Intro: applying a two prong test. The
Intro: Your honors and may it please the court, I alongside co-counsel,represent small businesswoman Paula Keene. I will explain why it is important to uphold West Virginia Statute 31d-6-622 to maintain the corporate veil and to show that Ms. Keene is not personally responsible for corporate debts accrued by Main Event. My co-counsel will explain why punitive damages should not be awarded against Ms. Keene. Your honor, I respectfully request 2 minutes for rebuttal.
Theme: Your honors, this case is about the fundamental right of shareholder protection.The right of a small businesswoman to pursue her goals and not be punished for her initiative and contribution that is so essential to American business. That is the right Quik Food attempts to take away and is forcing this court to once again protect.
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Roadmap: Your honors, the court should reverse the circuit court’s ruling for 3 reasons. First Ms. Keene maintained a separation of interest, Second Main Event was properly capitalized, and third Quik Food was a sophisticated creditor who assumed the risk. General Rule: W. Va. Code § 31D-6-622 (2011).In WV, Corporate shareholders are not liable for the acts or debts of the corporation but may become liable by reason of own conduct.
The court in Laya v. Erin Homes structured a format for analyzing this liability in applying a two prong test. The first prong (a corporate formalities requirement) ensures corporations follow corporate formalities and a unity of interest. Nineteen factors are used to analyze a corporation. Prong two (fairness requirement), requires a corporation not be grossly undercapitalized or commit wrongdoings.
A debt/equity ratio is used to identify capitalization. Both prong 1 and 2 must be violated in order to hold the shareholder liable. A Third prong exists which classifies corporations who possess the ability to run a reasonable credit check. Sophisticated entities assume the risk and are responsible for the knowledge a reasonable credit investigation would provide.
These three prongs are taken in a totality of the circumstances to ensure corporate shareholders are not running a corporate fiction or abusing the integrity of a corporation. Argument Ms.Keene maintained a proper separation of interest b/t herself and Main Event The two following cases will demonstrate situations and reasoning that will prohibit a plaintiff from piercing Prong 1 No Pierce In, Mills v. USA Mobile Communications, the Court of Appeals of West Virginia denied the plaintiff’s attempt to pierce the corporate veil because the corporation maintained key corporate formalities requirements. -plaintiff contracted with the corporation and not the individual shareholders. (demonstrates corporate liability from the president and not personal liability) plaintiff was paid directly from the corporation’s account, and not from an account of an individual shareholder. (demonstrates a disparity of funds) **WAS NOT USED AS A SHELL No Pierce In, T&R Trucking, Inc.
v. Maynard, the Court of Appeals of West Virginia awarded protection over the corporation’s president because he adhered to additional key formalities. -President never commingled personal with corporate funds, or -failed to maintain proper insurance or -failed to maintain adequate records. In Contrast, courts have designated piercing to cases such as follow: Yes Pierce In Rudd Equip.
Co. v.Terry Raines Contracting (2010), The District Court of West Virginia allowed the plaintiff to pierce the corporate veil because the defendant failed to adhere to proper formalities.
-commingled personal and corporate funds -grossly undercapitalized the corporation in order to defraud and harm creditors -abandoned company to avoid responsibility for their debt -court reasoned their actions were to use the corporate shield as a shell (abused)—this is the standard for piercing the veil Keene Pros -majority of formalities kept: SHE MAINTAINED ALL FORMALITES FOR 11 MONTHS -issued stock, -never commingled funds, -1 meeting missed in 13 months, majority (7/13) minutes kept, -maintained adequate records, -proper insurance, -look where money delegated: delegated to setting up the infrastructure to properly run the corporation *hit the economic downturn argument hard FOR WHEN THEY ASK: BUT WHAT ABOUT ALL THE FORMALITIES SHE DIDN’T FOLLOW Sanders v. Roselawn Memorial Gardens, 152 W. Va. 91, 159 S.
