Court Opinion

ID: 9546183
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:25:52.406559+00
Date Added: 2024-06-11T15:16:06.859446
License: Public Domain

WARREN, J.,
dissenting.
I disagree with the majority’s conclusion that the insured should not be precluded from collecting on the policy because of the arson by the 50 percent owner, director and officer. In both Miller & Dobrin Fur. Co. v. Camden Fire Ins. Co. Ass’n., 55 NJ Super 205, 150 A2d 276 (1959), and Continental Ins. Co. v. Gustav’s Stable Club, 211 Neb 1, 317 NW2d 734 (1982), discussed by the majority, the court denied the corporation recovery on the policy by treating the corporation as a partnership. In both cases, the court found that corporate formalities were ignored and the businesses were run as partnerships in corporate form. Recovery was denied on the theory that the conduct of one partner is attributed to the other partners and that the business is precluded from recovery by the partner’s wrongdoing. See also Erlin-Lawler Enterprises, Inc. v. Fire Insurance Exchange, 267 Cal App 2d 381, 385-86, 73 Cal Rptr 182 (1968); Travelers Fire Insurance Company v. Wright, 322 P2d 417, 422 (Okla 1958). I would apply the same analysis in this case.
The majority asserts that, in order to pierce the corporate veil, under Miller & Dobrin Fur. Co. supra, we must find that the arsonist dominated the affairs of the corporation and that the other stockholder authorized or ratified that dominance. Regardless of what the rule may be in New Jersey, the law in Oregon is not so rigid. In McIver v. Norman, 187 Or 516, 537-38, 205 P2d 137, 213 P2d 144 (1949), the Supreme Court stated:
“While, for all ordinary purposes, a corporation is regarded as a legal entity separate and distinct from its stockholders, yet, as Judge Sanborn said in United States v. Milwaukee Refrigerator Transit Co., 142 Fed. 247, ‘when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.’ See Security Savings & Trust Co. v. Portland Flour Mills Co., 124 Or. 276, 288, 261 P. 432.”
*195In Barber, “Piercing the Corporate Veil,” 17 Willamette L Rev 371, 373-75 (1981), the doctrine is described as follows:
“* * * The suit in which a party seeks to disregard the corporate entity is an equitable one; the trial court generally is granted wide latitude in determining whether grounds for piercing exist.
«* * * An analysis of the piercing doctrine begins with a list of factors courts consider important in determining whether to pierce the corporate veil. A review of the case law reveals that one or more of the following factors was present in each instance of piercing:
“(1) commingling of funds and other assets of the corporation with those of the individual shareholders (Corporation XYZ holds no separate bank account but deposits the receipts from its business transactions in the personal account of A, its sole shareholder);
“(2) diversion of the corporation’s funds or assets to noncorporate uses (to the personal uses of the corporation’s shareholders);
“(3) failure to maintain the corporate formalities necessary for the issuance or subscription to the corporation’s stock, such as formal approval of the stock issue by an independent board of directors;
<Csic * * * *
“(5) failure to maintain corporate minutes or adequate corporate records,
“(9) absence of separately held corporate assets;
“(10) use of a corporation as a mere shell or conduit to operate a single venture or some particular aspect of the business of an individual or another corporation;
“(11) sole ownership of all the stock by one individual or members of a single family;
“(12) use of the same office or business location by the corporation and its individual shareholder(s);
* * * *
“(15) disregard of legal formalities and failure to maintain proper arm’s length relationships among related entities;
<<* * * * *
“In determining which of these factors will overcome the *196presumption of legitimacy in the use of the corporate entity, the policies behind insulating shareholders from personal liability must be balanced against the policies justifying piercing.” (Footnotes omitted.)
There is substantial evidence that corporate formalities were not observed in this case. Articles of Incorporation were drawn up and filed, but no other corporate documents were produced. There were no bylaws, nor were certificates of stock issued. The Board of Directors never had a formal meeting, and the businesses of the corporation were managed separately. In addition, Wallace and DiGeorge separately received the profits from their businesses, commingling corporate and personal funds, and the finances of the businesses were considered together only for the purpose of filing a corporate tax return.
The businesses were run as a partnership before incorporation. There is no indication that the business’ assets were formally transferred to the corporation or that the corporation separately held any assets. Each of the shareholders continued to run her own businesses after incorporation, and neither shared in the profits of the other’s businesses.
These circumstances persuade me that the court should disregard the corporate form and treat the business as a partnership in order to prevent the inequitable result of allowing the arsonist indirectly to benefit from her wrong. State ex rel Grabhorn v. Grahhorn, 28 Or App 357, 559 P2d 923 (1977). It is clear that the arsonist stood to benefit from a recovery by the corporation. The fire was set by DiGeorge in order to work a fraudulent scheme to repay Wallace a $1,000 debt. Only Wallace and DiGeorge held ownership interests in the corporation, and recovery by the corporation inevitably would benefit DiGeorge.
Plaintiff corporation claims that there would, in fact, be no benefit to DiGeorge, because in June, 1981 — six months after the fire, and when DiGeorge had become a suspect in the arson — she assigned all of her interests in the corporation to Wallace. I do not agree that there was no benefit to her. In deciding questions of entitlement to insurance proceeds, we look to the interests as they existed at the time of the loss, in this case, the date of the fire. See Montgomery v. First Nat. *197Bank, 265 Or 55, 70, 508 P2d 428 (1973). No significance attaches to the transfer of DiGeorge’s stock. Her interest was tainted when the transfer took place. Had the transfer not been made and the fraud not been discovered, she would have been entitled to her share of the insurance proceeds. It cannot be that, by transfer of the stock after the fact, the taint is removed.
Another factor which may have motivated DiGeorge’s incendiary act was her expectation of a share of the insurance proceeds. DiGeorge received valuable consideration for the transfer of her 50 percent interest in plaintiff, forgiveness of a $1,000 debt to her mother and a typewriter. In transferring her interest in plaintiff, DiGeorge also transferred her expectation of insurance recovery. By allowing plaintiff to recover 100 percent of the insurance proceeds, the majority provides DiGeorge with an indirect benefit, in that she received valuable consideration for the transfer of her expectation of 50 percent of the insurance proceeds.
Because I would hold that arson by a 50 percent shareholder, officer, director and employee of a corporation in form only should bar the insured corporation’s recovery of insurance proceeds, I would reverse. Accordingly, I dissent.
Joseph, C. J., joins in this dissent.