, commingled personal funds with those of the corporation, and paid for various personal expenditures from Leadworks’ corporate funds. This is not a case where the Warren Recycling’s corporate form was a mere shell for DiCenso and Reiger. Instead, DiCenso and Reiger received salaries and were paid for services -9- No. 05-3359 Waste Conversion v. Warren Recycling rendered to the corporation. When DiCenso or Reiger received funds from Warren the payments were properly accounted for as salary or payment for services. There are no facts that suggest the shareholders held out or used the corporation’s funds as their own. The shareholders and the corporation itself were separate entities that acted independently of each other. As for the second prong of the Belvedere test, even assuming that DiCenso had complete control over Warren Recycling, DiCenso and Reiger did not abuse the corporate form to commit fraud or some other improper act to cause unjust loss to Waste Conversion. DiCenso and Reiger never used the corporate form to commit fraud. DiCenso and Reiger never made any false statements, never misrepresented Warren’s status as a non-recourse entity, and did not commingle personal funds with the funds of the corporation. Thus, there was no fraud that abused the corporate form. DiCenso and Reiger did not abuse the corporate form to commit some other improper act to cause unjust loss. Belvedere’s second prong is not explicitly limited to actual fraud because the language used is “fraud or an illegal act.” 617 N.E.2d at 1086. For example, in Wiencek v. Atcole Co., 671 N.E.2d 1339, 1343 (Ohio Ct. App. 1996), the Ohio Court of Appeals allowed piercing where there was no fraud. In Wiencek, the shareholders spent all the money in the corporation on personal expenditures so as to render the corporation insolvent. Id. Wiencek, however, is distinguishable because the corporation’s funds were spent on personal expenditures. In this case, DiCenso and Reiger properly accounted for the funds that were paid to the shareholders as salary - 10 - No. 05-3359 Waste Conversion v. Warren Recycling and no payments were made for the shareholder’s personal expenses. Unlike the plaintiff in Wiencek, Waste Conversion does not allege that DiCenso or Reiger used the corporate funds for personal expenses. DiCenso and Reiger respected the corporate form and accounted for the use of the corporation’s funds. This is a case where a corporation was rendered insolvent due to normal business expenses such as salary, rent, and administrative costs. See Kuempel, 672 N.E.2d at 1030 (liquidation to the prejudice of creditors did not justify piercing). Thus, DiCenso and Reiger did not abuse the corporate form. The type of fraud that Waste Conversion alleges is precisely that protected by fraudulent conveyance law and does not rise to the level required to pierce the corporate veil. A fraudulent conveyance is a transfer with intent to hinder a creditor that is made without reasonably equivalent value where the debtor/payee is insolvent. See Ohio Rev. Code § 1336.04(A). Taking the facts in the light most favorable to Waste Conversion, assets were transferred to shareholders (in the form of salary) and T&G/Waste Transfer (in the form of rent and a permit) that were not for reasonably equivalent value. Fraudulent conveyance law is more carefully tailored to the interests of all parties than the blunt instrument of piercing the corporate veil, which, for instance, could permit recovery against the new-party defendants beyond any amounts that were fraudulently transferred. The general remedy in a fraudulent conveyance permits the creditor to recover the value of the asset transferred or the amount necessary to satisfy the creditor’s claim, whichever is less. See Ohio Rev. Code § 1336.08(B)(1). The remedy in fraudulent conveyance stands in contrast with the general remedy - 11 - No. 05-3359 Waste Conversion v. Warren Recycling in veil piercing. When the corporation’s veil is pierced, the individual shareholders are liable for all of the corporation’s debts, which could exceed the value of the assets fraudulently conveyed. See DFS Secured Healthcare Receivables Trust v. Caregivers Great Lakes, Inc., 384 F.3d 338, 348 (7th Cir. 2004) (shareholders are jointly and severally liable once the veil is pierced). While the analysis above is sufficient to affirm, Waste Conversion’s attempt to prosecute its claim outside of the bankruptcy court is moreover inequitable. Waste Conversion may have a valid claim against Warren Recycling, and it may have a valid claim against the various individuals who fraudulently received Warren Recycling’s assets when Warren Recycling was insolvent. That being said, it does not appear that Waste Conversion is situated differently than Warren Recycling’s other creditors. The more equitable approach for a creditor such as Waste Conversion is to use the bankruptcy courts and get in line with all the other creditors. Permitting Waste Conversion to pierce the corporate veil of a bankrupt corporation, while maneuvering to keep its claim outside the bankruptcy proceeding, is not a particularly equitable solution.