Opinion ID: 1501474
Heading Depth: 1
Heading Rank: 4

Heading: Hycel and Schnuck Can be Held Liable for Crestwood Commons' Obligations

Text: Missouri law recognizes the narrow circumstances in which the corporate veil can be pierced in order to hold the corporation's owners liable for its debt. Collet v. American National Stores, Inc. 708 S.W.2d 273 (Mo.App.1986). See also, May Department Stores v. Union Electric, 341 Mo. 299, 107 S.W.2d 41 (1937), Walls by Walls v. Allen Cab Co., 903 S.W.2d 937, 943 (Mo.App.1995) and K.C. Roofing Center v. On Top Roofing, Inc., 807 S.W.2d 545, 549 (Mo.App.1991). A Missouri court will disregard the corporate entity and hold the corporate owners liable if the following can be shown: 1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and 2) Such control must have been used by the corporation to commit fraud or wrong, to perpetrate the violation of statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's legal rights; and 3) The control and breach of duty must proximately cause the injury or unjust loss complained of. Collet, supra, 708 S.W.2d at 284 (Emphasis added). Crestwood Commons was at all times under the complete domination and control of its owners, Hycel and Schnuck, whose joint venture was the sole owner of Crestwood Commons' stock. All of Crestwood Commons' officers were officers of either Hycel or Schnuck. All of Crestwood Commons' directors were officers or directors of either Hycel or Schnuck. Crestwood Commons never had any assets, net worth, bank accounts, or records. Hycel and Schnuck directly paid all expenses and obligations relating to the condemnation, which was Crestwood Commons' only activity. Hycel and Schnuck made all business and legal decisions. According to the joint venture agreement, after Crestwood Commons acquired the property through eminent domain, a portion was to have been sold immediately to Schnuck and the portion retained by the joint venture was to have been developed by Hycel. The degree of control that Hycel and Schnuck exercised over Crestwood Commons equals or exceeds the degree of control that Collet teaches is sufficient to find that the corporation is the alter ego of its shareholders in order to pierce the corporate veil and hold the shareholders liable for the corporation's legal obligations. Although Hycel and Schnuck do not dispute that they exercised complete control over Crestwood Commons, they argue that a court may only disregard the separate corporate entity if the separateness is used to defraud. Crestwood Commons further argues that the use of unfunded redevelopment corporations is a common practice and, as such, cannot be a fraudulent means of shielding the principals during condemnation proceedings. However, actual fraud is not necessary for a court to hold shareholders liable for corporate debts. K.C. Roofing Center, supra, 807 S.W.2d at 549. Other conduct that may justify piercing the corporate veil includes the violation of statutory duties and undercapitalization. Collet, supra, 708 S.W.2d at 286. Inadequate capitalization is circumstantial evidence tending to show an improper purpose or reckless disregard for the rights of others. Swall v. Custom Automotive Services, Inc., 831 S.W.2d 237 (Mo.App.1992). Inadequate capitalization means assets that are very small in comparison to known risks associated with the planned corporate enterprise. Swall, supra; W. Fletcher, Fletcher Cyclopedia of Corporations, volume 1, section 41.33 (perm. ed. rev.vol.1999). Generally, the adequacy of capitalization is measured at the time of incorporation. Fletcher, supra, section 41.33. Adequacy of capitalization is a fact question that turns on the nature of the business of the particular corporation. Id.; Hickman v. Hyzer, 261 Ga. 38, 401 S.E.2d 738 (1991). For example, in Walls by Walls, supra, 903 S.W.2d at 943, the court held a bank liable for a workers' compensation claim against a cab company it controlled and profited from, but did not sufficiently capitalize to provide compensation insurance. In this case, the uncapitalized shell corporation was used to avoid debts arising out of the condemnation proceeding. Crestwood Commons had a positive, legal duty to pay the interest judgment and any other obligations arising from the condemnation proceeding that was initiated by it. This duty was circumvented through the use of a purportedly separate corporate entity that was in reality part of a single economic unit dominated and controlled by Hycel and Schnuck. As this Court said in May Department Stores, supra, 341 Mo. 299, 107 S.W.2d 41 at 55, Making a corporation a supplemental part of an economic unit and operating it without sufficient funds to meet obligations to those who must deal with it would be circumstantial evidence tending to show either an improper purpose or reckless disregard of the rights of others. The only business of this particular enterprise was to condemn and obtain title to 66, Inc.'s property. To limit their exposure, Hycel and Schnuck included a provision in their agreement with the city that the condemnation would be terminated if land costs proved too high. Thus, one obvious risk of the condemnation apparent at the time of incorporation was the abandonment of the condemnation and damages to the property owner resulting therefrom. At the time of incorporation, Crestwood Commons had no capital and, absent a final condemnation of the property, had no apparent plans to acquire capital. No one, given a choice, would deal with such a vacuous corporate entity without separate guaranties from third parties. From the outset, the general partnership either paid or guaranteed the expenses of all parties with whom the corporation dealt except the most obvious one; the condemnee who was forced by the condemnation action to deal with the corporation alone. This case presents a clear example of inadequate capitalization. The under capitalization issue was presented to the trial court on cross motions for summary judgment, and thus, there are no material facts in dispute. In these circumstances, where shareholders create and operate an unfunded, shell corporation to condemn property without making provision for payment of damages to condemnees, a wrongful purpose is established as a matter of law. Finally, the requisite injury and causation are present here. Collet, supra, 708 S.W.2d at 284. Abandonment of condemnation proceedings invariably damages the landowner. Missouri State Park Bd., 513 S.W.2d at 449. When the dominant corporation renders the subservient corporation insolvent, then the requisite injury and causal connection are established. Collet, 708 S.W.2d at 287. The Hycel and Schnuck joint venture created Crestwood Commons and maintained the corporation in an insolvent condition at all times. As partners in the joint venture, Hycel and Schnuck are jointly and severally liable for its liabilities. Section 358.150. If there are damages for which Crestwood Commons is liable, Hycel and Schnuck should be held responsible for them.