*1 partial disability benefits reduced injured under statutes when the the 1999
worker cannot returned substantial gainful employment as defined under 65-05.1-01(3) §
N.D.C.C. and does not have a earnings capacity retained to meet 05.1—01(6)(a)(3). We re- 65— verse the district court affirming the order of WSI and remand rein- temporary
statement of Rodenbiker’s total disability benefits. WALLE,
[¶ 30] GERALD W. VANDE C.J., KAPSNER, J., CAROL RONNING S.J., HODNY, WILLIAM F. STEVEN E. McCullough, d.j., concur. E. Honorable STEVEN MCCULLOUGH, D.J., and The HODNY, J.,
Honorable WILLIAM S. SANDSTROM, sitting J., place J., CROTHERS, disqualified.
E. Plaintiffs and
Appellees CHILLEMI, Geri Natwick, Michael Jon Mainland, Inc., a North Dakota cor poration, Inc. d/b/a Company Realtors,
Main and a North corporation, Dakota and Mainland Unlimited, Ventures a North Dakota Partnership, General Defendants and Appellants.
No. 20070006. Supreme Court of North Dakota.
Nov. 2007. Rehearing Denied Dec. *2 president
was the vice secretary Chillemi and Natwick resid- ed with each other partners and are Unlimited, partner- Mainland Ventures *3 ship that property owns commercial and leased space office to Main Realty’s policies [¶ 3] Main office iden- tified designated Chillemi at broker Schweigert (argued), David D. and Kar- Realty Main required and all associates to (on brief), Bucklin, en L. McBride Klemin a sign contract with Chillemi to establish McBride, Bismarck, ND, & for plaintiffs independent contractor Main status. Re- appellees. and alty’s policies provided: office also (argued), Todd D. Kranda Arlen M. Ruff 3. The goal GOAL: of Main and Com- (on (on brief), brief), and Daniel J. Nagle pany, Realtors is to provide good Kelsch, Mandan, Kelsch, Kranda, Ruff & working atmosphere for Realtors who ND, appellants. for defendants and here, provide work and to a tool for the Realtors to earn 100% commis- WALLE, VANDE Chief Justice. sions at least to cost the Realtor. Chillemi, Geri Michael Jon Nat- Inc., Mainland, wick, Realty, Main and Inc.
(collectively Any referred to as “appellants”) agent COMMISSIONS: new Main appealed judgment Company, a district court and can opt Realtors sign piercing to Realty, of Main contract to receive 100% Chillemi, Natwick, holding earned commissions or 70% of earned Mainland jointly severally judgment agents liable commissions. All agree sales Realty, comply Main to voiding with the contract provisions the as- signments they sign. of real listings estate from Main If an agent opts go to Realty contract, to Mainland. on a part they We affirm the 70% commission judgment can stay corporate veil on contract until $5,000.00. part company and reverse debt exceeds At time, imposing agent the sales on Mainland. must either go on a split or transfer to 50%/50% another Company. If an agent opts Chillemi, According to she and to go on the 100% commission con- incorporated individual tract, Real- bill paid their must in full ty purchase the trade name the 10th of the month. There will be Main and Company “every- Realtors and day per late $10.00 fee after the 10th $20,000. thing that in it” for Chillemi of the month. If the paid bill is not testified Main month, “established to the 10th of the the full bill put agents on independent plus contractors late fees will be taken from their (cid:127) estate,” to list and sell real closings since paid until it is If full. agents working number of at Main agent’s pended closing commissions Realty varied from three to fifteen. At are not enough money to cover the bill action, fees, times relevant to this and late the agent stay can was the shareholder, sole president, Company Main and on a REALTORS treasurer of Main and Natwick commission split, agent where 50/50 selling pay to a they mine what will only 50% will be entitled represen- it is a agent, whether seller paid The 50% commission. buyer representative. tative or applied to NOT be company will Company, urges all Main and Realtors bill late fees plus agent[’]s bill. coop- agents get approval seller agent’s in full out paid must be buyer agents. commissions with again erate prior share commissions dis- Company, Realtors also receiving 100% commissions. courages any discrepancy paying All Realtors 8. EXPENSES: n buy- between .differently commissions required to contract will 100% unless it representatives, and seller er fee, all following: Desk *4 way a sell- expressly by stated that is fees, books, dues, listing MLS writing listing in on the contract. er all their advertising expenses, all your listings, you can As owners indi- advertising, all promotional own them, them, etc., transfer, co-list sell all business supplies, vidual office and rent at expenses that all provided Pur- cards, stationary, envelopes, If company paid up-to date. Contracts, Listing chase Agreements, arrears, listings no any charges are in