Court Opinion

ID: 4266602
Source: CourtListenerOpinion
Date Created: 2018-04-23 23:05:28.129891+00
Date Added: 2024-06-11T14:31:15.814362
License: Public Domain

The summaries of the Colorado Court of Appeals published opinions
  constitute no part of the opinion of the division but have been prepared by
  the division for the convenience of the reader. The summaries may not be
    cited or relied upon as they are not the official language of the division.
  Any discrepancy between the language in the summary and in the opinion
           should be resolved in favor of the language in the opinion.

                                                                   SUMMARY
                                                                April 19, 2018

                                2018COA55

No. 16CA1909, Paradine v. Goei — Corporations — Piercing the
Corporate Veil; Labor and Industry — Colorado Wage Claim Act

     A division of the court of appeals holds that the Colorado Wage

Claim Act does not categorically bar a plaintiff from piercing the

corporate veil to hold an individual liable for unpaid wages. In the

course of reaching that conclusion, the opinion disagrees with the

defendant’s assertion that language in Leonard v. McMorris, 63 P.3d
323, 331 (Colo. 2003), established such a bar. Because the plaintiff

pled sufficient facts to establish a plausible claim that the plaintiff

could pierce the corporate veil, the trial court erred when it granted

defendant’s motion to dismiss on the pleadings. The division

therefore reverses the trial court’s judgment and remands the case

with instructions.
COLORADO COURT OF APPEALS                                       2018COA55

Court of Appeals No. 16CA1909
Boulder County District Court No. 16CV30186
Honorable Norma A. Sierra, Judge

Robert Paradine,

Plaintiff-Appellant,

v.

Esmond Goei,

Defendant-Appellee.

                       JUDGMENT REVERSED AND CASE
                        REMANDED WITH DIRECTIONS

                                  Division VI
                         Opinion by JUDGE BERNARD
                         Terry and Harris, JJ., concur

                          Announced April 19, 2018

Jung & Associates, P.C., Ronald D. Jung, Boulder, Colorado; Weston M. Cole
Law Office, LLC, Weston M. Cole, Littleton, Colorado, for Plaintiff-Appellant

Jester Gibson & Moore LLP, Marcel Krzystek, Jay S. Jester, Denver, Colorado,
for Defendant-Appellee
¶1    Does the Colorado Wage Claim Act, sections 8-4-101 to -123,

 C.R.S. 2017, bar claimants from piercing the corporate veil to hold

 an individual personally liable for unpaid wages? We answer that

 question “no.”

¶2    We ask and answer that question in the case of plaintiff,

 Robert Paradine, who appeals the trial court’s order that granted a

 motion for judgment on the pleadings that defendant, Esmond Goei,

 had filed. Because of our answer and our resolution of a second

 issue, we reverse the court’s judgment and remand for further

 proceedings.

                I.   Background and Procedural History

¶3    Plaintiff served as the Chief Financial Officer and Vice

 President of Administration for a corporation called Aspect

 Technologies, Inc. Defendant was the Chief Executive Officer.

¶4    Plaintiff sued defendant and Aspect, raising three claims: a

 claim under the Wage Claim Act, fraud, and breach of contract. He

 alleged that defendant and Aspect owed him about $8100 in unpaid

 wages.

¶5    Defendant filed a motion for judgment on the pleadings under

 C.R.C.P. 12(c). The trial court granted the motion and dismissed

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 the three claims against defendant with prejudice. (The claims

 against Aspect are still alive.) After denying plaintiff’s motion to

 reconsider, the court certified its order dismissing the claims

 against defendant as a final judgment under C.R.C.P. 54(b).

                               II.   Analysis

                 A.   Standard of Review and C.R.C.P. 12(c)

¶6    We review C.R.C.P. 12(c) judgments on the pleadings de novo.

 Fischer v. City of Colorado Springs, 260 P.3d 331, 334 (Colo. App.

 2010). Courts generally disapprove of such judgments. Colo.

 Criminal Justice Reform Coal. v. Ortiz, 121 P.3d 288, 294 (Colo. App.

 2005). Historically, this meant that we would affirm a judgment on

 the pleadings “only if it appear[ed] beyond doubt that the party

 asserting a claim [could] prove no set of facts in support of the

 claim that would entitle the party to relief.” Id. “This standard

 [was] essentially consistent with that employed in resolving a

 motion to dismiss for failure to state a claim” under C.R.C.P.

 12(b)(5). Id.

¶7    Our supreme court changed the C.R.C.P. 12(b)(5) standard in

 2016. Warne v. Hall, 2016 CO 50. Now, “only a complaint that

 states a plausible claim for relief survives a motion to dismiss.” Id.

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 at ¶ 9 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). “Under

 this standard, a party must plead sufficient facts that, if taken as

 true, suggest plausible grounds to support a claim for relief.”

 Campaign Integrity Watchdog, LLC v. All. for a Safe and Indep.

 Woodmen Hills, 2017 COA 22, ¶ 28 (cert. granted Oct. 30, 2017).

 And “the tenet that a court must accept as true all of the allegations

 contained in a complaint is inapplicable to legal conclusions.”

