W.C. No. 4-365-810Industrial Claim Appeals Office.
December 3, 2001
FINAL ORDER
The claimant seeks review of an order of Administrative Law Judge Coughlin (ALJ) dated July 17, 2001, which declined to impose personal liability on respondents Darin and Wendy Asay (collectively the Asays). The claimant contends the evidence compelled the ALJ to “pierce the corporate veil” of respondents’ Leading Edge Aviation Inc. (LEA) and Platinum Business Support, Inc. (PBS). The claimant also challenges certain evidentiary rulings. We affirm.
This case is before us for the third time. Our prior orders, dated December 14, 2000, and June 14, 2001, contain an overview of the facts. Those statements of the facts are incorporated herein.
On July 17, 2001, the ALJ entered her final order refusing to pierce the corporate veil and impose personal liability on the Asays. In so doing, the ALJ found that LEA and PBS “observed corporate formalities during the relevant time periods.” Further, the ALJ found there was no credible evidence establishing that LEA or PBS illegally obtained funds or that the corporations were used to facilitate illegal transactions. The ALJ expressly disregarded the contents of a federal indictment finding that it did not establish credible evidence of wrongdoing on the part of LEA or PBS. Finally, the ALJ discredited the claimant’s testimony finding that he was hostile towards the Asays and that his denial of a December 1997 automobile accident was incredible.
I.
On review, the claimant contends the ALJ incorrectly applied the burden of proof in refusing to pierce the corporate veil and assign personal liability to the Asays. The claimant also asserts the evidence compelled the ALJ to pierce the corporate veil. We perceive no error.
The corporate veil may be pierced and personal liability imposed on corporate principals or shareholders if the corporate form was used “as a mere instrumentality for the transaction of their own affairs without regard to separate and independent corporate existence, or for the purpose of defeating or evading important legislative policy, or in order to perpetrate a fraud or wrong on another.” Micciche v. Billings, 727 P.2d 367 (Colo. 1986). The claimant’s contention notwithstanding, it was his burden of proof to establish facts justifying imposition of personal liability on the Asays under this legal theory. Smithour v. American Dream Enterprises, Inc., 778 P.2d 302 (Colo.App. 1989).
The question of whether the claimant proved circumstances justifying imposition of personal liability on the Asays was one of fact for determination by the ALJ. LaFond v. Basham, 683 P.2d 367 (Colo.App. 1984). Consequently, we must uphold the ALJ’s findings if supported by substantial evidence in the record. Section 8-43-301(8), C.R.S. 2001. Thus, we must defer to the ALJ’s determinations concerning the weight and credibility of the evidence and the plausible inferences she drew from the record. Ackerman v. Hilton’s Mechanical Men, Inc., 914 P.2d 524
(Colo.App. 1996). In this regard, we note the ALJ need not credit testimony even if it is unrefuted and uncontroverted. Cary v. Chevron U.S.A., Inc., 867 P.2d 117 (Colo.App. 1993). Further, evidence not cited by the ALJ is considered to have been implicitly rejected. Magnetic Engineering, Inc. v. Industrial Claim Appeals Office, 5 P.3d 385
(Colo.App. 2000).
The claimant cites a long list of “factors” which he alleges establish grounds for piercing the corporate veil. The claimant asserts that because the Asays were the sole corporate officers there is evidence they “dominated” the corporation. The claimant also alleges LEA and PBS were “undercapitalized” because they failed to carry workers’ compensation insurance, failed to post bond in a timely fashion and because the claimant was initially hired by LEA but PBS subsequently paid his salary. The claimant also disputes the finding that LEA and PBS followed corporate formalities because there is no evidence of corporate reports and because these corporations were not in good standing at the time of the hearing. The claimant also asserts the Asays used the corporations as a method of carrying on their personal business because Wendy Asay was under charged for use of the airplane, and the claimant allegedly flew the airplane as a charter pilot, on one occasion, without having the proper certificate from the FAA.
