Kinder v. QI Enters., L.L.C.

• Citation: 344 P.3d 397 (Table)
• Decision Date: 06 March 2015
• Docket Number: 111,537.
• Parties: Rhoda Jolene KINDER, Appellant, v. QI ENTERPRISES, L.L.C., and Stover Medical Support Services, f/k/a Stover Medical Supply Services, Appellees.
• Court: Court of Appeals of Kansas

344 P.3d 397 (Table)

Rhoda Jolene KINDER, Appellant
v.
QI ENTERPRISES, L.L.C., and Stover Medical Support Services, f/k/a Stover Medical Supply Services, Appellees.

111,537.

Court of Appeals of Kansas.

March 6, 2015.

Kala Spigarelli, of The Spigarelli Law Firm, of Pittsburg, for appellant.

Timothy J. Grillot, of Parsons, for appellees.

Before STANDRIDGE, P.J., GREEN, J., and JOHNSON, S.J.

MEMORANDUM OPINION

PER CURIAM.

Rhoda Jolene Kinder sued QI Enterprises, L.L.C., and Stover Medical Support Services (Stover Medical) for breach of a settlement agreement. Kinder sued QI Enterprises alleging that it was the alter ego of Stover Medical. Kinder raises two issues for our consideration. The first issue is whether the trial court erred in ruling that Kinder failed to meet her burden of proof that QI Enterprises was the alter ego of Stover Medical. The second issue is whether the trial court erred in ruling that it lacked personal jurisdiction over QI Enterprises. Finding no merit in Kinder's contentions, we affirm.

Stover Medical f/k/a Stover Medical Supply Services, was a duly incorporated business in the State of Missouri, with its original incorporation on October 31, 1997. Stover Medical was equally owned by Matthew Stover and his wife, Brenda Stover.

On January 22, 1999, while working for Stover Medical, John William Kinder was killed in a car accident. His wife, Rhoda Jolene Kinder, filed a workers compensation claim against Stover Medical, contending that her husband was employed by Stover Medical when his death occurred and that his death occurred in the scope of his employment. A settlement was later reached, and Stover Medical agreed to pay Kinder $162,240 in installment payments.

In July 2004, Matthew and Brenda Stover sold Stover Medical to KRC Enterprises, LLC, for approximately $3,000,000. After the assets of Stover Medical were sold to KRC, Stover Medical Staffing Services, Inc., began making the settlement payments and continued the monthly payments until June 1, 2005. When Stover Medical Staffing Services stopped making payments, the balance owed under the settlement agreement was $87,060.

In July 2005, Matthew and Brenda Stover filed for divorce. After selling Stover Medical, Matthew began multiple other medical courier businesses with family members, employees, or significant others.

In October 2008, Matthew became 50% owner and chief executive officer of QI Enterprises, L.L.C., d/b/a Stover Medical, which is owned with his current girlfriend SuSu Qi. The business is known as Stover Medical Support Services to its customers.

Kinder filed suit against QI Enterprises and Stover Medical for breach of contract. The trial court entered summary judgment against Stover Medical for the unpaid settlement agreement amount but denied summary judgment against QI Enterprises. Kinder alleged that QI Enterprises was the alter ego of Stover Medical. The trial court ultimately held that Kinder failed to meet her burden of proof to establish that QI Enterprises was the alter ego of Stover Medical. The court further held that it did not have jurisdiction over QI Enterprises because QI does not do business in Kansas and had no minimum contacts in Kansas.

Did the Trial Court Err in Finding That QI Enterprises Is Not the Alter Ego of Stover Medical Support Services?

Kinder sought liability against QI Enterprises on the basis that it was the alter ego of the corporation, Stover Medical. The trial court concluded that Kinder had failed to meet her burden of proof on this issue.

“[T]he doctrine of alter ego fastens liability on the individual who uses a corporation merely as an instrumentality to conduct his own personal business, such liability arising from fraud or injustice perpetrated not on the corporation but on third persons dealing with the corporation. Under it the court merely disregards corporate entity and holds the individual responsible for his acts knowingly and intentionally done in the name of the corporation. [Citation omitted.]” Kilpatrick Bros., Inc. v. Poynter, 205 Kan. 787, 797, 473 P.2d 33 (1970).

As explained in Kilpatrick, the doctrine of alter ego may be used to impose liability on an individual who uses a corporation merely as an instrumentality to conduct his or her own personal business. Such liability arises from fraud or injustice perpetrated not on the corporation but on third persons dealing with the corporation. Under the alter ego doctrine, the court may disregard the corporate entity and hold the individual responsible for his or her acts knowingly and intentionally done in the name of the corporation.

Under this theory, Kinder alleges that Stover Medical (not Matthew Stover personally) used QI Enterprises to hide assets in order to avoid paying the settlement agreement.

In determining whether to disregard the corporate entity, the court should consider the following factors:

“ ‘(1) Undercapitalization of a one-man corporation, (2) failure to observe corporate formalities, (3) nonpayment of dividends, (4) siphoning of corporate funds by the dominant stockholder, (5) nonfunctioning of other officers or directors, (6) absence of corporate records, (7) the use of the corporation as a facade for operations of the dominant stockholder or stockholders, and (8) the use of the corporate entity in promoting injustice or fraud.’ “ Sampson v. Hunt, 233 Kan. 572, 579, 665 P.2d 743 (1983).

Not all of the factors must be present, and the presence of any one factor could be enough to justify disregarding the corporate entity. See State ex rel. Graeber v. Marion County Landfill, Inc., 276 Kan. 328, 355, 76 P.3d 1000 (2003).

Each case should be individually analyzed, and it should be noted that a court's power to pierce the corporate veil should be used reluctantly and cautiously. Sampson, 233 Kan. at 579 ; see Mr. Cinnamon of Kansas, Inc. v. Hall, 41 Kan.App.2d 457, Syl. ¶ 4, 202 P.3d 734 (2009).

Whether a corporation's owner is properly considered the alter ego of his or her corporation is a question of fact. Emprise Bank v. Rumisek, 42 Kan.App.2d 498, 520, 215 P.3d 621 (2009), rev. denied 290 Kan. 1093 (2010). The trial court here found that Kinder had failed to meet her burden of proof, which is a negative factual finding. When reviewing a negative factual finding of a case that was tried to the court, “the party challenging the finding must prove arbitrary disregard of undisputed evidence” or “some extrinsic consideration such as bias, passion, or prejudice.” Hall v. Dillon Companies, Inc., 286 Kan. 777, 781, 189 P.3d 508 (2008).

QI Enterprises defended against Kinder's alter-ego theory by presenting testimony from Matthew Stover and his attorney who helped negotiate the sale of Stover Medical. Both Stover and his attorney testified that Stover had invested the money from the sale of Stover Medical into real estate investments. When the real estate market crashed, Stover lost all of the money he had invested. QI Enterprises also presented evidence that SuSu Qi, Stover's girlfriend and coowner of QI Enterprises, was the person who came up with the money to start the business. Thus, there was no evidence that Stover had taken the money he received from selling Stover Medical and put it into QI Enterprises. QI Enterprises also presented evidence that in addition to its medical courier business, QI Enterprises also provides phlebotomists who travel to individuals' homes or medical facilities to draw blood. Moreover, QI Enterprises has its own lab.

Kinder did not try to rebut any of this testimony but instead focused on the relationship between Stover and each of the businesses he had formed since he sold Stover Medical. Kinder stressed that QI Enterprises had the same employees and the same business purpose. Kinder maintained that the only real difference between the companies was the...