Pads, Signs, Open Handy For Sale to either can transferred fees, Signs, Sign Installation House until Company, to another agent or calls, camera phone long distance are made current. payments in- film, expenses any other Company above the curred over and Main testified [¶4] paragraph Expenses listed salesperson contract” used a “real estate month- EXPENSES: The 9. OFFICE agents,” which said Main with its “sales pay will for the office ly office fee duly estate bro- Realty was a licensed real chairs, rent, secretary office desk and Dakota; parties firm in North kerage FICA, expenses and related such to with North Dakota laws agreed comply Insurance and Unemployment Work- industry; relating to the real estate sales telephones and Compensation, men’s inde- agent was an parties agreed service, MLS office telephone local contractor; agent “shall re- pendent fees, office Real Estate Commission HUNDRED PERCENT ONE ceive and ser- Copy supplies machine fees. commissions, (100%) which any earned Locks, vice, business Supra commissions, by upon receipt earned keys. and office insurance paid over to Sales Realty], shall be [Main fee can be 10. DESK FEE: The desk receiving for Agent” exchange and “[i]n designated broker by raised commissions, to agent agrees sales these rent, secretary only if office Company to” Main monthly expenses rent and pay a major expendi- or another expenses, receiving for Realty; consideration by Company that required ture commissions, agent percent earned at Company. all Realtors benefits Realty per month agreed to Main $600 month, 10th each rent per month effective belong listing was increased listings $650 16. All 2002; was month-to- May contract listing agent can establish agent. by Main terminated month and could be wishes the commission he/she agent pay monthly failed to Compa- Realty if the Main and charge sellers and automatically forfeited rent; agent and the any not standard ny, Realtors will set and immedi- percent agent the 100 commission Each must deter- commission. 842' percent to a if all
ately went commission claims for for commissions paid by rent the 10th of the was sale of the real estate covered those month. listings. The all assignments said com- paid missions would be Mainland The Axtmanns a Main Real- 5] sued closing and Mainland responsi- would be Realty ty agent regarding ble listing for the contract and all aspects purchase May Axtmanns’ a house. signed the transaction. Natwick jury decided Main and the assignments president of Mainland. agent jointly and severally individual were According Chillemi, both Natwick and $75,000, plus for liable to the Axtmanns not pay Realty any Mainland did interest, damages, in economic the individ- assignments consideration of those agent guilty ual of fraud and liable listings subsequently and Chillemi began $45,500 in exemplary the Axtmanns for working agent independent as an con- damages, guilty tractor for Mainland. fraud and liable Axtmanns (cid:127) $19,500 exemplary damages. judg- A May 28, 2004, On Chillemi closed ment was filed in that action on June *5 Realty’s Main bank According account. to Chillemi, she received when she $150.52 Meanwhile, closed the 22, 2004, account and she used that April mon- [¶ 6] the' ey bill, Realty’s May to Main phone a special meeting minutes of of the board 2, which was “around Realty, of of Main On June directors consist- [$]400.” Natwick, signed of of Chillemi and state that statement intent ed agents Realty, had dissolve Main three transferred to other com- North weeks, panies monthly Secretary in the two Dakota of subsequently last State generated involuntarily rent from the issued letter remaining dissolving five Main agents Realty failing was insufficient to cover Main Real- to file an annual ty’s business, report. cost doing of and it was impossible get any agents new to trans- The Axtmanns subsequently lev- fer to Realty. Main A motion carried to ied Realty’s property on Main and ob- Realty dissolve Main and to submit notice tained from a sheriffs of $7.52 sale office landlord, Ventures, to its Mainland equipment apply judgment to their Realty premises. Main would vacate the against Realty. Main The Axtmanns Those minutes also state that Natwick Chillemi, Natwick, Mainland, then sued
would form his company own and transfer Realty, Ventures, Main and Mainland al- his real estate license to that company. leging that after the Axtmanns obtained Realty Main accepted resigna- Natwick’s action, judgment their in prior Chille- tion as president vice and secretary and mi dissolved Main Realty and Natwick in- Chillemi filled vacancies until the those corporated Mainland and the listing corporation was dissolved. agreements and interests real estate 19, 2004, May
[¶ 7] On
Natwick incor-
formerly
commissions
held Main Real-
porated Mainland, Inc. In
ty
documents dat-
were transferred to Mainland for no
21, 2004,.
