Court Opinion

ID: 9472666
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:06:53.45712+00
Date Added: 2024-06-11T17:43:03.849916
License: Public Domain

McKAY, Circuit Judge,
concurring in part and dissenting in part:
I regret that I am unable to fully concur in the court’s opinion and disposition of this case. I am at odds with two issues discussed by the majority. First, whether the plaintiffs presented sufficient evidence to instruct the jury on conspiracy. Second, whether the trial court had personal jurisdiction over the two individual defendants.
The employee Jones’ involvement in committing a fraud against plaintiffs is not in question. Likewise the corporation’s liability for those fraudulent acts is established. However, -plaintiffs are also trying to impose individual liability on the officers of the corporation. The analysis required to impose liability on the officers is distinct from that required to find the corporation liable.
The elements of conspiracy in Kansas are: “(1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful overt acts; and (5) damages as the proximate result thereof.” Citizens State Bank v. Gilmore, 226 Kan. 662, 603 P.2d 605, 613 (1979).
The rule that a corporation cannot conspire with its officers, directors and employees falls under the first element. If the acts of an officer, director or employee are within the scope of their duties, the acts are attributed to the corporation. Thus all of the acts are acts of the corporation and the requirement of two or more persons is not met. I believe plaintiffs failed to show that the individual defendants or the corporation employee Jones were acting outside their official capacities for their personal gain. Thus, it is unnecessary to consider whether plaintiffs established the other elements of civil conspiracy.
The majority lists several facts which it believes establish the individual defendants’ “personal gain.” First, the majority places heavy emphasis on the consent decree signed by the individual defendants and the fact that defendants continued to engage in the practices enjoined by the consent decree. That conduct, according to the majority, allowed FCCB to flourish. Notwithstanding the unchallenged nature of those facts, they do not in any way establish that the individual defendants were acting outside of their official capacity as officers of the corporation.
The majority next relies on the fact that the individual defendants sold twenty percent of their stock for $4,800,000. The mere ownership or sale of stock does not constitute the type of personal gain required to vitiate the general rule that a corporation cannot conspire with its officers. Jewel Foliage Co. v. Unifora Overseas Florida, 497 F.Supp. 513 (M.D.Fla.1980); see Stanfield v. Osborne Industries, Inc., 7 Kan.App.2d 416, 643 P.2d 1115 (1982).
The third fact relied on by the majority was that the individual defendants were to receive $6,000,000 from the sale of several FCCB offices. Both plaintiffs and the majority assert that the record clearly establishes that the individual defendants were to receive this money directly. The record *729is not so unambiguous. The only evidence presented to the jury was the deposition of one of the defendants:
QUESTION: So within three or four years you expect to realize six million dollars from the sale of these offices?
ANSWER: Correct.
QUESTION: Where will the proceeds of that sale go?
ANSWER: Proceeds of the sale will go to myself and my brother.
Record, vol. 10, at 250. The record could imply that they were to receive the money directly or that they were to receive it by virtue of their stock ownership. Defendants assert the latter. Appellants Reply Brief at 13.
Finally, the majority points out that the individual defendants received low interest loans from the corporation. Again, while this is true, it does not lead to the conclusion that the individual defendants acted outside their official capacities for “personal gain” in connection with the transactions here at issue.
All of the factors pointed to by plaintiffs and the majority are regular incidents of being an officer and shareholder of a corporation. Such factors are not akin to the factors found sufficient to establish a “personal gain” in other cases. For example, in Greenville Publishing Co. v. Daily Reflector, Inc., 496 F.2d 391, 399-400 (4th Cir. 1974), there was evidence that the president of the defendant company would receive money from an independent third party that would profit from the alleged illegal conduct.
If the exception to the rule is not limited to situations where an officer or employee receives a benefit or personal gain from an outside source, the rule will be swallowed up by the exception. Large salaries, bonuses, personal loans, stock options, etc. are common methods of remuneration for officers of corporations. Each could qualify as “personal gain” under the majority’s analysis. Furthermore, the evidence introduced by plaintiffs and relied on by the majority does not show any connection or contact between Jones, the employee, and the individual defendants except that defendants were officers of the corporation which employed Jones.
Because the defendants were acting within their official capacity and not for any outside personal gain, I would adhere to the general rule that a corporation cannot conspire with its officers. Accordingly, plaintiffs have failed to establish the first element of civil conspiracy — two or more persons. It is therefore unnecessary to address the other elements.
