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).