Amfac Mechanical Supply Co.

Supreme Court of Wyoming · Corporations

CorporationsPiercing the corporate veilAlter egoLimited liabilitypiercing the corporate veilalter egoclosely held corporationundercapitalization

Facts

Amfac obtained a default judgment against C & B for approximately $11,700 on an unpaid account and then sought to hold the Federers personally liable as the corporation's sole stockholders, officers, and directors. The evidence showed the Federers controlled the closely held corporation, that vehicle title and billing practices mixed personal and corporate affairs, and that some business proceeds were deposited into the Federers' personal account. The Federers had contributed only $500 and some tools for stock, personally borrowed $50,000 and loaned it to the corporation, and withdrew $1,000 per month from corporate funds in repayment while Amfac remained unpaid. Although the corporation was formed and initial organizational documents existed, no later minutes were kept and the corporation was never formally dissolved despite becoming defunct.

Issue

Must a creditor prove actual fraud or bad faith to pierce the corporate veil? If not, did Amfac present enough evidence of alter-ego use, undercapitalization, commingling, and disregard of corporate formalities to make a prima facie case and survive dismissal at the close of its evidence?

Rule

Proof of actual fraud or intent to defraud is not a prerequisite to piercing the corporate veil. In an appropriate case, and in furtherance of public policy or the ends of justice, courts may disregard separate corporate existence when the corporation is so controlled and treated as the owners' alter ego that respecting the fiction of separateness would produce an unjust or inequitable result; factors supporting that determination include commingling of assets, disregard of corporate formalities, inadequate capitalization, and use of corporate assets or income in a manner that disadvantages creditors. On a Rule 41(b)(1) motion in a bench trial, dismissal should not be granted if there is evidence and substantial inferences supporting a prima facie case.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Cheyenne, Nora and Eli Vance are the sole shareholders and officers of High Plains Fixture, Inc., a small supply-installation company. The corporation keeps few records, customer checks are sometimes deposited into the Vances' personal account, and the corporation repays the Vances on a shareholder loan while leaving a trade creditor unpaid.

In the creditor's suit to hold Nora and Eli personally liable, which argument most accurately states the governing standard?

Explanation. The majority opinion rejected any requirement of actual fraud or intent to defraud as a prerequisite. Veil piercing may be appropriate where there is such unity of ownership and control that separateness has ceased and adherence to the fiction of separate existence would promote injustice or inequity. Commingling, poor records, and insider repayments while a creditor remains unpaid support that analysis. (Derived from Amfac Mechanical Supply Co. (n.d.).)