Piercing the Company Veil: Premier Therapy Case

In Premier Therapy v. David E Childs et al, 2016-Ohio-7934 the plaintiff premier Therapy have provided about $600,000 in services to an Ohio limited liability company Holander House Ltd. nursing home, but did not get paid. By the time Premier Therapy obtained a judgment for nearly $600,000, all of the nursing home assets had been transferred. In this case, Premier Therapy sought a judgment against the manager of the nursing home and the subsequent transferee on the theory that the transfers were made in fraud of creditors to escape the payment of just debts. Essentially, Holander House owned real estate and nursing home bed licenses. The real estate and bed licenses were transferred to a management company who subsequently sold them to an outside buyer. Premier Therapy contended that the combination of the real estate and the bed licenses were sold for more than $600,000 less than their market value. The facts are complex.

David E Childs was not a member of Holander House Ltd. When he was the executor of his mother's estate, the estate sold Holander House Ltd to Mr. Child's daughter for $2.3 million. Mr. Childs personally guaranteed the mortgage secured by the Holander House real estate. With a hole in the house was financially distressed, Mr. Childs and his company took over the management, but not ownership. Mr. Childs caused the real estate to be transferred to his management company without a contract or specific consideration.

The jury found against the defendants. The jury pierced the company veil and awarded damages for the fraudulent conveyance. The defendants appealed. The Court of Appeals affirmed. In its decision, the Court of Appeals held that the legal doctrine permitting the piercing of the corporate veil applies to limited liability companies, not just corporations. Also, the corporate veil may be pierced to obtain a judgment against a nonowner who exercised control in fact. In Premier Therapy, Mr. Childs and his company liquidated the assets in a fashion primarily designed to protect Mr. Childs, but not pay off other creditors of Holander House Ltd. The court identified various "non-exhaustive list of factors to be considered: "(1) inadequate capitalization; (2) insolvency at the time of the disputed act; (3) the individual held himself out as personally liable for certain corporate obligations; (4) siphoning of funds or assets of the entity for personal expenditures or use; (5) the entity's inability to pay debts due to high salaries or loans to shareholders; (5) commingling of individual and entity funds; (6) disregard of corporate roles; (7) disregard of corporate formalities; (8) lack of corporate records, especially regarding claimed loans to or from the entity to be pierced; (9) common office space; (10) personnel; and (11) the degree of domination by the person to be held liable, e.g. where the corporation was a mere facade for the operations of the dominant shareholders." The bottom line is that the court said that there was sufficient evidence in this case to permit the jury to decide.

For more in piercing the corporate veil, see our discussion of the Belvedere and Winegar cases on our business law page.

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