KSB

Judge Somers

09-06027 Old United Casualty Company et al v. Karr (Doc. # 91) - Document Text

SO ORDERED.
SIGNED this 26 day of September, 2011.

 

Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE

Designated for on-line use but not print publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In Re:

JOHN WILLIAM KARR,
DEBTOR.

OLD UNITED CASUALTY COMPANY
AND MPP CO., INC.,

PLAINTIFFS,

v.
JOHN WILLIAM KARR,
DEFENDANT.

CASE NO. 09-20008
CHAPTER 7

ADV. NO. 09-6027

MEMORANDUM OPINION AND ORDER DENYING
PLAINTIFFS’ AMENDED MOTION FOR SUMMARY JUDGMENT


The matter before the Court is Plaintiffs’ Amended Motion for Summary Judgment
(hereafter “Motion”) on their Amended Complaint for Determination of Dischargeability

Case 09-06027 Doc# 91 Filed 09/26/11 Page 1 of 6


of Debt filed against Debtor John William Karr (hereafter “Debtor” or “Karr”). Plaintiffs
Old United Casualty Company (hereafter “OUC”) and MPP Co, Inc. (hereafter “MPP”),
appear by Fred J. Logan, Jr., and Thomas R. Pickert of Logan, Logan & Watson, L.C.
Karr has not responded to the Motion.1 The Court has jurisdiction.2

RELIEF SOUGHT.

The Motion seeks summary judgment on Count VIII (denial of discharge pursuant
to 11 U.S.C. § 727(a)(7) and (a)(2)(A)), Count IX (denial of discharge pursuant to
§ 727(a)(5)), and Count VI (declaration a corporation was Karr’s alter ego and a piercing
of its corporate veil). The Motion is therefore in fact a motion for partial summary
judgment, since it does not address Count I (willful and malicious injury to Plaintiffs),
Count II (embezzlement), Count III (defalcation of insurance premiums), Count IV
(fraud), Count V (fraudulent transfers), or Count VII (defalcation while acting in a
fiduciary capacity) of the amended complaint. There has been no judgment on any of
these counts, and no adjudication that Plaintiffs, or either of them, have allowed claims
against Karr.

1 Plaintiffs’ first motion for summary judgment (dkt. 34) was filed before the filing of their
Amended Complaint for Determination of Dischargeability of Debt. (Dkt. 59). Karr, through counsel,
did oppose that motion. Dkt. 44.

2 This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.
§§ 157(a) and 1334(a) and (b), and the Standing Order of the United States District Court for the District
of Kansas that exercised authority conferred by § 157(a) to refer to the District's bankruptcy judges all
matters under the Bankruptcy Code and all proceedings arising under the Code or arising in or related to a
case under the Code, effective July 10, 1984. Furthermore, this Court may hear and finally adjudicate
this matter because it is a core proceeding pursuant to § 157(b)(2)(B) and (J). There is no objection to
venue or jurisdiction over the parties.

2

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BACKGROUND FACTS.

Prepetition, Debtor was the president, sole shareholder, sole director, and only
officer for Alexico Corporation (hereafter “Alexico”). Alexico operated a program called
“Theft-Gard.” Theft-Gard was offered through automobile dealers to purchasers of
automobiles. If a purchaser bought the product, a unique registration number was etched
onto the vehicle in various places so that it could be identified in the event it was
recovered after a theft. If the purchaser’s vehicle was not recovered within 30 days of a
theft, the Theft-Gard Program paid benefits according to its terms. OUC issued to
Alexico insurance policies which indemnified Alexico for any losses resulting from
claims under the Theft-Gard Program. MPP and Alexico entered into a commission
agreement to facilitate sales of the Theft-Gard Program. MPP and Alexico also entered
into an agreement for consulting services. Plaintiffs allege that prepetition, Karr, as the
person controlling Alexico, rather than remitting funds to Plaintiffs owed to them under
the foregoing arrangements, used the funds for his own purposes.
DENIAL OF DISCHARGE UNDER § 727(a).

