Monday, July 13, 2020

A Case of Stolen Corporate Identity

A Case of Stolen Corporate Identity

      In a decision rendered in January of this year, the Federal District Court for the Western District of Kentucky considered a dispute that included an effort to in effect steal the identity of a business corporation. Burkesville Hardwoods, LLC v. Coomer, Civil Act. No. 1:18-CV-00018-GNS-HEB, 2020 WL 353232 (W.D. Ky Jan. 17, 2020).

     It requires a careful review of the opinion, including its footnotes, to put together what seem to be predicates of the dispute. Essentially, the estate of R. T. Baker leased certain lands in Cumberland County to Travis Coomer Drilling Company, a corporation (“TCD”), for oil and gas extraction. TCD was administratively dissolved on September 30, 2014, for failure to file its annual report. In the meantime, the property subject to the lease with TCD was conveyed to Burkesville Hardwoods, LLC (“Burkesville”). After TCD was dissolved, Burkesville caused there to be incorporated a new corporation under the name Travis Coomer Drilling Company (“TCD2”). Ergo, Burkesville, the property owner, created a new corporation with the exact same name of its administratively dissolved lessee. The nature of the back story of the relationship between Burkesville and TCD is not reviewed in the decision, but clearly there was something going on.

      A point not addressed in the opinion is why TCD was never reinstated from its administrative dissolution under either its original name (if done before the incorporation of TCD 2 on April 10, 2017), or thereafter under a different name.

     As an aside, in reviewing the records of the Kentucky Secretary of State, several notices from that office relating to the annual report and subsequent administrative dissolution were returned to the Secretary of State as undeliverable, presumably because the company had moved from that address and not updated its records with the Secretary of State. This decision is yet further admonition in making sure that those addresses are kept current.

     Regardless, Burkesville filed this action against Travis Coomer individually, asserting he had no right to extract oil and gas from the leased property. Coomer brought counterclaims in order to enforce that lease, alleging as well that Burkesville had misappropriated the identity of TCD by incorporating TCD2. This decision was rendered in response to Burkesville’s  application for a preliminary injunction and for summary judgment.

      With respect to the requested preliminary injunction, it was rejected because the only claimed injuries could be fully compensated with monetary damages. In addition, notwithstanding an assertion to the contrary, Burkesville had made no showing that the continued extraction of the oil and gas by Coomer would have a negative impact upon its goodwill or reputation. In addition, the court found that the equities did not balance in favor of Burkesville, noting that it had interfered with Coomer’s rights under the lease (here it would seem the court conflated Travis Coomer and his dissolved corporation) and that it had acted “unscrupulously” by having “incorporated a company using Coomer’s name for no discernible reason other than disrupting Coomer’s business operations.” 2020 WL 353232, *3. As to that last point, in a footnote, the court explained and rejected the assertion that the incorporation of TCD 2 constituted a “squeeze out”, going on to explain what is an actual squeeze out transaction.

      Turning to Burkesville’s motion for summary judgment with respect to the validity of the lease, the motion was resoundingly rejected. With respect to business organization law, there was rejected the assertion that TCD could not enforce the lease because it had been administratively dissolved. This assertion was rejected on the basis of KRS § 271B.14-050(2)(f), which provides that the dissolution of a corporation does not prevent the corporation from commencing a legal proceeding in its own name, and as well citing Robert W. Keats et al., Kentucky Practice Series: Methods of Practice § 14.82. Rather: 

Hardwoods is incorrect when it asserts that simply because TCD was administratively dissolved that entity cannot maintain an action to enforce the Lease. Nor does administrative dissolution transfer title of the Lease in any way. KRS 271B.14-050(2)(a) (“Dissolution of the corporation shall not [t]ransfer title to the corporation’s property ….”). Because title to TCD’s interest in the Lease was not destroyed by the corporation’s administrative dissolution, Hardwoods is incorrect when it asserts that the Lease should be rendered void for unenforceability. Id.,*6.
      The court went on to reject the notion that Coomer no longer owned TCD subsequent to its administrative dissolution and Burkesville’s incorporation of TCD2. 

Burkesville Hardwoods, however, points to no authority supporting the assertion that filing Articles of Incorporation in an administratively dissolved entity’s former name gives the new corporation ownership over the previous entity itself. Coomer did not lose ownership of TCD simply because Burkesville Hardwoods incorporated TCD2 after TCD’s administrative dissolution. Neither does Burkesville Hardwoods point to any authority supporting its claim that a business owner loses ownership of an entity that is been administratively dissolved, nor the proposition that Burkesville Hardwoods somehow acquired an interest in the lease because it now operates under the name matching the lessee under the Lease. Id.
      In addition to allowing Coomer’s counterclaim for Burkesville’s interference with contract (these being the contracts between Coomer and third parties) to proceed, the court as well allowed a claim for misappropriation of name and identity theft to proceed. Writing as to this topic, the court wrote:

Coomer’s misappropriation claim against Hardwoods for filing Articles of Incorporation under the name “Travis Coomer Drilling Company” also survives. The Kentucky Supreme Court in Montgomery v. Montgomery, 60 S.W.3d 524 (Ky. 2001), explained that the “right of publicity protects the right to control the commercial value of one’s identity.”  Id. at 528. “[I]t is clearly the commercial interests in one’s identity that the appropriation prong of tort serves to protect the most.” Id. (citing Restatement (Second) of Torts § 652C cmt. a). As this Court has recognized before, the Kentucky Supreme Court adopted the principles of the invasion of privacy tort from the Restatement (Second) of Torts.  Thornton v. W. & S. Fin. Grp. Beneflex Plan, 797 F. Supp. 2d 796, 813 (W.D. Ky. 2011) (citing  McCall v. Courier-Journal & Louisville Times Co., 623 S.W.2d 882, 887 (Ky. 1981)). A branch of this tort is a cause of action for the appropriation of one’s name or likeness, which the Restatement (Second) for Torts defines as a claim arising when “[one appropriates to his own use or benefit the name or likeness of another....” Restatements (Second) of Torts § 652C.
Hardwoods cannot refute that Coomer’s given name is the primary component of the corporate name used by Hardwoods in incorporating the new entity. Although Hardwoods asserts Coomer is currently not legally entitled to use of the name “Travis Coomer Drilling Company,” Hardwoods cannot refute the potential commercial benefit to Hardwoods by appropriating Coomer’s name. Whether Hardwoods obtained a benefit with its use of Coomer’s name is a factual issue precluding summary judgment on Coomer’s misappropriation claim.
In sum, Coomer’s counterclaim for interference with the Lease is dismissed with prejudice, while Coomer’s misappropriation and interference with other contracts claims survive. Id. at **8-9.

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