May
ed between
and June
value.
alleged
The Axtmanns
the trans-
2004, Chillemi,
president
of
agreements
Main Real-
fers of listing
were fraudulent
ty, signed
“assignment[s]
several
of con-
sought
transfers and
a declaration that
listing
tract” for
agents
contracts for
affil- Mainland
successor
interest
with
Realty,
iated
Main
Realty
which Main Main
purposes
collecting
Realty agreed
relinquish
prior judgment
to Mainland
against
Realty,
Main
an
(Minn.1979)), we applied
dissipation of com- N.W.2d
preventing
order
to determine whether
following
to Main the
factors
belonging
and assets
missions
corporate entity
disregard
corpo-
order
veil:
imposing
rate veil Main
and Chillemi
liability on Natwick
capitalization
pur-
for the
insufficient
Realty and Main-
debts of Main
for the
corporate undertaking, fail-
poses of the
formalities,
land.
to observe
ure
dividends, insolvency
nonpayment
trial, the
a bench
district
After
corporation at the time of the
the debtor
Realty’s assignments
court decided
siphoning
question,
transaction
to Mainland were
listing contracts
shareholder,
non-
funds
the dominant
ch.
under N.D.C.C.
transfers
fraudulent
di-
functioning of other officers and
for the
and Mainland was liable
13-02.1
rectors,
records,
absence of
against Main
Axtmanns’
and the existence of the
Realty. The
of Main
as a continuation
dealings.
merely
facade for individual
Realty’s corporate
pierced
court also
necessary prerequi
is not a
Proof of fraud
liability on Chil-
imposed personal
veil
corporate entity,
disregarding
site for
judg-
and Natwick for the Axtmanns’
lemi
injustice,
inequity,
but an element
ment
be present
fundamental unfairness must
may properly pierce
a court
before
II
and that
of unfair
element
appellants argue
district
*6
may
showing
the
ness
be established
corporate
court erred in
requisite
pierc
a number of the
factors for
holding
of Main
corporate
Jablonsky, at 563-
ing the
veil.
Ax-
liable for
personally
Natwick
for
requirement
64. The essence of
judgment
tmanns’
cannot hide
is that
individual
fairness
directors
The officers and
[¶ 12]
consequences
from the normal
carefree
generally
a
are not liable
corporation
through a
by doing so
entrepreneuring
ordinary
corporation.
of a
Jab
debts
corporate
(quoting
shell. Id. at 567
Laba
Klemm,
560, 563
lonsky v.
377 N.W.2d
Black,
F.2d 92,
v.
672
100
die Coal Co.
Skwarok,
(N.D.1985);
v.
335
Hilzendager
(D.C.Cir.1982)).
(N.D.1983).
768,
Organizing a
N.W.2d
774
recog
This Court has also
[¶ 14]
liability is a
corporation
personal
to avoid
piercing the
that the attitude toward
nized
goal
primary
and is one of the
legitimate
in tort than
corporate veil is more flexible
corpo
doing
business in the
advantages
contract,
has an
because the creditor
429
Bryan’s
rate form. Hanewald
voluntary
in a
inherent
element of choice
(N.D.1988).
414,
In
415
Jablon
N.W.2d
the ordi
relationship
contractual
whereas
563, however, this
also said
sky, at
Court
nary tort case forces
debtor-creditor
entity
corporate
notion of a
that when the
relationship
by the oc
upon the creditor
convenience, justify
public
is used to defeat
tort.
Jablon
unexpected
of an
currence
crime,
fraud, or defend
wrong, protect
n. 1. In tort
sky,
at 565-66
377 N.W.2d
as an associa
regards
corporation
law
cases,
is
particular significance
placed
persons.
tion of
is
corporation
undercapitalized,
a
whether
public policy con
an added
Jablonsky,
In
377 which involves
,
individuals
sideration of whether
(quoting
Victoria Elevator
563
Co., Inc.,
public
a risk of loss
Grain
283 transfer
Co. v. Meriden
(5th Cir.1985)).
marginally
that is
name of
We review
district
Jablonsky,
377 N.W.2d at
court’s resolution of the
financed. Id. In
veil is
explained
clearly
sue under the
obligation
this Court
erroneous standard
52(a). Jablonsky,
of N.D.R.Civ.P.
adequate capitalization:
“ ‘
clearly
A
of fact is
finding
if it is
erroneous
obligation
provide adequate
“[t]he
law,
induced
an erroneous
if
view
capital begins
incorporation
with
[risk]
support
finding,
no evidence exists to
continuing obligation
and is a
thereafter
*
*
if,
record,
on the
a reviewing
entire
*.
during
corporation’s opera-
’
court is left
firm
with definite and
convic
Gillespie,
[quoting
tions.”
The Thin
E.g.,
tion
mistake has been made.
Corporate Line: Loss Limited Liabil-
Lovdahl,
Mountrail Bethel Home v.
