1- while the courts ordinarily pierce the corporate veil in situations where there is only a single stockholder or family running the business ?
2- must actual fraud be shown in order for the court to pierce the corporate veil ?
3- review the ethical principles set forth in the preface and assess the ethics of Nugent's business practices
4-Brief the decision of the court .Pay special attention to the structure.Make sure you clearly clarify the governing rules.
K. C. ROOFING CENTER v ON TOP ROOFING, INC. 807 SW2d 545 (Mo Ct App 1991) Until 1985 Russell Nugent operated a roofing business as a corporation named Russell Nugent Roofing, Inc. In 1985 the name was changed to On Top Roofing, Inc. On August 27, 1987, On Top, Inc. ceased to exist and RNR, Inc., was incorporated. RNR, Inc., went out of business in 1988 and RLN Construction, Inc., was incorporated. In 1989, the business was organized as Russell Nugent, Inc. Nugent and his wife were the sole shareholders, officers, and directors of each corporation. When one roofing company was incorporated, the prior roofing company ceased doing business. All of the companies were located at the same business address and used the same telephone number. Nugent paid himself and his wifeover $100,000 in salaries in 1986. In 1986, the corporation paid $99,290 in rent for property that was owned by the Nugents. Nugent testified that he changed to a new corporation every time he needed to get a "fresh start." The evidence showed that he used the On Top Roofing logo on his trucks and Yellow Page advertisements throughout the period of the successive corporations. Suppliers who were not paid for materials in 1986 and 1987 by the insolvent corporations sought to pierce the corporate veils and hold Nugent personally liable. Nugent contended that as a shareholder he had no personal liability. From a judge ment for the creditors, Nugent appealed.KENNEDY, J.... Shareholder insulation from liability for corporate debts or obliga- tions has been a cornerstone of corporate law in the United States since the 19th cen- tury.... Although courts will look through corporate organizations to individuals when necessary to prevent injustice, doing so is the exception rather than the rule, and, ordinarily, a corporation will be regarded as a separate legal entity even though there is but a single stockholder.... Courts will pierce the corporate veil or disregard the corporate entity once a plain- tiff shows: (1) Control, no mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such control must have been used by the defendant to commit fraud or wrong, to perpe- trate the violation of a statutory or other posi- tive legal duty, or dishonest and unjust act in contravention of plaintiff's legal rights; and(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. ..."Where a corporation is used for an improper purpose and to perpetrate injus- tice by which it avoids its legal obligations, `equity will step in, pierce the corporate veil and grant appropriate relief.""... There was substantial evidence to sup- port the trial court's finding that the three- part test for piercing the corporate veil was satisfied in this case. Russell Nugent wasclearly in control of On Top Roofing, Inc. He and his wife were the sole shareholders of the corporation and he was the presi- dent and chief operating officer and clearly made all the decisions. There also was substantial evidence to support the second and third prongs of the test. A court may pierce the corporate veil or disregard the separate legal entity of the corporation and the individual where the separateness is used as a subterfuge to defraud a creditor.... But actual fraud is not necessarily a predicate for piercing the corporate veil, it may also be pierced to prevent injustice or inequitable conse- quences.... From the evidence it appears that Russell Nugent was operating an intri- cate corporate shell game in which he would cease doing business as one corpo- rate entity when he was unable to pay the corporation's creditors and he then would form another corporation in place of the prior one in order to get a "fresh start."After On Top supposedly went out of busi- ness in the summer of 1987, for at least two years Nugent continued to run an On Top Roofing Yellow Pages ad, kept the On Top Roofing name on the sign on the building at 614 Main, kept the On Top Roofing name on the side of his roofing trucks, continued to use bid estimate sheets with the On Top Roofing name on them, and continued to represent to callers over the telephone that he was still operating as On Top Roofing. Although Nugent was only paying secured creditors of On Top, he went ahead and ordered the supplies from the plaintiffs both of which were unsecured-at a time when On Top was insolvent and had out- standing debt of approximately $100,000 toother roofing suppliers. Through his domination and control over On Top, Russell Nugent was using it for the unfair or inequitable purpose of avoiding their debts to plaintiffs. Nugent continued to hold On Top out to the public as though it was still operating after it sup- posedly went out of business, yet he refused to honor On Top's obligations to its creditors. The actions of Nugent worked at least an injustice if not to defraud the plain- tiffs. It would be unfair, unjust or inequitable to allow Nugent to hide behind the corporate shield and avoid his legal obligations to plaintiffs. We hold that the trial court did not err in piercing the corporate veil and holding Russell Nugentpersonally liable for the debts owed plaintiffs.... [Judgment affirmed] Questions 1. Will the courts ordinarily pierce the corporate veil in situations where there is only a single stockholder or family running the business? 2. Must actual fraud be shown in order for the court to pierce the corporate veil? 3. Review the ethical principles set forth in the preface and assess the ethics of Nugent's business practices
