Wednesday, July 5, 2017

Sixth Circuit Court of Appeals Considers Ohio Standard for Piercing the Veil and Finds the Claims Lacking

Sixth Circuit Court of Appeals Considers Ohio Standard for Piercing the Veil

and Finds the Claims Lacking


      In a recent decision, the Sixth Circuit Court of Appeals considered an effort to pierce the veil of a corporation in an effort to hold its officers liable on its breach of a contract with respect to a point-of-sale system. The Sixth Circuit would reject that effort. Rutherlan Enterprises, Inc. v. Zettler Hardware, No. 16-4147, 2017 WL 2684109 (Sixth Cir. June 21, 2017).
      This appeal was in response to the District Court's grant of summary judgment dismissing the complaint in its entirety. After affirming the dismissal of certain counts alleging fraudulent misrepresentations on the basis of the statute of limitations, it turned to the argument that there was a breach of contract for which the various individual defendants could be hold personally liable under a theory of piercing the veil. Applying Taylor Steele, Inc. v. Keeton, 417 F.3d 598, 605 (Sixth Cir. 2005), the court found that the elements of piercing were not adequately demonstrated on the record.
      With respect to the failure to observe corporate formalities and hold meetings, the court rejected a suggestion that the mere failure to produce records of the meetings gives rise to an inference that they did not take place.
      With respect to a suggestion that the corporation was insolvent at the time it incurred its obligation, the court reviewed financial documents and tax returns which demonstrated that in fact the company had never been insolvent.
      With respect to an argument of inadequate capitalization, the court found that the mere fact that it began with minimal capitalization did not compel the conclusion that it was inadequately capitalized.
Giving the facts in the light most favorable to Rutherlan, like the District Court, we find no evidence in the record that supports an assertion of fraud, bad faith, or illegality. While it is true that ordinarily factual disputes should be decided by a jury rather than dismissed on summary judgment, that supposes that there is some factual evidence for a jury to consider in the first place. Ruthrtlan pointed to no factual evidence to prove fraud, bad faith, or even legality and its opposition to summary judgment and, likewise, fails to point to any such factual evidence on appeal. (citation omitted)

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