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APPEAL FROM LAUREL CIRCUIT COURT. HON. JOHN KNOX MILLS, JUDGE. ACTION NO. 06-CI-00297.
AFFIRMING IN PART, REVERSING IN PART AND REMANDING
BRIEF FOR APPELLANTS: David Howard, London, Kentucky.
BRIEF FOR APPELLEE: R. Aaron Hostettler, London, Kentucky.
BEFORE: COMBS, NICKELL, AND TAYLOR, JUDGES. ALL CONCUR.
Tony Smith and Smith Services, Inc. (Smith Services)
appeal from judgments and orders of the Laurel Circuit Court in favor of Bear,
Inc. d/b/a Lake Express (Lake Express) awarding judgment to Lake Express in the
amount of $90,863.22 for unpaid fuel charges and accrued interest incurred by
Smith Services through August 1, 2010, plus additional interest thereon accruing
at the rate of twelve percent (12%) per annum until paid in full, together with
the amount of $42,330.38 for costs and fees paid to counsel. Upon a review of
the record, we affirm in part and reverse in part and remand.
I. FACTUAL AND PROCEDURAL HISTORY
Smith was the sole shareholder of Smith Services, a Kentucky corporation. Lake Express operates a gas station in London, Kentucky. Smith Services had an account at Lake Express and charged fuel to that account from 1999 to 2002, when Lake Express closed the account due to nonpayment. At the time the account was closed, there was an unpaid balance of approximately $26,000.00.
Neither Smith Services nor Lake Express memorialized in writing their understanding regarding the fuel account or what was to occur in the event of default. Moreover, Smith did not personally guarantee the Smith Services fuel account debt, and Lake Express required no security as collateral. Instead, in accordance with the operation of the fuel account, a Lake Express employee would simply write down the name of the Smith Services agent charging fuel and the amount of fuel purchased,
and thereafter provide Smith Services a slip or receipt of sorts with a purchase order number. All fuel purchases procured on the Smith Services' account were billed directly to Smith Services.
In February of 2002, after Smith Services stopped paying on its fuel account, Lake Express ceased accepting any further charges by Smith Services on the fuel account. Thereafter, Lake Express required Smith Services to pay all fuel charges on a monthly basis, which it timely did. However, Smith Services made no further payments to Lake Express on the $26,000.00 balance owed on the prior fuel account, and Lake Express began charging interest on the outstanding amount owed by Smith Services.
Smith closed Smith Services sometime in 2003. Smith testified the closure occurred after Smith Services was not paid on several contracts and creditors began to attach its liquid assets. The last tax return for Smith Services was filed in 2003. Smith did not file articles of dissolution, and did not inform Lake Express he had dissolved Smith Services. Yet, Smith continued to purchase fuel from Lake Express, under the guise of Smith Services, until 2005.
In 2006, Lake Express filed suit against Smith, Smith Services, and Smith Heating and Air Conditioning, LLC (Smith Heating), a company owned by Tony W. Smith, one of Smith's sons, seeking to collect the unpaid balance of the fuel account. By that time, however, Smith Services no longer had any assets. Months later, the Kentucky Secretary of State administratively dissolved Smith Services. Lake Express then amended its complaint to add claims of fraud in the inducement and by omission, and it sought to pierce the corporate veil of Smith Services as an alternate means of seeking liability against Smith, the sole shareholder of the dissolved Smith Services.
In October of 2007, Smith Heating moved to dismiss each of Lake Express's claims against it. Smith likewise moved to dismiss Lake Express's claims against him, including the claims of fraud and its action to pierce the corporate veil. The trial court, treating the motion as one for summary judgment, reviewed the evidence of record and dismissed Lake Express's claims against Smith Heating and Smith.
Lake Express appealed from the dismissal. On appeal, this Court affirmed the dismissal of the claims against Smith Heating. Bear, Inc. v. Smith, 303 S.W.3d 137, 147 (Ky. App. 2010). Further, because Lake Express could not prove Smith had never intended to pay, we also affirmed dismissal of the fraud claims against Smith.
However, we reversed the trial court's dismissal and remanded for further proceedings regarding the issue of Smith's direct liability, if any, stating " Kentucky law allows a creditor who timely files its claim to proceed directly against a shareholder of a dissolved corporation to the extent of the corporate assets received by that shareholder . . . ." Id. at 147. We held a genuine issue of material fact had been raised with respect to whether Smith had retained any assets of Smith Services for which he might be held individually liable, particularly because the 2003 tax return of Smith Services indicated shareholder loans totaling more than $173,000.00 were paid to Smith. We further held a genuine issue of material fact had been raised with respect to whether the corporate veil could be pierced. We ...