Ecklund v. Nevada Wholesale Lumber Co.

• Decision Date: 07 April 1977
• Docket Number: No. 8624,8624
• Citation: Ecklund v. Nevada Wholesale Lumber Co., 562 P.2d 479, 93 Nev. 196 (Nev. 1977)
• Parties: Jerry D. ECKLUND, Appellant, v. NEVADA WHOLESALE LUMBER CO., a Nevada Corporation, Respondent.
• Court: Nevada Supreme Court

Page 479

562 P.2d 479

93 Nev. 196

Jerry D. ECKLUND, Appellant, v.NEVADA WHOLESALE LUMBER CO., a Nevada Corporation, Respondent.

No. 8624.

Supreme Court of Nevada.

April 7, 1977.

Hale, Belford, Lane & Peek, Reno, for appellant.

A. D. Jensen, Reno, for respondent.

OPINION

MOWBRAY, Justice:

Nevada Wholesale Lumber Co. commenced this action against Ecklund Insulation, Inc., seeking payment for building materials furnished Ecklund.Judgment by stipulation was entered against Ecklund for $9,663.63 plus $1,000 attorney's fees and costs.Nevada in its complaint also joined, as a partydefendant, Ecklund's president, Jerry D. Ecklund.The sole issue presented to the district judge and to this court is whether Jerry is personally liable for the debt.The district judge held that he was liable and entered judgment accordingly.We disagree and therefore reverse.

1.At the close of Nevada's case in chief, Jerry made a motion to dismiss the complaint pursuant to NRCP 41(b).The motion was denied, and the case was submitted without the presentation of further evidence.The district judge found that Nevada had established a prima facie case, that there was a unity of interest and ownership between Jerry and the Ecklund corporation, and that Jerry controlled it.The district judge concluded, therefore, that Jerry was the corporation's alter ego and personally liable for the debt.

2.Jerry urges that Nevada did not meet the burden of proving by a preponderance of the evidence the necessary elements upon which the alter ego theory is predicated.

The requirements for applying the alter ego doctrine are set forth in McCleary Cattle Co. v. Sewell, 73 Nev. 279, 282, 317 P.2d 957, 959(1957):

(1) The corporation must be influenced and governed by the person asserted to be its alter ego.(2) There must be such unity of interest and ownership that one is inseparable from the other; and (3) The facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice.

Each of the above three elements must be established by a preponderance of the evidence by the party seeking to pierce the corporate veil.SeeNorth Arlington Medical Bldg., Inc. v. Sanchez Constr. Co., 86 Nev. 515, 471 P.2d 240(1970);Baer v. Amos J. Walker, Inc., 85 Nev. 219, 452 P.2d 916(1969).

Ecklund was incorporated in 1963.The articles of incorporation named Jerry D. Ecklund(the appellant), Leonard E. Shaunce, and Janet Ecklund as directors.Jerry served at all times as president.The capital structure was stated to be 75,000 shares of $1-par-value common stock.

An unaudited financial statement of May 8, 1967, showed the corporation to have assets of $94,920.38, with liabilities of an equal amount, and paid-in capital of $2,300, with retained earnings of $21,931.28.No evidence was presented regarding the ownership of the stock.

Nevada's general manager testified.He stated that he knew of the existence of Ecklund Insulation, Inc., and had done business with the corporation; that Jerry, but no other person, had on numerous occasions ordered insulation materials for the corporation, which were charged to the corporation's account.

Nevada urged before the court below that Jerry had admitted personal liability for the debt and his alter ego relationship with the corporation.In support of these contentions, Nevada presented Jerry's answer to the complaint filed with the State Contractors' Board seeking payment of its debt, where Jerry admitted: 'We owe Nevada Wholesale Lumber Company $9,628.46.'Nevada also presented a responsive pleading in another lawsuit regarding the sale of the corporation.Jerry stated in that document that he had agreed orally to sell the corporation, but when the seller failed to make payment Jerry resumed control of the corporation.

The sole remaining evidence presented was that the State Contractors' Board had suspended the corporation's license pending payment of the debt and that the corporation had failed to file with the Secretary of State its annual list of officers and directors for July 1, 1975, to June 30, 1976.

3.It is clear from the foregoing that the only element Nevada has established by a preponderance of the evidence is that Jerry influenced and governed the corporation.He served as president and director of the corporation, and he appears to have been the sole person acting on its behalf.

The evidence, however, does not establish that there was a unity of interest and ownership between Jerry and the corporation.It was never shown that Jerry owned a single share of the 7,000 outstanding shares of stock.

Ecklund's admissions are too ambiguous to establish a unity of itnerest and ownership.The use of the pronoun 'we' in the answer to the complaint to the State Contractors' Board does not necessarily indicate an admission of personal liability.

The record is devoid of any other evidence that adherence to the corporate fiction would promote an injustice, the third necessary element for the alter ego theory.It does not appear that the corporation was undercapitalized; it conducted business successfully for 12 years before running into financial difficulty.Nevada knew it was dealing with a corporation and could not reasonably have relied on Jerry's personal credit, absent any conduct by Jerry inducing it to do so.The only evidence of any corporate irregularities--the termination of its license and its being held delinquent in filing a list...