Protection,
ity
45 N.D.L. Rev.
387-
180, ¶ 11,
Merely
ND
the Jablonsky, financed. marginally that is MARING, J, MARY MUEHLEN recog- n. we 1. As 565-66 concurs. of the essence Jablonsky, in nized CROTHERS, Justice, part concurring is fairness that for requirement the dissenting part. and the normal hide from individual cannot entrepreneur- consequences corporate part of that of the I concur with through corporate reversing shell. district ing by doing majority so the opinion successor liabil- judgment imposing
court’s are not left with def Mainland, Inc., We on the ity on because based court firm conviction the district by parties inite and and used unchallenged law the mistake, court, law misapplied made a and on the by the district based court, Realty’s veil and Main district piercing factual record before the liability and property on Chillemi not the of imposing personal listing contracts were Realty, respectfully therefore conclude Inc.1 I dissent Natwick. We Main Realty’s opinion majority that of the part court’s decision to clearly affirming piercing erroneous. court’s veil not the district conclude, however, corporate veil. This dissent Inc.’s district We further district my conclusion the deciding listing agree is based on court erred controlling application in its court .erred ments had value to law, this case makes of concern Realty Main out assignments from Main rule, Moreover, rather corporate veil land fraudulent transfers. were such, contracts, As this case exception. by than because terms suscep- provide dangerous precedent belonged respec could listing agreements stifling start-up ventures ex- listing agents and were not assets tible tive owners to small business posing is no basis Realty, we conclude there M!ain Legislature’s in- liability beyond the well liability on Mainland as imposing tention.2 continuation Main member, agent manager governor, or other Sandstrom’s concern share Justice by liability company is determined “ownership” listing con- a limited agent's contrary law that states conditions may "[t]he be to law. case tracts court, district issue was not addressed circumstances under party, pierced appeal by may either be under North was not raised on 10-32-29(3). input helpful Curie we have Amicus do not Dakota law...." Therefore, too, liability part- analyze that issue the issue. the shield of limited So pierced left case law ripe nership may and should be under "the for consideration day. the conditions circumstances that states limited veil or under which beyond of a holding case shield
2. The in this reaches law....” pierced North Dakota Corporation Act. under Dakota Business North *10 45-22-09(1). § liability N.D.C.C. Personal of N.D.C.C. ch. 10-19.1. 848 provides Black letter law The corporate may pierced veil not be independent,
corporations legal are enti- absent a showing improper conduct. The principle ties that insulate generally their owners the fiction liability. corporate is to entity applied Mann be with See caution, Mann, great and not precipitately, 57 223 be- N.D. N.W. (1929) (citation omitted). cause there presumption corpo- is a key precept The regularity. rate in properly ordinarily formed and main- is that corporation tained a shareholder’s
liability to the is limited investment general The limiting rule shareholder enterprise. Bryan’s Hanewald v. liability abrogated will be if only apply- (N.D.1988) (citing 1 F. ing fiction would accom- Thompson, O’Neal and R. O’Neal’s Close plish some purpose, fraudulent operate (3rd 1987)). Corporations § 1.09 ed. fraud, aas constructive or defeat some North Legislature’s Dakota most recent strong equitable Although corpo- claim. principle codification of this provides: may rate entities disregarded be where they A holder of or are implement subscriber for shares of a made the for avoid- corporation ing under no clear obligation legislative purpose, is to the will they corporation its be respect disregarded or creditors with not where in con- those deliberately to such have obligation adopted shares other than the trol the cor- corporation to form porate the full consid- order secure its ad- vantages eration of such shares were issued and where no violence to the such, legislative purpose to be issued. As is by treating shareholder done personally liable for entity separate legal the acts or as a corporation. debts of person. A corporate entity may not be disre- § 10-19.1-69. garded simply it because stands as a bar A corporation’s separateness can a litigant’s recovery property;
be circumstances, avoided under limited however, entity the corporate has been major has been explained treatise: disregarded permit the maintenance of piercing doctrine of an action. exception, is the rare applied (2004) 18 Am.Jur.2d Corporations case of exception- fraud or certain other (footnotes omitted). circumstances, al usually and is deter- 30] This long Court has case-by-case mined on a embraced basis. It general rules, these with equitable excep- narrow in nature. The corporate veil tions, succinctly stated as follows: pierced and the shareholder held liable corporation’s conduct There general is no doubt of rule when, alia, inter form authority that a legal is a would otherwise be misused accom- entity and will be considered as such plish wrongful purposes, certain most until there is sufficient cause to consider notably fraud, on the however, shareholder’s be- it otherwise. Corporations, half. It accepted is a limitation on the cannot be used a cover under which principles a wrongs may exists inde- be committed and fraud pendently owners, separate of its as a perpetrated. If corporations sought are legal entity, and that the used as a cover fraud and owners for the debts of wrong, the court will look through the is limited.... form the ascertain
849
the
siphoning
of funds
dom-
question,
intent. Cook
purpose
actual
shareholder, nonfunctioning of oth-
664,
the
inant
contains
follow-
Corporations,
directors,
of
absence
cor-
er officers
ing:
records,
of
and the existence
the
porate
corporation
the
are
of
disabilities
merely a facade for indi-
corporation as
stockholders,
of the
not disabilities
dealings.
vidual
of the stockholders
nor the disabilities
corporation.
of the
the disabilities
Skwarok,
768,
Hilzendager
335
v.
