Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

تمرين 27

Schultz v. General Electric Healthcare Financial Services
Court of Appeals of Kentucky, __ S.W.3d __ (2010).
FACTS Thomas Schultz was the president and sole shareholder-owner of Intra-Med Services, Inc., a Kentucky corporation that performed medical diagnostic-imaging services. Several General Electric Companies (collectively, GE) leased certain medical equipment to Intra-Med. When Intra-Med failed to make the required lease payments, GE sued Intra-Med to recover the payments. In 2004, the court entered a judgment in favor of GE for more than $4.7 million. GE was able to collect approximately $700,000 of the judgment. GE then learned of documents from another lawsuit that revealed Schultz had used Intra-Med assets for his own purposes. He had bought property using Intra-Med funds, and when it was sold, he had kept the proceeds. GE intervened in the other lawsuit and filed a third party complaint against Schultz, seeking to pierce the corporate veil and hold him personally liable for the judgment against Intra-Med. GE requested a judgment in the amount of $1,150,000, allegedly the amount of Intra-Med funds that Schultz had used improperly. The trial court denied GE's request, stating that Schultz might
have been entitled to some payments from Intra-Med because he had personally loaned the company $700,000. GE agreed to settle for $450,000, the difference between $1,150,000 and the claimed $700,000 loan. The court issued a judgment in GE's favor, and Schultz appealed.
ISSUE Should the court pierce the veil of the corporation because Schultz, the sole shareholder-owner, improperly used Intra-Med funds for his own purposes?
DECISION Yes. The Court of Appeals of Kentucky affirmed the trial court's judgment on the pleadings. The corporate veil of Intra-Med should be pierced to hold Schultz liable for the debt owed to GE.
REASON The trial court used the instrumentality theory to pierce the corporate veil. Under this theory, the corporation is merely an instrumentality of the shareholder. The appellate court agreed with the trial court's decision. "The admitted facts … support the finding that the corporate veil should be pierced under the instrumentality theory. Mr. Schultz treated the corporation as a mere instrumentality by using corporate funds for his own individual purposes to purchase real estate and [other property]. The admitted facts also demonstrate that Mr. Schultz harmed GE by using corporate funds as his own even after GE obtained a monetary judgment against Intra-Med." The court concluded that not piercing the corporate veil would subject GE to an unjust loss. "Piercing the corporate veil appears to be the only method for GE to recover its judgment."
FOR CRITICAL ANALYSIS-Economic Consideration
Schultz argued that even if the corporate veil should be pierced, the $450,000 judgment against him was too much and should be reduced. How might the court have responded to this argument?