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Laddie Nachazel Family Living Trust v. JKLM, Inc.

Court of Appeals of Iowa

February 7, 2018

LADDIE NACHAZEL FAMILY LIVING TRUST, Plaintiff-Appellant,
v.
JKLM, INC. and KARI DEARBORN Defendants-Appellees.

          Appeal from the Iowa District Court for Jones County, Ian K. Thornhill, Judge.

         The Laddie Nachzael Family Living Trust appeals the district court order denying its request to pierce the corporate veil of JKLM, Inc.

          Gerald J. Kucera of Gerald J. Kucera, Attorney, Cedar Rapids, for appellant.

          Bradley J. Kasper and Mathew G. Novak of Pickens, Barnes, and Abernathy, Cedar Rapids, for appellees.

          Heard by Danilson, C.J., and Vaitheswaran and Bower, JJ.

          BOWER, Judge.

         The Laddie Nachzael Family Living Trust appeals the district court order denying the request to pierce the corporate veil of JKLM, Inc. We find JKLM was undercapitalized but the corporation's finances were not co-mingled with the finances of its shareholders, and the corporation followed corporate formalities. We find the Trust was unable to prove the corporate veil should be pierced. We affirm the district court.

         I. Background Facts and Proceedings

         The Trust was set up as a form of estate planning. Laddie was the trustee and used trust assets to purchase a Paul Revere's Pizza franchise in Anamosa. Laddie's son, Jerome, managed the business until he accepted a full-time position with UPS. Laddie and his wife took over managing the business. Eventually, Laddie sold the business in order to spend more time with his grandchildren and to have weekends free. In 2008, the Trust sold the business to an individual who defaulted. After the default, the Trust retook possession in 2012.

         On July 2, 2012, the Trust entered into a written agreement to sell the business to JKLM on contract. The building the business was located in was sold separately to Dearborn Enterprises, Inc. Kari Dearborn was the president of JKLM and signed the purchase contract as "Kari Dearborn, president." Laddie testified he was unaware the sale would be to a corporation until the day of the sale, but because Kari had previously done work for the business, he "trusted her." The Trust did not ask for a personal guaranty from Kari but did have an attorney prepare and file financing statements against the equipment sold as part of the business. The agreement showed a purchase price of $120, 000 and required $15, 000 as a down payment.

         JKLM was incorporated June 19, less than a month before the purchase of the business. Statements show JKLM had only $3000 in assets at the time of the purchase and borrowed the other $12, 000 for the down payment from Dearborn Enterprises, a related entity. During the period JKLM ran the business, loans were made to family members from the corporation.

         JKLM made monthly payments to the Trust for more than two years, but citing the inability to find part-time employees, closed. The last payment to the Trust was made July 24, 2014. The Trust filed a petition on March 3, 2015, alleging breach of contract and claiming the corporate veil should be pierced. Trial was held July 19 and 20, 2016.

         The district court entered its ruling on September 29, finding the contract was breached. However, the district court held the Trust had not sufficiently proven facts existed to pierce the corporate veil. The Trust now appeals.

         II. ...


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