N.W.2d
it is that a
is often
Hence
(N.D.1983) (citing Victoria Elevator
774
fraud.
organized as a cloak for
Such
Co.,
509,
N.W.2d
Co. v. Meriden Grain
283
common,
becoming
are
cases as these
(Minn.1979)).
512
to ignore
are inclined
and the courts
subsequently
This Court
decided
32]
when neces-
corporate
existence
Klemm,
Jablonsky v.
It also held that factors has been element, determining intended delete significant sidered by this long recognized corpo- which has been disregard or not to whether ba court and others as fundamental entity capitali- insufficient rate include: entity. disregarding sis purposes zation for the Schriock, See, Schriock corpo- e.g., [v. undertaking, failure observe (N.D.1964)]. We be formalities, of divi- nonpayment rate injustice, inequi an element of dends, corpora- lieve that insolvency of debtor must be unfairness ty fundamental tion of the transaction time *12 present may project a court properly involving years before six of resi- veil. development the dential condominium million in some sales. Id. at 562. $1.3
While
have concluded that an
we
ele
The district court
that although
“found
ment
in
of unfairness must exist
addition
the
minimum
formalities were
to a
adopted
number of the factors
in
observed, DID
corporation]
[the
in-
Hilzendager, we do not
imply
sufficiently capitalized; DID became tech-
facts upon which the
unfairness
found
nically
year
insolvent within a
incor-
mutually
exist must be
exclusive of
poration;
siphoning
there was ‘some
supporting findings
facts
Hil-
by Klemm;
funds’
the other officers and
zendager factors. The factors enunciat
directors of DID
nonfunctioning;
were
Hilzendager
adopted
ed in
were
from
merely
‘the existence of DID was
Supreme
Minnesota
Court’s decision
”
facade
dealings.’
Klemm’s individual
Co.,
Victoria Elevator
turn
Id. at 563.
adopted those
from
factors
the Fourth
Circuit
of Appeal’s
agreed
34]
Court
decision in
De
Justice Meschke
with the
Brokers[,
majority
Witt Truck
Inc.
Ray
v. W.
was inadequately
Co.],
[681,] capitalized, stating:
Flemming Fruit
540 F.2d
[(4th Cir.1976)].
685-686
The Fourth
capital
The initial
nowas
doubt inade-
Circuit
of Appeals
Court
indicated that
quate for
scope
project
under-
the element of
may
unfairness
be estab
profits
taken.
corpo-
Where
lished
appropriate
under
circumstances
rate venture are insufficient to further
by the
showing of
number
these
capital
venture,
fuel the
needs of the
it is
factors, which,
fitting
picture
“all
into
difficult to
capitalization
view
initial
unfairness,
basic
regarded
has been
meag[er]
this
in relation to the size of
fairly uniformly to constitute a basis for
project
but
anything
insufficient
an imposition
liability
of individual
under
where substantial
liabilities
left.
are
Brokers,
the doctrine.”
DeWitt Truck
the finder of -fact might also
(footnote
supra,
Jablonsky, 377 564. eases:
[¶ 33] Justice specially Meschke con- to insolvency, As the record indicates curred in Jablonsky that, claims, to highlight “the besides these remaining closely balanced nature of the evidence on indebtedness this underlying disregard- factual issues in substantially all owed to Klemm alone. ing the corporate form in my view, this case.” 377 debts the sole stockhold- N.W.2d at Notably, er should not count in cor- in Jablonsky $19,000 was capitalized porate with veil. pursued It the claims case, in this such ently find- were documented action alone which sustain case, support circumstances alone would not In another insolvency here. ing of “facade” or finding “pass-through” class of claims would single claim or *13 a I view fact, corporation. the evidence this necessarily, a of sus- as matter point. barely case as sufficient this insolvency the finding a of when tain case, capitaliza- In with better corpo- a similar near the end of insolvency arises tion, I would years. believe such evidence period a of activity rate over insufficient. Id. Jablonsky, 377 N.W.2d 570-71. Justice ad- Finally, Meschke 36] Justice .[¶ Jablonsky appear Meschke’s warnings corporation extent to which a
dressed the empty noise. to have become See McCul be, per- must and its shareholder sole Swanson, lough N.W.2d be, separate: ceived n (N.D.1976) attorney disciplinary (ignored clearly only It in the context of is noise”). “empty admonitions had become capitalization accom- inadequate that the Here, pierce sought to Axtmanns “fa- and panying findings “siphoning” corporation’s veil because “Chillemi In cade” can be considered sufficient. adequately Realty, capitalize failed to case, might the finder of fact they it could as pay Inc. so debts profit a fair on sever- well conclude that due” and because “Chillemi used became al transactions with Realty, as alter-ego, Inc. her usfed diver- would not lead to inference of a personal as facade for by a stock- corporate funds sole sion and failed to follow for- dealings, where, here, holder, as he particularly malities.” and rent salary drew no officer him The Chief unpaid.
