In an opinion dated October 29, 2009, the Colorado Court of Appeals affirmed the principle that a creditor of a corporation can “pierce the corporate veil” (ask the court to look behind a corporate entity and take action as though no entity separate from the members itself existed). A unique part of the decision holds that it is not just a shareholder, officer or director against whom the corporate veil can be pierced, but also a corporate insider (such as a manager) who can personally be held liable for a corporate obligation.
Marc Winger managed a Wyoming corporation authorized to do business in
Colorado, named Manitoba Investment Advisors, Inc. (Manitoba). His wife
was a director and 50% shareholder and president, while his mother was
a director, 50% shareholder, vice-president and secretary. Marc Winger
routinely used corporate funds to pay his personal expenses, including
$95,400 to the State of California in connection with a felony conviction
there for failure to pay state taxes.
Manitoba leased property from McCallum Family L.L.C. in Grand Junction
for business use. Manitoba failed to pay county taxes for over three years
and vacated the property seven months before the expiration of the lease,
defaulting on the remaining rent. McCallum obtained judgment against Manitoba
for $76,224. Manitoba was administratively dissolved on May 31, 2006.
After first holding that the burden of proof of one seeking to pierce
the corporate veil is proof by a “preponderance of the evidence”
(a lesser burden) and not proof by “clear and convincing”
evidence (a greater burden), the court went on to discuss under what circumstances
the corporate veil may be pierced (a subject I will discuss in a later blog).
The court examined the issue of piercing the corporate veil as against
one who manages the corporation, but who is not a shareholder, officer
or director. The court holds that where the person sought to be held liable
for corporate debts exercises sufficient “dominion and control”
over the corporation and its assets, that person may be deemed an “equitable
owner” and thus an “alter ego” of the corporation. Marc
Winger admitted that his wife was a shareholder and director in name only.
Neither shareholder exercised any supervisory power over Marc Winger,
who “managed the whole affair.” Marc Winger’s activities
were directed at defeating McCallum’s claim.
The court then remanded the case to the trial court to determine whether
or not equity required piercing of the corporate veil and holding Marc
Winger liable for McCallum’s claim.