may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Roof Depot, Inc.,
S.A.I. Construction, Inc., et al.,
Filed December 31, 1996
Hennepin County District Court
File No. 954285
Michael J. Froelich, 3033 Excelsior Boulevard, Suite 300, Minneapolis, MN 55416 (for Respondents)
Ronald J. Walsh, 8525 Edinbrook Crossing, Suite 107A, Brooklyn Park, MN 55443 (for Respondents)
Considered and decided by Schumacher, Presiding Judge, Klaphake, Judge, and Forsberg, Judge.[*]
Roof Depot, Inc. appeals from an order denying its motion for a new trial. We affirm.
Roof Depot sued S.A.I. and Schnebly individually for recovery of the business debt in the principal amount of $108,449.33. Following a one-day court trial, the trial court found that S.A.I. owed Roof Depot the amount of the debt, but Roof Depot
failed to prove that Steven Schnebly used S.A.I. as a constructive fraud upon [Roof Depot] or in any way is liable for the business debt S.A.I. owes to [Roof Depot].
The trial court denied Roof Depot's alternative motion for amended findings or a new trial. Roof Depot appeals.
Roof Depot argues that the trial court's finding that Schnebly was not individually liable is not sustained by the evidence. Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn. 1979), established a two-prong test to determine when to disregard the corporate entity and impose liability on an individual shareholder. Under the first prong, a court considers whether the shareholders formed the corporation as their "alter ego" or "instrumentality". Id. The first prong is met if a number of the following eight factors are present:
insufficient capitalization for purposes of corporate undertaking, failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of corporation as merely facade for individual dealings.
Id. (citation omitted).
Although Roof Depot claims that S.A.I. was marginally capitalized during 1994 and years prior, the fact that S.A.I. ultimately failed is not enough to show that it was undercapitalized. See Snyder Elec. Co. v. Fleming, 305 N.W.2d 863, 868 (Minn. 1981) (noting that any business that fails is arguably undercapitalized).
Roof Depot argues that S.A.I. failed to observe corporate formalities and that Schnebly's wife was a nonfunctioning director. Although no corporate meetings were held from 1990 to 1995, S.A.I. observed its own bylaws which specified that shareholder meetings shall be held at least every five years. See Minn. Stat. § 302A.231, subd. 1 (1996) (board meetings may be held from time to time as provided in corporation's bylaws). Although Schnebly was the only person actively managing S.A.I., this is not unusual in closely-held corporations where the only directors are a husband and wife. See Snyder, 305 N.W.2d at 868 (directors in a closely-held corporation may be passive).
The evidence does not support Roof Depot's claim that S.A.I. existed as a mere facade for Schnebly's individual dealings. Schnebly maintained a separate business checking account for S.A.I. He prepared and filed separate tax returns for S.A.I. Schnebly rented an office for the business. In summary, the evidence does not show that a number of the eight factors were present, and thus Roof Depot failed to meet the first prong of the Victoria Elevator test.
The second prong is met if there is "an element of injustice or fundamental unfairness." Victoria Elevator, 283 N.W.2d at 512 (citation omitted). Roof Depot's credit manager testified that most roofing contractors did not have the financial resources to pay for the roofing materials until completing a project. Roof Depot carried over balances for S.A.I. on several years. As late as April 29, 1996, S.A.I.'s debit balance was $17,000 and Roof Depot's credit manager was "quite comfortable" with the account at that time. Beginning in September 1996, Roof Depot's primary concern with S.A.I.'s treatment of the account was that "[t]hey were not paying it as fast as they had previously." Roof Depot failed to meet the second prong of the Victoria Elevator test.
Because the trial court's findings are not manifestly and palpably contrary to the evidence, we affirm its order denying Roof Depot's motion for a new trial.
[ ]* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.