Monthly Archives: January 2014

Veil Piercing for Disproportionate Discharge of Duties–APAC-Missouri, Inc. v. Boyer

APAC-Missouri, Inc. v. Boyer, 2013 WL 5819548 (Mo. App. S.D. 2013), involves veil piercing.  I’m not sure it’s correct.

The background:  A customer engaged a contractor to build an asphalt driveway for $4 thousand, and paid the contractor.  The contractor obtained the asphalt on credit and failed to pay.  The customer did not obtain a lien waiver.  The supplier field a lien notice incorrectly identifying the subject land and the amount owed.  The customers filed an answer and a counterclaim for slander of title.  The supplier offered to dismiss the claim against the customer if it would dismiss the counter-claim.  The customer refused (seeking an additional $27,500, multiplying the actual cost of defending the lawsuit by 5.5 for not-well-substantiated reasons)–which turned-out to be a poor choice.

The lawsuit proceeded, which included a cross-claim for indemnification by the customer against both the contractor and, on a theory of veil piercing, its owner.  A bench trial awarded the supplier $1,800 for the asphalt and $5,300 in attorney fees–a judgment against both the customer and the contractor.  In addition, the trial court found for the customer in its cross-claim against the contractor and pierced its veil, making the owner responsible (for the $7,100).

The contractor’s brief makes the thoughtful argument that perhaps it should not be responsible where the supplier offered to dismiss the claim against the customer.  The circumstances might be in the nature of a bad-faith failure to deal with the settlement offer.  Assessment of that matter is sufficiently fact-specific that this author is not inclined to examine it further.

Of interest here is the basis for piercing the corporate veil.  The court quotes typical elements, such as

  • control constituting complete domination …;
  • used to commit fraud or wrong or perpetuate the violation of a statutory duty, or a dishonest and unjust act; and
  • proximate causation.

The primary basis for piercing is evidently that the contractor engaged counsel to defend the claim against the control person, but did not, as contemplated by Mo. Stat. Ann. 429.140,  engage counsel to defend the customer, claiming the corporation did not have money to do so.  The trial court evidently did not believe the claim.  The control person’s brief asserts no evidence was introduced that counsel for the contractor had been paid.  The brief makes the reasonably persuasive argument that lack of evidence on the point should not, one would think, allow a trial court to conclude contractor’s counsel had in fact been paid.

There formerly was a doctrine–the “trust fund doctrine”–under which directors of an insolvent firm were treated as trustees for the creditors.  And, were the payment made while insolvent to support counsel for a control person without defending the customer, there might be an issue of equitable subordination.  However, it is not clear this should be a basis for veil piercing.

Would that circumstance, then, be sufficient to pierce the corporate veil for all creditors, or is the court formulating creditor-specific veil piercing?

There were some other factors supporting piercing, such as the failure to follow formalities (lack of meetings and the like).

Settlement as Substituted Contract or Accord–Lane House Construction

Lane House Construction, Inc. v. Ogrowsky, 2013 WL 5775046 (Mo. App. E.D.), presents the question whether a settlement, in the form of a promise to pay a sum, operates as an accord or a substituted contract.  The important distinction here is that if the payment is not made:

  • If the settlement is an accord, the failure to satisfy the accord allows the party owed payment to sue on the original obligation.
  • If the settlement produces a substituted contract, the failure to perform the substituted contract does not allow the payee to seek recovery under the original contract.

See Restatement (Second) of Contracts §§ 279, 281.

In a dispute concerning installation of a roof, the parties apparently agreed to settle the dispute with the homeowner to pay a portion of the amount sought by the contractor.  There was it appears not payment under the settlement.  So, the question, of course, is whether the settlement was for a substituted contract or an accord.

Appellant’s (customer’s) brief recites:

The case was set for a bench trial on May 3, 2012. On that day, May 3, 2012, Plaintiff Lane House Construction and Defendant Ogrowsky met at the courthouse and after some discussion, it was agreed that Defendant would pay Plaintiff $2,000.00 and the lawsuit would be settled. LF 64. Accordingly, the parties announced that the matter could be passed for settlement. LF 14. The “passed for settlement Order” was signed by the attorneys for Plaintiff Lane House and Defendant Ogrowsky, endorsed by the Judge in Division 42W, and filed by the Clerk. Id.

