Nippert v. Jackson et al

Filing 152

MEMORANDUM AND ORDER: Pending before the court is the plaintiff's Motion for Partial Summary Judgment 112 , to which the defendants have responded 141 , 149 , and 150 , and the plaintiff has filed replies 145 , 151 . For the reasons discussed herein, the plaintiff's motion will be denied. Signed by District Judge Aleta A. Trauger on 10/18/11. (tmw)

UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
ALFRED K. NIPPERT, JR.,
Plaintiff,

v.
JAMES R. JACKSON, JR.
individually and d/b/a STONEWALL FARM,
JACKSON, DENNEY and DAVIS, INC., and
JACKSON PLACE, INC.,
Defendants.

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Case No. 3:09-cv-1068
Judge Trauger

MEMORANDUM AND ORDER
Pending before the court is the plaintiff’s Motion for Partial Summary Judgment (Docket
No. 112), to which the defendants have responded (Docket Nos. 141, 149, and 150), and the
plaintiff has filed replies (Docket Nos. 145, 151). For the reasons discussed herein, the plaintiff’s
motion will be denied.
FACTUAL BACKGROUND
The plaintiff, Alfred K. Nippert, Jr. (“Nippert”), made a series of loans to KCA
Enterprises, Inc. (“KCA”), a company formed in 1999 by the defendant, James R. Jackson
(“Jackson”).1 This case arises from KCA’s failure to repay those loans.

1

Unless otherwise noted, the facts are drawn from the plaintiff’s statement of undisputed
facts (Docket No. 117), the defendants’ responses thereto (Docket Nos. 142, 149, and 150), the
plaintiff’s replies (Docket Nos. 146, 151), and related exhibits. The court draws all reasonable
inferences in favor of the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986); Brown v. United States, 583 F.3d 916, 919 (6th Cir. 2009).
1

From April 18, 2000 to January 10, 2003, the plaintiff loaned $1,696,000 to KCA so that
KCA could purchase additional inventory in connection with its business of selling officially
licensed college sports and NASCAR merchandise.2 Each loan was memorialized by the
execution of a demand promissory note signed by Jackson, as president of KCA. Nippert
obtained a 30% share in KCA’s stock in exchange for making these loans, while Jackson
remained the majority shareholder, possessing 51% of KCA’s shares.3 Jackson was the only
person who contributed to the daily management of KCA.
Aside from KCA, Jackson also managed two other companies at all relevant times:
Jackson, Denney, and Davis, Inc. (“JDD”), and Jackson Place, Inc. (“Jackson Place”).4 JDD is an
insurance company that Jackson co-founded in 1988. Originally, Jackson was a 1/3 shareholder
in JDD, although by the end of the 1990s, Jackson became a 100% shareholder in the
corporation. Jackson Place owns and operates a piece of property located on Main Street in
Ashland City, Tennessee. Jackson was originally a 50% shareholder in Jackson Place, but in
2005, he deeded his interest to his ex-wife, Angela Jackson, in exchange for the deed to his home
and farm located in Ashland City.

2

KCA’s original business plan was to supply products to high schools to assist them in
fund-raising campaigns.
3

At its formation, KCA had three shareholders: Jackson, who possessed 91% of KCA’s
shares of stock, and his three adult children, each of whom possessed 3% shares. Jackson’s
ownership interest declined to 81% after his then brother-in-law was given a 10% share in KCA’s
stock when he joined the company.
4

Although JDD and Jackson Place generally dispute this fact, they have failed to cite to
any evidence creating a genuine dispute. (See Docket Nos. 149, 150.)
2

Since their formation, all three entities failed to observe certain corporate formalities.5
For instance, Jackson issued shares of KCA stock to his adult children for no consideration. In
addition, both KCA and Jackson Place did not issue stock certificates, operated without bylaws,
and did not have board of directors meetings and shareholders meetings. Neither did JDD have
board of directors meetings or shareholders meetings.6
The lines among the three corporate entities and between the entities and Jackson were
also blurred. For example, Jackson, KCA, and JDD shared employees, while Jackson and KCA
shared the same certified public accountant.7 For a period of time, Jackson ran all three
companies out of the same location.8 Moreover, Jackson transferred funds from KCA to both

