Question

We take up first the question of whether the trial court erred in piercing the corporate veil of On Top to hold Russell Nugent personally liable on plaintiffs' claims. Shareholder insulation from liability for corporate debts or obligations has been a cornerstone of corporate law in the United States since the 19th century. . Although courts will look through corporate organizations to individuals when necessary to prevent injustice, doing so is the exception rather than the rule, and, ordinarily, a corporation will be regarded as a separate legal entity even though there is but a single stockholder.

.Courts will pierce the corporate veil or disregard the corporate entity once a plaintiff shows:

(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 defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's legal rights; and

(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

"Where a corporation is used for an improper purpose and to perpetrate injustice by which it avoids its legal obligations, `equity will step in, pierce the corporate veil and grant appropriate relief.'"

   There was substantial evidence to support the trial court's finding that the three-part test for piercing the corporate veil was satisfied in this case. Russell Nugent was clearly in control of On Top Roofing, Inc. He and his wife were the sole shareholders of the corporation and he was the president and chief operating officer and clearly made all the decisions.

There also was substantial evidence to support the second and third prongs of the test. A court may pierce the corporate veil or disregard the separate legal entity of the corporation and the individual where the separateness is used as a subterfuge to defraud a creditor. . But actual fraud is not necessarily a predicate for piercing the corporate veil; it may also be pierced to prevent injustice or inequitable consequences. From the evidence it appears that Russell Nugent was operating an intricate corporate shell game in which he would cease doing business as one corporate entity when he was unable to pay the corporation's creditors and he then would form another corporation in place of the prior one in order to get a "fresh start." After On Top supposedly went out of business in the summer of 1987, for at least two years Nugent continued to run an On Top Roofing Yellow Pages ad, kept the On Top Roofing name on the sign on the building at 614 Main, kept the On Top Roofing name on the side *550 of his roofing trucks, continued to use bid estimate sheets with the On Top Roofing name on them, and continued to represent to callers over the telephone that he was still operating as On Top Roofing. Although Nugent was only paying secured creditors of On Top, he went ahead and ordered the supplies from the plaintiffs both of which were unsecuredat a time when On Top was insolvent and had outstanding debt of approximately $100,000 to other roofing suppliers.

   Through his domination and control over On Top, Russell Nugent was using it for the unfair or inequitable purpose of avoiding their debts to plaintiffs. Nugent continued to hold On Top out to the public as though it was still operating after it supposedly went out of business, yet he refused to honor On Top's obligations to its creditors. The actions of Nugent worked at least an injustice if not to defraud the plaintiffs. It would be unfair, unjust or inequitable to allow Nugent to hide behind the corporate shield and avoid his legal obligations to plaintiffs. We hold that the trial court did not err in piercing the corporate veil and holding Russell Nugent personally liable for the debts owed plaintiffs.

--Brief the decision of the court  in 200 words . Pay special attention to the structure. Make sure you clearly clarify the governing rules.

Answer 1

The Trail court did not err in piercing the corporate Veil of On Top. They found Russell Nugent personally liable for the plaintiffs claims. The court ruled in favor of the plaintiff because the three-part test for piercing the corporate veil was satisfied in this case

(1) Complete control and domination of all matters including finance, policies, business decisions and business transactions are taken by the individual in the name of the corporate. Russell and his wife were the only shareholders. Russell was the Chief operating officer and the president of the corporation. He was making all the decisions unilaterally.

(2) The corporate was created to commit fraud, to violate legal duty or to perform dishonest and unjust acts, which is against the plaintiffs rights. It is clear that Russell was running a shell game where corporate were first created and then it ceased to operate when Russell was unable to pay the creditors. Then he would form another corporate in the place of the earlier corporate. The evidence shows that he kept on using On top business name despite having shut down the business. For two years On top was still in the yellow pages, they had a sign board on 614 main building, On Top name was used on his 550 roofing trucks and he also used bid sheet estimates with On Top name on it. Further, he kept representing to callers as if On Top was still operational. He ordered roofing sheets from the plaintiff who was unsecured after On Top was insolvent and the corporate had an outstanding debt of $ 100,000 to other roofing suppliers. These activities are clear evidence to defraud suppliers and misinform callers about On Tops existence and insolvency.

(3) The Control and breach of duty caused injustice to the plaintiff. Russell controlled all decision in the company and kept on acting publically as if the company was still operational after he had gone out of business and he had refused to pay the creditors. His activity was unjust and inequitable as he was trying to hide behind the corporate shield to avoid paying the creditors.

To conclude Russell used The corporation as a shield to avoid paying creditors. The trial court was justified in piercing his corporate veil and to make him personally liable for the debts of the corporation.