Court Opinion

ID: 9835842
Source: CourtListenerOpinion
Date Created: 2023-09-02 02:44:18.416108+00
Date Added: 2024-06-11T07:45:09.686944
License: Public Domain

CROTHERS, Justice,
specially concurring.
[¶ 31] I have signed the majority opinion and write separately to continue emphasizing the limited remedy veil piercing should be.
[¶ 32] Corporate shareholders generally risk only their investment in the corporation. In Axtmann v. Chillemi, I wrote:
“Black letter law provides that corporations, are independent, legal entities that generally insulate their owners from personal liability. See Mann v. Mann, 57 N.D. 550, 223 N.W. 186, 189 (1929) (citation omitted). The key precept in a properly formed and ordinarily maintained corporation is that a shareholder’s liability is limited to the investment in the enterprise. Hanewald v, Bryan’s Inc., 429 N.W.2d 414, 416 (N.D.1988) (citing 1 F. O’Neal and R. Thompson, O’Neal’s Close Corporations § 1.09 (3rd ed 1987)).”
2007 ND 179, ¶ 28, 740 N.W.2d 838 (Croth-ers, J., concurring in part and dissenting in part),.
[¶ 33] Nor are officers and directors of a corporation generally liable for the debts of the corporation. See Coughlin Constr. Co. v. Nu-Tec Industries, Inc., 2008 ND 163, ¶ 19, 755 N.W.2d 867 (citing Axtmann v. Chillemi, 2007 ND 179, ¶ 12, 740 N.W.2d 838). “Organizing a corporation to avoid personal liability is a legitimate goal and is one of the primary advantages of doing business in the corporate form.” Chillemi, at ¶ 12.
■ [¶ 34] “The burden of establishing the necessary elements for piercing the corporate veil rests on the party asserting the claim.” Intercept Corp. v. Calima Fin., LLC, 2007 ND 180, ¶ 15, 741 N.W.2d 209 (citations omitted). The burden for piercing a corporation’s veil includes producing evidence on the- following factors:
• Insufficient capitalization for the purposes of the corporate undertaking;
• Failure to observe corporate formalities;
• Nonpayment of dividends;
• Insolvency of the debtor corporation at the time of the transaction in question;
• Siphoning of funds by the dominant shareholder;
• Nonfunctioning of other officers and directors;
• Absence of corporate records; and
• The, existence of the corporation as merely a facade for individual dealings. , .■■
• [¶ 35] Here, Taszareks only showed Welken was the president and sole shareholder of Lakeview Excavating — a circumstance 'expressly permitted by law. • See N.D.C.C. § 10-19.1-09 (one or more persons may actas incorporators); § 10-19.1-55 (same individual may hold multiple corporate , offices). The evidence showed Lakeview Excavating .was a Subchapter S corporation allowing tax treatment as if it was a partnership.. That fact is unremarkable, and, for "a small business operation, often wise. See Axtmann v. Chillemi, 2007 ND 179, ¶ 39, 740 N.W.2d 838. As I noted in another matter, “‘it is rare for small closely-held corporations to pay divi*889dends because such payments would in effect be double-taxed.... The fact that [the corporation] did not pay dividends shows only that its officers were smart, not that [the corporation] was a facade.’ ” Id. at ¶39 n; 4 (Crothers, J., concurring in part and dissenting in part) (quoting Trustees of Graphic Commc’ns Int’l Union v. Bjorkedal, No. 04-3371, 2006 WL 3511767, at *14 (D.Minn. Dec. 6, 2006)).
[¶ 36] The Taszareks presented no evidence about whether, at the time of the complained of actions, the corporation was adequately capitalized for a company engaged in the excavating business. They presented no evidence that corporate formalities were not observed, that no corporate records were made or maintained or that officers and directors were not in place and functioning. Taszareks also failed to show the corporation was insolvent at the time of the wrongful conduct. Normally, the lack of evidence would doom a claim. However, the plaintiffs tardy introduction of the issue, the defense’s incomplete objection and the court’s inadequate jury instruction all combine to warrant remand.
[¶ 37] On remand, I hope the court and the parties will pay heed to what I have been writing about with the hope of preventing — contorting the corporate veil piercing process from a “rare exception” in cases of fraud or other exceptional circumstance to a general rule of finding individual liability when a corporate debtor is impecunious. See Axtmann v. Chillemi, 2007 ND 179, ¶ 29, 740 N.W.2d 838 (Croth-ers, J., concurring in part and dissenting in part) (quoting 18 Am. Jur. 2d Corporations § 47 (2004) (footnotes omitted)); Solid Comfort, Inc. v. Hatchett Hospitality, Inc., 2013 ND 152, ¶ 35, 836 N.W.2d 415 (“I already have-written about why I believe North Dakota courts are too easily piercing corporate veils and too easily finding alter egos.”); Intercept Corp. v. Calima Fin., LLC, 2007 ND 180, ¶ 22, 741 N.W.2d 209 (Crothers, J., specially concurring) (“I specially concur , in the latter holding to emphasize that the Court’s discussion at ¶15 of this case should not be read to make disregarding an entity’s separate legal existence the rule, rather than the exception.”).
[¶ 38] daniel j. Crothers