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Courts will pierce the corporate veil or disregard the corporate entity once a plaintiff shows: (1) control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff's legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
Plaintiffs Kansas City Roofing Center and Lumberman's Mutual Wholesale Company filed suit against On Top Roofing, Inc. (On Top) and Russell and Carol Nugent to recover damages for unpaid roofing supplies delivered to On Top. Plaintiffs sought to pierce the corporate veil of On Top and hold Russell and Carol Nugent personally liable for the debts incurred by On Top. After a bench trial, the trial court found in favor of the plaintiffs and pierced the corporate veil and held Russell Nugent personally liable for those debts. Russell Nugent appealed, arguing that the trial court erred in piercing the corporate veil. According to Russell, it was error to admit evidence of other corporate entities and that the suppliers had not proven the elements necessary to pierce the corporate veil.
Under the circumstances, was it proper to pierce the corporate veil and hold Russell Nugent personally liable for the debts of the roofing contractor?
The court affirmed the judgment that held Russell Nugent personally liable for the debts of the roofing contractor. According to the court, there was substantial evidence to support the trial court's finding that the three-part test for piercing the corporate veil was satisfied. Russell and his wife were the sole shareholders, the corporation was used as a subterfuge, and the scheme had damaged the suppliers. In addition, evidence of involvement with other corporate entities was relevant to demonstrate a pattern or scheme used to defraud creditors.