Plaintiff Lane House and Defendant Ogrowsky, through their attorneys, agreed to ask for a continuance from the May 11, 2012 date the Court set for disposition of the lawsuit. LF 15-16, 64. There also were discussions about the contents of a settlement agreement or release; whether or not a mutual dismissal with prejudice would serve as a complete and adequate settlement agreement; and whether Defendant Ogrowsky would pay the $2,000.00 before or after the fully-executed mutual dismissal with prejudice would be filed with the Court. Id. There is no record that the May 11, 2012 court date was continued or that any appearance was made on that day. In any event, the trial court dismissed all claims for failure to prosecute June 4, 2012, on its own motion. LF 17.

The appellant references Wenneker v. Frager, 448 S.W.2d 932 (Mo. App. 1969), which states:

These two cases lead us to conclude that an open court agreement to settle a pending lawsuit, accompanied by a stipulation that the cause be passed for settlement, terminates the cause of action and creates a new obligation warranting a judgment in accordance with the terms of settlement. In Farmer v. Arnold, Mo., 371 S.W.2d 265(3) the court said ‘a compromise and settlement ‘operates as a merger of, and bars all right to recover on, the claim or right of action included therein“, citing 11 Am.Jur., Compromise and Settlement, ss 23—24, p. 271.

On the other hand, the contractor, now seeking to recover on the original contract, references assorted authority treating the settlement as an accord.

A Question of Interpretation

More after the break ….

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Keeping Contract Benefits Without Ratification? American Burglary & Fire, Inc. v. Aspect Software, Inc.

Here we have an interesting argument:

Does ratification arise from acceptance of benefits under a contract, and performing duties under a contract, where the putatively ratifying party is not aware of all the terms?

American Burglary & Fire, Inc. v. Aspect Software, Inc. (E.D. Mo. No. 99472), involves a contract to monitor fire and burglar alarm system.  Pertinent facts referenced in the respondent’s (Aspect’s) brief may be summarized:

Evidently ABF had installed a system on buildings owned by Quilogy. Aspect acquired the buildings “as part of a merger transaction” in January 2010.  Contracts dated May 2010 concerning ongoing monitoring at the building were signed by ABF and, purportedly on behalf of Aspect by one Buxton, who had been an employee of Quilogy but had no authority to act on behalf of Aspect.

Buxton was described in appellant’s brief as one who had been the “building supervisor at Quilogy”.  Appellant’s brief goes on to note:

According to the testimony of Bob Nagy, corporate controller for ABF, ABF sent over salesman Greg King to execute a new sales contract with Aspect.  Larry Buxton, the building supervisor at Quilogy, signed the original contract with ABF.  When Mr. King went to Aspect to execute a new sales contract, Larry Buxton was on site and signed the contracts dated May 27, 2010, for the monitoring and servicing of Aspect’s businesses….  Gene Butcher, [Aspect’s] witness, admitted to being present for the signing of the ABF contracts and asking that the billing be changed to Aspect Software and not Quilogy.

It appears Aspect used the services from ABF until some time during or after August 2010.  Respondent’s brief notes that in 2010, “Aspect had a Hirsch Electronics’ alarm system installed … and, at that time, stopped using the ABF alarm system and started paying Hirsch Electronics for its alarm monitoring services.”  The brief indicates payments to ABF continued until May 2011, but then discontinued payments.

One could examine the issue of apparent authority.  One of this author’s favorite illustrations of apparent authority is referenced in Kanelles v. Locke, 1919 WL 922 (Ohio App) (quoting Curtis v. Murphy, 22 N.W. 825 (Wisc. 1885):

A traveler who goes to a hotel at night and finds a clerk in charge of the office, assigning rooms, etc., has the right to assume that such clerk represents the proprietor and has authority to take charge of money which may be handed him for safe-keeping.

It would seem clearly not thoughtful to maintain on-premises one who had formerly made arrangements for the owner and not clarify to those with whom the former agent had contracted the termination of authority.  The analogy is not putting some new, unauthorized person behind the counter at the hotel.  It’s change of ownership of the hotel, allowing the clerk to stay behind the counter but claiming the clerk’s authority has terminated.

Ratification

But we will turn to the examination of ratification, discussed in only cursory terms by respondent.  Here is the part of respondent Aspect’s brief concerning whether it ratified the contract:

More after the break …

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