Woodruff Construction, LLC v. K.W. "Casey" Clark

Majority - Bower, J.

Yes, the evidence warrants piercing the corporate veil of Clark Farms, Ltd. to hold K.W. Clark personally liable for the judgment debt owed to Woodruff Construction, LLC because Clark consistently disregarded the corporate entity's separateness through commingled finances, inadequate record-keeping, and neglected corporate formalities. The court began by acknowledging that piercing the corporate veil is an equitable remedy reviewed de novo. While the corporate device generally insulates owners from personal liability, it may be disregarded under "exceptional circumstances" where the corporation is a "mere shell, serving no legitimate business purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice." The court applied a multi-factor test, noting it is not exhaustive and that the veil may be pierced for equitable purposes or to prevent injustice, fraud, or fundamental unfairness. First, regarding undercapitalization, the court found Woodruff did not sufficiently prove that Clark Farms was undercapitalized at its formation or when it entered the contract with Woodruff. While a corporation can become undercapitalized later, the evidence of purposeful underfunding by Clark was not sufficiently clear to merit piercing on this factor alone, despite conflicting testimony regarding substantial loans between Clark and the corporation. Second, the court found clear evidence of commingled finances. Clark used the Clark Farms bank account interchangeably with his personal funds and his two sole proprietorships (Casey Clark Farms and White Pines Farm). Revenues from all entities were deposited into the Clark Farms account, and bills for each entity were paid from it, with only internal bookkeeping transfers. Clark also used Clark Farms funds to pay interest on all his notes, corporate or personal, and his testimony indicated he did not view the corporation as separate from himself, stating he would not repay debts to Clark Farms because "the corporation is owned by me." This consistent pattern of disregarding financial boundaries weighed heavily. Third, the court determined that Clark Farms' books were not kept separately. Clark testified that his Clark Farms corporate balance sheet included personal notes and farming operation loans, which were not corporate debts, and the records used for corporate tax filings included all these loans. No specific records tracked loans between Clark Farms and Clark or his sole proprietorships, and a single, ongoing promissory note for loans from Clark Farms to Clark lacked specific amounts or dates. This demonstrated inadequate distinction and recording of corporate activities. Fourth, the court found corporate formalities were not followed. The court clarified that the 2001 incorporation of Clark Farms was a new corporation, not a reinstatement of the dissolved 1997 entity. For this new 2001 corporation, no bylaws, corporate minutes book, or shareholder ledger were produced, and Clark did not document shareholder meetings. While administrative dissolutions and reinstatements for biennial report failures are statutorily cured, the overall lack of adherence to basic corporate governance significantly contributed to the finding. Fifth, the court agreed with the district court that Clark Farms was not a "mere sham" because it successfully conducted business for a number of years. However, this factor alone did not negate the strong evidence supporting other factors. Ultimately, the court concluded that Clark's egregious use of the corporate bank account for non-corporate purposes, inadequate corporate books, and general disregard for corporate formalities, combined with his own testimony showing he did not consider the business or its finances separate, justified piercing the corporate veil. The district court's decision was reversed.