5

Both JDD and Jackson Place dispute certain facts concerning the extent to which they
observed corporate formalities. Both dispute that they failed to have board of directors meetings
or shareholders meetings. (Docket Nos. 149, 150.) In addition, JDD disputes that it shared
employees with KCA and Jackson and that it shared business locations with KCA. (Docket No.
149.) Jackson Place also disputes that it did not have any bylaws. (Docket No. 150.) However,
as to all of these purported factual disputes, neither defendant has cited any record evidence
creating a genuine dispute as to the above facts.
6

While Jackson declares that JDD had board meetings until he became its sole
shareholder in the late 1990s (Docket No. 144, at 1), his prior deposition testimony contradicts
that assertion. Indeed, Jackson previously admitted that JDD never had a board meeting and
that, in fact, all three corporations never had a board meeting. (Docket No. 116, Ex. A, at 42;
Docket No. 118, Ex. A, at 49.) Accordingly, the court will not consider Jackson’s assertion. See
Penny v. United Parcel Serv., 128 F.3d 408, 415 (6th Cir. 1997) (“[A] party cannot create a
genuine issue of material fact by filing an affidavit, after a motion for summary judgment has
been made, that essentially contradicts his earlier deposition testimony.”).
7

Jackson also caused KCA to obtain insurance policies through JDD.

8

Another entity, SDJ, LLC, served as KCA’s sales representative and rented office space
from it. (Docket No. 144, at 6.) Jackson states that at all times the businesses were separate
entities. (Id.)
3

JDD and himself and considered these transfers loans.9 In addition to these transfers, it is
undisputed that Jackson used KCA funds to pay: (1) monthly payments for his ex-wife’s BMW
convertible and his own Dodge pick-up truck;10 (2) the costs of acquiring hay for the horses on
his horse farm; and (3) the travel expenses of his girlfriend and ex-wife. Jackson also debited
KCA’s account in amounts up to $110,000, although he could not remember why KCA would
have required such a large sum of cash.
After receiving Nippert’s loans, KCA purchased additional inventory for its business.
Also, at some point, KCA secured Wal-Mart as a customer, which generated a large amount of
sales. However, KCA lost the Wal-Mart account in 2008. After making one payment to Nippert
in the amount of $100,000, KCA failed to make any other payments to Nippert on the loans.
Nippert then brought suit in 2007 against KCA in the United States District Court for the
Southern District of Ohio and obtained an agreed judgment against KCA in the amount of
$2,933,459.1711 on November 1, 2008.12

9

At deposition, Jackson was shown checks from KCA to JDD where the memo lines on
the checks stated that the checks represented either loans from KCA to JDD or repayments for
loans made by JDD to KCA. (Docket No. 118, at 27-31.) KCA’s transfer of funds to Jackson
was for Jackson’s horse farm. Jackson states that these transfers were short-term loans and that,
to the best of his knowledge, any loans made by KCA to JDD and himself were repaid. (Docket
No. 144, at 3-4.)
10

Jackson testified at deposition that he used the pick-up truck for both KCA and
personal business. (Docket No. 116, Ex. A, at 44.)
11

Nippert was also awarded attorney’s fees and interest at the contractual rate of 10% per
year beginning on November 1, 2008.
12

Before making any payments in satisfaction of the judgment, KCA filed a voluntary
petition under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Tennessee on April 24, 2009. (See In re KCA Enters., Inc., No.
3:09-bk-04629 (Bankr. M.D. Tenn. filed on Apr. 24, 2009)). A review of the bankruptcy docket
reveals that the debt at issue in this case was not discharged in bankruptcy.