As stated above, Plaintiffs seek summary judgment on their claims that Karr
should be denied a discharge pursuant to § 727(a). In support of the Motion as to these
claims, Plaintiffs rely upon the Court’s judgment in another adversary proceeding in this
case, Redmond v. Karr.3 In that proceeding the Court denied Karr’s discharge under

3 Adv. No. 09-6055.
3


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§ 727(a)(7) and (a)(2)(A), based upon Karr’s misconduct in connection with the
bankruptcy of Alexico, and under § 727(a)(5), based upon Karr’s failure to satisfactorily
explain his loss of assets.4 The order denying discharge, filed on January 19, 2011, was
certified as a final judgment, and no notice of appeal has been filed. Plaintiffs argue that
they are entitled to summary judgment based upon res judicata principles.

The Court finds the Motion as to these § 727 claims curious. Section 727
addresses the circumstances where the Court shall not grant a debtor a discharge. The
entry of judgment on the § 727(a) claims in Redmond v. Karr is therefore a ruling barring
the discharge of the claims of all the Debtor’s creditors, including Plaintiffs. A separate
judgment on the same Code sections in this adversary would do nothing to change the
dischargeability of any claims which Plaintiffs may have against Karr. Plaintiffs’ Motion
for summary judgment on Counts VIII and IX is therefore denied.

ALTER EGO DECLARATION AND PIERCING OF THE CORPORATE
VEIL.

Plaintiffs also move for summary judgment on Count VI, which seeks a
declaration that Alexico was the alter ego of Karr and that Alexico’s status as a corporate
entity will be disregarded. Under Kansas law, “[t]he doctrine of alter ego is used to
impose liability on the individual who uses a corporation merely as an instrumentality to
conduct his own business. Such liability arises from fraud or injustice perpetrated . . . on

4 Redmond v. Karr (In re Karr), 442 B.R. 785 (Bankr. D. Kan. 2011).
4


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third persons dealing with the corporation.”5 “[P]ower to pierce the corporate veil is to be
exercised reluctantly and cautiously,”6 with each case resting on its unique
facts. “Mere single ownership of a corporation may tend to generate suspicion . . . but
single ownership alone will not support the alter ego theory and justify a disregard of the
corporate entity.”7 The Kansas Supreme Court has identified the following factors for
consideration:

An examination of the cases discloses that some of the
factors considered significant in justifying a disregard of the
corporate entity are: (1) Undercapitalization of a one-man
corporation, (2) failure to observe corporate formalities,

(3) nonpayment of dividends, (4) siphoning of corporate
funds by the dominant shareholder, (5) nonfunctioning of
other officers or directors, (6) absence of corporate records,
(7) the use of the corporation as a facade for operations of the
dominant stockholder or stockholders, and (8) the use of the
corporate entity in promoting injustice or fraud.8
A court may grant summary judgment only “if the pleadings, the discovery and
disclosures on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law.”9
Considering the foregoing standards for piercing the corporate veil under the prism of the
rule for granting summary judgment, the Court finds that the Motion must be denied.

5 Sampson v. Hunt, 233 Kan. 572, 579, 665 P.2d 743, 751 (1983).
6 Id.
7 Amoco Chemicals Corp. v. Bach, 222 Kan. 589, 594, 567 P.2d 1337, 1341 (1977).
8 Id., 222 Kan. at 594, 567 P.2d at 1341-42.
9 Fed. R. Civil P. 56(c)(2), made applicable by Fed. R. Bankr. P. 7056.


5

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Plaintiffs have failed to provide any uncontroverted facts in support of the alter ego
theory, except for the element of siphoning of corporate funds by Karr. There are no facts
regarding capitalization of Alexico, corporate formalities, payment of dividends, absence
of corporate records, use of Alexico as a facade for Karr’s business operations, or use of
the corporate entity to promote injustice. The statement of uncontroverted facts evidence
the misappropriation of corporate assets and the failure to pay Plaintiffs. Although these
acts may give rise to personal liability of Karr to Plaintiffs, they are insufficient for
piercing the corporate veil. The Court therefore denies Plaintiffs’ Motion for summary
judgment on Count VI, alter ego declaration and piercing of the corporate veil.

CONCLUSION.

The Court denies the Amended Motion for Summary Judgment. The Court
denies summary judgment as to Counts VIII and IX, which are objections to discharge
under § 727(a), for the reason that the Court has previously denied Karr a discharge
under the same code sections in another adversary proceeding in this bankruptcy case.
As to Count VI, seeking a determination that Alexico was the alter ego of Karr, Plaintiffs
have failed to show that under the uncontroverted facts, they are entitled to judgment as
a matter of law.

IT IS SO ORDERED.
# # #


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