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CORPORATIONS (fraud, duties): Bear, Inc. v. Smith (COA 1/22/2010)

By Michael Stevens

Bear, Inc. v. Smith
2008-CA-001556 01/22/2010 2010 WL 199416

Opinion by Judge Moore; Judges Keller and Taylor concurred. The Court affirmed in part, reversed in part, and remanded a summary judgment of the circuit court dismissing the appellant corporation?s action to collect unpaid fuel charges from appellees, a sole corporate shareholder and an unrelated company organized by the shareholder?s son. The Court first held that the trial court did not err in granting summary judgment on appellant?s fraud claims. First, the claim for fraud in the inducement failed as there was no evidence in the record demonstrating that alleged representations were made to induce appellant to act or refrain from acting and there was no evidence that at the time the debt was incurred that the shareholder never intended to pay the charges at the time they were incurred. Further, appellant was owed no statutory duty to disclose the fact of the company?s dissolution. The language in KRS 271B.14-060 was permissive, rather than mandatory and therefore, did not prescribe the exclusive means of making adequate provision for the debts and liabilities of a dissolved corporation. Therefore, appellant?s claim for fraud by omission failed. The Court next held that the trial court did not err in granting summary judgment to the corporation formed by the shareholder?s son. There was no evidence that the newly formed LLC was a successor entity of the dissolved corporation, that it was a shareholder of the dissolved corporation, that it had agreed or represented to assume the debts, or that a novation occurred. The Court finally held that the trial court erred in granting summary judgment to the individual shareholder. There was a genuine issue of material fact as to whether he received corporate assets for which he could be held personally liable and there was some evidence in the record of abuse of the corporate form and the justification of a wrong to allow the corporate veil to be pierced.

Full post as published by Kentucky Cases on March 20, 2010 (boomark / email).