I am going to reveal my true inner-nerd here so please keep it on the down low, but this is pretty hilarious. It’s a librarian’s blog–no that’s not the funny part—wait—really. It’s a librarian’s blog post on stupid e-mail disclaimers! Any one who e-mails regally with lawyers, has seen so many of these you don’t even notice them anymore (real effective disclaimer) but this one sums up some of the more hilarious ones I’ve read in a while . . .or maybe it’s just the liberation commentary to each one that does it? Either way, I am thankful for humorous librarians this Turkey Day in the year Twenty Fourteen. Enjoy and thank a librarian everyday!
Since the last post already gave away the end of the story, I thought I’d go back to the beginning and try to fill the blanks. As you may recall, I was describing a win I had recently that was somewhat surprising. My client had sued his former employer and business partner and won via summary judgment. Really isn’t anything too unusual or exciting about that, except the way the judge crafted the relief in the Order exactly the way I wanted–and then some!
So, first I’ll let the court explain the basic facts for the employment claim (although my client wanted me to use the real names, they have been changed to protect the guilty):
Fisher was employed by Mountain Const. Inc. as the site superintendent for a restaurant Project from October 8, 2012 through February 5, 2013 at a rate of $1,750 per week. Fisher was not compensated for seven weeks and two days of work, for which Fischer is owed $12,950.00. Mountain Const. Inc. is liable for this debt as Fisher’s employer. Fisher also claims that Mountain Const. Inc.’s owner, TJ, should be held personally liable by piercing the corporate veil of Mountain Const. Inc.
Knowing that the company was defunct with no assets, and after hearing numerous threats of bankruptcy, I thought I would take a long shot and try to hold the owner personally liable for the unpaid wages. The main reason I tried was because of how often TJ kept throwing around the “B” word (Bankruptcy) throughout the case–including during his deposition–smugly. I knew it was less likely for TJ to file bankruptcy personally, at least not until absolutely necessary. We proved TJ took money from the Project and used it personally to buy a house and flip it. It is much easier to buy real estate if you don’t have a bankruptcy on your credit report.
After Fisher was fired, he provided the statutorily required written demand (Minn.Stat. § 181.13(a)) on his employer. After 24 hours passed, with his wages remaining unpaid, the statutory penalty of an extra day’s pay was added on for each day he went unpaid (up to 15 days). The Court also ordered the employer to pay for Fischer’s attorney’s fees and expenses (Minn.Stat. § 181.171). Piece of advice: Pay your employees on time in Minnesota.
Before and during the case, Fisher was accused of being the reason there was no profit from the Project and told he would never be paid. In essence, he was accused of being a traitor due to working with the General Contractor to finish the Project (TJ walked off the job); accused of being a forger for trying, unsuccessfully, to sign his own name to a lien waiver for work that was paid for; and a conspirator, for helping turn documents in so the Project could be closed out and everyone could be paid–even TJ and Mountain Const. Inc.! For doing all that he was fired and told he didn’t deserve to be paid for over two weeks of work.
As the litigation progressed, we could tell we would not be getting any useful documents from TJ or Mountain Const. Inc. We decided to change course and serve subpoenas on the company’s credit union and see what we could uncover. My client had done some (a lot) of the bookkeeping for the Project but TJ said he had not completed a final accounting yet because he was broke. With the subpoenas, Fisher’s understanding of the Project’s finances and some help from the General Contractor, we were able to piece together a puzzle that only formed one picture when the pieces fit and locked together: TJ took all the money from the Project and the business’s bank accounts and kept it for himself.
Here’s what the Court did with that:
A. The Victoria-Elevator Test Favors Piercing the Corporate Veil
In the usual case, an individual shareholder is not liable for the debts and obligations of the corporation. To
determine the appropriateness of disregarding the corporate entity in this case, however, the Court applies a two-pronged test considering: (1) whether TJ has sufficiently established MCI as a separate entity and; (2) whether the failure to impose personal liability on TJ would work an injustice or be fundamentally unfair to Fisher. Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., Inc., 283 N.W.2d 509, 512 (Minn. 1979). Here, “courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.” Id. at 512 (citing DeWitt Truck Brokers, Inc. v. W. Ray Flemming
Fruit Co., 540 F.2d 681, 684-87 (4th Cir. 1976)). That can be determined by an analysis of the following factors:
insufficient capitalization for purposes of corporate undertaking, failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of corporation as merely facade for individual dealings.
Id. Not all but “a number of” these factors need to be present to satisfy the first prong of this test.
The Court applies these factors to our case’s facts and here is the lesson that can be learned from this. If you want to maintain the liability protection you gain from doing business as a corporation or a limited liability company (LLC), you need to follow corporate formalities, keep your business and personal finances separated and keep current and accurate records. And pay your employees, your taxes and don’t lie in a deposition.
In this case TJ did not treat MCI as a separate entity and failed to distinguish between property owned by him and property owned by the corporation. The Court has no evidence that TJ observed any of the corporate formalities necessary to distinguish MCI as an entity separate from himself. TJ was the sole shareholder of MCI. He admits that no taxes have been paid by the corporation and, according to him, he no longer possesses the corporation’s financial documents.
TJ claims that he did not pay himself a regular salary as CEO of MCI. He treated MCI’s bank account, however, as his personal account. Depo. at 42. He wrote checks from MCI’s account at the Credit Union and deposited them into his personal account at his Bank without recording transactions. The amounts of these transactions varied from $6,000 to $40,000. TJ also claims that he cannot remember why he transferred that money. Id.
