Friday, October 28, 2011

Chutzpah – Corporate Services v. Shumaker

Chutzpah – Corporate Services v. Shumaker
     The classic definition of chutzpah is when you kill your parents and then throw yourself on the mercy of the court because you are an orphan.  It is highly doubtful that this defense has ever actually been successful.  It does not work in the corporate context either.
     In this case, a group of individuals and a pair of corporations, VMCI and VSI, used another pair of corporations in a fraudulent scheme against American Express.  American Express Corporate Services brought suit.  VMCI and VSI sought to be dismissed from the suit on the grounds that they had been administratively dissolved and, consequently, were not subject to suit.  Corporate Services v. Shumaker, 2010 WL 4340559 (W.D. Ky. 2010). 
     As the first grounds for dismissal, VMCI and VSI asserted that, consequent to their administrative dissolutions, they could not be named in a suit.  The court dismissed this argument, citing the Kentucky statutes expressly providing that the dissolution of the corporation “shall not prevent commencement of a proceeding by or against the corporation in its corporate name.” KRS § 271B.14-050(2)(e).
     The second asserted basis was that, upon the administrative dissolution of each corporation, their respective registered agents ceased to have authority to accept service.  While the court is entirely correct in its conclusion that administrative dissolution does not terminate the authority of the registered agent, citing in support thereof a 1911 case, it sadly missed the statute that expressly sets forth that rule, namely KRS § 271B.14-050(2)(g) (from January 1, 2011, that same rule is set forth as well at KRS § 14A.7-020(4)). 
     The moral of the story – you can’t use a business entity to perpetuate a fraud, kill the business entity by dissolution and from there assert its immunity from the consequences of its actions.

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