Chapter 7 Trustee for the Bankruptcy Estate of Gulfport Pilots Ass'n., Inc., v. Miss. State Pilots of Gulfport, Inc., et al.
| Docket Number: | 2004-CA-01145-SCT Linked Case(s): 2004-CA-01145-SCT ; 2004-CA-01145-SCT |
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| Supreme Court: | Opinion Link Opinion Date: 12-07-2006 Opinion Author: DIAZ, JUSTICE Holding: REVERSED AND REMANDED |
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| Additional Case Information: |
Topic: Fraudulent conveyance of business - Section 15-3-3 - Personal liability of directors - Piercing the corporate veil Judge(s) Concurring: WALLER, PJ., EASLEY, CARLSON, GRAVES AND RANDOLPH, JJ. Judge(s) Concurring Separately: COBB, PJ. CONCURS IN PART WITHOUT SEPARATE WRITTEN Non Participating Judge(s): SMITH, C.J. Dissenting Author : DICKINSON, J. Concur in Part, Dissent in Part 1: Cobb, P.J. Procedural History: Bench Trial Nature of the Case: Fraudulent Conveyance |
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| Trial Court: |
Date of Trial Judgment: 05-07-2004 Appealed from: Harrison County Chancery Court Judge: Carter Bise Disposition: Chancellor found that directors fraudulently conveyed ship & one week's worth of accounts receivable; however, the fraudulent conveyance did not apply to any other assets of the corporation. Thus, trustee could only recover $10,064.50 from Appellee. |
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| Party Name: | Attorney Name: | |||
| Appellant: | H.S. STANLEY, JR., CHAPTER 7 TRUSTEE FOR
THE BANKRUPTCY ESTATE OF GULFPORT
PILOTS ASSOCIATION, INC., AS SUBSTITUTED
FOR MICHAEL KOPSZYWA |
GEORGE W. BYRNE, JR.
RANDALL SCOTT WELLS |
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| Appellee: | MISSISSIPPI STATE PILOTS OF GULFPORT, INC., MURRELL W. HINTON, JR., STANLEY FOURNIER, JR. AND THOMAS GIBSON | NICHOLAS VAN WISER |
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Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Fraudulent conveyance of business - Section 15-3-3 - Personal liability of directors - Piercing the corporate veil |
| Summary of the Facts: | Gulfport Pilots Association, Inc. was engaged in the business of piloting ships in and out of Gulfport Harbor. Michael Kopszywa was employed as the pilot boat operator in March 1995 when he was injured on the job. Kopszywa brought suit under the Jones Act. After a two-day mediation, the case was settled for $200,000, plus outstanding medical bills of approximately $20,000. When the GPA’s Bahama-based insurance company refused to pay and subsequently became insolvent, Kopszywa filed a motion to enforce settlement with the circuit court. The same day the circuit court judge entered his order granting the motion, the directors of Gulfport Pilots Association, Inc. filed articles of incorporation for Mississippi State Pilots of Gulfport, Inc. They became owners, officers, and directors of the new corporation and transferred all of the employees from the old corporation to the new one. A week later, the directors transferred ownership of one of the boats, the Gulfport Pilot II, to the new corporation by executing a promissory note for $12,000 in favor of the old corporation. That same day, all four resigned as employees of the old corporation, while remaining owners, officers, and directors. Kopszywa filed a fraudulent conveyance action against Mississippi State Pilots and the individual directors in the chancery court. The day the matter was set for trial, the directors filed for Chapter 7 bankruptcy for GPA, staying all proceedings in the chancery court. The only remaining asset of the old corporation, the Gulfport Pilot I, sank the day it was turned over to the bankruptcy trustee. When the stay was finally lifted, the matter was remanded to the chancery court to allow the trustee, H.S. Stanley, Jr., to proceed on behalf of Kopszywa on the fraudulent conveyance claim. At trial, the directors testified that their intent in forming the new corporation was to keep Kopszywa from collecting his judgment. The chancellor found that the directors had fraudulently conveyed the Gulfport Pilot II and one week’s worth of accounts receivable to the new corporation. The chancellor did not find that the fraudulent conveyance pertained to any other assets of the new corporation. As a result, the chancellor found that the trustee could only recover $10,064.50 from Mississippi State Pilots of Gulfport. Stanley appeals. |
| Summary of Opinion Analysis: | The main issue in this case is not whether there was a fraudulent conveyance but what assets were fraudulently conveyed under section 15-3-3. The defendants improperly transferred their entire business in order to avoid a legal obligation. Moreover, this fact was repeatedly admitted at trial by all of the individual defendants. The new corporation operated from the same business address, used the same dock, the same accountant, the same law firm, the same bank, and served the same customers as GPA. The remaining accounts receivable were used to pay the outstanding debts of GPA (other than Kopszywa’s Judgment), and the rest was divided among the directors. The record demonstrates that the successor company took on the identity of the predecessor company in every way except taking responsibility for the predecessor’s debts. The new corporation consisted of identical shareholders, directors, officers, employees, and supervisory personnel. The new corporation also used the same docking facility, dock, pilot boat, office address, and provided the same piloting services. Except for the Gulfport I, the assets were the same, and the only change in general business operations was use of a different name. The new corporation is a mere continuation of GPA and the new corporation is liable for all of GPA’s debts. Stanley also argues that the trial court erred in failing to find the directors personally liable for their actions. Piercing the corporate veil is appropriate where the corporation exists to perpetuate a fraud. The purpose of piercing the corporate veil is to make individuals personally liable for corporate obligations. Therefore, the judgment is reversed, and this case is remanded for a determination of the amount of defendants’ personal liability, i.e., the value of the fraudulently transferred accounts receivable, as well as a determination of attorneys’ fees and punitive damages. |
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