University of Vermont AAHS

Marriner v. Nation-Wide Horse Transportation

U.S. District Court, Oregon
2004 WL 2203297
September 29, 2004

Summary of Opinion

Plaintiff Marriner’s horse was injured while being transported by the defendants.  The corporation that transported the horse was later dissolved.  In this opinion, the trial court says it is possible the shareholders of the dissolved corporation might be held legally liable for the injury to the horse, so summary judgment for them is denied.

Text of Opinion

 In this diversity case, plaintiffs seek damages for an injury to Paganini, a show horse. As a result of the injury, Paganini was unable to participate in horse shows for several months. Plaintiffs blame defendants for Paganini's injury, alleging defendants breached a bailment contract under which they agreed to transport Paganini from New Jersey to Ohio. The issues and parties have dwindled; the parties stipulated to dismissal of defendant Nation-Wide Horse Transportation, and plaintiffs have withdrawn their motion for partial summary judgment. That leaves for decision only a summary judgment motion filed by pro se defendants Michael and Sandra Halla. (Doc. # 58). The court DENIES the motion.

I.

 The facts, construed in favor of the non-movant plaintiffs, are as follows. On November 24, 2001, plaintiffs entered into a bailment agreement with Nation-Wide Horse Transportation, Inc., a Colorado corporation. At that time, defendant Michael Halla was Nation-Wide's president and general manager. His wife, defendant Sandra Halla, was what she calls the company's "secretary/treasurer." Both Hallas also were shareholders. [FN2] The Hallas did not sign the bailment contract in their individual capacity, but rather as company officers. They also did not personally participate in Paganini's transportation; instead, other Nation-Wide employees were responsible for that. Upon arrival in Ohio, it became clear Paganini had suffered an injury above one of his hooves.

FN2. The Hallas contend they were not shareholders, but only officers. The court, however, must read the record in the plaintiffs' favor; in doing so, the court finds sufficient evidence suggesting the Hallas were also shareholders. See infra.

 As early as June 11, 2002, plaintiffs' attorney in a letter informed Mr. Halla that plaintiffs were seeking to hold the defendants responsible for Paganini's injury. The letter warned defendants the plaintiffs would "have to pursue [their] legal remedies to recover damages" if defendants failed to agree to a "mutually acceptable resolution." In early July, Mr. Halla responded to plaintiffs, acknowledging receipt of the June 11 letter. On July 12, 2002, plaintiffs wrote another letter to defendants; in response to that letter, Mr. Halla expressly acknowledged that he understood that plaintiffs were seeking recovery for the horse's injury. On July 29, 2002, Mr. Halla wrote a letter to plaintiffs' counsel reiterating that defendants would not pay the "claim" asserted by the Marriners.

 In August 2002, Nation-Wide changed its name to "Out to Pasture." On or about August 19, 2002, Out to Pasture and the Hallas entered into an asset-purchase agreement with Steele Horses, Inc. and Shandon Investments, L.L.C. Pursuant to that agreement, the latter two companies bought substantially all of Out to Pasture's assets. In December 2002, the Hallas voted to authorize the dissolution of Out to Pasture. The effective date of the company's dissolution was December 31, 2002. After dissolution, Out to Pasture's remaining assets, which were "minimal," were distributed to its shareholders, including the Hallas.

 On July 9, 2004, the Hallas filed a motion for summary judgment on the grounds that, as individual company officers, they cannot be held personally liable under Colorado law. Instead, according to the Hallas, only the company itself is subject to liability. As reflected in their papers, the Hallas take to heart the wisdom in brevity, as their memorandum in support of summary judgment consists solely of the following:

 The Colorado Business Corporation Act provides specific protection for Corporate Officers and employees from personal liability in the course of conducting Corporate business. There has been no evidence put forth that defendants Michael E. Halla and Sandra L. Halla were involved with plaintiffs in any capacity other than Officers and employees of defendant Out To Pasture, Inc., a dissolved Colorado Corporation, f/k/a Nation-Wide Horse Transportation, Inc.

II.

