Lowell Staats Min. Co., Inc. v. Pioneer Uravan, Inc.

• Decision Date: 19 June 1989
• Docket Number: No. 86-2626,86-2626
• Citation: 878 F.2d 1259
• Parties: LOWELL STAATS MINING COMPANY, INC., a Colorado corporation, Third-party Plaintiff-Appellant, v. PIONEER URAVAN, INC., a Texas corporation, Defendant-Appellee, and Pioneer Corporation and Pioneer Nuclear, Inc., Third-party Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1259

878 F.2d 1259

LOWELL STAATS MINING COMPANY, INC., a Colorado corporation, Third-party Plaintiff-Appellant, v. PIONEER URAVAN, INC., a Texas corporation, Defendant-Appellee, and Pioneer Corporation and Pioneer Nuclear, Inc., Third-party

Defendants-Appellees.

No. 86-2626.

United States Court of Appeals,

Tenth Circuit.

June 19, 1989.

Joseph Coleman of Coleman, Brown & Jouflas, Grand Junction, Colo., for third-party plaintiff-appellant.

Theodore Allegra of Nelson, Hoskin, Groves & Prinster (Gregory K. Hoskin of Nelson, Hoskin, Groves & Prinster, and James Golden of Golden, Mumby, Summers & Livingston with him on the briefs), Grand Junction, Colo., for defendant-appellee and third-party defendants-appellees.

Before LOGAN, BARRETT, and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

Lowell Staats Mining Company, Inc. (Staats), an independent mining contractor, entered into a contract with Pioneer Uravan, Inc. (Uravan) to develop mining property owned by Uravan. When Uravan terminated the contract, Staats sued Uravan for breach of the contract. Uravan then brought a separate suit against Staats seeking to recover overpayments for ore deliveries under the contract. Staats filed a third-party complaint against Pioneer Corporation (Pioneer) and Pioneer Nuclear, Inc. (Nuclear) seeking to recover from these corporations any liability attributed to Uravan under the theories of the alter ego doctrine or piercing the corporate veil, and fraudulent conveyances. The cases were consolidated and removed to federal district court based on diversity jurisdiction, 28 U.S.C. Sec. 1332 (1988).

At the conclusion of Staats' case, the district court granted the directed verdict motions of Pioneer and Nuclear on all claims in the third-party complaint. The jury returned a verdict against Uravan on its counterclaim and on Staats' breach of contract claim awarded $629,512 in damages. The district court denied Staats' request for prejudgment interest. Lowell Staats Mining Co. v. Pioneer Uravan, Inc., 645 F.Supp. 254 (D.Colo.1986). Staats appeals, asserting the district court erred in granting the motions for directed verdict and denying the request for prejudgment interest.

I Piercing the Corporate Veil

Staats contends the district court erred in granting directed verdicts to Pioneer and Nuclear. Nuclear asserts that Staats' third-party complaint contains no claim that Nuclear was liable as the alter ego, agent or instrument of Uravan. We agree. Staats' complaint seeks to impose liability under these theories solely upon Pioneer. In the Second Amended Pretrial Order, Nuclear objected to the implicit amendment of this claim to allege Uravan was the alter ego or instrumentality of Nuclear. Staats never amended the third-party complaint in response to Nuclear's objection. See Fed.R.Civ.P. 15. Staats is not entitled to reversal of the directed verdict against Nuclear on the claim of piercing the corporate veil, alter ego, instrumentality or agency, where the complaint fails to state such a claim for relief. See A.R.A. Mfg. Co. v. Brady Auto Accessories, Inc., 622 P.2d 113, 114 (Colo.App.1980). Even if we treat Staats' claim against Nuclear as implicitly tried, the district court properly directed the verdict for Nuclear on the claim of piercing the corporate veil, alter ego, instrumentality or agency, because the evidence Staats presented fails to create an issue for the jury on this claim.

We will review the directed verdicts for Pioneer and Nuclear under the standard eloquently stated in Motive Parts Warehouse v. Facet Enters., 774 F.2d 380 (10th Cir.1985):

The standard of review in assessing whether a verdict should have been directed is the same standard applied by the trial court in passing on the motion for directed verdict initially, i.e., whether the evidence is sufficient to create an issue for the jury. Swearngin v. Sears Roebuck & Co., 376 F.2d 637, 639 (10th Cir.1967). The trial court may direct a verdict only where the evidence and all inferences to be drawn therefrom are so clear that reasonable minds could not differ on the conclusion. Taylor v. Gilmartin, 686 F.2d 1346 [1353-54] (10th Cir.1982), cert. denied, 459 U.S. 1147, 103 S.Ct. 788, 74 L.Ed.2d 994 (1983). The evidence must be viewed in the light most favorable to the party against whom the directed verdict is sought, and if, on the basis of the evidence and inferences to be drawn therefrom, reasonable and fair-minded persons might form different conclusions as to the facts in issue, a directed verdict is improper. Zelinger v. Uvalde Rock Asphalt Co., 316 F.2d 47 (10th Cir.1963).

