Miceli – Judgment Confession by a Corporation Contributes to Veil Piercing

Last month, the Missouri Court of Appeals for the Eastern District found that a corporation’s confession of a judgment when it was broke and could not and would not pay was enough of a fraud to contribute to veil piercing, despite a long line of cases indicating that judgment confession is a sound resolution in debt defense. See Commonwealth Land Title Insurance Company v. Frank J. Miceli, et al., No. ED101473 (Mo. App. E.D. 2015).

In Miceli, the Plaintiff Commonwealth acted as an underwriter for the sale of three homes constructed by Miceli Homes. Frank Miceli, president of Miceli Homes, executed sworn affidavits attesting that all subcontractors that had worked on the houses had been paid in full for services. His affidavit contained a request that Commonwealth issue its policies without exception as to any possible unfiled mechanic’s liens. Commonwealth did so, and the home sales were completed. Frank later admitted in deposition that the affidavits were false, and that he knew at the time many subcontractors had not been paid.

Soon after completion of the sales, dozens of subcontractors filed approximately $1.5 million in mechanic’s liens against the homebuyers’ properties. Commonwealth, having issued policies without exception, was obliged to defend the homebuyers and indemnify them from the full amount of the liens.

Homebuyers filed cross-claims against Miceli Homes to recover the money owed to the lien claimants, and after several days of trial, the trial court entered consent judgments against Miceli Homes.  These judgments were assigned over to Commonwealth and this case was an attempt by Commonwealth to collect on consent judgments to cover the indemnification on the liens.

Several claims were filed against Miceli Homes, Frank Miceli, individually and as trustee from his revocable trust, other Miceli family members individually and in a trustee capacity, and the involved construction entities and holding company that were a part of the Miceli business. Many claims were dismissed based on res judicata, but the appellate court found that the consent judgments do not bar Commonwealth’s counts under res judicata against Frank Miceli as he was a separate defendant and was not named in the consent judgments.

Interestingly, the Eastern District reversed the trial court’s judgment in favor of the defendants on Commonwealth’s motion for creditor’s bill and to pierce the corporate veil, finding that Frank Miceli exercised dominion and control over the business and perpetuated a dishonest and unjust act in contravention of a plaintiff’s legal rights, noting some unscrupulous preferential payments and running the asset well dry prior to the consent judgments.

The case is worth a full read as it addresses the line between perpetuation of a fraud as an acceptable pierce of the corporate veil while gleaning over the caselaw history which considers judgment confession a tried and true resolution in debt defense.

Corporate stakeholders should be more cautious with their activities with what amounts to a more lenient approach by the Eastern District in this case when considering a corporate veil piercing attack.

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*This post was originally published on June 2, 2015