Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

The Ohio Court of Appeals (10th District, Franklin County) recently provided some very specific guidance about "piercing the corproate veil" in Ohio.  The case is Lind Stoneworks, Ltd. v. Top Surface, Inc., 194 Ohio App.3d 98 (10th District 2011).

The trial court held a corporation and its sole owner liable for a corporate debt.  The trial court "pierced the corporate veil" and found the owner to be personally liable.  The owner admitted that the corporation had no officers, no directors, and had apparently failed to follow some other corporate formalities.

The Court of Appeals held that in this case, these facts alone were not sufficient to impose personal liability on the owner.  The appeals court basically found that there was insufficient evidence to pierce the corporate veil.  The decision of the trial court was reversed and the case was remanded for further consideration.

Many factors can influence whether or not personal liability will be imposed on a corporation owners.  The Court of Appeals noted that in general, shareholders, officers and directors are not liable for a corporation's debts.

A limited liability company does not have as many required formalities as a corporation.  Nevertheless, it should still have a separate bank account and otherwise be treated as a separate entity.

The message from this recent Ohio court decision is clear:  make sure that you follow basic formalities with your corporation, limited liability company, or other business entity.  This is relatively easy to do; and failing to do it can completely defeat the purpose of forming the entity in the first place.

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A recent decision by the United States Bankruptcy Court for the District of Alaska (In Re: Thomas Mortensen, Case No. A09-00565-DMD) is clearly worth reading -- for a discussion of fraudulent conveyances, Alaska asset protection trusts, applicable statutes of limitations, and a variety of other asset protection topics.  I will likely comment on this recent case in several different posts, but here is a quick initial summary.

U.S. Bankruptcy Judge Donald MacDonald IV held that a transfer by Thomas Mortensen of real estate into an Alaska asset protection trust was a fraudulent conveyance.  The Judge found that there was persuasive evidence of an intent to hinder, delay and defraud present and future creditors. The Bankruptcy Judge voided the transfer of real estate to the trust as a fraudulent conveyance.

There are numerous lessons to be taken from this court decision and here are just two of them --

• Transferring assets when you are insolvent is likely to constitute a fraudulent conveyance.  While Mortensen was found to be solvent at the time of the real estate transfer, his own testimony from a child support action was used against him in the bankruptcy proceeding. In a child support proceeding against his ex-wife, Mortensen took the position that his divorce had thrown him into heavy debt.  This is simply a reminder that whatever you say in one court case can obviously be used against you in another!
• Think carefully about choosing the trustee of a trust.  Mortensen named his brother and a personal friend as trustees of his Alaska asset protection trust, and named his mother as a "trust protector."  All of these individuals were named as defendants by the Chapter 7 Bankruptcy Trustee in his adversary action against Mortensen.  While it is perfectly appropriate in many instances to name family members as trustees or trust protectors, you need to consider that these individuals can sometimes be dragged into litigation.

Many court decisions are difficult to read, but the Mortensen case is fairly easy to follow.  It is useful reading for anyone interested in some of the more technical aspects of fraudulent conveyances and other asset protection issues.

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A federal judge in Cleveland, Ohio recently ordered a convicted public official to pay $57,000 in damages by taking those funds from his retirement account.  An Ohio law passed several years ago specifically authorizes such an action if a public official has been convicted of certain crimes, including bribery.  The decision by U.S. District Judge Sara Lioi was reported in an October 29, 2011 article by James McCarty in the Cleveland Plain Dealer.

The convicted public official (former state court judge Steven Terry) was ordered to cash out the $57,000 from his retirement fund.  Mike Tobin, a spokesman for the U.S. Attorney's office, acknowledged that this was clearly a precedent.

Retirement accounts are generally well protected from creditors.  The Ohio statute involved in this particular matter has limited application -- to certain convicted public officials.  It is nevertheless important to be aware of cases like this one -- because we would not want to see a law like this one extended too far.

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