 Warne, ¶ 9 (quoting Iqbal, 556 U.S. at 678).

¶8    Because, before Warne, the C.R.C.P. 12(b)(5) and C.R.C.P.

 12(c) standards were the same, see Colo. Criminal Justice Reform

 Coal., 121 P.3d at 294, we conclude that the changes in the

 C.R.C.P. 12(b)(5) standard effected by Warne also apply to C.R.C.P.

 12(c). Indeed, federal courts use the same standard to resolve

 claims under Fed. R. Civ. P. 12(b)(6), the federal equivalent of our

 C.R.C.P. 12(b)(5), and Fed. R. Civ. P. 12(c). See, e.g., Grajales v.

 P.R. Ports Auth., 682 F.3d 40, 44 (1st Cir. 2012)(“When . . . a motion

 for judgment on the pleadings under Federal Rule of Civil Procedure

 12(c) is employed as a vehicle to test the plausibility of a complaint,

 it must be evaluated as if it were a motion to dismiss under Federal

 Rule of Civil Procedure 12(b)(6).”); Sensations, Inc. v. City of Grand

                                    3
  Rapids, 526 F.3d 291, 295-96 (6th Cir. 2008); Basile v. Prometheus

  Global Media, 225 F. Supp. 3d 737, 741 (N.D. Ill. 2016).

                         B.   Leonard v. McMorris

¶9     The trial court’s judgment relied significantly on Leonard v.

  McMorris, 63 P.3d 323 (Colo. 2003). In that case, employees sued

  corporate officers individually for unpaid wages following the

  company’s declaration of bankruptcy. Id. at 325. The supreme

  court held that the corporation’s officers and agents were “not

  jointly and severally liable for payment of employee wages and other

  compensation” under the Colorado Wage Claim Act. Id.

¶ 10   The employees in Leonard did not raise claims, such as fraud

  or breach of contract, besides the one under the Wage Claim Act.

  Rather, the supreme court’s holding arose primarily from its

  analysis of the statutory language in the civil liability provisions of

  the Wage Claim Act. Id. at 333.

¶ 11   In reaching this result, the supreme court observed generally

  that, “[i]n the absence of some exception, neither the officers nor

  the directors of a corporation are personally responsible for the

  debts of a corporation merely because they are officers or directors

  of the corporation.” Id. at 332 (quoting 3A William Meade Fletcher

                                     4
  et al., Fletcher Cyclopedia of the Law of Corporations § 1117 (perm.

  ed., rev. vol. 2002)). One possible exception would arise if a court

  allowed a plaintiff to pierce the corporate veil to proceed against a

  corporation’s officers. Id. at 330.

                      C.   The Wage Claim Act Claim

¶ 12   Plaintiff asserts that Leonard did not bar him from “piercing

  the corporate veil and hold[ing] [defendant] personally liable under”

  the Wage Claim Act. We agree.

¶ 13   Leonard’s analysis seemed to be categorical: “We find no

  provision of the Wage Claim Act . . . that makes the personal assets

  of officers available for recourse to other employees of the

  corporation when the hiring entity discharges them.” Id. at 331

  (emphasis added).

¶ 14   But, when we look deeper, we conclude, for the following

  reasons, that Leonard’s language was not meant to prevent

  plaintiffs from piercing the corporate veil in Wage Claim Act claims

  under the appropriate circumstances.

¶ 15   First, the remedies available under the Wage Claim Act are

  designed to encourage employers to make timely payments to

  employees of the wages that they have earned. § 8-4-109(3)(b),

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  C.R.S. 2017; Lee v. Great Empire Broad., Inc., 794 P.2d 1032, 1034

  (Colo. App. 1989). Piercing the corporate veil in the right

  circumstances would further this legislative intent.

¶ 16   Second, the Wage Claim Act was adopted “during a time when

  the General Assembly was enacting labor legislation in order to

  combat employer fraud and oppression.” Leonard, 63 P.3d at 337

  (Mullarkey, C.J., dissenting). Because the statute’s purpose was to

  prevent employer fraud, logic indicates that the legislature would

  not exclude an employer whose existence may be fraudulent from

  the Act’s reach. See McCallum Family L.L.C. v. Winger, 221 P.3d 69,

  74, 79 (Colo. App. 2009)(The test for piercing the corporate veil

  requires (1) evidence that the corporation was a mere alter ego of

  the officer; (2) evidence that the officer used the corporation to

  perpetrate a fraud or to defeat a rightful claim; and (3) the trial

  court’s evaluation of whether “an equitable result will be achieved

  by disregarding the corporate form and holding the shareholder

  personally liable for the acts of the business entity.” (quoting In re

  Phillips, 139 P.3d 639, 644 (Colo. 2006))).

¶ 17   Third, Leonard’s fundamental premise was that the Wage

  Claim Act incorporated common law principles, including the

                                     6
  concept of piercing the corporate veil. Leonard, 63 P.3d at 330.

  This means that a corporate officer is not automatically liable to pay

  an employee wages. Id. at 328, 331 (“[T]he legislature did not

  intend to impose personal liability on officers and agents that is

  equal to the corporation’s liability”; employers are not “always

  responsible” for the corporation’s obligation to pay wages; “the

  General Assembly did not intend blanket corporate officer and

  agent liability for unpaid wages.”).

