Inter-Tel Technologies, Inc. v. Linn Station Properties, LLC
2012 Ky. LEXIS 2
| Ky. | 2012Background
- ITS is a Kentucky corporation wholly owned by Technologies, which is in turn wholly owned by Inter-Tel.
- Linn Station Properties leased the Linn Station Road office to ITS and later obtained a default judgment against ITS for unpaid rent and repairs.
- Technologies acquired ITS by stock purchase on July 2, 1998; ITS became an income-less, asset-less shell under Inter-Tel’s control.
- Inter-Tel and Technologies controlled ITS’s finances, bank accounts, payroll, insurance, vendor payments, and even tax reporting, with assets and income diverted to the parent companies.
- ITS failed to follow corporate formalities (no annual meetings 1999–2002; common directors/officers across ITS, Technologies, and Inter-Tel) and operated as a consolidated family of entities.
- The trial court and Court of Appeals pierced ITS’s veil, holding Inter-Tel and Technologies liable for ITS’s Linn Station debt due to domination and injustice; the default judgment against ITS was enforceable against Inter-Tel and Technologies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court properly pierced ITS’s corporate veil | Linn Station | Inter-Tel/Technologies | Yes; domination plus injustice supported piercing. |
| Whether Linn Station may seek veil-piercing after obtaining a default judgment against ITS | Linn Station sought equity after judgment against ITS | Inter-Tel/Technologies | Yes; equity allows piercing after debtor is judgment-proof. |
| Whether the default judgment against ITS is enforceable against Inter-Tel and Technologies | Judgment should extend to parent/grandparent due to veil-piercing | Not bound as not parties to the judgment | Enforceable; veil piercing renders them liable. |
| What standard and factors govern veil-piercing in Kentucky post-White | Expand beyond White factors | Maintain traditional limits | Adopt broader, equity-based approach; consider extensive factors beyond White. |
Key Cases Cited
- Berkey v. Third Ave. Ry. Co., 244 N.E. 58 (N.Y. 1926) (early veil-piercing driver of instrumentality concept)
- White v. Winchester Land Development Corp., 584 S.W.2d 56 (Ky. App. 1979) (establishes alter ego/instrumentality/equities tests)
- Veterans Service Club v. Sweeney, 252 S.W.2d 25 (Ky. 1952) (piercing as a flexible equitable doctrine to defeat corporate shield)
- Sear-Land Services, Inc. v. Pepper Source, 941 F.2d 519 (7th Cir. 1991) (illustrates 'injustice' beyond mere inability to collect)
- United States v. WRW Corp., 986 F.2d 138 (6th Cir. 1993) (fact-intensive factors including undercapitalization and control)
- Bodenhamer Bldg. Corp. v. Architectural Research Corp., 873 F.2d 109 (6th Cir. 1989) (support for piercing beyond single entity when appropriate)