owed to
went
The district
court
concluded
the fact that Klemm
Justice notes that
Corporate
Compa-
Veil of
and
“[t]he
sig-
“siphoned” any funds at all is more
Reality,
ny [Main
Inc.’s trade
is
name]
nificant than the amount involved. That
per-
and
and
are
pierced
Natwick
instances,
in some
but
well
true
sonally liable for the
finding
“siphoning”
here
seems
The conclusion was
Company.”
Main and
the amounts
only
sustainable
because
finding
that “Main and Com-
based on
initial capital
exceed
contributed.
a
which was
pany
corporation,
shell
at the
finding
of underfunded and insolvent
time
sustaining
Our
factual
court’s,
turn,
un-
case should not be
transfer.”
district
“facade”
this
opinion explained that Main
as a rule that a sole stockhold- memorandum
derstood
Company
“pass through” corpo-
cor-
do
with his own
and
er cannot
business
law,
justified holding
nor
ration that
“Chillemi
poration. That
is not
Natwick, the
and the
fur-
sole shareholder
offi-
should it be.
services are
Where
cost,
Company
Main and
indi-
and also
gouging,
nished at
without
cers/directors
documented,
judgment.”3
carefully
they
vidually
liable for
are
appar-
relating
can
imposed personal liability
to whether officers and directors
3. The
court
district
liability
subjected
properly be
officers and di-
on Chillemi
Natwick as
action,
Inc.,
Realty,
or whether
district court
rectors of Main
on Chillemi
plaintiffs
granted
requested
relief not
as the
shareholder. Axtmanns' com-
sole
case,
the facts
I
plaint sought
veil and
in this action. Given
anticipate
strategic,
legal
impose liability only
can
number
the shareholder-Chil-
on.
why appellants
practical
did not
Appellants
any
reasons
lemi.
have not raised
issues
Moreover,
notion
pass-through
of a
who
cash
shareholder
lets
ac
being
per
either
se
bad or
cumulate in an S
will have a
inequity
misplaced.
is
determinative of
tax
on income received
will not
but
entity
num
used
liability.4
have
tax
cash
there
usually
but
ber of reasons
related
clearly
fore believe the district court
erred
liability of the
limited
owner. Such is
pierced
when it
veil based on
recognized
legitimate
reason for creat
its conclusions Main.
was a
Hane
ing
maintaining
corporation.
“pass through”
corporation.
or “shell”
wald, 415-16. Further
*14
more,
To
Realty, Inc.,
separate
the extent it
was
Subchapter
was
corporation
consideration,
under the
S
Internal Revenue
I also believe the district
Subchapter
Code.
S treatment
allows
finding
Inc.,
Main Realty,
court’s
that
closely
corporations meeting
held
certain
undercapitalized is
on an
based
incorrect
pass
through
criteria to
their income
to the
application of the law. The district court
individual shareholders similar to a part
stated in its
opinion
memorandum
nership.
Thus,
§
26 U.S.C.
share
“Main and Company
undercapitalized
corporations
holders in S
pay individual
and could
not
obviously
pay its debts.”
pro
income tax on their
share
rata
of cor This view of the
would
law
hold sharehold-
income,
porate
and the
corporation as
ers of
failing
liable for the
Id.
separate entity pays no
tax.
As
company’s debts.
result,
corporate
under both
law and tax
A
application
law,
correct
of the law
corporations
S
such Main Realty,
Inc.,
requires
are
designed
pass
corporations’
income
examination
through
formation. J-
capitalization
owner-shareholder.
the time
dis,
only
(N.D.1986).”).
raise these issues on appeal, and.
mention
'
liability
party
director
to third
can or should
§§
10-19.1-85.1 and 10-19.1-86.
accomplished by
be
directly
an action
based
question
whether officer or di
activity.
on officer or director
See Wills v.
liability
by piercing
rector
can be established
Aviation, Inc.,
544,
Schroeder
390 N.W.2d
547
See,
corporate
e.g.,
veil.
v.
Huffman
(N.D. 1986) ("An
personally
individual is
re
43,
Poore,
549,
Neb.App.
6
569 N.W.2d
557
sponsible
injury
'for an
occasioned to another
(officer
(1997)
and director
estab
by
ordinary
his want of
or
care
skill in the
proof
requirement
lished on
of tort and no
management
property
person.’
of his
Sec
corporate
pierced).
