Barton v. Moore
| Decision Date | 13 February 1997 |
| Docket Number | K-T,K-TWN,Nos. C0-95-1248,C2-95-1249,s. C0-95-1248 |
| Citation | 558 N.W.2d 746 |
| Parties | Les BARTON and Cynthia Zschokke, Respondents (C0-95-1248), Plaintiffs (C2-95-1249), v. Emily L. MOORE, Jack I. Moore, individually and d/b/aCommunications and d/b/awin, petitioners, Appellants, Southwest Suburban Broadcasting, Inc., et al., Defendants, Jerold A. Gilbert and Stephen C. Fiebiger, Respondents (C2-95-1249). |
| Court | Minnesota Supreme Court |
Syllabus by the Court
1. A complaint will withstand a motion to dismiss where it alleges facts sufficient to provide notice to the defendants that the plaintiffs rely upon a theory of piercing the corporate veil.
2. Minnesota Statutes section 334.011, subd. 2 (1996) provides the exclusive remedy for loans found to be usurious under section 334.011, subd. 1, so that lenders of usurious business or agricultural loans forfeit the interest, but not the principal amount of the loan.
Kay Nord Hunt, Stacy A. DeKalb, Lommen, Nelson, Cole & Stageberg, P.A., Minneapolis, for appellants.
Stephen C. Fiebiger, Minneapolis, Jerold A. Gilbert, North Oaks, for respondents.
Cheryl Hood Langel, Henson & Efron, Minneapolis, for Defendant Southwest Suburban Broadcasting.
Heard, considered and decided by the court en banc.
What is the appropriate penalty for lending money under usurious terms in violation of Minn.Stat. § 334.011, subd. 1 (1996): forfeiture of interest only or voiding of the loan? We hold that loans determined to be usurious pursuant to Minn.Stat. § 334.011, subd. 1 are not therefore void, but only subject the lender to loss of interest.
We also affirm the court of appeals on its determination that the complaint at issue here alleged sufficient facts to put the defendants on notice that the lenders relied on a theory of piercing the corporate veil.
This action arises from two loan agreements made in 1990: the first agreement was signed by lender Cynthia Zschokke "for Provider" and "for Les Barton" and by Jack and Emily Moore "for Receiver" and "on behalf of KTWN." The Moores owned stock in KTWN Communications, Inc. ("KTWN"), which was engaged in the broadcasting business. 1 The agreement stated that the provider would lend $25,000 to the receiver for use as an "emergency fund" in the business of KTWN. It further provided that the loan would be repaid through receipt by the provider of $40,000 in stock in KTWN or a new corporation, or alternatively, by payment of $40,000 to the provider. If neither of these options was exercised by either party within two years, the agreement stated that "the fund [would] * * * be returned to provider along with interest computed at 15% annually." These options gave the lenders either a 15% or a 60% return on their investment depending on which option was exercised.
The second loan agreement, made several months later, was signed by Zschokke as "Lender, for Les Barton," and by Jack Moore, "for KTWN Communications, Inc." This agreement was for the loan of $3,777 and provided that KTWN would repay the full amount plus $377 within 30 days, which is the equivalent of a 120% annual interest rate.
In December 1992, KTWN was dissolved and the lenders subsequently brought this action in August 1994 to recover on the unpaid loans. The complaint incorporates five claims: the first claim, entitled "Breach of Contract," is asserted against the Moores for breach of the first loan agreement. This claim characterizes the first loan agreement as one made between the lenders and the Moores individually. The second claim entitled "Second Alternative Claim: Breach by Corporation" is asserted against "Defendants" for breach of the first loan agreement. As an alternative theory, this claim characterizes the first loan agreement as one made between the lenders and KTWN, but seeks to hold all the defendants liable for breach of that agreement. 2 The third claim entitled "Loan" characterizes the second loan agreement as one made between the lenders and "Defendants" and merely asserts that the loan has not been repaid. 3
In response to the complaint, the Moores moved to dismiss pursuant to Minn. R. Civ. Pro. 12.02(e). The Moores argued that they were not personally liable for the corporate obligations of KTWN and alternatively, that even if they were found to be personally liable, the loans were usurious and thus void.
