Carpenters' District Council Of Greater St. Louis and Vicinity et al

Filing 23

MEMORANDUM AND ORDER -....IT IS HEREBY ORDERED that plaintiffs' Motion for a Creditor's Bill in Equity and to Pierce the Corporate Veil is DENIED. [Doc. 21] IT IS FURTHER ORDERED that the Clerk of the Court shall mail a copy of this Memorandum and Order to M.K. Contracting, LLC, at Larkin Lane, St. Louis, Missouri 63128.. Signed by Honorable Charles A. Shaw on 9/9/2011. (MRC)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

CARPENTERS’ DISTRICT COUNCIL OF
)
GREATER ST. LOUIS and VICINITY, et al., )
)
Plaintiffs,
)
)
v.
)
)
KRAFT & ASSOCIATES CO.,
)
)
Defendant.
)

No. 4:11-CV-75 CAS

MEMORANDUM AND ORDER
This closed matter was brought under Section 301 of the Labor Management Relations Act
of 1947, 29 U.S.C. § 185 (“LMRA”) and the Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. §§ 1001, et seq. It is currently before the Court on plaintiffs’ Motion For a
Creditor’s Bill in Equity and to Pierce the Corporate Veil. Plaintiffs are several ERISA employee
benefit plans, the trustees and fiduciaries of those plans, and a union. Plaintiffs obtained a default
judgment in this action against defendant Kraft & Associates Co. (“Kraft”) for unpaid contributions
to the plans. Plaintiffs now seek to satisfy the remainder of their judgment against Kraft from assets
of its alleged alter ego, M.K. Contracting, L.L.C..
For the following reasons, plaintiffs’ motion for a creditor’s bill in equity and to pierce the
corporate veil will be denied.
Procedural History
On January 11, 2011, plaintiffs filed suit against Kraft in order to collect delinquent
contributions, liquidated damages, interest, attorneys’ fees, and costs owed pursuant to collective
bargaining agreements and under the terms of ERISA, 29 U.S.C. § 1132. On May 18, 2011, this
Court entered a default judgment against Kraft in the amount of $37,790.75 (Doc. 15). Plaintiffs

