United States v. WRW Corporation Analysis
Not what you're looking for?
Can there be a case analysis provided for the case below.
United States v. WRW Corporation
986 F.2d 138 (1983)
United States Court of Appeals, Sixth Circuit
PECK, Circuit Judge
In 1985, civil penalties totaling $90,350 were assessed against WRW Corporation (WRW), a Kentucky corporation, for serious violations of safety standards under the Federal Mine Safety and Health Act (the Act) which resulted in the deaths of two miners. Following the imposition of civil penalties, WRW liquidated its assets and went out of business.
Three individual defendants, who were the sole shareholders, officers, and directors of WRW, were later indicted and convicted for willful violations of mandatory health and safety standards under the Act. Roger Richardson, Noah Woolum, and William Woolum each served prison sentences and paid criminal fines. After his release from prison, Roger Richardson filed for bankruptcy under Chapter 7 of the Bankruptcy Code.
The United States (the Government) brought this action in May of 1988 against WRW and Roger Richardson, Noah Woolum, and William Woolum to recover the civil penalties previously imposed against WRW. The district court denied the individual defendants' motion to dismiss and granted summary judgment to the Government piercing the corporate veil under state law and holding the individual defendants liable for the civil penalties assessed against WRW. For the reasons discussed herein, we affirm.
The district court held that it was appropriate to pierce WRW's corporate veil under either an equity theory or an alter ego theory, both of which are recognized under Kentucky law. Under either theory, the following factors must be considered when determining whether to pierce the corporate veil: (1) undercapitalization, (2) a failure to observe the formalities of corporate existence, (3) nonpayment or overpayment of dividends, (4) a siphoning off of funds by dominant shareholders, and (5) the majority shareholders having guaranteed corporate liabilities in their individual capacities.
The court first found that WRW was undercapitalized because it was incorporated with only $3,000 of capital, which the record indicates was insufficient to pay normal expenses associated with the operation of a coal mine. The district court next found that WRW failed to observe corporate formalities, noting that no bylaws were produced by the defendants, and all corporate actions taken by the individual defendants were without corporation authorization. Finally, although WRW never distributed any dividends to the individual defendants, and there was no evidence that the individual defendants siphoned off corporate funds, these factors alone do not mitigate against piercing the corporate veil in this case because WRW was never sufficiently capitalized and operated at a loss during its two years of active existence.
In addition to holding that the equities of this case support piercing the corporate veil, the district court held that the corporate veil should be pierced under the "alter ego" theory, because WRW and the defendants did not have separate personalities. In light of the lack of observance of corporate formalities or distinction between the individual defendants and the corporation, we agree with the district court's conclusion that "there was a complete merger of ownership and control of WRW with the individual defendants.
The specific factual findings made by the district court amply support piercing the corporate veil of WRW and holding the individual defendants liable for the penalty assessed against the corporate entity. For all the foregoing reasons, the judgment of the district court is
AFFIRMED
Purchase this Solution
Solution Summary
In good form, the solution presents a brief for the case.
Solution Preview
Deciding Authority: UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Parties: United States v. WRW Corporation
Facts:
There were serious violations of safety standards by WRW Corporation and this resulted in the deaths of two miners. A civil penalty of $90,350 was imposed and WRW Corporation liquidated its assets and went out of business. Three individual defendants Roger Richardson, Noah Woolum, and William Woolum, who were the sole shareholders, officers and directors of the company were criminally indicted, imprisoned and criminally fined. The government brought a suit against WRW Corporation and Roger Richardson, Noah Woolum, and William Woolum for the recovery of the civil fines ...
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Operations Management
This quiz tests a student's knowledge about Operations Management
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.