774 F.2d at 385-86. With this standard in mind, we have thoroughly reviewed the record in this case, and conclude the district court's ruling must be affirmed.

In the third-party complaint, Staats sought to pierce Uravan's corporate veil and recover from Pioneer, the sole shareholder of Uravan. Staats alleged Uravan was the alter ego or an instrumentality of Pioneer. The alter ego doctrine is a means by which creditors may hold stockholders personally liable for corporate obligations. Rosebud Corp. v. Boggio, 39 Colo.App. 84, 561 P.2d 367, 371 (1977).

Because this is a suit based on diversity jurisdiction, we apply the law of the forum state, in this case Colorado. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Brady v. Hopper, 751 F.2d 329, 332 (10th Cir.1984). In Micciche v. Billings, 727 P.2d 367 (Colo.1986) the Colorado Supreme Court discussed piercing the corporate veil, stating:

Generally, a corporation is treated as a legal entity separate from its shareholders, thereby permitting shareholders to commit limited capital to the corporation with the assurance that they will have no personal liability for the corporation's debts. Krendl & Krendl, Piercing the Corporate Veil: Focusing The Inquiry, 55 Den.L.J. 1 (1978). When, however, the corporate structure is used so improperly that the continued recognition of the corporation as a separate legal entity would be unfair, the corporate entity may be disregarded and corporate principals held liable for the corporation's actions. Id. at 2. Thus, if it is shown that shareholders used the corporate entity as a mere instrumentality for the transaction of their own affairs without regard to separate and independent corporate existence, or for the purpose of defeating or evading important legislative policy, or in order to perpetrate a fraud or wrong on another, equity will permit the corporate form to be disregarded and will hold the shareholders personally responsible for the corporation's improper actions. See Fink v. Montgomery Elevator Co., 161 Colo. 342, 350, 421 P.2d 735, 739 (1966); Gutheil v. Polichio, 103 Colo. 426, 431, 86 P.2d 972, 974 (1939); La Fond v. Basham, 683 P.2d 367, 369 (Colo.App.1984); Krendl & Krendl, supra at 28-43.

Micciche, 727 P.2d at 372-73.

A variety of factors are to be considered by the court in making the ultimate determination whether recognition of the separate corporate entity would result in injustice in a given case. ¹ The determination of whether a subsidiary is an instrumentality of the parent corporation is primarily a question of fact based upon consideration of the following factors:

(1) The parent corporation owns all or majority of the capital stock of the subsidiary. (2) The parent and subsidiary corporations have common directors or officers. (3) The parent corporation finances the subsidiary. (4) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. (5) The subsidiary has grossly inadequate capital. (6) The parent corporation pays the salaries or expenses or losses of the subsidiary. (7) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to it by the parent corporation. (8) In the papers of the parent corporation, and in the statements of its officers, "the subsidiary" is referred to as such or as a department or division. (9) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take direction from the parent corporation. (10) The formal legal requirements of the subsidiary as a separate and independent corporation are not observed.

Fish v. East, 114 F.2d 177, 191 (10th Cir.1940) (applying Colorado law). Fish has been cited with approval in Friedman & Son, Inc. v. Safeway Stores, 712 P.2d 1128, 1131 (Colo.App.1985), and New Sheridan Hotel & Bar, Ltd. v. Commercial Leasing Corp., 645 P.2d 868, 869 (Colo.App.1982). All of the factors discussed in Fish need not be present for a court to determine a subsidiary is the alter ego of the parent corporation. Friedman, 712 P.2d at 1131; see also DeWitt Truck Brokers v. W. Ray Flemming Fruit Co., 540 F.2d 681, 687 (4th Cir.1976).

We have reviewed the record in the light most favorable to Staats under the criteria cited in Fish. Pioneer owns all of the capital stock of Uravan. The fact that Pioneer owns all the stock of Uravan, standing alone, is an insufficient basis to depart from the general rule that the corporation and its shareholder are to be treated as distinct legal persons. Industrial Comm'n v. Lavach, 165 Colo. 433, 439 P.2d 359, 361 (Colo.1968). Pioneer and Uravan shared some common officers and directors. Exhibits 45, 47, 48, 49, 50, 51. Uravan and Nuclear also shared some common officers. Exhibits 30, 45, 47, 48, 50, 102. The identity of officers and directors is insufficient to allow corporate veil piercing. Quarles v. Fuqua Indus., Inc., 504 F.2d 1358, 1364 (10th Cir.1974) (applying Kansas law); Taylor v. Standard Gas & Elec. Co., 96 F.2d 693, 705 (10th Cir.1938) (applying Oklahoma law), rev'd on other grounds, 306 U.S. 307, 59 S.Ct. 543, 83 L.Ed. 669 (1939). Uravan's financial statements show it received financial advances from Pioneer of $456,000 in 1982, Exhibit 103; $292,000 in 1981, Exhibit 104; $3,887,000...