Brown v. Knowles
307 P.3d 915
| Alaska | 2013Background
- Knowles worked for International Steel (a closely held company run by Ed Brown) under an oral bonus agreement; he received a $100,000 bonus in 2002 but claimed an additional $62,311 remained unpaid.
- Knowles sued International Steel and Brown in Alaska superior court in January 2005 for unpaid bonus, AWHA overtime, and related claims; International Steel filed Chapter 11 the next day.
- Knowles filed a proof of claim in bankruptcy, got nothing under the confirmed plan, then withdrew that claim; the bankruptcy case was later dismissed after plan confirmation.
- Knowles amended to add an alter-ego / veil-piercing claim against Brown and International Steel was dismissed from the state suit; the jury found International Steel was Brown’s mere instrumentality and awarded unpaid bonus; the superior court then computed AWHA overtime, liquidated damages, attorney’s fees, and interest.
- The central legal dispute: whether Knowles’s veil-piercing claim was property of International Steel’s bankruptcy estate (thus subject to the trustee’s exclusive standing and bankruptcy protections), and whether state-court veil-piercing and AWHA awards were allowable after the corporate bankruptcy.
Issues
| Issue | Plaintiff's Argument (Knowles) | Defendant's Argument (Brown) | Held |
|---|---|---|---|
| Whether Knowles’s veil-piercing claim became property of the debtor’s bankruptcy estate | The claim alleges direct injury to Knowles (a creditor), not to International Steel; thus it did not belong to the estate and could proceed in state court | The veil-piercing claim could have been asserted by the corporation (it is an alter-ego theory affecting corporate rights), so it became estate property and is barred or controlled by bankruptcy | Court: Claim alleged no injury to the corporation on its face, so it was the creditor’s personal claim and did not become property of the estate; state suit against Brown could proceed |
| Whether a bankruptcy trustee/debtor-in-possession may prosecute creditors’ alter-ego claims absent estate ownership | Trustee cannot generally sue on behalf of creditors; only claims held by the debtor belong to the estate | Brown argued trustee would have exclusive standing and allowing suit outside bankruptcy undermines Chapter 11 distribution scheme | Court: Under Ninth Circuit precedent, trustee lacks standing to assert claims that allege only creditor injury; thus trustee could not have enforced Knowles’s personal claim |
| Effect of corporate discharge/confirmation on creditor’s ability to pierce veil and hold insider liable | Discharge of corporation’s debts does not prevent a state court from establishing the corporation owed a debt for the limited purpose of imposing alter-ego liability on an insider | Brown contended discharge and bankruptcy protections should bar post-confirmation state actions that reach non-debtors like him | Court: Discharge protects the debtor only; it does not extend to non-debtors; permitting suit against Brown does not improperly grant bankruptcy benefits to a non-debtor |
| AWHA overtime statute of limitations and post-verdict calculation of overtime/fees | Bonus-related overtime accrues when the bonus becomes due (after accounting); superior court could calculate overtime and AWHA penalties post-verdict; Knowles entitled to overtime, liquidated damages, fees | Brown argued AWHA claims were time-barred and that the court improperly amended or added to the jury’s factual findings when computing overtime and penalties | Court: AWHA overtime did not accrue until bonus was finally determinable; claims were timely. Brown waived jury-trial objections on overtime calculation and had agreed judge could resolve post-verdict AWHA calculations; attorney-fee award was within discretion |
Key Cases Cited
- Smith v. Arthur Andersen LLP, 421 F.3d 989 (9th Cir. 2005) (trustee may only assert claims that redress injury to the debtor itself)
- Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972) (trustee lacks power to sue on behalf of individual creditors)
- In re Educators Group Health Trust, 25 F.3d 1281 (5th Cir. 1994) (distinguishing claims that belong to the estate from those belonging to individual creditors based on whether injury runs to the debtor)
- Uchitel Co. v. Tel. Co., 646 P.2d 229 (Alaska 1982) (Alaska factors/test for ‘‘mere instrumentality’’ / alter-ego veil-piercing)
- L.D.G., Inc. v. Brown, 211 P.3d 1110 (Alaska 2009) (reiterating Alaska veil-piercing principles and disjunctive tests for misconduct or mere instrumentality)