Opinion
No. C2-96-1164.
Filed December 31, 1996.
Appeal from the District Court, Hennepin County, File No. 954285.
James K. Sander, (for Appellant)
Michael J. Froelich, (for Respondents)
Ronald J. Walsh, (for Respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).
UNPUBLISHED OPINION
Roof Depot, Inc. appeals from an order denying its motion for a new trial. We affirm.
FACTS
Roof Depot is a distributor of commercial roofing materials. Respondent S.A.I. Construction, Inc. was a commercial roofing contractor specializing in flat roof commercial buildings. Respondent Steven Schnebly incorporated S.A.I. in 1985 and acted as its president from that time forward. S.A.I.'s only shareholders and directors were Schnebly and his wife. From 1987 through 1994, Roof Depot sold roofing materials to S.A.I., often on credit. S.A.I. consistently carried a debit balance on its Roof Depot account, and sometimes the balance carried over to the following year. In 1994, Roof Depot became gradually more concerned about the size of the balance and the less frequent payments by S.A.I. towards the balance. Beginning in September 1994, S.A.I. had a debit balance of over $100,000. In December 1994, Schnebly informed Roof Depot that S.A.I. was going out of business.
Roof Depot sued S.A.I. and Schnebly individually for recovery of the business debt in the principal amount of $108,449.33. Following a one-day court trial, the trial court found that S.A.I. owed Roof Depot the amount of the debt, but Roof Depot failed to prove that Steven Schnebly used S.A.I. as a constructive fraud upon [Roof Depot] or in any way is liable for the business debt S.A.I. owes to [Roof Depot].
The trial court denied Roof Depot's alternative motion for amended findings or a new trial. Roof Depot appeals.
DECISION
On appeal from an order denying an alternative motion for amended findings of fact and conclusions of law or a new trial, this court reviews only that part of the order denying a new trial. Graphic Arts Educ. Found., Inc. v. State, 240 Minn. 143, 144, 59 N.W.2d 841, 843 (1953) (footnote omitted). On such a review, "any finding of fact may be challenged as not sustained by the evidence." Id. (footnote omitted). When an action is tried by a court without a jury, an order denying a new trial will be affirmed unless the court's findings are manifestly and palpably contrary to the evidence. Appeal of Borstad, 232 Minn. 365, 370, 45 N.W.2d 828, 831 (1951).
Roof Depot argues that the trial court's finding that Schnebly was not individually liable is not sustained by the evidence. Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn. 1979), established a two-prong test to determine when to disregard the corporate entity and impose liability on an individual shareholder. Under the first prong, a court considers whether the shareholders formed the corporation as their "alter ego" or "instrumentality". Id. The first prong is met if a number of the following eight factors are present:
insufficient capitalization for purposes of corporate undertaking, failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of corporation as merely facade for individual dealings.
Id. (citation omitted).
Although Roof Depot claims that S.A.I. was marginally capitalized during 1994 and years prior, the fact that S.A.I. ultimately failed is not enough to show that it was undercapitalized. See Snyder Elec. Co. v. Fleming, 305 N.W.2d 863, 868 (Minn. 1981) (noting that any business that fails is arguably undercapitalized).
Roof Depot argues that S.A.I. failed to observe corporate formalities and that Schnebly's wife was a nonfunctioning director. Although no corporate meetings were held from 1990 to 1995, S.A.I. observed its own bylaws which specified that shareholder meetings shall be held at least every five years. See Minn. Stat. § 302A.231, subd. 1 (1996) (board meetings may be held from time to time as provided in corporation's bylaws). Although Schnebly was the only person actively managing S.A.I., this is not unusual in closely-held corporations where the only directors are a husband and wife. See Snyder, 305 N.W.2d at 868 (directors in a closely-held corporation may be passive).
The evidence does not support Roof Depot's claim that S.A.I. existed as a mere facade for Schnebly's individual dealings. Schnebly maintained a separate business checking account for S.A.I. He prepared and filed separate tax returns for S.A.I. Schnebly rented an office for the business. In summary, the evidence does not show that a number of the eight factors were present, and thus Roof Depot failed to meet the first prong of the Victoria Elevator test.
The second prong is met if there is "an element of injustice or fundamental unfairness." Victoria Elevator, 283 N.W.2d at 512 (citation omitted). Roof Depot's credit manager testified that most roofing contractors did not have the financial resources to pay for the roofing materials until completing a project. Roof Depot carried over balances for S.A.I. on several years. As late as April 29, 1996, S.A.I.'s debit balance was $17,000 and Roof Depot's credit manager was "quite comfortable" with the account at that time. Beginning in September 1996, Roof Depot's primary concern with S.A.I.'s treatment of the account was that "[t]hey were not paying it as fast as they had previously." Roof Depot failed to meet the second prong of the Victoria Elevator test.
Because the trial court's findings are not manifestly and palpably contrary to the evidence, we affirm its order denying Roof Depot's motion for a new trial.