In opposition to the motion, the lenders argued that their complaint pleads two theories of liability against the Moores--that the loan agreements were made with the Moores as individuals and that KTWN actually served as the alter ego of the Moores. On the issue of usury, the lenders argued that usurious loans are not entirely void, but result in the forfeiture of interest only.
The trial court granted the Moores' motion to dismiss and awarded them sanctions, concluding that the Moores were not individually liable for the loans and that the complaint failed to state a claim to pierce the corporate veil. The court further held that even if the Moores were personally liable under either theory, the loans were void as usurious. In an unpublished opinion, the court of appeals reversed the trial court's dismissal, holding that the lenders had pled sufficient facts in their complaint to assert a claim to pierce the corporate veil. The court of appeals also reversed the trial court's usury conclusions, holding that a lender of a loan found to be usurious under Minn.Stat. § 334.011 forfeits the interest on the loan, but is entitled to the principal amount.
First, we consider whether the lenders pled sufficient facts in their complaint to pierce the corporate veil, so as to properly allege a claim against the Moores. 4 When reviewing cases dismissed for failure to state a claim on which relief can be granted, the only question before us is whether the complaint sets forth a legally sufficient claim for relief. Elzie v. Commissioner of Pub. Safety, 298 N.W.2d 29, 32 (Minn.1980) (citing Royal Realty Co. v. Levin, 244 Minn. 288, 290, 69 N.W.2d 667, 670 (1955)).
A two-prong test to determine when a shareholder can be liable for corporate obligations was articulated in Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979). The first prong focuses on the shareholder's relationship to the corporation. Factors that are significant to the assessment of this relationship include whether there is insufficient capitalization for purposes of corporate undertaking, a failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of the corporation as merely a facade for individual dealings. Victoria Elevator, 283 N.W.2d at 512. The second prong requires showing that piercing the corporate veil is necessary to avoid injustice or fundamental unfairness. Id.
Because the lenders challenge the trial court's Rule 12 dismissal on the basis of the pleadings, the Victoria Elevator test must be considered in the context of pleading requirements in Minnesota. Under our law, the pleading of broad general statements that may be conclusory is permitted. Northern States Power Co. v. Franklin, 265 Minn. 391, 394, 122 N.W.2d 26, 29 (1963). The primary function of notice pleading is to give the adverse party fair notice of the theory on which the claim for relief is based. Id. Notice pleading replaces the old system of code pleading, which required the pleading of facts sufficient to constitute a cause of action. Id. Consequently, Minnesota does not require pleadings to allege facts in support of every element of a cause of action. Id. at 395, 122 N.W.2d at 29.
Given the more liberal requirements of notice pleading, we hold that the lenders pled sufficient facts to support a claim to pierce the corporate veil. Although the lenders did not specifically name their theory of liability against the Moores as an alter ego theory, they allege numerous facts sufficient to provide the Moores with notice of such a theory. The second count incorporates paragraphs one through nine of the complaint, which include several allegations that give notice of the lenders' intention to pierce the corporate veil, including the assertion that the Moores are "personally liable for the obligations of their corporations." This conclusory claim to pierce the corporate veil is sufficient to support a claim against the Moores. See Northern States Power, 265 Minn. at 394, 122 N.W.2d at 29. Furthermore, although the lenders are not required to address the factors enumerated in either prong of the Victoria Elevator test in their complaint, see Maurice Sunderland Architecture, Inc. v. Simon, No. 3-92-493, 1993 WL 750859, at * 4 (D.Minn. Dec. 30, 1993), the complaint addresses three of the factors relevant to the first prong of that test. Specifically, the lenders addressed the failure to observe corporate formalities by alleging that the Moores "failed to keep legal entities separate." The lenders also alleged that the corporation exists as a mere facade for individual dealings by pleading that the Moores "have used their various assumed names and corporate names to serve their purposes at the time" and that the corporate headquarters of KTWN is located at the Moores' residence. Finally, the complaint addressed the siphoning of funds by a dominant shareholder by the allegation that funds designated for corporate use by KTWN were actually "transferred by wire into the bank account of Defendant Emily Moore" and were used by the Moores for their benefit. Thus, we affirm the court of appeals and hold that the lenders pled sufficient facts to pierce the corporate veil so as to withstand a motion to dismiss all claims against the Moores.
Given that the lenders have established a basis on which the Moores may be held liable for the unpaid loans, we now turn to the...
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