Aaron Carlson Corp. v. Cohen, A18-0100

• Decision Date: 01 October 2018
• Docket Number: A18-0100
• Citation: 919 N.W.2d 831
• Parties: AARON CARLSON CORPORATION, Appellant, v. Neal COHEN, et al., Respondents, Stevens Industries, Inc., Respondent.
• Court: Minnesota Court of Appeals

919 N.W.2d 831

AARON CARLSON CORPORATION, Appellant,
v.
Neal COHEN, et al., Respondents,

Stevens Industries, Inc., Respondent.

A18-0100

Court of Appeals of Minnesota.

Filed October 1, 2018
Review Granted December 18, 2018

Brandon M. Schwartz, Michael D. Schwartz, Schwartz Law Firm, Oakdale, Minnesota (for appellant)

Terrance J. Wagener, Messerli & Kramer, Minneapolis, Minnesota (for respondents Neal Cohen, et al.)

Thomas E. McEllistrem, Sarah J. McEllistrem, Collins, Buckley, Sauntry & Haugh, P.L.L.P., St. Paul, Minnesota (for respondent Stevens Industries)

Considered and decided by Schellhas, Presiding Judge; Larkin, Judge; and Smith, John, Judge.^*

SCHELLHAS, Judge

919 N.W.2d 833

Appellant challenges a grant of summary judgment to respondents based on the district court’s rejection of appellant’s argument that a receiver lacked the authority to pierce the corporate veil of a corporation in receivership. We affirm.

FACTS

Appellant Aaron Carlson Corporation (ACC) is an architectural woodworking company that provides custom woodwork for commercial and residential projects. LSI Corporation of America (LSI) manufactured and designed laminate-casework systems, and solid surface and other interior products. Respondents Neil Cohen, Darren Chaffee, and CoBe Capital, LLC (CoBe defendants) are shareholders or otherwise connected with LSI of America Holdings (LSI Holdings), which purchased LSI in June 2013. LSI contracted to purchase custom woodwork from ACC for one of its projects for a total price of $687,825. On June 12, 2015, LSI cancelled the contract with ACC. In July, ACC sued LSI for account stated and breach of contract (Hennepin County District Court 27-CV-15-16802) (contract action).

Meanwhile, Cohen and Chaffee entered into a loan agreement with LSI through which they acquired the right to request appointment of a receiver over LSI. In January 2016, Cohen and Chaffee commenced a lawsuit against LSI, alleging that LSI owed them collectively $5,044,797.54 and seeking appointment of a receiver over LSI (Hennepin County District Court 27-CV-16-646) (receivership action).¹ The district court granted a general receivership over LSI and appointed BGA Management as receiver. The court granted the receiver "all of the powers and all of the authority" under Minnesota law, including the powers to "[i]nvestigate, pursue, and compromise and settle any and all claims that [LSI], or the Receiver in its capacity as a Receiver over [LSI], may have against any third party, including [LSI]’s insiders, directors, officers and owners." Upon appointment, the receiver sent LSI’s creditors, including ACC, a letter notifying them of the receivership.

On March 8, 2016, ACC filed an appearance in the receivership action, moved to intervene, moved to enjoin the liquidation of LSI, and asked the district court to void ab initio the receivership and any approved sales of LSI’s assets, arguing that ACC had not received adequate notice. In a March 14 order, the district court stated that "ACC’s counsel admitted ACC had received notice of the receivership and a copy of the Order appointing the receiver on January 18." The court denied ACC’s motions, determining that the receiver adequately represented ACC’s interests and noting that ACC would "have the opportunity to object to the claims process when the Receiver distributes the liquidated funds." ACC did not appeal this order.

The receiver sold LSI’s property, and the district court in the receivership action approved the receiver’s final report on May 6, 2016, authorized a final distribution of the receivership assets, and discharged the receiver. Respondent Stevens Industries, Inc. (Stevens), an Illinois corporation doing business in Minnesota, purchased some of LSI’s property. ACC did not object to the receiver’s final report or appeal the court’s May 6 order.

