Cengage Advantage Books: Business Law Today, The Essentials 10th Edition by Roger LeRoy Miller

تمرين 20

Brennan's, Inc. v. Colbert
FACTS Three brothers-Pip, Jimmy, and Theodore Brennan- are shareholders of Brennan's, Inc., which owns and operates New Orleans' famous Brennan's Restaurant. The Brennan brothers retained attorney Edward Colbert and his firm, Kenyon Kenyon, LLP, to represent Brennan's, Inc., in a dispute. All invoices were sent to Brennan's, Inc., and the Brennan brothers' payments came from the corporation's checking accounts.
As a close corporation, Brennan's, Inc., did not hold formal corporate meetings with agendas and minutes. Nevertheless, it did maintain corporate books, hold corporate bank accounts, and file corporate tax returns. In 2005, Brennan's, Inc., sued Colbert and Kenyon Kenyon for legal malpractice. In its answer, Kenyon Kenyon demanded unpaid legal fees both from Brennan's, Inc., and from the Brennan brothers personally. The court found that the Brennan brothers could not be held personally liable. On appeal, Kenyon Kenyon argued that it should be allowed to pierce the corporate veil because Brennan's, Inc., did not observe corporate formalities and because the Brennan brothers did not honor their promises to pay their legal bills.
ISSUE Should the court pierce the corporate veil and allow Kenyon Kenyon to hold the Brennan brothers personally liable?
DECISION No. The Louisiana appellate court affirmed the trial court's judgment for the Brennan brothers.
REASON Corporate shareholders generally may not be held personally liable, but a court may pierce the corporate veil if the shareholders fail to observe corporate formalities or use the corporation to perpetrate a fraud. In this case, the Brennan brothers never agreed to personally pay Kenyon Kenyon's legal fees. Instead, they simply spoke as shareholders for the firm's real client, Brennan's, Inc. Moreover, Kenyon Kenyon knew that Brennan's, Inc., was a close corporation that operated somewhat informally. Although the corporation did not hold formal corporate meetings, it maintained corporate books, held corporate bank accounts, filed corporate tax returns, and even paid Kenyon Kenyon with its own checks. Finally, the Brennan brothers did not defraud Kenyon Kenyon by failing to pay their legal fees. "[I]f a broken promise to pay was sufficient to establish fraud," the court reasoned, "then every lawsuit against a corporation for a debt would automatically allow for the piercing of the corporate veil."
CRITICAL THINKING-Ethical Consideration Should the Brennan brothers be held personally liable because they misled their attorneys? Why or why not?