¶ 18   But Leonard also recognized that, under well-established

  exceptions, officers or agents could be personally liable for a

  company’s debts. Id. at 332 (“In the absence of some exception,

  neither the officers nor the directors of a corporation are personally

  responsible for” the corporation’s debts. (quoting 3A Fletcher et al.,

  § 1117)). Two of these well-established exceptions are piercing the

  corporate veil, and when an officer acts on behalf of an undisclosed

  principal, id. at 330.

¶ 19   Fourth, the supreme court’s intent to apply the concept of

  piercing the corporate veil to Wage Claim Act claims becomes

  clearer when we consider the sentence that immediately preceded

  the categorical language that we have quoted above: “Under [the

                                     7
  employees’] view, the officers and agents of corporations are always

  responsible for wages due as a result of the employment

  relationship . . . .” Id. at 331 (emphasis added). In other words, the

  supreme court held that a corporation’s officers and agents were

  not always liable under the Wage Claim Act; they would only

  become liable if one of the well-established exceptions, such as

  piercing the corporate veil, applied.

           D.   The Fraud and the Breach-of-Contract Claims

¶ 20   Addressing the fraud claim, the trial court wrote that, “to find

  [defendant] personally liable for fraud, the [c]ourt would have to

  pierce the corporate veil and find that Aspect was [defendant’s] alter

  ego . . . .” If the court were to make such a finding, “the result

  would be that [defendant] would be personally liable for paying

  [p]laintiff any unpaid wages.” Such a result, the court decided,

  would be barred by Leonard.

¶ 21   As far as the breach-of-contract claim was concerned, the trial

  court, again relying on Leonard, wrote that, “[a]s [defendant] was

  not a party to the employment contract between [p]laintiff and

  [A]spect, he therefore cannot be held personally liable for breach of

  its terms.”

                                     8
¶ 22      We conclude, for the following reasons, that (1) Leonard did

  not bar plaintiff’s fraud and breach-of-contract claims; and

  (2) plaintiff pled sufficient facts that, if taken as true, suggested

  plausible grounds to support his fraud and breach-of-contract

  claims, see Campaign Integrity Watchdog, LLC, ¶ 28.

¶ 23      First, we have concluded above that Leonard does not hold

  that the Wage Claim Act bars plaintiffs from piercing the corporate

  veil.

¶ 24      Second, plaintiff’s fraud claim made allegations in support of

  his request that the trial court pierce the corporate veil to impose

  liability on defendant. See generally Griffith v. SSC Pueblo Belmont

  Operating Co., 2016 CO 60M, ¶ 11. For example, the complaint

  alleged that defendant had

           collected funds for Aspect, and said that those funds would

            be used to pay Aspect’s employees;

           “utilize[d] [Aspect’s] income . . . for his own personal use

            and divert[ed] corporate funds in a manner which was

            inconsistent with corporate requirements”; and

           “treated Aspect as his alter ego by requiring the corporation

            to pay for his personal expenses, apartment lease, vehicle

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          payments, commingled bank accounts and credit cards in

          individual names[,] and paying personal credit card

          expenses.”

¶ 25   Third, plaintiff’s breach-of-contract claim incorporated the

  allegations in the fraud claim, and it additionally alleged that

        Aspect “acted through its agent” — defendant — “who

          sanctioned and actively participated in negotiating and

          entering into” an employment agreement with plaintiff; and

        Aspect and defendant had “willfully, intentionally and

          materially breached the employment agreement by failing to

          make required payments.”

¶ 26   Fourth, Leonard did not involve either a fraud claim or a

  breach-of-contract claim; it only involved a claim under the Wage

  Claim Act. We cannot find any language in Leonard that indicates

  that the supreme court intended its holding to apply beyond Wage

  Claim Act cases. And, as we have observed above, Leonard did not

  create a categorical bar to the personal liability of corporate officers

  in Wage Claim Act cases.

¶ 27   Fifth, Leonard’s analysis was thoroughly dependent on the

  language of the Wage Claim Act. It did not analyze the elements of

                                     10
  a fraud claim or of a breach-of-contract claim, and those latter

  claims do not involve any of the Wage Claim Act’s provisions.

¶ 28   Sixth, Leonard’s general discussion of individual liability in the

  corporate context, including the concept of piercing the corporate

  veil, was anchored to the Wage Claim Act claim. The fraud and

  breach-of-contract claims arise in a different context in which

  piercing the veil may be difficult, but, at this stage of the

  proceedings, still possible. See Leonard, 63 P.3d at 330. (We take

  no position on whether plaintiff can successfully pierce the

  corporate veil for either the fraud claim or the breach-of-contract

  claim. Whether he can do so is a question to be decided in the trial

  court.)

¶ 29   The trial court’s judgment is reversed. We remand this case to

  the trial court to reinstate the Wage Claim Act claim, the fraud

  claim, and the breach-of-contract claim, and to proceed

  accordingly.

       JUDGE TERRY and JUDGE HARRIS concur.

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