In the contract action, the district court granted summary judgment to ACC for

919 N.W.2d 834

breach of contract and awarded it damages in the amount of $444,646.48. LSI did not oppose the summary-judgment motion. ACC subsequently sued Stevens and the CoBe defendants, alleging that Stevens was liable for ACC’s judgment against LSI in the contract action under the successor-liability doctrine, and seeking "all monetary relief ... available to ACC against Cohen, Chaffee, and CoBe under the piercing the corporate veil theory" (the veil-piercing action). In January 2018, the district court dismissed ACC’s claim against Stevens after converting Stevens’s dismissal motion to a summary-judgment motion, and the court granted summary judgment to the CoBe defendants.²

This appeal follows.

ISSUE

Did the district court err by granting summary judgment to the CoBe defendants on ACC’s veil-piercing claim?

ANALYSIS

ACC argues that the district court erred in granting summary judgment to the CoBe defendants on its veil-piercing claim because the "veil piercing claim belongs to ACC, not LSI Corporation," and because ACC "seeks to recover from the funds and assets of [the CoBe defendants], not from LSI." ACC argues that neither the receivership order nor a receiver’s powers under Minn. Stat. § 576.29, subd. 1(a)(3), provided the receiver "any right to investigate, settle or otherwise compromise ACC’s piercing claim as the claim did not/does not belong to LSI." ACC also argues that the collateral-attack doctrine does not apply as a matter of law, and that this court must reverse and remand to allow ACC to proceed with its veil-piercing claim against the CoBe defendants.

In an appeal from a grant of summary judgment, appellate courts review de novo (1) whether there are any genuine issues of material fact for trial; and (2) whether the district court erred in its application of the law. Linn v. BCBSM, Inc. , 905 N.W.2d 497, 501 (Minn. 2018) ; Minn. R. Civ. P. 56.01 ("The court shall grant summary judgment if the movant shows that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.").³ When reviewing the record following a grant of summary judgment, appellate courts view the evidence "in the light most favorable to the party against whom summary judgment was granted." Senogles v. Carlson , 902 N.W.2d 38, 42 (Minn. 2017).

Receiver’s power to assert a veil-piercing claim against LSI

In arguing that the receiver lacked the power to assert or settle ACC’s veil-piercing claim against LSI, ACC asks this court to interpret Minnesota’s receivership statutes, Minn. Stat. §§ 576.21 -.53 (2016). We review the statutory question de novo. See Laymon v. Minn. Premier Props., LLC , 913 N.W.2d 449, 452 (Minn. 2018) (reviewing question of Minnesota law de novo). The primary goal in statutory interpretation is to give effect to the intent

919 N.W.2d 835

of the Legislature. Swanson v. Brewster , 784 N.W.2d 264, 274 (Minn. 2010). When reviewing a statute, courts "construe words and phrases according to their plain and ordinary meaning," and should interpret a statute "to give effect to all its provisions." Id . (quotation omitted). Courts "should construe a statute to avoid absurd results and unjust consequences," and if a "statute’s language is unambiguous, [this court] must give it its plain meaning." Id . (quotation omitted).

We note first that the statutory provisions under which a receiver may be appointed "are not ... exclusive and the court may under its general equity powers appoint receivers in other cases in accordance with the existing practice." Asleson v. Allison , 188 Minn. 496, 247 N.W. 579, 580 (1933).

The appointment of a receiver is made by a court of equity, and its purpose is to accomplish, as far as practicable, complete justice for the parties before it. Its object is to secure and hold all property so that it may be available for the application of the final judgment.

Id. "Piercing the corporate veil is an equitable remedy that may be applied in order to avoid an injustice." Equity Trust Co. Custodian ex rel. Eisenmenger IRA v. Cole , 766 N.W.2d 334, 339 (Minn. App. 2009). "A court may pierce the corporate veil to hold a shareholder liable for the debts of the corporation when the shareholder is the alter ego of the corporation." Hoyt Props., Inc. v. Prod. Res. Grp. , 736 N.W.2d 313, 318 (Minn. 2007).

A "general receivership" is a "receivership over all or substantially all of the nonexempt property of a respondent for the purpose of liquidation and distribution to creditors and other parties in interest." Minn. Stat. § 576.21(h). The "respondent" in a receivership is "the person over whose property the receiver is appointed," and a "party in interest" in a general receivership is "any creditor of the respondent." Id .(m), (s). A receiver serves as "a fiduciary representing the court and all parties in interest, and the purpose and scope of a receivership is defined by court order," while the receivership statute and the "court’s general equitable powers" define a receiver’s powers. Equity Trust , 766 N.W.2d at 341 ; see also Minn. Stat. § 576.29, subds. 2, 3...