4

Nippert then filed this suit on November 6, 2009. (Docket No. 1.) His Amended
Complaint contains claims against Jackson for: (1) breach of fiduciary duty; (2) gross
mismanagement; (3) conversion; and (4) fraud. (Docket No. 55.) The Amended Complaint also
contains claims for piercing the corporate veils of KCA, JDD, and Jackson Place and civil
conspiracy against all the defendants. (Id.) After Nippert filed the present lawsuit, Jackson sold
his interest in JDD to his ex-wife. Jackson has admitted that the current litigation with Nippert
partially impacted this decision.

ANALYSIS
I.

Standard of Review
Rule 56 requires the court to grant a motion for summary judgment if “the movant shows

that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). If a moving defendant shows that there is no genuine issue
of material fact as to at least one essential element of the plaintiff’s claim, the burden shifts to the
plaintiff to provide evidence beyond the pleadings “set[ting] forth specific facts showing that
there is a genuine issue for trial.” Moldowan v. City of Warren, 578 F.3d 351, 374 (6th Cir.
2009); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Conversely, a moving
plaintiff must show that the defendant cannot raise a genuine issue of fact regarding any element
of the relevant claims. In both instances, “[i]n evaluating the evidence, the court must draw all
inferences in the light most favorable to the non-moving party.” Moldowan, 578 F.3d at 374
(citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

At this stage, “‘the judge’s function is not . . . to weigh the evidence and determine the
truth of the matter, but to determine whether there is a genuine issue for trial.’” Id. (quoting

5

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). But “the mere existence of a
scintilla of evidence in support of the [non-moving party’s] position will be insufficient,” and the
party’s proof must be more than “merely colorable.” Anderson, 477 U.S. at 249, 252. An issue
of fact is “genuine” only if a reasonable jury could find for the non-moving party. Moldowan,
578 F.3d at 374 (citing Anderson, 477 U.S. at 252).
II.

The Plaintiff’s Motion
In his Motion for Partial Summary Judgment, the plaintiff moves the court to pierce the

corporate veils separating KCA, JDD, and Jackson Place from Jackson. (Docket No. 112.)
Jackson asserts that there are genuine disputes of material fact that preclude summary judgment
on this issue. Moreover, JDD and Jackson Place contend that summary judgment is
inappropriate as to each of them because, unlike KCA, they never received a loan from the
plaintiff or engaged in any misconduct with relation to him.13 (Docket Nos. 149, 150.)
Under Tennessee law, to pierce the corporate veil, “a court must be convinced that the
separate corporate entity is a sham or a dummy or that disregarding the separate corporate entity
is necessary to accomplish justice.” CAO Holdings, Inc. v. Trost, 333 S.W.3d 73, 88-89 (Tenn.
2010) (quotation marks omitted). “The party wishing to pierce the corporate veil has the burden
of presenting facts demonstrating that it is entitled to this equitable relief.” Oceanics Schs., Inc.

13

JDD and Jackson Place thus argue that these facts insulate them from any application
of the veil piercing doctrine. However, even assuming that these facts are true, the Tennessee
Court of Appeals has noted that, “[b]y suitable evidence, it may be established that separate
corporations should be treated as a single entity.” Muroll Gesellschaft M.B.H. v. Tennessee Tape,
Inc., 908 S.W.2d 211, 213 (Tenn. Ct. App. 1995) (piercing corporate veils after sole shareholder
caused one of his corporations to become insolvent through fraudulent transfer of assets to his
other solely owned corporation and holding both the sole shareholder and the solvent corporation
liable to the plaintiff, a creditor of the insolvent corporation).
6

