K.C. Roofing Center v. on Top Roofing, Inc.
1991 WL 59861, 1991 Mo. App. LEXIS 763, 807 S.W.2d 545 (1991)
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Rule of Law:
A court may pierce the corporate veil and hold a shareholder personally liable for corporate debts when the shareholder exercises complete domination over the corporation and uses that control to commit an unjust act in contravention of a plaintiff's legal rights, thereby causing the plaintiff's injury.
Facts:
- Russell and Carol Nugent were the sole shareholders, officers, and directors of a series of roofing corporations they created and dissolved over many years, all operating from the same address with the same phone number.
- In 1985, their corporation was named On Top Roofing, Inc. (On Top).
- In 1986, while On Top had an unpaid judgment against it, Russell and Carol Nugent paid themselves over $100,000 in salaries and the corporation paid nearly $100,000 in rent for property they personally owned.
- By March 1987, On Top was insolvent and Russell Nugent made a decision to only pay secured creditors, not trade suppliers.
- From April to August 1987, knowing On Top was insolvent and owed $75,000-$100,000 to other suppliers, Nugent caused On Top to purchase approximately $45,000 in roofing supplies on credit from Kansas City Roofing Center (KCRC).
- In August 1987, On Top ceased doing business and the Nugents incorporated a new company, RNR, Inc.
- In November 1987, after On Top had supposedly ceased business, an order was placed with Lumberman’s Mutual Wholesale Company for over $7,000 in materials under the On Top name.
- For at least two years after On Top ceased formal operations, Russell Nugent continued to use the On Top Roofing name on company trucks, building signs, estimate sheets, and in telephone directory listings.
Procedural Posture:
- Kansas City Roofing Center (KCRC) and Lumberman’s Mutual Wholesale Company filed separate lawsuits against On Top Roofing, Inc., Russell Nugent, and Carol Nugent in a Missouri trial court to recover debts.
- The trial court consolidated the two actions for a joint bench trial.
- The trial court found in favor of the plaintiffs, piercing the corporate veil of On Top Roofing, Inc.
- The trial court entered judgment holding Russell Nugent personally liable for the debts, but found no liability for Carol Nugent.
- Russell Nugent, as appellant, appealed the judgment to the Missouri Court of Appeals, the intermediate appellate court.
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Issue:
Does a shareholder's pattern of creating and dissolving corporations to avoid paying creditors, while continuing to operate the business under the old corporate name and incurring new debt while insolvent, justify piercing the corporate veil to impose personal liability?
Opinions:
Majority - Kennedy, J.
Yes. A shareholder's pattern of conduct that uses the corporate form to perpetrate an injustice justifies piercing the corporate veil. The court found substantial evidence to satisfy the three-part test for piercing the veil. First, Russell Nugent exercised complete control and domination over On Top as its sole decision-maker. Second, Nugent used this control to commit an unjust act by operating an 'intricate corporate shell game,' creating new corporations to get a 'fresh start' from the debts of prior ones. He ordered supplies from plaintiffs on credit while knowing On Top was insolvent and had no intention of paying unsecured creditors. Third, this control and breach of duty proximately caused the plaintiffs' losses. Allowing Nugent to hide behind the corporate shield after misleading suppliers and the public would be unfair, unjust, and inequitable.
Analysis:
This case provides a classic example of the equitable remedy of piercing the corporate veil, particularly in the context of a closely-held corporation. It affirms that the doctrine does not require a showing of actual fraud; using the corporate form to perpetrate an 'injustice' or for an 'inequitable' purpose is sufficient. The court's focus on Russell Nugent's pattern of dissolving indebted corporations and starting new 'fresh' ones establishes that such a history is highly relevant evidence of an improper purpose. This decision reinforces that shareholders cannot abuse the corporate form as both a sword (to conduct business) and a shield (to unfairly avoid obligations) without risking personal liability.
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