Depositors Insurance Company v. Hall's Restaurant, Inc.
Filing
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MEMORANDUM AND ORDER re: 100 MOTION for Relief to file Motion to Pierce the Corporate Veil of Defendant Hall's Restaurant, Inc. filed by Plaintiff Depositors Insurance Company. IT IS HEREBY ORDERED that plaintiff's motion to pierce the corporate veil is GRANTED. IT IS FURTHER ORDERED that plaintiff shall file a proposed judgment with the Court no later than June 9, 2017. Signed by District Judge Stephen N. Limbaugh, Jr on 6/2/17. (CSG)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
SOUTHEASTERN DIVISION
DEPOSITORS INSURANCE COMPANY,
Plaintiff,
v.
HALL’S RESTAURANT, INC.,
Defendant.
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Case No. 1:14CV34 SNLJ
MEMORANDUM AND ORDER
Plaintiff Depositors Insurance Company filed this action seeking a judicial
determination of whether defendant Hall’s Restaurant, Inc. was entitled to insurance
coverage under a fire loss policy issued by plaintiff. On May 7, 2014, a jury verdict was
returned in favor of plaintiff. On July 1, 2014, this Court granted plaintiff’s motion for
attorneys’ fees and expenses incurred by plaintiff in prosecuting this lawsuit. Defendant
has not paid plaintiff the attorneys’ fees and expenses awarded to plaintiff. Plaintiff thus
filed a motion to pierce the corporate veil of defendant Hall’s Restaurant, Inc., in order to
obtain satisfaction of the judgment from defendant’s owner, Carolyn Hall.
I.
Background
On March 19, 2012, a fire occurred at Hall’s Restaurant in Ellington, Missouri.
Following the fire, Carolyn Hall, owner of Hall’s Restaurant, presented a claim to
plaintiff under a commercial property insurance policy seeking to recover insurance
benefits for the fire damage. After an investigation of the claim, plaintiff denied
coverage on the grounds that the fire was intentionally set by, or at the direction of,
Carolyn Hall. On September 24, 2012, plaintiff filed the instant action seeking a judicial
determination of the rights and obligations of the parties to the insurance contract. On
May 7, 2014, a jury verdict was returned in favor of plaintiff. Thereafter, plaintiff sought
attorneys’ fees in the amount of $109,049.50 incurred over the course of this litigation
under 28 U.S.C. § 2202 and § 527.100 RSMo. This Court granted plaintiff’s motion for
attorneys’ fees because the intentional misconduct on behalf of the insured directly
caused plaintiff to incur the claimed attorneys’ fees.
The defendant, however, has not paid any portion of that judgment. Plaintiff has
attempted to execute on the assets of defendant, but defendant does not possess sufficient
assets to cover the $109,049.50 debt. Plaintiff therefore seeks to hold Carolyn Hall --defendant’s President, sole director, and 99.99% shareholder --- personally liable for
plaintiff’s judgment against defendant Hall’s Restaurant. Defendant opposes the motion.
No reply memorandum has been filed, and the time for doing so has passed.
II.
Discussion
As a general rule, “a corporation is regarded as a separate entity, distinct from the
members who compose it. Such entity, though, will be disregarded when it appears the
corporation is controlled and influenced by one or a few persons and in addition, that the
corporate cloak is utilized as a subterfuge to defeat public convenience, to justify wrong,
or to perpetrate fraud.” Krajcovic v. Krajcovic, 693 S.W.2d 884, 886–87 (Mo. Ct. App.
1985).
In order to “pierce the corporate veil” and hold the corporation’s owner personally
liable, a plaintiff must show the following:
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1) Control, not mere majority or complete stock control, but complete
domination, not only of finances, but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
and
2) Such control must have been used by the corporation to commit fraud or
wrong, to perpetrate the violation of statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiff's legal rights; and
3) The control and breach of duty must proximately cause the injury or
unjust loss complained of.
66, Inc. v. Crestwood Commons Redevelopment Corp., 998 S.W.2d 32, 40 (Mo. banc
1999). Of course, piercing the corporate veil is “the exception rather than the rule.”
Hibbs v. Berger, 430 S.W.3d 296, 307 (Mo. Ct. App. 2014).
It is undisputed that Carolyn Hall completely controls Hall’s Restaurant as its
99.99% owner, sole officer and director. Carolyn Hall also makes all the strategic and
business and legal decisions for the company. With respect to the second factor --- that
the control must have been used to commit fraud or a wrong --- plaintiff maintains that
Carolyn Hall has already been adjudged to have intentionally set fire to Hall’s Restaurant
in order fraudulently to obtain insurance proceeds. Plaintiff also argues that defendant’s
undercapitalization --- which is again controlled by Ms. Hall --- resulted in defendant not
being able to pay the judgment against it. As for the third factor, whether the individual’s
control of the corporation and the unjust act proximately caused the injury, this Court
already held that
This intentional misconduct necessitated plaintiff bringing this declaratory
judgment action to protect itself from the fraudulent claim. As a result, the
intentional misconduct on behalf of the insured directly caused plaintiff to
incur the claimed attorney’s fees.
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(#93 at 4.)
Defendant responds that Carolyn Hall and her now-deceased husband incorporated
Hall’s Restaurant , Inc. in 2001 for the purposes of running and operating a restaurant,
and that they did so for 11 years. Ms. Hall is unable to work and receiving Social
Security disability, so she has been unable to operate the business or input capital.
Defendant insists that piercing the corporate veil is inappropriate because it says Ms. Hall
did not use the corporate structure here with the intent to defraud a creditor by
undercapitalizing the business. However, the fact of undercapitalization is but one of
several avenues through which to establish the second prong of the test, that is, the
commission of a fraud or a wrong. Swall v. Custom Auto. Services, Inc., 831 S.W.2d
237, 240 (Mo. Ct. App. 1992) (“Examples of such wrongs as would satisfy ... [the second
prong of the test] include actual torts, violations of statutory duties, undercapitalization,
or the stripping of assets from the subservient corporation.”); see also Real Estate Inv’rs
Four, Inc. v. Am. Design Group Inc., 46 S.W.3d 51, 58 (Mo. Ct. App. 2001) (noting that
undercapitalization is “circumstantial evidence tending to show either an improper
purpose or reckless disregard of the rights of others.”).
As this Court has stated, “[a]lthough Missouri law does not take the action of
piercing the corporate veil lightly, when a corporation is so dominated by a person as to
be a mere instrument of that person, and indistinct from the person controlling it, the
court will disregard the corporate form if its retention would result in injustice.”
Koenig
v. Bourdeau Constr. LLC, 4:13CV00477 SNLJ, 2016 WL 6138627, at *3 (E.D. Mo. Oct.
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21, 2016). Ultimately, although the Halls may have operated the restaurant appropriately
for some time, the jury concluded Carolyn Hall burned (or directed the burning of) the
restaurant in order to collect the insurance proceeds. She then caused the corporation to
file the fraudulent insurance claim, causing the insurance company’s injury. Now the
corporation is unable to pay the Judgment against it. Because retention of the corporate
form here would result in injustice, the Court will grant plaintiff’s motion to pierce the
corporate veil. Plaintiff shall file a proposed judgment with the Court within seven days.
Accordingly,
IT IS HEREBY ORDERED that plaintiff’s motion to pierce the corporate veil is
GRANTED.
IT IS FURTHER ORDERED that plaintiff shall file a proposed judgment with
the Court no later than June 9, 2017.
Dated this 2nd
day of June, 2017.
___________________________________
STEPHEN N. LIMBAUGH, JR.
UNITED STATES DISTRICT JUDGE
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