have attempted to collect the judgment by garnishing Kraft’s bank account, but the garnishment
interrogatories show the account has been closed and plaintiffs have been unable to collect all of the
judgment. Plaintiffs then moved for a Creditor’s Bill in Equity and to Pierce the Corporate Veil of
Kraft in order to satisfy the judgment against its alleged alter ego, M.K. Contracting, L.L.C.
Facts
Kraft is a Missouri corporation that was in the business of performing structural concrete
work. It was owned solely by Marvin Kraft. Kraft stopped doing business in February 2011.
Matthew Kraft and his brother Michael Kraft are sons of Marvin Kraft. Matthew and Michael Kraft
were officers and employees of Kraft but had no ownership interest in the company.
On April 20, 2011, Matthew and Michael Kraft formed M.K. Contracting, L.L.C. and are
its sole owners. M.K. Contracting, L.L.C. performs structural concrete work similar to that
previously performed by Kraft The employees of M.K. Contracting, L.L.C. are Matthew and
Michael Kraft, and Robert Stafford, who previously worked for Kraft. M.K. Contracting, L.L.C.
at one time employed Ronald Walters, who had previously worked for Kraft M.K. Contracting,
L.L.C. has performed structural concrete work for two previous customers of Kraft. Marvin Kraft
is not an owner, officer or employee of M.K. Contracting, L.L.C.
M.K. Contracting, L.L.C. has a corporate bank account at Concord Bank, which is a different
bank than was used by Kraft for its corporate account. M.K. Contracting, L.L.C. does not own any
tools or equipment that were formerly used or owned by Kraft. M.K. Contracting, L.L.C.’s business
address is 15 Larkin Lane, St. Louis, Missouri 63128, while Kraft’s business address was 9738
Gravois Road, St. Louis, Missouri 63123.
Matthew Kraft testified that Kraft owns equipment which is still on its property but is “tied
up in foreclosure” and being held “under lock and key” by a bank. He testified that Kraft owes
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money to the bank for a line of credit, and the bank has a security interest in all of Kraft’s assets.
Matthew Kraft also testified that while Kraft has accounts receivable from at least two customers,
it owes money to the Internal Revenue Service, which has filed liens on its assets, and to the State
of Missouri.
When asked why he started M.K. Contracting, L.L.C., Matthew Kraft stated, “Because Kraft
and Associates was indebted too much everywhere, the IRS, carpenters, laborers, and I just decided
to start my own company. I mean, it’s either that, or look for a job, or collect unemployment.”
Kraft Dep. at 10.
Discussion
This matter is governed by ERISA, 29 U.S.C. §§ 1132(a)(3)(ii) and 1145, and the LMRA,
29 U.S.C. § 185(a). Jurisdiction and venue are proper in this Court.
Under the LMRA, one business entity is the alter ego of another, and therefore is liable for
its obligations, if the two are substantially identical in terms of ownership, management, supervision,
business purpose, operations, customers, equipment, facilities and employees. See, e.g., Woodline
Motor Freight, Inc. v. N.L.R.B., 843 F.2d 285, 288-89 (8th Cir. 1988). Not all of the outlined
factors need be identical. Under ERISA, one business entity is the alter ego of another if the two
entities exist independently in form only, and those separate forms are used as a subterfuge to
defraud, to justify a wrong, or to mislead or discourage pursuit of legal action. See, e.g., Greater
Kansas City Laborers Pension Fund v. Superior General Contractors, Inc., 104 F.3d 1050, 1055 (8th
Cir. 1997).
Federal courts have “the same authority to aid judgment creditors in supplementary
proceedings as that which is provided to state courts under local law.” H.H. Robertson Co. v. V.S.
DiCarlo General Contractors, Inc., 994 F.2d 476, 477 (8th Cir. 1993) (citation omitted). The Eighth
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Circuit has “recognized the availability of the creditor’s bill in equity under Missouri law.” Id. The
creditor’s bill in equity is a long-recognized but infrequently used tool to assist creditors who seek
“to enforce the payment of debts out of assets that cannot be reached by traditional means of
execution on a judgment established in a suit at law.” Shockley v. Harry Sander Realty Co., Inc.,
771 S.W.2d 922 (Mo. Ct. App. 1989).
Prerequisites to the issuance of a creditor’s bill are the “existence of a judgment, the issuance
of an execution against assets of the judgment debtor and a nulla bona return thereon.” Id. at 925.
The fact that a corporation’s alleged alter ego was not itself either a judgment debtor or a party in
the original action is irrelevant. H.H. Robertson Co., 994 F.3d at 478. Although a creditor’s bill
can be brought in a separate equitable action, it is appropriate to bring it by motion in the underlying
lawsuit where judgment was originally obtained. Fleming Cos., Inc. v. Rich, 978 F. Supp. 1281,
1294 (E.D. Mo. 1997). “A creditor’s bill is considered the equitable equivalent of garnishment on
execution and is comparable to proceedings supplementary to and in aid of execution.” Shockley,
771 S.W.2d at 925 (citing United States ex rel. Goldman v. Meredith, 596 F.2d 1353, 1357 (8th Cir.
1979)).
A creditor’s bill in equity under Missouri law “enables a judgment creditor to ‘trace the value
of the goods and services rendered to an empty-shell corporation to the parties behind such a
corporation who have received and benefitted from the property or services.’” H.H. Robertson Co.,
994 F.2d at 477 (quoting Shockley, 771 S.W.2d at 925). The Missouri alter ego standard applies
to such claims. Id.; see also Mobius Management Sys., Inc. v. West Physician Search, L.L.C., 175
S.W.3d 186, 189 (Mo. Ct. App. 2005).
To pierce the corporate veil under Missouri law and recover from the assets of a
corporation’s alter ego, three requirements must be met: (1) control, (2) breach of duty, and (3)
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proximate cause. Mobius Mgmt., 175 S.W.3d at 188-89. A creditor must show that the alter ego
has “control” of the entity’s finances, policy, and business practices with respect to the transaction
at issue. Id. at 188. The creditor must also show a “breach of duty--that this control was used by
the corporation to commit fraud or wrong, to perpetrate the violation of a statutory or other positive
legal duty, or to commit a dishonest and unjust act in contravention of the plaintiff’s legal rights”
that caused the injury to the plaintiff. Id. at 188-89. In addition, “the corporate veil may be pierced
when a corporation is undercapitalized, or when its assets are stripped to avoid creditors. Inadequate
capitalization is circumstantial evidence of an improper purpose or reckless disregard for the rights
of others.” Id. at 189 (citations omitted).
Missouri law presumes that corporations are separate entities, and courts do not lightly
disregard the corporate form to hold one corporation liable for the behavior of another. MidMissouri Tel. Co. v. Alma Tel. Co., 18 S.W.3d 578, 582 (Mo. Ct. App. 2000). Missouri courts will
“pierce the corporate veil” and hold a defendant liable for the torts of another corporation under the
“instrumentality” or “alter ego” rule if the plaintiff can establish:
(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 defendant to commit
fraud or wrong, to perpetrate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiff's legal rights; and
(3) The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.