 Pursuant to Fed.R.Civ.P. 56(c) the parties moving for summary judgment carry the burden of establishing that no genuine issues of material fact exist and they are entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In resolving a motion for summary judgment, a district court must not weigh conflicting evidence as would a jury, but must instead draw all reasonable inferences in the light most favorable to the parties opposing summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). In short, the parties seeking summary judgment must show that the record conclusively establishes their right to a favorable judgment.

 Plaintiffs, agreeing that Colorado law governs, argue that summary judgment is inappropriate for two reasons: First, Colorado law expressly allows claimants to recover company assets from shareholders who obtained the assets after dissolving the company. Second, according to plaintiffs, there are material fact issues regarding whether equitable principles justify holding the Hallas personally liable.

A.

 Under Colorado corporate law, once a corporation is dissolved, it may continue to operate to the extent it seeks to collect its assets and distribute the assets to shareholders. C.R.S. § 7-114-105. A dissolved corporation "shall dispose of the known claims against it by following" certain procedures delineated by statute. Id. § 7-114-106. A dissolving corporation must give notice (which may be by publication) of the dissolution to those asserting such known claims. Id. §§ 7-114-106, 7-114-107. If the corporation knew about the claim at issue and it has since dissolved, the claimant may sue the shareholders, although the shareholders may only be liable up to the value of the corporate assets they obtained upon dissolution:

(1) A claim may be enforced under section 7-114-106 or 7-114-107:

....

(b) If assets have been distributed in liquidation, against a shareholder of the dissolved corporation; except that a shareholder's total liability for all claims under this section may not exceed the total value of assets distributed to the shareholder, as such value is determined at the time of distribution....

C.R.S. § 7-114-108 (emphasis added).

 Here, there clearly is, at the very least, a fact issue as to whether the Hallas knew about plaintiffs' claim before Out to Pasture was dissolved. As mentioned, in late June and early July, the parties engaged in correspondence showing that the Hallas were put on notice of plaintiffs' claim. Indeed Mr. Halla expressly stated he understood that plaintiffs were asserting a "claim" for Paganini's injury. As a result, Out to Pasture was required to give notice of the dissolution to plaintiffs. There is no evidence showing that any defendant gave such notice.

 The Hallas respond that the June and July correspondence did not put them on notice of a "claim," because that correspondence suggested that plaintiff Phyllis Marriner owned the horse, while the initial transportation contract indicated that Kelly Marriner, Phyllis's daughter, owned the horse. That allegation does not compel summary judgment. The important point is that Mr. Halla, in his responsive letters, acknowledged that plaintiffs' counsel was asserting a "claim" for the injury to Paganini. Thus, taking all facts in plaintiffs' favor, the Hallas understood the letters from plaintiffs' counsel to be asserting a right to payment for the injury to Paganini. In fact, the record does not show that Mr. Halla, in the course of the correspondence, raised any concerns about who actually owned the horse.

 In an attempt to avoid the conclusion they are proper defendants under  C.R.S. § 7-114-108(b), the Hallas, in their reply briefing, further argue they were not Out to Pasture shareholders, but rather were only shareholders of Four H. Services, Inc., which itself owned shares in Out to Pasture. Thus, the Hallas suggest, they are not subject to suit under C.R.S. § 7-114-108(b), a provision permitting suits against a dissolved corporation's "shareholders."

 Reading the record in favor of the non-movant plaintiffs, as the court must, there are fact issues as to whether the Hallas were Out to Pasture shareholders. At his deposition, Mr. Halla indicated he was a shareholder of Out to Pasture, as well as Four H. He testified, in pertinent part:

Ultimately with the dissolution of both corporations, Out to Pasture, Inc. and Four H Services, any remaining assets came to the stockholders, which would have been myself, my wife and [five other individuals].

M. Halla depo at 49. While Mr. Halla's testimony is not crystal clear and he may now argue he meant only to say he and his wife were Four H shareholders, the court must at this stage in the proceedings resolve all doubts in the plaintiffs' favor. As a result, the court reads any ambiguity in Mr. Halla's testimony in favor of plaintiffs and thus concludes that, for purposes of summary judgment, the Hallas were Out to Pasture shareholders who received some of the company's assets upon dissolution.