v. Barbour, 112 S.W.3d 135, 140 (Tenn. Ct. App. 2003). When analyzing the issue, courts
examine the following factors:
(1) whether there was a failure to collect paid in capital; (2) whether
the corporation was grossly undercapitalized; (3) the nonissuance of
stock certificates; (4) the sole ownership of stock by one individual;
(5) the use of the same office or business location; (6) the
employment of the same employees or attorneys; (7) the use of the
corporation as an instrumentality or business conduit for an
individual or another corporation; (8) the diversion of corporate
assets by or to a stockholder or other entity to the detriment of
creditors, or the manipulation of assets and liabilities in another; (9)
the use of the corporation as a subterfuge in illegal transactions; (10)
the formation and use of the corporation to transfer to it the existing
liability of another person or entity; and (11) the failure to maintain
arms length relationships among related entities.
Trost, 333 S.W.3d at 89, n.13 (quoting FDIC v. Allen, 584 F. Supp. 386, 397 (E.D. Tenn. 1984)).
Although it is not necessary that all of the above factors weigh in favor of piercing the corporate
veil, the equities must “substantially favor the party requesting the court to disregard the
corporate status.” Id. at 89.
Some of these factors are present here. Indeed, there is undisputed evidence that
Jackson, KCA, and JDD shared employees, while Jackson and KCA shared the same certified
public accountant. It is also undisputed that Jackson: (1) ran all three companies out of the same
location for a period of time; (2) transferred funds from KCA to both JDD and himself and
considered these transfers loans; and (3) used KCA funds to pay monthly payments for his and
his ex-wife’s vehicles, hay for the horses on his horse farm, and travel expenses for his girlfriend
and ex-wife.14 Jackson also debited KCA’s account in amounts up to $110,000, although he
14

The plaintiff asserts that he would have been able to more easily trace Jackson’s
alleged fraud had Jackson not ordered the destruction of KCA’s corporate books and records.
(Docket No. 113, at 10.) Jackson, however, denies that he or any other KCA employee
destroyed documents regarding KCA’s business operations. (Docket No. 144, at 5.) In addition,
7

could not remember why KCA would have required such a large sum of cash. In addition, all
three entities failed to observe certain corporate formalities. Specifically, it is undisputed that
Jackson issued shares of KCA stock to his children for no consideration, that KCA and Jackson
Place did not issue stock certificates and operated without bylaws, and that all three entities did
not have board of directors meetings and shareholders meetings.
While the above facts are undisputed, Jackson asserts, among other things, that any
payments made by KCA to both JDD and himself were short-term loans and, to the best of his
knowledge, were repaid. (Docket No. 144, at 3-4.) He further asserts that he used all of
Nippert’s loan proceeds in KCA’s normal course of business. (Id. at 3.) In addition, he claims
that the plaintiff was aware that KCA held no board meetings and that KCA and JDD shared
expenses. (Id. at 5-6.) The plaintiff has also admitted that he was aware that KCA and JDD
shared office space for some period of time.15 (Docket No. 146, at 8.)
The Tennessee Supreme Court has stated that “[i]ssues relating to the piercing of the
corporate veil are not ordinarily appropriate for resolution by summary judgment.” Trost, 333
S.W.3d at 89. Instead, “a determination of whether or not a corporation is a mere instrumentality
of an individual or a parent corporation is ordinarily a question of fact for the jury.” Id. (quoting
Electric Power Bd. Of Chattanooga v. St. Joseph Valley Structural Steel Corp., 691 S.W.2d 522,
526 (Tenn. 1985).

he states that all of the documents regarding KCA’s business operations are stored in a computer
that is in the plaintiff’s possession and control. (Id.) The court need not resolve this issue for
purposes of the present motion.
15

Although the plaintiff’s awareness of such facts is not a part of the multi-factor inquiry
Tennessee courts utilize when determining whether to pierce the corporate veil, it does appear
relevant as to the degree of the defendant’s alleged wrongdoing. Therefore, the court will not
exclude this proof at trial.
8

Although there is evidence in the record that may support piercing the corporate veil in
the present case, it is not so overwhelming that a reasonable juror must find that the corporate
forms of KCA, JDD, and Jackson Place must be disregarded. Accordingly, this issue will remain
for trial.
CONCLUSION
Based on the foregoing, the plaintiff’s motion for partial summary judgment will be
DENIED.
It is so ordered.
_______________________________
ALETA A. TRAUGER
United States District Judge

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