McAfee & Taft litigator Phil Hart served as appellate counsel for defendant company’s principals in a case tried by another firm, in obtaining affirmance of trial court’s rejection of plaintiffs’ attempt to pierce the corporate veil. Below is an excerpt from the answer brief.
In the face of all of the evidence that Direct Staffing did observe corporate formalities,[1] appellants can only point to two instances to the contrary: (i) that the company’s ByLaws called for a three-member board of directors,[2] and Direct Staffing operated with four,[3] and (ii) that Audra appointed David as “CEO” of the company while the ByLaws provided that Audra, as President, was to function as chief executive officer.[4] These matters are inconsequential in the operation of a closely-held corporation, and do not support a claim for piercing the corporate veil.
We have not found any Oklahoma case that speaks to the weight to be given to nonobservance of corporate formalities as one of the factors to be considered in determining whether the corporate veil of a corporation should be pierced so as to hold its shareholder(s) liable for the corporation’s actions. Nor have we found any Oklahoma case that indicates how extensive the nonobservance of corporate formalities must be for that factor to be given any weight in a “piercing case.” However, we find cases in other jurisdictions that deal with both of these matters. In those cases in which a court deemed a failure to observe corporate formalities to rise to the level of being a factor in a piercing case, the deficiencies were far more significant than Direct Staffing’s having four directors rather than three, and David Welch’s being referred to as the “CEO.” Instead they involved an utter or complete disregard of corporate formalities.
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In asserting that Direct Staffing was undercapitalized, appellants appear to lack an understanding of how business in the United States and elsewhere is routinely conducted in terms of assuring adequate cash flow to meet current obligations. The factoring agreement that Direct Staffing entered into with Metro Factors is simply a common way of providing cash flow adequate to meet current obligations. It does not differ in its purpose and function from a company’s obtaining a revolving line of credit from a bank. In either case, the company is structuring its cash flow to enable it to promptly pay its ongoing obligations as they become due while waiting to receive payment for its ongoing accounts receivable as such payments are received in the ordinary course of business. Such arrangements are no indication that the company is undercapitalized.
[1] See Summary of the Record, supra, ¶ 4.
[2] Pltf. Exh. 21, S-6.
[3] Tr., Vol. 3, p. 14, ll. 5-7.
[4] Tr., Vol. 3, ll. 14-20.