Legal Environment Today (Corporations) Chapter 15 Business 220 review case 15.2,

Question

Legal Environment Today (Corporations) Chapter 15 Business 220

review case 15.2, schultz v general electric healthcare financial services, in chapter 15 of your text, and then answer the following question. the main issue in this case was whether: based on the facts presented, what is the best statement of the rule that the court applied in this case? how did the court apply the rule of law to the facts of this case? what is the best conclusion?

Case 15.2

Schultz v. General Electric Healthcare Financial Services

Court of Appeals of Kentucky, _S.W.3d_ (2010).

A digital-imaging machine from General Electric.

(Daniel Acker/Bloomberg/Getty Images)

Background and Facts

Thomas Schultz was the president and sole shareholder-owner of Intra-Med Services, Inc., a Kentucky corporation that performed medical diagnostic-imaging services. Several General Electric Companies (collectively, GE) leased certain medical equipment to Intra-Med. When Intra-Med failed to make the required lease payments, GE sued Intra-Med to recover the payments. In 2004, the court entered a judgment in favor of GE for more than $4.7 million. GE was able to collect approximately $700,000 of the judgment. GE then learned of documents from another lawsuit that revealed Schultz had used Intra-Med assets for his own purposes. He had bought property using Intra-Med funds, and when it was sold, he had kept the proceeds. GE intervened in the other lawsuit and filed a third party complaint against Schultz, seeking to pierce the corporate veil and hold him personally liable for the judgment against Intra-Med. GE requested a judgment in the amount of $1,150,000, allegedly the amount of Intra-Med funds that Schultzhad used improperly. The trial court denied GE's request, stating that Schultz might have been entitled to some payments from Intra-Med because he had personally loaned the company $700,000. GE agreed to settle for $450,000, the difference between $1,150,000 and the claimed $700,000 loan. The court issued a judgment in GE's favor, and Schultz appealed.

In the Words of the Court . . . Stumbo, Judge

* * * *

Mr. Schultz admitted several facts in his answer to GE's third-party complaint. The relevant admitted facts are: on November 15, 2004, GE was awarded a judgment in the amount of $4,746,921.80, plus interest, against Intra-Med; Mr. Schultz had knowledge of the GE judgment on or after November 15, 2005; on or about December of 1998, Mr. Schultz, individually, purchased real property located at 7405 New LaGrange Road, Louisville, KY 40242, using Intra-Med funds; Intra-Med did not receive any of the proceeds from the subsequent sale of the New LaGrange Road property in March of 2004; on or about October of 2000, Mr. Schultz, individually, purchased and improved real property located at 8700 Dixie Highway, Louisville, KY 40258, using Intra-Med funds; after entry of the GE judgment, Mr. Schultz sold the Dixie Highway property, which had been purchased and renovated by Mr. Schultz with Intra-Med funds, for $850,000; Intra-Med did not receive any of the proceeds from the sale of the Dixie Highway property; on or about May 24, 2001, Mr. Schultz, individually, purchased a marina slip for $23,000 with Intra-Med funds; and Intra-Med did not receive any of the proceeds from the subsequent sale of the marina slip. It is from these admitted facts that GE moved for a judgment on the pleadings.

“Three basic theories have been utilized to hold the shareholders of a corporation responsible for corporate liabilities. These have been labeled the instrumentality theory; the alter ego theory; and the equity formulation.

” GE focused on the instrumentality theory in its motion. Under the instrumentality theory three elements must be established in order to warrant a piercing of the corporate veil: (1) that the corporation was a mere instrumentality of the shareholder;(2) that the shareholder exercised control over the corporation in such a way as to defraud or to harm the plaintiff; and(3) that a refusal to disregard the corporate entity would subject the plaintiff to unjust loss. The courts adopting this test have been virtually unanimous in requiring that these three elements co-exist before the corporate veil will be pierced. [Emphasis added.]* * * *

The admitted facts * * * support the finding that the corporate veil should be pierced under the instrumentality theory. Mr. Schultz treated the corporation as a mere instrumentality by using corporate funds for his own individual purposes to purchase real estate and a boat slip. The admitted facts also demonstrate that Mr. Schultz harmed GE by using corporate funds as his own even after GE obtained a monetary judgment against Intra-Med. Money that could have been used to satisfy that judgment was used by Mr. Schultz for his own purposes. Finally, not piercing the corporate veil would subject GE to an unjust loss. As previously stated, money that could have been used to satisfy GE's judgment against Intra-Med was removed from the company and used elsewhere. GE has only been able to recover around $700,000 from a $4.7 million judgment. Piercing the corporate veil appears to be the only method for GE to recover its judgment.

Decision and Remedy

The Court of Appeals of Kentucky affirmed the trial court's judgment on the pleadings. The corporate veil of Intra-Med could be pierced to hold Schultzpersonally liable for the debt owed to GE.

Explanation / Answer

Answer:

The main issue in this case was that Intra-Med failed to make the required lease payments to GE. It was discovered with the help of relevant documents that Thomas Schultz (president and sole shareholder-owner of Intra-Med Services) had used Intra-Med assets for his own purposes.

The best statement of the rule that is applied in this case by the court was Piercing the corporate veil i.e. corporate veil of Intra-Med could be pierced to hold Schultz personally liable for the debt owed to GE.

Answer:

The court apply the rule of law to the facts of this case by applying the instrumentality theory. All the three requirements of instrumental theory were present in this case.

Answer:

The best conclusion is that the court held Mr. Schultz liable for all losses suffered by GE. And sentence him personally liable for the corporation's actions or debts. For the recovery of left over amount of GE, Intra-Med owners property should be sold auctioned and the amount should be given to GE.

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.