DNS Allen, LLC d/b/a D and S Allen, LLC v. Alan Cox and Catherine Ann Cox Mikeal Scott Allen v. Alan Cox and Catherine Ann Cox (mem. dec.)

Citation: Not availableDocket: 61A01-1609-CC-2141

Court: Indiana Court of Appeals; June 1, 2017; Indiana; State Appellate Court

Original Court Document: View Document

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A Memorandum Decision issued by the Indiana Supreme Court outlines a case involving DNS Allen, LLC and the Coxes. DNS filed a lawsuit on July 10, 2014, against Alan and Catherine Cox for unpaid work and to foreclose on a mechanic’s lien. The Coxes counterclaimed, alleging breach of contract, deceptive practices, violations of the Home Improvement Contract Act (HICA), and slander of title, also including DNS's owner, Mikeal Scott Allen, as a third-party defendant.

Following a bench trial on June 29, 2015, the court found DNS liable for breach of contract, HICA violations, and slander of title, piercing the corporate veil to hold Allen personally liable. On appeal, the main issue was whether the trial court erred in piercing the corporate veil sua sponte. Despite evidence of poor-quality construction work by Allen, the appellate court reversed the decision to pierce the corporate veil.

Key facts include that DNS, a limited liability company, entered into a contract with the Coxes for home remodeling, which lacked essential details like the address and completion dates. Construction, which started in January 2013 and continued until May 21, 2013, resulted in $63,000 being paid by the Coxes. Disputes arose over substandard work, leading the Coxes to demand a refund and prompting DNS to file its lawsuit. The Coxes subsequently filed their counterclaim and third-party complaint.

A bench trial took place from June 29 to July 1, 2016, in Parke County, culminating in an August 23, 2016, ruling where the trial court found DNS liable for breach of contract, violations of the Indiana Home Improvement Contract Act (HICA), and slander of title. Key findings included Allen's unapproved selection and installation of a refrigerator that did not fit properly, a roof installed in an unauthorized color, and the use of fiberboard instead of requested wood trim. Additionally, Allen failed to build a requested closet, installed a pet door and exterior door without consent, and left structural issues such as improperly poured cement causing water pooling, unlevel floors, and misaligned structures. The court also pierced the corporate veil, holding Allen personally liable to Alan and Cathy Cox, a decision challenged on appeal. The appellate review standard entails assessing whether evidence supports the trial court's findings and conclusions, which are upheld unless clearly erroneous. The appeal centers on the trial court's piercing of the corporate veil based solely on HICA violations, which the appellate court found erroneous, indicating that HICA's intent was to establish consumer protections rather than serve as grounds for personal liability against a company’s shareholder.

Findings of fact and conclusions of law do not support piercing the corporate veil, as shareholders generally are not personally liable for corporate acts. An Indiana court may impose personal liability to protect third parties from fraud or injustice; however, the burden lies with the party seeking to pierce the veil to demonstrate that the corporation was merely an instrumentality of another and that misuse of the corporate form constituted fraud or injustice. Key factors considered include: undercapitalization, lack of corporate records, fraudulent representations by shareholders or directors, use of the corporation for fraudulent purposes, payment of personal obligations by the corporation, commingling of assets, failure to adhere to corporate formalities, and any actions by shareholders that ignore or manipulate the corporate form. The decision to pierce the corporate veil is based on the specific facts of the case. 

In this instance, the court found insufficient grounds to pierce the corporate veil and noted a lack of evidence that DNS and Allen were aware of the possibility of piercing. However, the evidence indicated that DNS breached its contract with the Coxes and did not comply with HICA, resulting in entitlement to damages and attorneys' fees. As piercing the corporate veil was not justified, judgment is limited to DNS, with no liability for Allen personally. The court reversed the trial court's decision to pierce the corporate veil and remanded for judgment adjustments.