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Radaszewski by Radaszewski v. Telecom Corp., 981 F.2d 305, 306 (8th Cir. 1992); see also Mobius
Mgmt., 175 S.W.3d at 189. This standard is almost identical to the standard applied in ERISA cases.
See Greater Kansas City Laborers, 104 F.3d at 1055.
In determining whether one corporation exercised control over another to the extent
necessary to pierce the corporate veil, courts look to a number of factors, including the ownership
and creation of both corporations, the management of the corporations, the physical location of
corporate offices, and the transfer of assets, contracts, and employees between the corporations. See
Operating Eng’rs Local No. 101 Pension Fund v. K.C. Excavating & Grading, Inc., 2002 WL
1492103, at *6 (W.D. Mo. Mar. 11, 2002); see also H.H. Robertson Co. v. V.S. DiCarlo General
Contractors, 789 F. Supp. 998, 1000 (E.D. Mo. 1992); Edward D. Gevers Heating & Air
Conditioning Co. v. R. Webbe Corp., 885 S.W.2d 771, 774 (Mo. Ct. App. 1994).
Plaintiffs have established the necessary prerequisites to the issuance of a creditor’s bill, as
they have a judgment against Kraft, they issued execution against its assets, and the garnishment was
returned with responses of no assets and a closed account.
Plaintiffs contend the key occurrence for the establishment of liability in this case is the
formation of M.K. Contracting, L.L.C. after Kraft went out of business but before it satisfied its debt
to plaintiffs. The Court finds, however, that plaintiffs have failed to offer substantial evidence to
establish any of the three requirements for piercing the corporate veil under Missouri law, or to
establish that M.K. Contracting, L.L.C. is the alter ego of Kraft under the LMRA or ERISA.
First, with respect to the issue of control, the relevant factors indicate that Kraft does not
control M.K. Contracting, L.L.C. Significantly, the ownership of defendant Kraft is completely
different than that of its alleged alter ego, M.K. Contracting, L.L.C. There is no evidence that
Marvin Kraft, the sole owner of Kraft, has any role in M.K. Contracting, L.L.C., as an owner, officer
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or employee. The owners of M.K. Contracting, L.L.C., Matthew and Michael Kraft, were officers
and employees of Kraft, but have no ownership interest in Kraft.
M.K. Contracting, L.L.C. hired two former employees of Kraft and does similar structural
concrete work, including for two former customers of Kraft. This evidence of some overlap between
the two companies is outweighed, however, by the fact of separate ownership and management
discussed above. In addition, the evidence is that M.K. Contracting, L.L.C. uses a different bank
for its corporate bank account than did Kraft, and has a separate physical location from Kraft. The
undisputed evidence also shows that M.K. Contracting, L.L.C. did not obtain any equipment or
assets from Kraft, as Kraft’s equipment and assets are still in Kraft’s possession, encumbered by
liens and security interests. There is also no evidence that M.K. Contracting, L.L.C. obtained any
contracts from Kraft. Thus, there is no evidence of subterfuge, or hiding or transfer of assets.
There is no evidence in the record to show that Kraft has any control over, much less
dominates, M.K. Contracting, L.L.C. with respect to finances, policy or business practices, such that
M.K. Contracting, L.L.C. has “no separate mind, will, or existence of its own. See Mobius Mgmt.,
175 S.W.3d at 188. There is also no evidence that Kraft rendered property or services to M.K.
Contracting, L.L.C. as an empty-shell corporation or that Kraft or Marvin Kraft received and
benefitted from such property or services. The facts instead tend to show that M.K. Contracting,
L.L.C. and Kraft are separate corporate entities, and that their corporate forms should be respected
as such.
With respect to the second factor for piercing the corporate veil, plaintiffs cannot establish
that Kraft used its control of M.K. Contracting, L.L.C. to breach a duty owed to them, because they
have not shown that Kraft controls M.K. Contracting, L.L.C. Plaintiffs attempt to show a breach
of duty by citing Matthew Kraft’s testimony concerning why he started M.K. Contracting, L.L.C.,
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but this testimony does not establish a breach of duty. Plaintiffs have cited no substantive legal
authority for the proposition that mere officers of a debtor company, who have no ownership
interest, have personal liability or responsibility for the company’s debts and cannot start a similar
business after the first company’s failure. Plaintiffs do cite case law authorizing the issuance of
creditor’s bills in cases involving fraudulent transfers, and where the original debtor exercised
complete control over the alter ego and was unable to pay its creditors due to fraud. Pls.’ Mem.
Supp. at 4-5. Plaintiffs have not established any facts, however, to bring this case within that legal
authority. Finally, because there is no evidence of control or breach of duty, plaintiffs cannot show
that the formation of M.K. Contracting L.L.C. proximately caused them any injury or loss.
For the same reasons, plaintiffs fail to show that the management, supervision, business
purpose, operations, customers, equipment, facilities and employees of M.K. Contracting, L.L.C.
and Kraft are substantially identical, as required by the LMRA’s alter ego test; or that M.K.
Contracting, L.L.C. and Kraft exist independently in form only, and are used as a subterfuge to
defraud, to justify a wrong, or to mislead or discourage pursuit of legal action, as required by
ERISA’s alter ego test.
Conclusion
For the foregoing reasons, plaintiffs have not shown that M.K. Contracting, L.L.C. is the
alter ego of defendant Kraft & Associates Co. Plaintiffs are therefore not entitled to a creditor’s bill
in equity against M.K. Contracting, L.L.C. in order to satisfy their judgment against Kraft &
Associates Co.

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Accordingly,
IT IS HEREBY ORDERED that plaintiffs’ Motion for a Creditor’s Bill in Equity and to
Pierce the Corporate Veil is DENIED. [Doc. 21]
IT IS FURTHER ORDERED that the Clerk of the Court shall mail a copy of this
Memorandum and Order to M.K. Contracting, L.L.C., at 15 Larkin Lane, St. Louis, Missouri 63128.

__________________________________
CHARLES A. SHAW
UNITED STATES DISTRICT JUDGE

Dated this 9th day of September, 2011.

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