E. 2d 784 (1968) the court stated that “‘the corporate entity may be disregarded in those situations where the corporate form is being used to perpetrate injustice, defeat public convenience, or justify wrongful or inequitable conduct. ‘” Prong 2 To continue with Rudd Equip Co. .
Terry Raines Contracting -Where no amount was stated the court focused on the grossly undercapitalized (THE STANDARD) corporation in order to defraud and harm creditors -The capitalization requirement is necessary to prevent wrongdoing. (corporate shell) -As the holding in Mills demonstrates, the goal is to prevent wrongdoing and that is the justification for piercing. Let us remember, the company was incorporated with a 50k personal investment from Keene, and a 100k loan. (any small business takes bank loans-its reasonable) -therefore not only does her 50k loan fall within the experts range, but surely does the 150k. it is apparent she was not abusing the corporate shield and committing wrongdoing Record page 9. Quik Food’s own expert testifies to an adequate level of capitalization 40k-300k To my third point, Prong 3 In Laya v. Erin Homes, -yes quik food is not a bank or lender -but the language shows that those capable of conducting an investigation should be held to assume the risk – Quik Food was incorporated twenty eight years ago -national wholesale food supplier.
-It operates twenty-six warehouses – transports food to forty-eight states. -Average annual revenue is approximately $50 million multiple contracts within West Virginia. These include three national hotel chains, two resorts, fifty-three restaurants, and fifteen public school systems. With nationwide presence and multi-million dollar contracts, it possessed the resources, ability, and opportunity to conduct an investigation of Main Event’s financial history. -clearly they qualify Prayer for Relief Today, Quik Food asks this court to ignore the fact that they are a 50 million dollar multi state food supplier and to focus on the fact Ms.
Keene missed a few meetings and ran the business out of her home.But what Quik food will not tell you is she ran a legitimate operation for 12 months and the use of the corporate van and her home was only after she cut back on expenses in order to pay Quik Food. Opposing counsel is correct the defendants in Kinney and Dieter’s veil are the type of defendants piercing the corporate veil is to apply to, but as the record shows, Kinney and Dieter violated just about every formality and ran corporate fictions. In contrast, my client is a legitimate business woman who fought to keep her business open until the economy forced her to close. Rebuttle Your honor the standard is grossly undercapitalized, if it was solely undercapitalized no business could meet this standard. Therefore, opposing counsel misled the circuit court in their decision.
The whole purpose of the piercing the veil is to stop the abuse of the corporate form, not to punish small businesses for missing meetings, and not counting minutes. 1st prong: The first prong as laid out in Laya is not met because (disregard of formalities requirement) Mills: Maintained key corporate formalities (re-read) Plaintiff contracted w/ corp not shareholders Paid directly from corps account.T+R trucking—never failed to maintain adequate records or proper insurance (Keene set all this up to have a legitimate food operating service). If asked about personal guarantees.
Most bank require nowadays for a start up company and they properly held the formalities with the bank Analyzing Dieter: Overall they’re looking at whether or not they are looking at a corporate shield, the totality of the circumstances test, certainly more factors would lead to a stronger case for piercing, and in this case opposing council simply does not have them. Initially it ran a straight business with arguably every formality met.Then hit the economic downturn argument. State the factors: Corporate minutes Personal use of vans Personally guaranteeing payment Using her office –personally guaranteed to bank debts from company. She had to do what she did to maintain her career and livelihood -doing the best she could hoping for the best to turn -cut salary, cut employees, sold cars, etc. -crisis management mode West Virginia Code states that, “a shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he or she may become personally liable by a reason of his or her own acts or conduct.
§ 31D-6-622. Liability of shareholders, W. Va. Code, § 31D-6-622. Record: pg. 7 Quik Food’s own expert says, “Based on my research of the catering industry in this area, the reasonable start-up expensese, even for a small catering company, ranges from $40,000 to $300,000. From the record for the first 11 months they abided by all corporate formalities, it was only as a consequence of the economic downturn that tough business decisions had to be made.