Winkler v. v. G. Reed & Sons, Inc.

• Decision Date: 28 July 1994
• Docket Number: No. 30S01-9407-CV-681,30S01-9407-CV-681
• Citation: 638 N.E.2d 1228
• Parties: Ronnie WINKLER, Appellant-Plaintiff below, v. V.G. REED & SONS, INC., Arthur S. Overbay, Jr., and Typoservice Corporation, Appellees-Defendants below.
• Court: Indiana Supreme Court

Page 1228

638 N.E.2d 1228

Ronnie WINKLER, Appellant-Plaintiff below, v. V.G. REED & SONS, INC., Arthur S. Overbay, Jr., and Typoservice Corporation, Appellees-Defendants below.

No. 30S01-9407-CV-681.

Supreme Court of Indiana.

July 28, 1994.

Ronnie Winkler, Patrick N. Ryan, Marion, for appellant.

Susan L. Williams, Darryl W. Durham, Alagia, Day Trautwein & Smith, Louisville, KY, for V.G. Reed & Sons, Inc.

James A. Knauer, Marica E. Roan, Kroger Gardis & Regas, Indianapolis, for Arthur Overbay, Jr. and Typoservice Corp.

ON PETITION TO TRANSFER

SULLIVAN, Justice.

Ronnie Winkler (Appellant-Plaintiff below) seeks transfer after the Court of Appeals affirmed the trial court's entry of summary judgment in favor of V.G. Reed & Sons, Inc., Arthur S. Overbay, Jr. and Typoservice Corporation (Appellees-Defendants below). Winkler v. V.G. Reed & Sons (1993), Ind.App., 619 N.E.2d 597.

Facts

In 1989, Winkler entered into an employment contract to be the general manager of Typoservice, a printing and typesetting business. The contract was signed by Overbay, the president and majority shareholder of Typoservice. The agreement provided Winkler with an annual salary of $85,000 for fifteen years and entitled him to all the earnings remaining on the contract if his employment was severed for any reason other than mutual agreement or disability. The agreement also gave Winkler an option to purchase a majority of Typoservice stock if Overbay was no longer involved in the business.

In 1991, Overbay began negotiating with Reed & Sons, a Kentucky corporation engaged in the printing business, for the sale of Typoservice. The evidence shows that at this time, Typoservice was near insolvency because its primary lender had refused to renew outstanding loans of $2.2 million.

In July, 1991, Reed & Sons executed a Letter of Intent for the purchase of most of Typoservice's assets and the assumption of certain liabilities. Among other things, the Letter of Intent provided that Reed & Sons could designate the buyer of Typoservice's assets, and that the buyer would not assume any existing employment agreements but would assume the outstanding loans. Later, Typoservice and Reed & Sons executed an Asset Purchase Agreement that contained these same provisions. The Asset Purchase Agreement was later amended specifically to exclude Winkler's employment contract.

In September, 1991, Reed & Sons formed Midwest, Inc., as its wholly-owned subsidiary. ¹ The Asset Purchase Agreement was again amended to reflect that Midwest was the designated buyer of the Typoservice assets. Midwest closed the transaction on October 1, 1991, after which Typoservice stopped all business activity. Winkler was discharged on October 9, 1991.

Winkler filed a three-count complaint against Reed & Sons, Overbay and Typoservice alleging that each had (1) breached the employment contract, (2) conspired to breach the employment contract, and (3) tortiously interfered with the employment contract. Defendants moved for summary judgment on all counts, except on the breach of contract claim against Typoservice. ² Those motions were granted. Winkler appealed.

The Court of Appeals affirmed the entry of summary judgment. The court (1) declined to pierce the Typoservice corporate veil to hold Overbay individually liable because Overbay's actions were ones any corporate president could perform, 619 N.E.2d at 599; (2) found no evidence to support Winkler's contention that the transaction was a sale of stock rather than a sale of assets, Id. at 600; and (3) found no evidence to support Winkler's contention that the asset sale was other than a legitimate business transaction and thus, any interference with the employment contract as a result was justified. Id. at 601.

Winkler now seeks transfer. He asserts that (1) material issues of fact remain about whether Overbay is liable in an individual capacity for the breach of the employment contract and (2) the Court of Appeals erroneously decided that tortious interference with a contract can be excused or justified under these circumstances. We grant transfer to affirm the trial court and to elaborate on the well-reasoned opinion of the Court of Appeals which we summarily affirm.

Standard of Review

This case was resolved below by summary judgment. Our standard of review is well-established. The reviewing court faces the same issues that were before the trial court and follows the same process. Greathouse v. Armstrong (1993), Ind., 616 N.E.2d 364, 366. The party appealing from the grant of summary judgment has the burden of persuading the court that the grant of summary judgment was erroneous. Id. The trial court's determination is carefully scrutinized to assure that the party against whom summary judgment was entered is not improperly prevented from having its day in court. Id.

