Summary
noting that Turner did not adopt reverse veil piercing and that Williams failed "to provide any thoughtful insights or compelling arguments as to why this concept should be adopted in the Commonwealth"
Summary of this case from EIA Props., LLC v. Fenwick Equestrian, LLCOpinion
NO. 2012-CA-000327-MR
06-27-2014
CECIL WILLIAMS ESTATE; LINDA WILLIAMS, EXECUTRIX APPELLANT v. WILLIAM C. OATES ESTATE; BILLY OATES, ADMINISTRATOR; BILLY OATES, AS AN INDIVIDUAL; AND JOE WALTON APPELLEES
BRIEFS FOR APPELLANT: Chester I. Bays Bowling Green, Kentucky BRIEF FOR APPELLEES: S. Frank Smith, Jr. Bowling Green, Kentucky
NOT TO BE PUBLISHED APPEAL FROM WARREN CIRCUIT COURT
HONORABLE STEVE ALAN WILSON, JUDGE
ACTION NO. 91-CI-00127
OPINION
AFFIRMING
BEFORE: ACREE, CHIEF JUDGE; MOORE, AND VANMETER, JUDGES. MOORE, JUDGE: Linda Williams, on behalf of the Cecil Williams estate, appeals the order of the Warren Circuit Court dismissing her case finding insufficient evidence to pierce the corporate veil of the William C. Oates Realty Co., Inc. and to hold the Appellees individually liable for a default judgment entered in 1991 and later renewed and reentered in 2006. After careful review of the record, we affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Cecil Williams loaned $62,500 to William Oates in August 1990. Apparently there were some representations made by Oates to Williams regarding the residence at 1546 Chestnut Street in order to induce the loan. Allegedly, Oates stated that the house belonged to him and that it had a fair market value in excess of $200,000. The house, however, was actually titled in the corporate name of William C. Oates Realty Co., Inc. and had been since it was purchased in 1984. Oates also allegedly told Williams that he needed the money for a real estate transaction, and he did not want to borrow against the house. Oates told Williams he would be repaid as soon as the transaction closed five days later. Regardless, the loan from Williams to Oates was unsecured. Oates failed to repay the loan, and Williams sued. Williams obtained a default judgment against Oates on April 15, 1991, for the amount of the loan plus interest. Several attempts were made by Williams to recover the money, but no money was ever recovered.
Oates, as an individual, was involved in a lawsuit in 1991 with Carole Mills. He claimed to have given her loans in the total amount of approximately $374,700 from 1987 through 1990. Oates testified in that case that part of this money was his own money, part of it he borrowed from banks, and part of it he convinced other individuals, including Williams, to give him so that he could give it to Mills. The court ordered Mills to pay back to Oates only a small fraction of the total amount claimed to have been loaned, approximately $18,700. It is not clear from the record whether Oates was ever repaid by Mills.
William C. Oates Realty Co., Inc. was administratively dissolved by the Secretary of State in November 1993 for reasons not specified in the record. Oates died intestate on November 26, 1996, leaving his wife, Esther, and son, Billy, who was later named the administrator of the estate in July 1998. An inventory of the William C. Oates Estate was made in December 1998. The only items listed as Oates' assets were (1) Funds on Hand in the amount of $5,975, (2) Mineral Rights with an estimated value of $300, (3) Common Stock of the William C. Oates Realty Co., Inc. in the amount of $15,000, and (4) a 1988 Chevrolet Caprice valued at $600. Billy transferred the residence to his mother in 2002. When Esther died in 2003, Billy became the sole owner of the home.
A January 28, 2005 Warren Circuit Court order and the June 18, 2010 Court of Appeals opinion both state that after the administrative dissolution of the William C. Oates Realty Co., Inc. in 1993, all corporate assets were distributed to the corporation's single shareholder, William Oates.
The 2002 deed transferring the Chestnut Street property to Esther and Billy Oates names the William C. Oates Realty Co., Inc. as the grantor and states that Esther and Billy are the only two shareholders of the corporation by the Kentucky laws of descent and distribution.
In October 2003, Williams filed a motion with the court to amend and supplement the original complaint in another attempt to enforce the judgment. The court granted leave to amend and supplement pursuant to Kentucky Rules of Civil Procedure (CR) 15.01. A second motion to amend was also granted and entered in March 2004. Williams remained unable to collect the original default judgment and filed a motion to reinstate and reenter the judgment in January 2006 due to the approaching end of the fifteen-year statute of limitations pursuant to Kentucky Revised Statutes (KRS) 413.090. The Warren Circuit Court reinstated and reentered the judgment in February 2006, but reversed the two previous orders allowing Williams to amend the original complaint. The Court of Appeals affirmed this decision holding that the original default judgment remained in effect; however, the Warren Circuit Court lost jurisdiction of the judgment ten days from the date the original default judgment was signed and entered on April 15, 1991. Therefore, the October 2003 and March 2004 orders permitting the amending and/or supplementing of the original complaint were void ab initio.