The majority alternatively relies on the alter ego doctrine, citing Quarles v. Fuqua Industries, Inc., 504 F.2d 1358, 1362 (10th Cir.1974), to establish that defendants could be considered coconspirators with the employee Jones. The majority is correct that Kansas has adopted the alter ego doctrine to pierce the corporate veil. However, the majority’s application of that doctrine in the case at bar does not follow from the decisions of the Kansas courts. “[A] corporation and its stockholders are presumed separate and distinct, whether the corporation has many stockholders or only one.” Amoco Chemicals Corp. v. Bach, 222 Kan. 589, 567 P.2d 1337, 1341 (1977). Single ownership of a corporation is insufficient in itself to pierce the corporate veil. Id. The power to disregard the corporate entity and apply the alter ego doctrine is to be “exercised reluctantly and cautiously.” Sampson v. Hunt, 233 Kan. 572, 665 P.2d 743, 751 (1983).
The Supreme Court of Kansas has enumerated eight factors “considered significant in justifying a disregard of the corporate entity.” Id., 665 P.2d at 751. They are:
(1) Undercapitalization of a one-man corporation, (2) failure to observe corporate formalities, (3) nonpayment of dividends, (4) siphoning of corporate funds by the dominant stockholder, (5) nonfunctioning of other officers or directors, (6) absence of corporate records, (7) the use of the corporation as a facade for operations of the dominant stockholder or stockholders, and (8) the use of the corporate entity in promoting injustice or fraud.
*730Id. (quoting Amoco Chemical Corp. v. Bach, 222 Kan. 589, 594, 567 P.2d 1337, 1341-42 (1977)).
In the case at bar only factors seven and eight might be applicable. To be applicable, however, the injustice to the parties must follow from the judicial acknowledgment of the corporate entity. See Quarles v. Fuqua, 504 F.2d 1358, 1362 (10th Cir. 1974). Neither the plaintiffs nor the majority have established how plaintiffs will be hurt if the corporate entity is recognized. There is no indication that plaintiffs will be unable to recover if the corporate veil is not pierced. The corporation has every appearance of being able to satisfy the judgment against it.
Furthermore, while each case must be decided on its specific facts, Sampson v. Hunt, 233 Kan. 572, 665 P.2d 743, 751 (1983), the case at bar is dissimilar from the cases where Kansas has chosen to apply the doctrine. In recent years the Kansas Supreme Court has upheld a trial court's piercing of the corporate veil in only two cases. Id. One case dealt with a vertical series of corporations that were undercapitalized. In the other case the defendant corporation was found to be the conduit which the individual defendant used to conduct his personal business. In that case defendant “was the principal stockholder, officer and manager of the corporation; principal creditor; principal receiver of assets of the corporation; principal worker and principal transferee of all funds secured by the corporation.” Id.
Conversely in the case at bar the corporation is over ten years old, has several hundred employees, and at the time in question had offices in Boston, Chicago, Miami, San Francisco and Newport Beach. In short, the corporation shows every sign of being an independent entity that is more than a mere instrumentality used to conduct defendants’ business.
The majority cites to the fact that the individual defendants were the principal officers, and the only directors and shareholders.* As noted above, those facts are insufficient to pierce the corporate veil. The only other thing cited by the majority is that the individual defendants signed the consent decree as individuals rather than in their corporate capacity. That fact, however, provides no basis for piercing the corporate veil. Rare would be the small closely-held corporation that would not fit under the majority’s analysis in this case.
Because I find that plaintiffs failed to establish a conspiracy and the alter ego doctrine is inapplicable in this case, the trial court’s personal jurisdiction over the individual defendants is brought into question. The district court based its jurisdiction on Kansas’ long arm statute. In particular, the commission of a tortious act within the state. The majority relies on the torts of “[fjraud and deceit in inducement to contract” to sustain the trial court’s decision. Ante at 727.
The majority acknowledges that the individual defendants’ only arguable contacts with Kansas were: “(1) execution of the 1976 Consent Decree, (2) in an affidavit, Don Schleicher stated that a form letter bearing his signature stamp was mailed to Louis Wegerer in Kansas, and (3) copies of investment recommendations generated by Richard Schleicher were mailed to the Wegerers in Kansas.” Ante at 727. Those acts of themselves do not constitute the torts of fraud or deceit. Since I find no support in the record for the allegations of conspiracy, there is no evidence to support the allegations of fraud and deceit as to the individual defendants. Thus, I am compelled to conclude that there is no basis for jurisdiction over the individual defendants and the case should be dismissed as to them.

The majority at times refers to the individual defendant as the only shareholders. At other times their opinion correctly reflects that the individual defendants sold 20 percent of the corporate stock to an employee stock ownership plan.