*****[numerous self serving transactions deleted]****
TJ claims to not remember any of the above transactions or their purpose. Furthermore, the only records of the transactions were kept by the bank and credit union. The Court can only conclude that TJ was using MCI to support himself and his other businesses and investments. Based upon the evidence in this case, TJ did not distinguish between his own assets and those of MCI.
Under the first prong of the Victoria-Elevator test, TJ’s failure to observe corporate formalities, the absence of corporate records, and the evidence that the existence of the corporation is merely a facade for individual dealings, all support the piercing of MCI’s corporate veil.
Stay tuned. The next post will address the second prong’s analysis of the injustice and unfairness of allowing the corporate entity to shield the owner from liability. Now isn’t legal geeking fun! Oh yeah, and please pay your employees and taxes.
I got a nice win this week I really wasn’t expecting. I always try to keep my client’s expectations low, realistic, but low. I find I can meet or exceed their expectations that way and keep them happier. In this business, you cannot over-promise just to get a case signed up and then never deliver what you promised. Well, I can’t. And this was a case that real low expectations were justified.
The Defendant and his construction company had previously been charged with very serious fraud in a licensing context and apparently agreed to a fine and forfeiture of a business license (I think maybe all business licenses for a real long time, like, forever). As usual, no one knew about this before doing business with him. Although it is public knowledge, it is not as if he has to wear a scarlet letter on his forehead. Now that I said that, I’m thinking maybe . . . naw, never never mind.
The guy was a classical narcissistic conman. Not the kind of conman that will build up your trust and confidence and then disappear with your life savings. The life savings you handed him yourself, voluntarily, a few minutes earlier believing he’d be right back with . . .whatever it was it sounded good at the time. Not the kind who can disorient you with charm and charisma and the next thing you know he borrowed your new car . . . a little while ago. Well, a while ago and is coming right back . . .of course he’s coming back . . How long ago? Three weeks? Maybe four or so . . .. damn it!
Those conmen I always have a touch of respect for as professionals. They are good at what they do. Some are so good they have it down to an art. But no. This guy we dealt with this week, he was the idiot kind of conman. Actually,calling him a “con man” is an insult to conmen everywhere.
The guy I’m talking about is the kind of conman that only fools himself forever. He believes his own BS. He cons some of the people for some of the time. But is caught and found out in the end. Nobody really believes him for very long because his greedy, true self shines through.
He can’t keep it hidden for long–the greed is too strong and stupid. The greed-need won’t be ignored. Or avoided; or suppressed. For awhile. Never too long. The greedy-needy monster comes out and takes over and it is: All for me none for you. At any cost and without much subterfuge. No creative tricks, no sleight-of-hand or unbelievable story that just might be true because it is just too much to make up.
If a cat-burglar is akin to the professional conman above, then this guy is akin to the smash and grab burglar with an old truck he rams store windows with so he can grab a couple twelve packs while being recorded by surveillance video. The problem is he always rips a few people off before he is figured out. He always gets to drinks five or six beers before the cops show up after seeing his license plate on the surveillance video.
Back to reality, my client sued him for unpaid wages and for a promise he made to split the profits from a commercial construction project with him.The wages were a no brainer and after enough time and relentless accusations–he gave up. He stopped lying. He told the truth and admitted it. But he didn’t stop lying for long. He had a plan. He’ll through another lie that’s kinda true on top of it. I’m sure he thought that would fool the lawyers and the Court. It didn’t.
At his deposition, it all came back. The game. The con. the lies. But he was stuck. He had already told the truth. The gawd awful truth. So what can he say now?
I don’t know. I have no idea. I really don’t know. I can’t recall. I don’t remember that.
In a deposition just over two hours long, he said a variation of no recollection a world-record worthy amount of times: Idea= 25 (as in “I have no”); know=73 (as in “I don’t); recall=54 (ditto); remember=23 (thought that would be more).
Anyway, I think the Judge read the deposition transcript or at least the court’s clerk did because what follows is the Order I got. It was a painful depo to conduct. It must have been worse to read how much this guy didn’t know. At one point he claimed he was broke and minutes later claimed he could not remember why or what he did with a withdrawal out of the company bank account in the tens of thousands of dollars–that was only about a year earlier!
More to come on the memorandum supporting the Order . . . I’ll explain paragraph two next time. I am not sure I have ever gotten more than I asked a Court for before? At least in a favorable way. . .
Order Granting Plaintiff’s Motion for Summary Judgment
1. Plaintiff’s motion for summary judgment as to his employment claim is GRANTED. Defendants are liable, jointly and severally, for Plaintiff’s unpaid wages in the amount of $12,950.00 plus a penalty of $5,250.00 under Minnesota Statute § 181.13.
2.Plaintiff’s motion for summary judgment as to his contract claim for half of the profits is GRANTED in part. Only Defendant T J is liable to Plaintiff for half of the profits from the project in the amount of $33,142.00.
3.Plaintiff is entitled to recover his costs, disbursements, witness fees, and attorney’s’ fees. Plaintiff’s counsel must submit information on his reasonable attorneys’ fees within 10 days of the date of this Order.
4.Defendants’ counterclaims for Tortious Interference and Breach of Fiduciary Duty are DISMISSED with prejudice.
5.The attached Memorandum is incorporated herein.
More to come . . . .(Including a real good reason to not mix business and pleasure)
Happy, Happy, Joy Joy! Bankruptcy stats for the fiscal year are out! This is better than x-mas and thanksgiving all rolled into one holiday!
BANKRUPTCIES ARE BACK DOWN TO PRE-RECESSION NUMBERS!
There is just a little taste below, but for more sexy stats and tantalizing tables go here: