Indiana Business Lawyer Blog

The Indiana Court of Appeals recently reversed a trial court’s decision to grant judgment in favor of a purchaser of a business’s assets after that party brought suit against the business shareholders. The purchaser alleged it was entitled to collect certain assets as part of that sale, while the business filed counterclaims for conversion of personal property and disputed an award of attorney fees. In Whiskey Barrel Planters Co. v. American Gardenworks, Inc., 966 N.E.2d 711 (Ind. Ct. App. 2012), the business (“Whiskey Barrel”) manufactured and shipped planters and garden accessories from its Indiana facility and the sole shareholders were husband and wife.
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The Jumpstart Our Business Startups Act (“JOBS Act” or “the Act”) was a bill passed with bipartisan support by Congress in 2011 and signed into law by President Obama in April 2012. The goal of the law is to encourage funding for small businesses, or “emerging growth companies” in the words of the Act, to facilitate job creation and investment by easing various securities regulations. It enables a private company to sell up to $1 million of securities over a 12-month period to investors without needing to register the securities with the Securities and Exchange Commission (SEC). Sales of this type are what the Act describes as “crowdfunding:” the novel yet democratic process by which capital and other resources are aggregated from a traditionally smaller group of people for the purpose of funding a business venture, investment opportunity, or even a nonprofit.
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Indiana courts will not pierce the corporate veil absent a causal connection between the misuse of the corporate form and fraud or injustice. In CBR Event Decorators v. Gates, 962 N.E.2d 1276 (Ind. Ct. App. 2012), the court refused to pierce the corporate veil and hold the shareholders personally liable, as the plaintiff had failed to establish such causal connection. In Gates, defendants agreed to invest in a company that the plaintiff had loaned money to but had never been repaid. Prior to investing in the company, the defendants formed a limited liability company (LLC), to which the plaintiff was informed of the LLC formation. After investing in the company, the defendants entered into a purchase agreement with the plaintiff for the sale plaintiff’s business assets. After the purchase agreement was signed by both parties, the defendants learned of defects in their investment company. Upon learning of the company’s status, the investors requested to renegotiate the contract and stop-payment on the down payment submitted to plaintiff after signing the purchase agreement. Plaintiff rejected the proposed terms of a new purchase agreement and demanded the stop-payment not be placed on the check. The shareholders eventually placed a stop-payment on the check and the plaintiff sued, claiming the corporate veil should be pierced because of misrepresentation and fraud on the part of the shareholders.
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In Ziese & Sons Excavating, Inc. v. Boyer Const. Corp. and Boyer Construction Group Corp., 2012 WL 1066026 (Ind. Ct. App. 2012), the court stated that summary judgment was inappropriate after finding genuine issues of material fact as to both the questions of piercing the corporate veil and successor liability, addressing issues when a corporation is similar in name, operation, shareholders, owners, employees, and project ownership. In this case, Ziese had performed work for Boyer Construction Corporation (“Corporation”) on the Knode Creek Retail Development project (“Project”). After completing the Project, Corporation never paid Ziese. Two years later, Boyer Construction Group Corporation (“Group”) was formed, which performed the same business as Corporation. Further, Group purchased assets from Corporation, including two contracts and personal assets, and had the same individuals who owned, ran, or where employed by Corporation. Finally, Group used Corporation’s website, trademark and logo, and issued a check to Ziese for partial payment for its work on the Project. Pursuant to nonpayment and Group’s creation, Ziese sued both Corporation and Group for payment for services rendered.
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