Hilzendager
veil be
v.
Cf.
9-10-06,
tion
N.D.C.C. It is well settled that
Skwarok,
768,
(N.D. 1983)
335 N.W.2d
775
corporate agent
‘[a]
cannot shield himself
(veil pierced to
former
hold
officers and di
personal liability
personally
for a
he
tort
debt).
personally
rectors
liable for
participates
hiding
commits or
behind
corporate entity;
if he is shown to have
4. Another
factor for
acting
corporation,
corpora
been
for the
pay
is whether the
has failed to
liable,
tion also
but the individual is
Graphic
dividends. The
court
Trustees of
thereby
responsibility.
not
relieved of his own
Bjorkedal,
Commc’n Int’l
v.
Union
No. 04-
Blacketer,
Oxmans’
Meat
Erwin
Co. v.
86
3371,
3511767,
(D.Minn.
2006 WL
at *14
683,
285,
(1979).
Wis.2d
273
289
6, 2006)
Dec.
noted that “it is
rare
small
3-04-02(3), N.D.C.C.;
§
Accord
Reule v. Bis
closely-held corporations
pay
dividends be
Dist.,
32,
marck Public School
376 N.W.2d
33
payments
(N.D.1985);
cause such
would in effect be dou
Ry.
Schlosser v. Great Northern
Co.,
corporation]
....
ble-taxed
The fact that
(1910).
[the
20
127
N.D.
N.W.
504
Fletcher,
pay
did
only
not
dividends shows
Cyclopedia
See also 3A
its
of the Law of
smart,
(1986);
corporation]
Corporations
Private
officers were
not that [the
18B Am.
(1985);
Corporations
Bagge
Jur.2d
...
v.
was a
Dar
facade.”
Here,
only
debt owed was to
FAC,
F.2d
v.
R Grain Co.
Cir.1980)
supplies
for office
(8th
the sole shareholder
measured
(capitalization
charged
her
equipment obtained
formation;
during opera
losses suffered
card. The district court was
her credit
undercapital-
do make
tion
not
Ross,
clearly
corporation’s
concerned about
ized)
Elec. Co.
Kansas Gas &
stated, “it
(S.D.1994) (same). debt owed to Chillemi and
could
107, 115
521 N.W.2d
upon
normal debts
relied
not
and.
might
appropriate
it
the extent
ever
To
operate.”
credit
Chillemi’s
con
going
of a
capitalization
to examine
obligation
that credit card
is exclud-
When
cern,
Meschke’s
look to Justice
we should
ed,
that owed
only remaining
debt is
profits
Jablonsky
that “[w]here
words
Axtmanns —which
substantial —but
are insufficient
from the
venture
ordinary
which was
incurred
capital needs of the
to further
fuel the
and which should not
course of business
venture,
to view an initial
it is difficult
have
used
determine whether the
been
in relation to
meag[er]
capitalization
sufficiently capitalized.
corporation is
anything
but
project
the size of
*15
liabilities are
insufficient where substantial
twenty years, income from
For
[¶ 44]
left.”
value to I majority 54] dissent from the hold- [¶ that the ing listing agreements belonged to broker was Main 49] respective agent listing and had no law, of North Inc. As a matter Dakota Realty. Although listing value to Main listing contracts are contracts between the agents separate had contractual agree- property owner of the listed bro- agent ments that allowed the “own” and ker. ch. See N.D.C.C. 43-23. Under stat- listing to transfer agreements, these contract, it listing ute and under the is the agreements were themselves with Main broker who entitled to the com- receive Realty. The trial agree- court found the 43-23-06.1(8); § mission. See N.D.C.C. ments had value because their existence Powell, on Richard R. Powell Real Realty receiving basis for Main (Michael ed., Property § A. Wolf 84C.01[1] rent or either commissions. This is not 2000). obligation broker clearly finding. erroneous some or all salesperson of the commis- indepen- sion received the broker is an Listing necessary contracts were dent apparently obligation. unsecured to conduct the business of Main ¶¶ 43-23-06.1(10); § See majority Powell opinion, See 19 and Property Real 84C.01[2]. Those contracts were transferred without *16 consideration a time when the corpora- listing Because the [¶ 50] contracts are tion was Insolvency, insolvent. as found broker, an plaintiffs asset of the both here court, by the trial inability related salespersons potential have a claim ongoing debts The their value. transfer of the to the judg- existence of Axtmann undercapitalized, asset insolvent bro- ment, which was entered close time to fraudulent, company ker as the dis- being the contracts transferred. The trial carefully trict analyzed court under the found court were transfers made with Act, Uniform Fraudulent Transfer hinder, actual delay intent to de- or N.D.C.C. ch. 13-02.1. fraud Axtmanns. This finding is regulation The 51] of real estate clearly Therefore, erroneous. I dissent salespeople by brokers and the states is an holding from the transfers police power protect exercise of their “to Mainland were not fraudulent. The fraud- public fraud misrepresenta- permit ulent transfers the creditor to fol- tions of incompetent persons.” dishonest or wrongfully low the transferred into assets 84C.02[1], 15 Property § Powell on Real the hands of the transferee. Fraudulent regulatory system Our and the Fraudulent transfers, however, only would allow the Transfer Act reflect correctness of the Axtmanns to listing agreements reach the analysis. district court’s fraudulently or proceeds. transferred their V. [¶ 52] Dale Sandstrom § 13-02.1-07. The trial court
