CBR Event Decorators, Inc., Gregory Rankin, Robert Cochrane and John Bales v. Todd M. Gates
962 N.E.2d 1276
Ind. Ct. App.2012Background
- Gates loaned money to MCS Decorators, Inc., facing roughly $700,000 due with interest.
- MCS assets were foreclosed via replevin, prompting Altman and investors (Rankin, Bales, Cochrane) to plan a corporate buy of MCS assets.
- CBR Event Decorators, Inc. was formed as the corporate buyer; Rankin signed the purchase agreement on CBR’s behalf and a $100,000 down payment was deposited from Altman’s escrow account.
- Merger clause stated the purchase agreement was the entire agreement with no outside representations; after closing, shareholders learned of alleged misrepresentations by Gates about MCS.
- Shareholders withdrew $100,000 from Altman’s trust account the day after closing; Gates sought damages for breach and requested veil piercing to impose personal liability.
- Trial court pierced the corporate veil, finding undercapitalization, lack of records, and fraudulent representations to justify exposing shareholders to liability; Gates awarded substantial judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Gates prove misuse of the corporate form caused fraud or injustice? | Gates asserts the eight factors show misuse that caused fraud/injustice. | Shareholders contend no causal link between misuse and fraud/injustice; claims do not flow from corporate form. | No; causal link lacking; veil not pierced. |
| Does alleged misrepresentation outside the merger clause justify piercing due to misuse of the corporate form? | Gates argues misrepresentations outside the contract show misuse causing injustice. | Shareholders argue such misrepresentations do not arise from corporate form misuse. | No; misrepresentation not tied to corporate form misuse; no injustice flowing from misuse. |
Key Cases Cited
- Escobedo v. BHM Health Assocs., Inc., 818 N.E.2d 930 (Ind. 2004) (elements for piercing require misuse plus fraud/injustice)
- Hart v. Steel Prods., 666 N.E.2d 1270 (Ind. Ct. App. 1996) (causal link when corporate misrepresentation impacts plaintiffs)
- Fairfield Development, Inc. v. Georgetown Woods Senior Apartments Ltd. Partnership, 768 N.E.2d 463 (Ind. Ct. App. 2002) (alter ego evidence of misuse linked to corporate identity)
- Longhi v. Mazzoni, 914 N.E.2d 834 (Ind. Ct. App. 2009) (causal connection when misuse of form used to raise capital)
- Massey v. Conseco Servs., L.L.C., 879 N.E.2d 605 (Ind. Ct. App. 2008) (requires evidence of misuse causing fraud/injustice, not merely breach)
- N.L.R.B. v. Greater Kansas City Roofing, 2 F.3d 1047 (10th Cir. 1993) (misuse-based inequity must flow from corporate-form misuse)