Justia Business Law Opinion Summaries

Creditor attempted to collect on debt incurred by a wholly-owned subsidiary, but the subsidiary had been deprived of all income and rendered asset-less by the acts of its parent and grandparent corporations (Appellees). Creditor sued Appellees, seeking to pierce the corporate veil and establish Appellees' liability for the judgment. The trial court granted summary judgment to Creditor and the court of appeals affirmed, finding it appropriate to pierce the corporate veil where the evidence showed the subsidiary was merely an instrumentality or alter ego of Appellees, operated by them to achieve tax benefits and avoid various liabilities. The Supreme Court affirmed, holding the lower courts properly pierced the subsidiary's corporate veil to hold Appellees liable for the debt to Creditor because Appellees exercised complete dominion and control over the subsidiary, depriving it of a separate existence, and both Appellees derived the benefits associated with the lease with Creditor while rendering the subsidiary an income-less and asset-less shell incapable of meeting its lease obligations.

General Electric (GE) obtained a judgment against Intra-Med for breach of contract. Thomas Schultz was the president and sole shareholder of Intra-Med. After collecting only a portion of the judgment, GE intervened in another lawsuit and filed a third-party complaint against Schultz seeking to pierce the corporate veil and hold him personally liable for the judgment against Intra-Med. The trial court entered judgment on the pleadings in favor of GE, allowing GE to pierce Intra-Med based upon the instrumentality theory of veil piercing. The court of appeals affirmed, concluding (1) none of Schultz's affirmative defenses negated the fact that he admittedly used corporate funds and property as his own to GE's detriment, and (2) Schultz's admissions fulfilled the requirements for piercing the corporate veil and supported the trial court's judgment on the pleadings. The Supreme Court reversed, holding that the trial court improperly granted GE's motion for judgment on the pleadings, as Schultz's admissions did not conclusively establish harm, fraud, or unjust loss, the three elements that must be established to warrant a piercing of the corporate veil under the instrumentality theory.

Doctors' Associates, Inc. (DAI) owns the "Subway" trademark and franchises the right to operate Subway sandwich shops nationwide. A claimant sought workers' compensation benefits for a work-related injury sustained while working for an uninsured Subway franchisee. The DAI and Uninsured Employers' Fund (UEF) were later joined as parties. The sole issue submitted for a decision by the ALJ was whether DAI was a contractor and, thus, liable to the employee of its uninsured subcontractor. The ALJ dismissed the UEF's claim against DAI, ruling that Ky. Rev. Stat. 342.610, which provides that a contractor can be liable to the employee of its uninsured subcontractor, imposed no liability on DAI because the statute did not encompass franchise relationships. The workers' compensation board affirmed. The court of appeals reversed, holding that the ALJ committed by legal error by concluding that the legislature did not intend for section 34.610 to encompass the franchisor-franchisee relationship simply because the statute failed to mention the relationship. The Supreme Court reversed, holding (1) the ALJ erroneously interpreted section 342.610, but (2) the error did not require reversal of the ALJ's ruling because the ALJ properly analyzed the facts of the case under the statute.

In this dissenters' rights action, Shareholder in a closely held corporation withdrew from Company, after which Company tendered to Shareholder $703 per share, equaling $168,840. Shareholder claimed that the fair value of her shares was three times as much. Company sought an appraisal, and the Master Commissioner valued Brown's interest at $353,633. The trial court adopted the Commissioner's report, and both parties appealed. The court of appeals reversed and remanded for a determination of the fair value of Shareholder's shares without reference to Company's net asset value and without any discount for lack of marketability. At issue on appeal was what constituted "fair value" under Subtitle 13 of Kentucky's Business Corporation Act. The Supreme Court agreed that the fair value standard applied in this case was erroneous but on partially different grounds, holding (1) "fair value" is the shareholder's proportionate interest in the value of the company as a whole; (2) any valuation recognized in the business appraisal field, including the net asset method employed in this case, can be appropriate in valuing a given business; and (3) when valuing dissenter's shares, the shareholder-level marketability discount is rejected.