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Woodruff Construction, LLC v. Clark

Court of Appeals of Iowa

August 15, 2018

K.W. "CASEY" CLARK, Defendant-Appellee.

          Appeal from the Iowa District Court for Chickasaw County, James C. Bauch, Judge.

         Plaintiff appeals the district court decision against piercing the corporate veil to enforce a judgment debt.

          Andrew B. Howie of Shindler, Anderson, Goplerud & Weese, PC, West Des Moines, for appellant.

          Ronald C. Martin and Mark H. Rettig of Day Rettig Martin, PC, Cedar Rapids, for appellee.

          Considered by Vogel, P.J., and Doyle and Bower, JJ.

          BOWER, Judge.

         Woodruff Construction, LLC (Woodruff), appeals the district court's decision not to pierce the corporate veil of Clark Farms, Ltd. (Clark Farms) and enforce a judgment debt against K.W. Clark (Clark). We reverse.

         I. Background Facts and Proceedings

         Clark Farms is an Iowa corporation, with articles of incorporation filed in 1997, then reincorporated in 2001 following an administrative dissolution.[1] Clark Farms is in the business of biosolids management. Clark Farms has also done business under the name Clark Contract Services but never registered the name with the Iowa Secretary of State. Clark is the president, secretary, and treasurer of the corporation. He is also the sole owner and director of the corporation. Clark owns and operates two other entities, Casey Clark Farms and White Pines Farm, which are sole proprietorships.

         Woodruff is a commercial industrial construction company. In 2009, Woodruff contracted with the city of Leon, Iowa, to act as general contractor during the construction of a wastewater treatment facility. In April 2010, Woodruff contracted with Clark Farms for lagoon sludge removal. Clark Farms began work, then in 2011 abandoned the project when Clark determined he had underbid the contract, leaving the work incomplete. In July 2012, Woodruff brought a breach of contract action against Clark Farms. In September 2014, Woodruff obtained a judgment against Clark Farms for $410, 066.83 plus interest.[2] The court ruled on a motion to amend and enlarge filed by Clark on January 15, 2015.

         Clark Farms failed to pay the judgment. In June 2015, Woodruff brought suit to pierce the corporate veil of Clark Farms and recover personally from Clark, and impose a constructive trust and equitable lien on all assets of Clark Farms. In a deposition that July, Clark stated Clark Farms still existed but was not bidding any projects and no longer had any employees aside from the bookkeeper. By the time of trial, Clark Farms had no employees.

         In April 2017, the court held a bench trial. The court issued its ruling in August, denying Woodruff's request to pierce the corporate veil and denying the request to impose a constructive trust and equitable lien on the assets of Clark Farms. Woodruff appeals only the piercing the corporate veil issue.[3]

         II. Standard of Review

         The parties in this case do not agree on the appropriate standard of review. Woodruff argues piercing the corporate veil is to be reviewed de novo. Clark identifies the standard of review as for correction of errors at law-that the question is one at law to be decided by the trier of fact.

         Piercing the corporate veil has roots in both courts of equity and law. Int'l Fin. Servs. Corp. v. Chromas Techs. Can., Inc., 356 F.3d 731, 736 (7th Cir. 2004). Under our rules of appellate procedure, cases tried in equity will be reviewed de novo, while cases tried at law are reviewed for correction of errors at law. Iowa R. App. P. 6.907. "Piercing the corporate veil . . . is not itself an action; it is merely a procedural means of allowing liability on a substantive claim." Int'l Fin. Servs. Corp, 356 F.3d at 736. Some sources refer to the doctrine as an equitable one. 1 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 41.29 (2017); 6 Matthew G. Doré, Iowa Practice Series, Business Organizations § 39:20 ("[A]lthough piercing the corporate veil is an equitable remedy, the Iowa courts have held that factual questions related to piercing are for the jury."). The imposition of "liability on a shareholder for corporate obligations where there is no basis for liability at law is necessarily an equitable remedy." Minger Constr., Inc. v. Clark Farms, Ltd., No. 14-1404, 2015 WL 7019046, at *6 (Iowa Ct. App. Nov. 12, 2015) (McDonald, J., concurring in part and dissenting in part); see also Stacey-Rand, Inc. v. J.J. Holman, Inc., 527 N.E.2d 726, 728 (Ind.Ct.App. 1988) (noting a request to pierce the corporate veil to be equitable by nature).

         The issue before us is that of piercing the corporate veil, with no additional claims at law requiring a different review. The only remedy requested is an equitable remedy-to shift liability to the owner of the corporation for equitable reasons. Woodruff filed the claim in equity. Clark made no attempt to move the case to a court at law. We will treat the case as it was tried below, as a claim in equity.[4]

         Our review of equitable proceedings is de novo. Iowa R. App. P. 6.907. We may give weight to the court's factual findings, but we are not bound by those findings. Porter v. Harden, 891 N.W.2d 420, 424 (Iowa 2017). "We give respectful consideration to the district court's fact findings, especially when witness credibility is an issue, but we are not bound by those facts." Sun Valley Iowa Lake Ass'n v. Anderson, 551 N.W.2d 621, 629 (Iowa 1996); Iowa R. App. P. 6.904(3)(g). We have a duty to examine the entire record and adjudicate anew the issues properly presented. Hensch v. Mysak, 902 N.W.2d 822, 824 (Iowa Ct. App. 2017).

         III. Analysis

         Woodruff seeks to have us pierce the corporate veil on Clark Farms, and hold Clark personally liable for the judgment against Clark Farms.

         The corporate veil is central to the concept of a corporation-separation between the corporate entity and the stockholders, limiting their personal liability to the extent of their investment. Ross v. Playle, 505 N.W.2d 515, 517 (Iowa Ct. App. 1993); see also Iowa Code § 490.622(2) (2016) ("Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation."). "But the corporate device cannot in all cases insulate the owners from personal liability." Ross v. Playle, 505 N.W.2d at 517.

         Where the corporation is "a mere shell, serving no legitimate business purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice[, ]" the corporate veil may be pierced. Briggs Transp. Co. v. Starr SalesCo., 262 N.W.2d 805, 810 (Iowa 1978). Plaintiffs must prove exceptional circumstances exist to warrant piercing the corporate veil. ...

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