Summary judgment is appropriate only if the pleadings and evidence sanctioned show "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Ind.Trial Rule 56(C). Even if the facts are undisputed, summary judgment is not proper if those undisputed facts give rise to conflicting inferences that are material. Bochnowski v. Peoples Fed. Sav. & Loan (1991), Ind., 571 N.E.2d 282, 285.

Breach of Employment Contract

In Count I of the complaint, Winkler sought recovery from Overbay and Reed & Sons for breach of the employment agreement. We address the claims against each defendant separately.

Overbay. Winkler contends that Overbay is personally liable under the employment contract. Overbay responds that he cannot be liable for the breach of the contract because he signed the contract in his capacity as president of Typoservice.

The personal liability of corporate officers ³ and shareholders is determined by common law rules of agency. Indiana Dept. of Pub. Welfare v. Chair Lance Serv. (1988), Ind., 523 N.E.2d 1373, 1377. It is a matter of black-letter law that where the agent acted within the scope of the agent's authority in signing a contract on behalf of the principal, the remedy of one seeking to enforce the contract is against the principal and not the agent. See, e.g., McHenry v. Duffield (1844), 7 Blackf. 41, 42. As a result, corporate officers and shareholders are generally not personally liable for the contractual obligations of the corporation. Toner v. Fulkerson (1890), 125 Ind. 224, 225, 25 N.E. 218, 219.

These rules are derived from the fact that a corporation is a legal entity separate and distinct from its shareholders and officers. Benner-Coryell Lumber Co. v. Indiana Unemployment Compensation Bd. (1940), 218 Ind. 20, 25, 29 N.E.2d 776, 778, cert. denied, 312 U.S. 698, 61 S.Ct. 741, 85 L.Ed. 1132 (1941); Clarke Auto Co. v. Fyffe (1954), 124 Ind.App. 222, 227, 116 N.E.2d 532, 534. This has been so since the earliest days of our corporate law. In Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518, 4 L.Ed. 629 (1819), Chief Justice Marshall recognized that corporations had constitutionally protected contract rights. Thus, "[t]he corporate creature of the law--'invisible, intangible, and existing only in contemplation of law'--was endowed with basic legal rights, even against its creator." Bernard Schwartz, Main Currents in American Legal Thought 121 (1992) (quoting from Dartmouth College, 4 Wheat. at 636). Although a corporation acts only through its agents, officers, shareholders, and employees, it is the corporate entity that is legally responsible for those acts. Chair Lance Serv., 523 N.E.2d at 1377.

Winkler concedes that the employment contract shows that Overbay signed it in his capacity as president of Typoservice, but contends that the corporate veil should be pierced because as the majority shareholder and president of Typoservice, Overbay was the sole decision-maker at Typoservice (including with respect to the transaction in question here), and he personally received the few assets not transferred in the sale to Midwest.

As the Court of Appeals correctly noted, Indiana courts are reluctant to disregard a corporate entity, but will do so to prevent fraud or unfairness to third parties. Magic Packing Co. v. Stone-Ordean (1902), 158 Ind. 538, 541, 64 N.E. 11, 12; Gurnik v. Lee (1992), Ind.App., 587 N.E.2d 706, 710. The burden is on the party seeking to pierce the corporate veil, Hinds v. McNair (1955), 235 Ind. 34, 41, 129 N.E.2d 553, 559, to establish "that the corporation was so ignored, controlled or manipulated that it was merely the instrumentality of another, and that the misuse of the corporate form would constitute a fraud or promote injustice." Gurnik, 587 N.E.2d at 710.

When a court exercises its equitable power to pierce a corporate veil, it engages in a highly fact-sensitive inquiry. Hinds, 235 Ind. at 41-48, 129 N.E.2d at 559-561. As a general statement, the factors to be considered include whether the corporate form has been adhered to, whether corporate assets are treated as such or as personal assets, and whether there has been an attempt to deceive third parties. See Hinds, 235 Ind. at 40-41, 129 N.E.2d at 560; Magic Packing, 158 Ind. at 541, 64 N.E. at 12; Lambert v. Farmers Bank (1988), Ind.App., 519 N.E.2d 745, 748; Extra Energy Coal Co. v. Diamond Energy (1984), Ind.App., 467 N.E.2d 439, 441-42. ⁴

The facts here are not disputed. The contract shows Overbay signed it in his capacity as president. There is no evidence that he treated Typoservice as his alter ego or that Winkler was deceived about the identity of his employer. Even if, as Winkler asserts, Overbay improperly received the few assets that remained after the sale to Midwest, that fact is insufficient to support holding Overbay personally liable under the employment contract. ⁵ See Mishawaka Brass Mfg. v. Milwaukee Valve Co. (1983), Ind.App., 444 N.E.2d 855 (sole shareholder of predecessor corporation, who purchased equipment of predecessor corporation and leased it back for business...