properly remedy. ordered this KAPSNER, Justice, concurring in part majority [¶ 56] The does not discuss
and dissenting part. independent basis considered majority concur with the hold- trial court imposing liability upon ing that affirms veil Mainland for judg- the full amount of the Rather, The successor will [¶ 59] Axtmanns. ment owed selling com for the debts of the be liable independent blends this majority opinion continuation of the1 when it is a mere pany fraudulent analysis of basis with 7123, Fletcher at 68- selling company. analysis is dis- each transfers. See, e.g., Keller Clark (Supp.2007). quite resulting tinct and (8th Co., 1280, 715 F.2d 1291-92 Equip. different. Assocs., Cir.1983); Island Ltd. v. 300 Pine acknowledges the The trial court Assocs., P.A., L. & 547 So.2d Steven Cohen corporation is that a successor general rule v. Di (Fla.App.1989); 255-56 Jackson predecessor debts of the not liable for the Co., Trucking N.J.Super. amond T. has been because there corporation simply (L.Div.1968). 241 A.2d Bath & transfer of assets. Weeda’s analyzed the five factors applied trial court Adams, 347 N.W.2d Shop v. Kitchen liability: impose in Jackson to successor (N.D.1984). However, as noted 118, 121 (2) (1) transfer of assets Weeda’s: (3) adequate consideration less than are, however, well-recognized four There continued the which rule under general exceptions (4) operation of the transferor business on a liability may imposed one corporations had least when both corporation: purchasing officer or director who was in common im- express there is an or 1. Where ... in the transfer fact instrumental to assume the transfer- plied agreement (5) rendered the transferor the transfer liabilities; or’s claims paying its creditors’ incapable of amounts to the transaction 2. Where fact or it dissolved either because was merger of the two a consolidation law. corporations; Jackson, at 477. the transferee 3. Where trial court found each of the transfer- merely a continuation of the *17 applied five factors announced Jackson or corporation; .Thus, case. the trans- to the facts of this attempt transaction is an 4. The Mainland, a continuation corporation, feree corporation. of the defraud the creditors corporation, the transferor Cincinnati, Inc., F.2d v. 565 Leannais of Main is liable for the entire debt (7th Cir.1977); Cyr v. B. & 437 Offen I affirm this Axtmanns. would (1st Cir.1974). Co., Inc., 1145 501 F.2d holding of the trial court. recognized been exception A further has I share Justice Crothers’ would pur- of a some of the elements where manner in which underca- for the concerns Cyr v. good faith are absent. chaser in this case and analyzed pitalization Inc., Co., supra 501 F.2d B. &Offen na- pass-through application for the independent an ture of Weeda’s, at 121. support piercing factor to corporation. ongoing veil if this were exceptions The four have been corpora- was an insolvent Meade recognized, 15 William generally formed a and directors Fletcher, tion whose officers Cyclopedia Corporations operations of (Perm. 1999), the essential though rarely plan continue ed. at 218-55 Mach., a different shell Weeda’s, 121; under Mitchell applied. debt. The Holland, paying 918 F.2d without v. Ford New Inc. Cir.1990). made (8th corporate assets was transfer of the 1366, 1370-71 856 officers, shareholder, di- injus- consideration. The sole those elements of
without rectors, shareholder thus “si- tice, and sole inequity, or fundamental unfairness the assets of a phoned off’ Klemm, present. Jablonsky are them to continue business under allow (N.D.1985). join N.W.2d their benefit. Pierc- new shell to majority holding piercing under such circum- ing appropriate making veil and per- Natwick Skwarok, Hilzendager v. stances. sonally liable for the debt to Ax- owed (N.D.1983). 768, 774-75 Under tmanns. circumstances, sufficient evidence these Ronning Kapsner [¶ 62] Carol entity legal being find the used exists to convenience, justify public to defeat
wrong, protect fraud. Schriock v. (N.D.1964).
Schriock, 128 N.W.2d majority, As noted factors support piercing heavily fact-specific, are
and where there are fraudulent transfers officers, directors, that benefit