In re Towe
Decision Date | 26 September 1994 |
Docket Number | Bankruptcy No. 90-11695-7. Adv. No. 92/00133. |
Citation | 173 BR 197 |
Parties | In re William Edward TOWE, a/k/a Edward Towe, and Cora Florence Towe, a/k/a Florence Towe, Debtors. Craig D. MARTINSON, Trustee, and United States of America, Internal Revenue Service and Montana Department of Revenue, Intervenors, Plaintiffs, v. William Edward TOWE, a/k/a Edward Towe, and Heartland Trust; S.O. Tow Trust; Towe Antique Ford Foundation; Lewis Rector Trust; Towe Farms, Inc., and Towe Foundation, Defendants. |
Court | U.S. Bankruptcy Court — District of Montana |
COPYRIGHT MATERIAL OMITTED
Sherry Scheel Matteucci, U.S. Atty., D. Mont., Victoria L. Francis, Asst. U.S. Atty., Kirk C. Lusty, Eric M. Casper, Trial Attys., Tax Div., U.S. Dept. of Justice, Washington, DC, for Craig Martinson, U.S., I.R.S.
Paul Van Tricht, Dept. of Revenue, Office of Legal Affairs, Helena, MT, for Montana Dept. of Revenue.
Carey Matovich, Billings, MT, for William Towe.
Thomas Towe, Billings, MT, for S.O. Tow Trust.
Gerald Murphy, Moulton Law Firm, Billings, MT, for TAFF, Heartland Trust, Lewis Rector Trust, Towe Farms, Inc., Towe Foundation.
In this adversary proceeding, the Chapter 7 bankruptcy Trustee and Intervenors, United States of America, Internal Revenue Service (IRS) and the Montana Department of Revenue (DOR) seek turnover of assets held by the various Defendants on grounds such assets are property of the bankruptcy estate under 11 U.S.C. § 541. Each Defendant resists the challenge. Trial of this cause was held on May 9, 10, and 11, 1994, with all parties present. Testimony and exhibits were introduced by each of the parties and post-trial briefs have been filed by the parties. The matter is thus ripe for determination. The parties agree this is a core proceeding under 28 U.S.C. § 157(b)(2)(E), over which this Court has jurisdiction pursuant to 28 U.S.C. § 1334 and F.R.B.P. 7001.
A. TRUSTEE'S STANDING
The Defendants argue the Plaintiff Chapter 7 Trustee and the Intervenor Plaintiffs lack standing in this case to "assert causes of action based on the alter ego theory," citing Williams v. California 1st Bank, 859 F.2d 664 (9th Cir.1988). Williams holds:
We agree with the Eighth Circuit that Congress\' express decision to overrule Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972) is "extremely noteworthy." In re Ozark Equip. Co., 816 F.2d 1222 at 1228. We also share that court\'s certitude that "Congress\' message is clear — no trustee, whether a reorganization trustee as in Caplin or a liquidation trustee, has power under . . . the Code to assert general causes of action, such as an alter ego claim, on behalf of the bankrupt estate\'s creditors." Id. (Emphasis added).
The holding in Williams must be considered in light of the facts of that case where the Trustee attempted, through assignment, to bring actions personal to creditors on behalf of the estate. Williams holds the "Trustee lacked authority to bring suit on the claims." Id. In Williams, the Trustee, through assignments, was attempting to recover judgments on claims which were personal to each creditor, and which were not property of the bankruptcy estate. In that context, then, the holding is correct.
However, where the Chapter 7 Trustee seeks to recover assets of the Debtor's1 estate through an alter ego action by piercing the corporate veil, the case law is consistent that the Trustee has standing. As explained in Koch Refining v. Farmers Union Cent. Exchange, 831 F.2d 1339, 1348-49; (7th Cir.1987):
However, the Trustee has no standing to bring personal claims of creditors. A cause of action is "personal" if the claimant himself is harmed and no other claimant or creditor has an interest in the cause. But allegations that could be asserted by any creditor could be brought by the trustee as a representative of all creditors. If the liability is to all creditors of the corporation without regard to the personal dealings between such officers and such creditors, it is a general claim. See 3A Fletcher Cyc Corp., §§ 1134, 1277.1 (rev. perm. ed. 1986).
Koch and other cases such as Matter of S.I. Acquisition, Inc., 817 F.2d 1142, 1153 (5th Cir.1987) rely on the "well-reasoned" approach of In re Western World Funding, Inc., 52 B.R. 743, 783 (Bankr.Nev.1985):
As the Court in Western World Funding noted, under Nevada law the alter ego doctrine is an equitable remedy where the corporate entity is disregarded or pierced where (1) the corporation is influenced and governed by the person asserted to be its alter ego; (2) where there is such a unity of interest and ownership that one is inseparable from the other and (3) that adherence to the fiction of separate entity of the corporation would sanction a fraud or promote injustice. 52 B.R. at 777. The Ninth Circuit Court of Appeals in Towe Antique Ford Foundation v. I.R.S., 999 F.2d 1387, 1391 (9th Cir.1993), citing Montana cases, cited two general factors which Montana Courts consider in determining whether to disregard the separate identity of a corporation. First, the party seeking to pierce the corporate veil must show the corporation is the alter ego of the individual. Id. Second, there must be a showing that the corporation was used as a subterfuge to defeat public convenience, justify wrong or perpetrate fraud, keeping in mind that the alter ego doctrine is an equitable remedy to curb injustices resulting from the improper use of a corporate entity. Id. at 1391-92. The alter ego doctrines described in Western World Funding and Towe Antique Ford Foundation are thus very similar, if not identical. Indeed, one of the Montana cases cited in Towe Antique Ford, Meridian Minerals Co. v. Nicor Minerals, Inc., 228 Mont. 274, 742 P.2d 456, 462 (1987), cites and relies upon the Nevada case of Bonanza Hotel Gift Shop, Inc. v. Bonanza No. 2, (1979), 95 Nev. 463, 596 P.2d 227, 229, thereby indicating an approval of the Nevada alter ego doctrine.
I conclude, therefore, that the Trustee has standing to bring a claim for relief on the basis of the Montana alter ego doctrine. In fact, only the Trustee could prosecute such action to recover assets for the estate. In re Guyana Development Corp., 168 B.R. 892, 909 (Bankr.S.D.Tex.1994) ( ). Therefore, if the Trustee likewise was prohibited from asserting the alter ego doctrine to prevent an injustice, the wrongdoer would escape unharmed to the detriment of the creditors. Accordingly, the Defendants' assertion the Trustee lacks standing to bring this action is without merit.
With respect to each Defendant, I examine each Defendant separately, although some of the dealings between the corporations, foundations, and trusts necessarily overlap.
A. Plaintiffs claim that TAFF is the alter ego of the Debtor, Edward Towe. This matter and issue was resolved by the U.S. District Court for the District of Montana in Towe Antique Ford Foundation v. Internal Revenue Service, et al., 791 F.Supp. 1450 (D.Mon...
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