We hold that none of this evidence compelled the ALJ to disregard the corporate form. The fact that the Asays were the principal shareholders and officers of the corporations was insufficient, standing alone, to pierce the corporate veil. Industrial Commission v. Lavach, 165 Colo. 433, 439 P.2d 359 (1968). Further, the mere failure to obtain workers’ compensation insurance is insufficient to establish that the corporate form was improperly used. Smithour v. American train Enterprises, Inc., supra.
The ALJ was also unpersuaded that the Asays ignored the corporate form and used the corporations as shells to conduct their personal business. As the ALJ recognized, the record demonstrates that LEA and PBS were properly incorporated under the laws of Nevada and Colorado respectively. Further, insofar as the corporations subsequently failed to file corporate reports, they were not sanctioned until 1999, long after the claimant’s injury. (Claimant’s Exhibit G). Thus, the ALJ justifiably concluded that corporate formalities were not disregarded at the time of the claimant’s injury. We disagree with the claimant’s assertion that the “most relevant time” was the time of the hearing, because it is the respondents’ actions at the time of the injury which is relevant.
Neither does the evidence mandate a finding the Asays used the corporations as mere instrumentalities to conduct their personal business. There is evidence that LEA was organized as a charter aviation company and billed a private customer for a flight. Although the flight may have occurred prior to proper certification by the FAA, that fact would not establish that the respondents were improperly using the corporation to further their personal interest. Moreover, the claimant admitted that he had no knowledge of improper payments passing between the Asays and the corporations. (Tr. Vol. I, P. 133-134). Further, the fact that Wendy Asay paid for use of the airplane at a lower rate than was charged other customers does not establish improper use of the corporate form. Indeed, this fact is ambiguous because it suggests that Wendy Asay recognized that it would be improper to use the airplane at no expense for purely personal purposes. Evidence of a discount does not, in our view, necessarily establish disregard of the corporate form.
Neither was the ALJ compelled to conclude LEA or PBS was “undercapitalized.” The mere fact these corporations may have had financial difficulties at some point after their formation does not establish they were undercapitalized at the outset. The claimant himself admitted he had never seen balance sheets or financial statements, nor did he know what the assets of PBS were. (Tr. Vol. I, pp. 136-137). Further, the claimant admitted he received unemployment compensation subsequent to his termination for PBS, suggesting that PBS paid unemployment insurance taxes. Although other inferences were possible, we may not substitute our judgment for that of the ALJ concerning the weight of the evidence.
Insofar as the claimant disputes the ALJ’s refusal to credit his testimony, we find no error. The inference to be drawn from the personal animus between the claimant and the Asays was a credibility issue for the ALJ. Therefore, we may not interfere with the ALJ’s reliance on this factor. Further, the record supports the ALJ’s finding that the claimant’s “veracity was called into question after his incredible denial of the second automobile accident.” The claimant’s assertion notwithstanding, he did deny the second accident. When asked whether he was in an automobile accident in December 1997 he replied: “No, not that I recall. And I believe I would recall that.” (Tr. Vol. I, p. 106).
We recognize that the pending federal indictment may have hindered the claimant’s ability to obtain documentary evidence in support of his contentions. However, in the absence of a finding that the respondents willfully failed to comply with discovery, there is no basis for interfering with the ALJ’s order which was based on the evidence presented. See § 8-43-207(1)(e), C.R.S. 2001 (permitting imposition of sanctions for willful failure to make discovery).
II.
The claimant next contends the ALJ committed three evidentiary errors which warrant setting the order aside. However, we find no reversible error.
The claimant first contends the ALJ erred by failing to sustain a hearsay objection to the question: “Did Balance Books ever indicate to you there was a problem with the books?” (Tr. Vol. I, P. 50). However, even if the answer of the witness could be construed as hearsay, admission of the answer constituted harmless error. It is clear from the testimony of the witness that Balance Books never performed work for LEA or PBS, but was employed by other entities known as Principal Pharmacy Consultants and Intermountain Distributors. (Tr. Vol. I, pp. 50, 55). Thus, the relevance of this question to the operation and business affairs of LEA and PBS was so tangential that the answer could not have affected the substantial rights of the claimant. C.R.E. 103(a); §8-43-310, C.R.S. 2001.