 It is important to note that, upon dissolution, a company may distribute its remaining assets to its "shareholders." See C.R.S. § 7-114-105. The parties do not cite any statutory provision mentioning any other group of individuals to whom a dissolved corporation may distribute its remaining assets. Thus, the fact the Hallas received some of Out to Pasture's remaining assets at dissolution supports a reasonable inference they were in fact company shareholders, thus making them proper defendants in this lawsuit. In sum, the court finds it needs a fuller record in order to determine whether the Hallas were Out to Pasture shareholders for purposes of applying C.R.S. § 7-114-108(b).

B.

 Plaintiffs additionally argue that, in any event, piercing the corporate veil is appropriate in this case. The court finds that application of equitable principles permitting recovery against the Hallas might be appropriate. Whether application of equity ultimately is appropriate will depend upon further elaboration and record development; at this stage in the proceedings, the court concludes only that equitable considerations provide another basis for denying summary judgment.

 Colorado cases have at times taken a broad view of when equitable principles are properly invoked to hold shareholders or officers personally liable for claims which otherwise should be asserted against the corporation itself. For instance, in a case in which the court upheld personal liability against a corporate officer and director, the court of appeals broadly reasoned:

A corporate entity may be disregarded and corporate directors may be held personally liable if equity so requires. If adherence to the corporate fiction would promote injustice, protect fraud, defeat a legitimate claim, or defend crime, the invocation of equitable principles for the imposition of personal liability may occur.

LaFond v. Basham, 683 P.2d 367, 369 (Colo.Ct.App.1984) (citations omitted) (emphasis added). In LaFond, the court found that equitable principles permitted the plaintiffs to sue a company's president/general manager even though he was not a shareholder. Id. at 369-70. The court emphasized that, among other things, he dominated the formulation of company policy and controlled company finances. Id. The court concluded: "to allow a director to hide behind the cloak of the corporation would promote injustice in that it would allow the actions of a director who used assets of a corporation for his personal gain to defeat the valid claim of a creditor." Id. at 370.

 The court agrees that any equitable doctrine must be narrowly applied, else the time-honored presumption against imposing personal liability on officers and directors be eroded. But, the court notes, the facts in this case are somewhat unique and may, upon a fuller record, justify imposing personal liability. Reading the current record in plaintiffs' favor, the Hallas knew about the claim for Paganini's injury. Yet the Hallas decided to dissolve both Out to Pasture and Four H and distribute the two companies' remaining assets to themselves (and a few others). Thus the Hallas ultimately gained possession of at least some of Out to Pasture's remaining assets. As a result of the dissolutions, the plaintiffs could not seek redress from any potentially responsible entity.

 Importantly, as shown by the LaFond case, equity provides enough flexibility to hold directors and officers, as well as shareholders, personally liable. See LaFond, 683 P.2d at 369. In addition, Colorado courts have recognized that directors breach a common law duty to creditors by divesting the company's assets in such a way as to prejudice creditors' claims. See, e.g., Rosebud Corp. v. Boggio, 39 Colo.App. 84, 561 P.2d 367, 372-73 (Colo.Ct.App.1977). "If directors breach this duty, creditors of the corporation may sue the directors and hold them personally liable for their malfeasance." Id. (citing 3A W. Fletcher, Cyclopedia of Corporations § 1185). Accordingly, in light of this case law, even assuming the Hallas were Out to Pasture officers or directors but not shareholders, they have not carried their burden to show conclusively they are not subject to personal liability and thus entitled to judgment as a matter of law.

III.

 For the reasons briefly discussed above, the court DENIES the Hallas' motion for summary judgment (doc. # 58). To be clear, the court is not at this time holding that the Hallas are in fact personally liable for any losses. The court, though, believes that a fuller record is needed before finally determining whether the Hallas are subject to personal liability. The court additionally DENIES the parties' motions for hearing. (Docs.# 70, 75).


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