Cargill, Inc. v. Hedge
1985 Minn. LEXIS 1214, 375 N.W.2d 477 (1985)
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Rule of Law:
A court may permit a "reverse pierce" of the corporate veil, disregarding the corporate entity to allow an individual shareholder to claim a personal homestead exemption in property owned by the corporation, but only in limited circumstances where the corporation is the shareholder's alter ego and the pierce serves a strong public policy without unfairly harming creditors or other parties.
Facts:
- On October 24, 1973, Sam Hedge and his wife Annette entered into a contract for deed to purchase a 160-acre farm.
- On March 1, 1974, the Hedges assigned their purchasers' interest in the farm to Hedge Farm, Inc., a family farm corporation, and moved onto the property.
- Annette Hedge was the sole stockholder of Hedge Farm, Inc.; she, her husband Sam, and their daughters were the corporate directors.
- The Hedges lived in the farmhouse as their family home, operated the farm as their own, paid no rent to the corporation, and drew no salaries.
- Between 1976 and 1979, Sam Hedge personally incurred a debt of approximately $17,000 for farm supplies and services from Cargill, Inc.
Procedural Posture:
- Cargill, Inc. obtained a judgment against Sam Hedge and Hedge Farms, Inc. for an unpaid account.
- Cargill executed on the judgment, and the farm property was sold at an execution sale, with Cargill as the winning bidder.
- Prior to the expiration of the one-year redemption period, the Hedges moved the district court (trial court) to enjoin the proceedings, asserting a homestead exemption.
- The trial court ruled in favor of the Hedges, finding they were entitled to exempt 80 acres of the farm as their homestead.
- Cargill, as appellant, appealed the trial court's decision to the Minnesota Court of Appeals, with the Hedges as appellees.
- The Court of Appeals affirmed the trial court's ruling.
- The Minnesota Supreme Court granted Cargill's petition for further review.
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Issue:
Do the owner-occupants of a farm lose their constitutional homestead exemption from judgment creditors by placing legal title to the land in a family farm corporation?
Opinions:
Majority - Justice Simonett
No. The owner-occupants of a farm do not lose their homestead exemption by placing their land in a family farm corporation under these circumstances. While a corporation itself is not entitled to a homestead exemption, a court may disregard the corporate entity through a 'reverse pierce' of the corporate veil. This remedy is appropriate here because there is a strong identity between the Hedges and their corporation, which functioned as their 'alter ego.' Furthermore, allowing the exemption furthers the strong public policy of protecting a debtor's home as a sanctuary. The creditor, Cargill, is not unduly harmed because creditors are presumed to extend credit with the knowledge that an individual debtor's homestead is exempt, and Cargill originally extended credit to Sam Hedge personally, not the corporation.
Analysis:
This case is significant for formally sanctioning the 'reverse pierce' of the corporate veil in the context of a statutory or constitutional right like the homestead exemption. It establishes that courts can look past the corporate form to prevent an injustice or uphold a strong public policy, particularly in the context of a closely held family corporation that is the 'alter ego' of its shareholders. The decision provides a shield for individuals using family farm corporations, preventing creditors from using the corporate structure to defeat personal protections like the homestead exemption. However, the court explicitly limits this holding to exceptional cases to avoid creating a tool for debtors to selectively ignore the corporate form to their advantage.
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