Liability of Shareholders. Moseley Group Management Co (MGM) provided man-agement services to apartment complexes. MGM's only assets were equipment worth $500 and a bank account with an average balance of $1,500. Richard Moseley ran the company and

Question

owned half of the stock. MGM contracted with Property Tax Research Co (PTR) to obtain a lower property tax assessment on one of its complexes. PTR performed, but MGM refused to pay and transferred its assets and employees to Terrace Management, Inc, a corporation controlled by Moseley. PTR filed a suit in a Missouri state court against Moseley and others to recover the unpaid fees. Should the court pierce the corporate veil and hold Moseley personally liable for the debt? If so, on what basis?

Answer 1

Liability of shareholders
The court ruled in PTR's favor, and on appeal, the Missouri Court of Appeals affirmed. The appellate court pointed out that "[t]o pierce the corporate veil, a plaintiff must show: (1) Control, not 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 * * * ; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss com-plained of." The court explained that "[t]he existence of a corporate entity will be disregarded when it is operated while undercapitalized or when its assets are stripped to avoid the demands of creditors." In Moseley's case, "there is ample evidence of undercapitalization and fraudulent transfer of property." PTR was an unpaid creditor. MGM "was insolvent and had no assets to satisfy the judgment as a result of asset stripping and undercapitalization of the corporation by Mr. Moseley. Such evidence was sufficient to establish the injury and causal connection required by the third prong of the test."