354 P.3d 215
Utah Ct. App.2015Background
- Simons contracted with Neil H. Sorensen Construction Co. (NSC) to build a house for a fixed-price "cost plus fixed profit" arrangement; she paid ~$404,000 but defects and water/mold required $74,000 in repairs.
- NSC is solely owned and operated by Doug N. Sorensen; Sorensen is also a member/manager of Park City RV Resort, LLC (PCRV).
- Simons sued NSC, Sorensen, and PCRV asserting breach of contract, alter ego (piercing LLC/corporate veil), and unjust enrichment among other claims.
- District court granted summary judgment to defendants on alter ego and to Sorensen individually on unjust enrichment; Simons obtained a default/judgment against NSC on contract claims for $269,285 after NSC failed to defend.
- On appeal, Simons argued there were genuine factual disputes showing (1) unity of interest/ownership and other Colman factors (undercapitalization, siphoning, poor records) supporting alter ego, and (2) that Sorensen was unjustly enriched by ~ $100,000 overpayments.
- The appellate court affirmed, finding Simons failed to present evidence creating a genuine dispute on the Norman/Colman alter ego elements or to show Sorensen personally received an unjust benefit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether corporate veil/LLC veil may be pierced (alter ego) | Simons: NSC/PCRV were alter egos of Sorensen based on Colman factors (undercapitalization, failure to observe formalities, siphoning funds, inadequate records) | Defendants: No genuine material fact shows unity of interest or the Colman factors; corporate form observed; payments went to NSC, not Sorensen | Affirmed: summary judgment for Defendants — Simons failed to raise material factual disputes on Norman/Colman elements |
| Whether Sorensen was personally unjustly enriched | Simons: Sorensen indirectly received ~ $100,000 (difference between payments and accounted expenditures) and other transfers (loans, payments) | Sorensen: All contract payments went to NSC; no evidence he personally received an inequitable windfall | Affirmed: summary judgment for Sorensen — no evidence Sorensen personally received an unjust benefit |
| Adequacy of evidence to show undercapitalization | Simons: NSC’s insolvency and single-owner structure imply undercapitalization | Defendants: Plaintiff must show capital relative to business/obligations; mere insolvency or single ownership insufficient | Held: Insufficient evidence; plaintiff did not show what adequate capitalization would be or present capital/profit/liability figures |
| Whether withdrawals/loans from NSC show siphoning of funds | Simons: $50,000 loan and other transfers show siphoning and misuse | Defendants: Withdrawals can have legitimate explanations (salary, loans); plaintiff provided no proof withdrawals were illegitimate or unaccounted | Held: Insufficient; plaintiff failed to show withdrawals were improper or unaccounted for |
Key Cases Cited
- Norman v. Murray First Thrift & Loan Co., 596 P.2d 1028 (Utah 1979) (establishes two-part test for piercing corporate veil: formalities and fairness)
- Colman v. Colman, 743 P.2d 782 (Utah Ct. App. 1987) (identifies Colman factors relevant to formalities/undercapitalization analysis)
- Lodges at Bear Hollow Condo. Homeowners Ass’n v. Bear Hollow Restoration, LLC, 344 P.3d 145 (Utah Ct. App. 2015) (discusses Norman/Colman tests and courts’ reluctance to pierce veil)
- Jones & Trevor Mktg., Inc. v. Lowry, 284 P.3d 630 (Utah 2012) (withdrawals from corporate accounts may be legitimate; insolvency alone insufficient to pierce veil)
- Orvis v. Johnson, 177 P.3d 600 (Utah 2008) (summary judgment standard and burden when opposing party has trial burden)
- Richards v. Brown, 222 P.3d 69 (Utah Ct. App. 2009) (elements of unjust enrichment: benefit to defendant and inequity of retention)