In September 2007, Williams moved the court to file a supplemental complaint pursuant to CR 15.04, and it was denied. He renewed his motion to file supplemental pleadings in November of that same year. Williams also moved the court to enter an order of sale against real property that was distributed to Oates' heirs. In his motion seeking to have the real property sold, Williams moved the trial court to "pierce the corporate veil and hold that [Williams'] claim is a secured claim against the real property." Williams' motions were again denied. The Court of Appeals vacated the trial court's denial and held that Williams could file supplemental pleadings pursuant to CR 15.04 so long as the pleadings sought only to invoke the trial court's jurisdiction "to enforce its own judgments and remove any obstructions to such enforcement." Williams sought to file a supplemental complaint setting forth "transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented." Specifically, Williams sought to execute the judgment against an alleged former asset of Oates' dissolved corporation, the Chestnut Street property, in order to satisfy the uncontested judgment against Oates. Williams died prior to the time the opinion of the second appeal was rendered in June 2010. His widow, Linda, continues to pursue enforcement on behalf of the estate.
Williams filed supplemental pleadings in July 2011 pursuant to the Court of Appeals' June 2010 opinion alleging certain occurrences since the filing of the original complaint. These occurrences include the production of Oates' 1991 tax return, in which the William C. Oates Realty Co., Inc. is designated as a sole proprietorship for that year. Williams also notes that the Articles of Incorporation for the William C. Oates Realty Co., Inc., list the office at 921 E. Fifteenth Street in Bowling Green, Kentucky. Williams alleges that there are no corporate records, and no evidence that a corporation ever existed, paid any taxes, insurance, maintenance or other expenses for the Chestnut Street residence.
Williams also filed interrogatories and requests for admissions in order to supplement the original complaint. Billy Oates stated that he and his parents had used the Chestnut Street property as their residence since it was purchased. He also admitted that he has looked and could not locate any corporate records. Billy maintained that his father kept files, real estate forms and signs at the home and had a room in the home that was considered his office, which had a work desk. Billy stated that the only corporate asset was the Chestnut Street property.
Williams then filed several motions, including a motion for summary judgment specifically raising the issue of piercing the corporate veil. She argued that the fact that the corporate-titled dwelling was used exclusively as an individual residence and the representation to the Internal Revenue Service (IRS) that the business was a sole proprietorship compel an award of summary judgment in her favor.
Billy responded by saying that no issue of material fact exists because of the delay in raising the piercing of the corporate veil issue. He asserted that there is no evidence sufficiently supporting the claim in this case.
The motion for summary judgment was considered by the Warren Circuit Court, and it determined that there was insufficient evidence to prove piercing of the corporate veil as a matter of law and dismissed Williams' complaint. Williams now appeals.
We note that the default judgment was not set aside as alleged by Williams on appeal. It was simply determined that Williams has not stated sufficient grounds on which to execute the default judgment.
II. STANDARD OF REVIEW
"The standard of review on appeal of a summary judgment is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996); CR 56.03. Granting of a summary judgment motion "should only be used 'to terminate litigation when, as a matter of law, it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor and against the movant.'" Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 483 (Ky. 1991) (quoting Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255, 256 (Ky. 1985)). Because a summary judgment involves no fact-finding, this Court's review is de novo, in the sense that we owe no deference to the conclusions of the trial court. Blevins v. Moran, 12 S.W.3d 698, 700 (Ky. App. 2000).
III. ANALYSIS
The legal posture of the arguments before the Court leaves this Court somewhat perplexed. The main legal theory asserted by Williams to the trial court to satisfy the outstanding debt owed by Oates was piercing the corporate veil of the William C. Oates Realty Co., Inc. In Williams' memorandum supporting her motion for summary judgment submitted to the trial court, she recites the standard for piercing the corporate veil and how it applies to the case at bar. Williams now states in her appellate brief that she does not seek to pierce the corporate veil. What we glean from Williams' appellate brief is that she in essence now wants a "reverse piercing" of the corporate veil to hold the William C. Oates Realty Co., Inc. responsible for Oates' personal debt associated with the August 1990 loan of $62,500. So, on the one hand, she does not ask this Court to review the circuit court's decision on piercing the corporate veil; but yet, the main theory on which she seeks to recover now is not properly before this Court.