The claimant next contends the ALJ erred in striking the claimant’s testimony that Darin Asay had a felony conviction. (Tr. Vol. I, p. 82). However, after the claimant testified that Darin Asay told him of the felony conviction, the evidence was admitted. (Tr. Vol. I, p. 83). Consequently, any error was harmless.
Similarly, we perceive no prejudicial error in the ALJ’s decision to strike the claimant’s testimony that Darin Asay flew to Michigan and went to a strip club. (Tr. Vol. I, p. 83). The claimant had already testified that “most of the trips that I saw, if not all of them, were for personal business for Darin and Wendy.” Thus, the claimant was permitted to testify to the critical fact that the Asays were using the airplane for personal business, and the ALJ did not abuse her discretion in restricting subsequent testimony concerning the exact nature of the personal business conducted. C.R.E. 403.
The claimant’s final argument is the ALJ erred in refusing to draw “any adverse inference” from the Asays failure to appear at the hearing. We previously ruled that, insofar as the Asays failure to appear and testify could be construed as an exercise of their Fifth Amendment privilege, the ALJ would be permitted to draw an adverse inference Chaffin, Inc. v. Wallain, 689 P.2d 684 (Colo.App. However, the ALJ was not required to draw such an inference, and we may not compel her to do so. Neither are we aware of any authority, and the claimant cites none, which required the ALJ to construe the evidence adversely to the Asays simply because they failed to appear at the hearing. Indeed, because the claimant had the burden of proof, the ALJ was free to assess the weight of the evidence presented and determine whether the claimant met the burden of proof. As previously noted, the ALJ was not required to credit evidence, even if it was uncontroverted.
Finally, insofar as the claimant asserts the ALJ erred in refusing to reopen the proceedings following our first Order of Remand, we perceive no error. The ALJ’s order of January 18, 2001, fully addresses the reasons for her refusal to permit additional evidence, and we perceive no abuse in that ruling. We are particularly persuaded by the ALJ’s conclusion that none of the proffered evidence was directly relevant to establishing that the Asays disregarded the corporate form with respect to LEA and PBS. Thus, the record supports ALJ’s implicit decision that the evidence would not have been outcome determinative See Potomac Insurance Co. v. Industrial Commission, 744 P.2d 765
(Colo.App. 1987).
IT IS THEREFORE ORDERED that the ALJ’s order dated July 17, 2001, is affirmed.
INDUSTRIAL CLAIM APPEALS PANEL
____________________________________ David Cain
____________________________________ Kathy E. Dean
NOTICE
This Order is final unless an action to modify or vacate this Order is commenced in the Colorado Court of Appeals, 2 East 14th Avenue, Denver, CO 80203, by filing a petition for review with the Court, within twenty (20) days after the date this Order is mailed, pursuant to §8-43-301(10) and § 8-43-307, C.R.S. 2001. The appealing party must serve a copy of the petition upon all other parties, including the Industrial Claim Appeals Office, which may be served by mail at 1515 Arapahoe, Tower 3, Suite 350, Denver, CO 80202.
Copies of this decision were mailed December 3, 2001 to the following parties:
Edward K. Quick, 2634 S. Lima St., Aurora, CO 80014
Darin Asay, Platinum Business Support, Inc., Leading Edge Aviation, Inc., Federal Corrections Institute, 9595 W. Quincy Ave., Lakewood, CO 80123
Wendy Asay/Almanza, Leading Edge Aviation, Inc., Platinum Business Support, Inc., Bear Creek Cabins, 27400 Highway 74, Evergreen, CO 80429
Michael S. Krieger, Esq., 3333 S. Bannock, #888, Englewood, CO 80110 (For Claimant)
BY: A. Pendroy