2019 COA 41
Colo. Ct. App.2019Background
- The Liquor Barn is a closely held family corporation. Gary Tisch controlled all voting shares; his siblings (Daniel and Eva) each held nonvoting 10% interests.
- Plaintiffs (the Tisch siblings) sued individually and derivatively claiming Gary diverted corporate profits to himself and other businesses, alleging civil theft and breach of fiduciary duty, among other claims.
- An accountant for plaintiffs opined that corporate records showed large undocumented transfers and that Gary received $600,000–$1.1 million beyond salary; plaintiffs sought their 20% share of diverted profits.
- The trial court found Gary and the corporation to be alter egos and submitted issues of whether transfers constituted undistributed "distributions" to the jury; Gary’s accounting expert was excluded for altering records.
- The jury found Gary committed civil theft and breached fiduciary duties, awarding the siblings $300,000 (civil theft) and $150,000 (breach); court trebled the civil theft award to $900,000, awarded costs and attorney fees, and entered judgment against Gary and the Liquor Barn.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether undistributed corporate profits used by controlling shareholder can be treated as "distributions" | Tisch: Transfers of profits for Gary's personal/other-business use are effectively distributions to which minority shareholders are entitled a pro rata share | Gary: No formal dividend was declared; he had sole discretion to distribute and thus no shareholder property interest arose | Court: Question of fact for jury; payments may be recharacterized as distributions even if not formally declared; jury verdict affirmed |
| Whether minority shareholders have a proprietary interest in undeclared distributions supporting an individual civil theft claim | Tisch: Minority shareholders hold a proprietary interest in their share of profits/distributions and may sue individually for theft | Gary: Without a declared dividend, no present proprietary right exists and civil theft claim fails | Court: Minority shareholders can have a proprietary interest in undeclared distributions; individual civil theft claim viable; affirmed |
| Piercing corporate veil / alter ego and reverse-piercing | Tisch: Piercing appropriate because Gary commingled funds, disregarded formalities, and used corporate form to defeat rightful claims | Gary: Court erred; inside reverse veil-piercing improper and prejudicial to creditors | Court: Sufficient factual support to find alter ego and to pierce the veil in equity; reverse-piercing argument not preserved; alter ego finding affirmed |
| Statute of limitations and treble damages timing | Tisch: Claims timely; plaintiffs lacked knowledge of mismanagement until accountant review | Gary: Prior inspection requests/letters put siblings on notice; treble damages barred by one-year limitations for penal statutes | Court: Gary failed to prove plaintiffs knew or should have known earlier; directed verdict on SOL defense proper; trebling under civil theft statute allowed; affirmed |
Key Cases Cited
- People v. Shreck, 22 P.3d 68 (Colo. 2001) (procedure for reliability hearing for expert testimony)
- Micciche v. Billings, 727 P.2d 367 (Colo. 1986) (corporation is separate legal entity)
- In re Phillips, 139 P.3d 639 (Colo. 2006) (framework for piercing and reverse-piercing corporate veil)
- Erdman v. Yolles, 233 N.W.2d 667 (Mich. Ct. App. 1975) (payments characterized as dividends despite different labels; minority shareholder recovery)
- Lengsfield v. Commissioner, 241 F.2d 508 (5th Cir. 1957) (question of fact whether payments are distributions absent formal declaration)
- Murphy v. Country House, Inc., 349 N.W.2d 289 (Minn. Ct. App. 1984) (bonuses to select shareholders may constitute dividends to all)
- Cowin v. Bresler, 741 F.2d 410 (D.C. Cir. 1984) (wrongful withholding of dividends gives rise to individual action)