It has long been well settled in the law that matters not precisely raised or adjudicated before the trial court cannot be considered when raised for the first time on appeal. Fischer v. Fischer, 197 S.W.3d 98, 102 (Ky. 2006); Combs v. Knott County Fiscal Court, 238 Ky. 456, 141 S.W.2d 859, 860 (1940). Our courts have stated on numerous occasions, "appellants will not be permitted to feed one can of worms to the trial judge and another to the appellate court." Elery v. Commonwealth, 368 S.W.3d 78, 97 (Ky. 2012) (citing Kennedy v. Commonwealth, 544 S.W.2d 219, 222 (Ky. 1976), overruled on other grounds by Wilburn v. Commonwealth, 312 S.W.3d 321 (Ky. 2010)).
Certainly, Williams wants to obtain Oates' sole corporate asset, the Chestnut Street property, in order to satisfy his personal debt from the 1990 loan of $62,500. But, she has not managed this litigation well. Even if we could somehow construe that the issues she raised before this Court were properly preserved, she has failed to present or cite to any legal authority to support them in her appellate brief. CR 76.12(4)(c)(v) states, in part, that an appellant's brief shall contain "[a]n 'ARGUMENT' ... with ample supportive references to the record and citations of authority pertinent to each issue of law ...." It is not the responsibility of this Court to research and construct a party's legal arguments.
We pause to note that reverse piercing of the corporate veil was mentioned by the Supreme Court of Kentucky in Turner v. Andrew, 413 S.W.3d 272 (Ky. 2013). "Outsider reverse" piercing is a theory in which the creditor of an individual who is the sole member of a corporation seeks to pierce the veil to obtain corporate assets to satisfy the member's personal debt. Id. at 277. However, no version of the reverse piercing theory was adopted, and speculation that Kentucky would probably not recognize reverse piercing was also noted. Moreover, Williams fails to provide any thoughtful insights or compelling arguments as to why this concept should be adopted in the Commonwealth.
There are no published opinions in Kentucky that recognize or adopt reverse piercing of the corporate veil.
Williams' theory asserted below and before this Court may also, however, be construed as simply an assertion that the William C. Oates Realty Co., Inc. never had any kind of corporate existence and that is was simply a sole proprietorship. Upon review, we do not agree with her assertions.
KRS 271B.2-030(1) states that "corporate existence shall begin when the articles of incorporation are filed by the Secretary of State." Additionally, a copy of the annual report as required by KRS 271B.16-220 (former KS 571) may be used as evidence of corporate existence. International Harvester Co. v. Commonwealth 144 Ky. 403, 138 S.W. 248, 252 (1911). A copy of the Articles of Incorporation of the William C. Oates Realty Co., Inc. was included in the record, and it was filed by the Secretary of State on March 14, 1983. Furthermore, we take judicial notice of the Secretary of State's website which indicates that the William C. Oates Realty Co., Inc. filed annual reports from 1989 through 1992. Clearly, the William C. Oates Realty Co., Inc. established its corporate existence.
A court may properly take judicial notice pursuant to Kentucky Rules of Evidence (KRE) 201 of public records and government documents, including those available from reliable sources on the internet. Polley v. Allen, 132 S.W.3d 223, 226 (Ky. App. 2004)
--------
Williams also alleges corporate nonexistence by asserting that no corporate tax returns were ever filed on behalf of the corporation. A subchapter S Corporation pays no corporate income tax as an entity; rather, the income or losses of the corporation are passed through to its shareholders who then report the income or loss on their personal tax returns. See 47B C.J.S. Internal Revenue §§ 374 to 378 (2009). Based on the tax returns contained in the record from 1987 through 1990, Oates attached a Schedule E to his personal tax return labeling the William C. Oates Realty Co., Inc. as an S Corporation and reported its income or loss. Accordingly, we disagree with Williams that the William C. Oates Realty Co., Inc. failed to exist.
Williams offers Oates' 1991 income tax return as evidence that the William C. Oates Realty Co., Inc. was not acting as a corporation but as a sole proprietorship based on the representations made to the IRS on the return. While it is peculiar as to why the tax return was filed in this manner, simply representing that the business operated as a sole proprietorship for that year does not make it so. A corporate annual report was filed with the Secretary of State in that same year, and the corporation was not administratively dissolved until November of 1993.
At the end of her brief, Williams asks this Court to make a variety of rulings to "go as far as it can go in issuing directions to the trial court to assure a quick resolution of this case ...." We realize that this case has been going on since 1991 and has been before this Court three times; however, it is improper for this Court, or any court, to practice a case for any litigant and we will not bypass proper court procedures and due process considerations. It is unfortunate that Williams has not been able to execute on the judgment she has. However, a loan for the sum at money at issue should have been secured when it was originally made.
For the reasons as stated, we therefore affirm.
ACREE, CHIEF JUDGE, CONCURS.
VANMETER, JUDGE, CONCURS IN RESULT ONLY. BRIEFS FOR APPELLANT: Chester I. Bays
Bowling Green, Kentucky
BRIEF FOR APPELLEES: S. Frank Smith, Jr.
Bowling Green, Kentucky