IN THE MATTER OF THE CLAIM OF REBECCA GUZMAN, Claimant, v. SANDERS AND ASSOCIATES, INC., Employer, and NON-INSURED, Insurer, Respondents.

W.C. No. 4-754-962.Industrial Claim Appeals Office.
August 27, 2010.

FINAL ORDER
The claimant seeks review of an order of Administrative Law Judge Broniak (ALJ) dated February 19, 2010 that determined that the claimant sustained a compensable injury and that ordered the payment of medical benefits and temporary total disability benefits. The ALJ also determined that the corporate veil should not be pierced so as to make the owner of the employer’s business personally liable for compensation, benefits, and penalties. We set aside and vacate that portion of the order concluding that the claimant failed to make a sufficient showing that the corporate veil should be pierced. As modified, the order is affirmed.

A hearing was held on the issues of whether the claimant sustained a compensable injury, her entitlement to temporary total disability benefits, whether penalties should be imposed upon the non-insured employer, and whether the employer’s owner should be held personally liable for payments to the claimant. Following the hearing the ALJ entered findings of fact that for the purposes of this order may be summarized as follows. The claimant worked for the employer, which is a corporation owned and managed by Craig Sanders. The claimant injured her back on January 21, 2008 while attempting to construct a file for a client. She was referred for medical treatment to a chiropractor, Dr. Kriewall, who diagnosed the claimant as having a bulging or herniated disc at the L4-5 and L5-S1 levels of her spine. She was examined by Dr. Pettine, who recommended an MRI, which revealed some facet arthropathy, but no significant disc herniation or stenosis at any level of the lumbar or sacral spine. Dr. Kriewall placed the claimant at maximum medical improvement as of December 16, 2008. He referred the claimant to Dr. Curiel in order to obtain an impairment rating. The ALJ also entered factual findings

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concerning the claimant’s temporary disability; however, that issue is not relevant to this appeal.

Based upon her factual findings, the ALJ determined that the claimant had sustained a compensable injury and was entitled to medical benefits, and temporary total disability benefits, and that penalties should be imposed for the employer’s failure to insure. The ALJ also concluded that

“Claimant worked for Employer as evidenced by the payroll information and by Sanders’ uncontested testimony. Claimant presented no evidence that the corporate veil should be pierced resulting in Sanders being held personally liable. Accordingly, liability extends only to the Employer.”

Findings of Fact, Conclusions of Law, and Order at 9, ¶ 17 (hereinafter “Order”).

The claimant appealed and makes the sole argument that the issue whether the “corporate veil” should be pierced was never endorsed by either party, nor actually tried. We agree with the claimant’s argument.

The ALJ recited in the “Issues” portion of her order that “[t]he Employer’s owner, Craig Sanders, also raised the issue of whether he should be held personally liable if his business is organized as a corporation.” Order at 2. However, we are unable to ascertain either how or when any issue regarding piercing the corporate veil was “raised.” We have reviewed the claimant’s application for hearing, the employer’s response to application for hearing, and the case information sheets of both parties. None of those pleadings raise any issue that could be reasonably construed as whether the “corporate veil should be pierced.” Further, we have reviewed the hearing transcripts and that issue was not mentioned at any point that we could locate in either the transcript of the hearing held on October 16, 2009 or the hearing held on December 7, 2009. At the commencement of the first hearing the parties engaged in a discussion of the issues to be tried. The ALJ confirmed with the parties that the claimant had endorsed the issues of compensability, medical benefits, average weekly wage, temporary total disability benefits, and penalties for failure to insure. Tr. (10/16/09) at 3-4. She then observed that the respondent had added the issues of the “care provisions [sic]” and “termination for false [sic].” Tr. (10/16/09) at 4. (We note that the ALJ stated that she was referring to the respondent’s case information sheet and we surmise from our review of that pleading that the issues she intended to identify were the “cure” provisions and termination for “fault.” It is evident that the references in the transcript resulted from transcriptionist’s errors.) Finally, we have reviewed the position statements filed by each party and neither

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addresses the question of whether the corporate veil should be pierced or, indeed, any question of the possible personal liability of Sanders.

Due process requires that parties be given advance notice of the issues that may be considered at a hearing. See Shaw v. Valdez, 819 F.2d 965 (10th Cir. 1987). The fundamental requirements of due process are notice and an opportunity to be heard. Due process contemplates that the parties will be apprised of the evidence to be considered and afforded a reasonable opportunity to present evidence and argument in support of their positions. Inherent in these requirements is the rule that a party will receive adequate notice of both the factual and legal bases of the claims and defenses to be litigated. See Hendricks v. Industrial Claim Appeals Office, 809 P.2d 1076, 1077 (Colo. App. 1990). Thus, the claimant was entitled to notice that the ALJ would adjudicate the issue whether she pierced the corporate veil so as to render Sanders personally liable for any benefits and compensation awarded.

In our view she was not given adequate notice that the ALJ would resolve this issue. It is true that the claimant named in her pleadings both Sanders and Sanders and Associates as respondents. However, the mere naming of an individual in the caption of a pleading is not the affirmative equivalent of asserting that any corporate entity should be disregarded and the individual rendered liable. Rather, as we understand the claimant’s argument, she was unaware of the exact nature of the business organization of the employer and named Sanders individually because she simply did not know whether “Sanders and Associates” was a corporate entity, a partnership, or some other business or professional organization. In any event, in our view, it did not constitute notice to the respondent that if the entity proved to be a corporation, the claimant would be attempting to pierce its veil.

Furthermore, the burden of piercing a corporate veil is upon the party affirmatively seeking that relief. Smithour v. American Dream Enterprises, Inc., 778 P.2d 302 (Colo. App. 1989). Adequate and complete notice that an issue will be adjudicated is especially important to the party upon whom the affirmative burden falls. Whether corporate protections should be disregarded and personal liability imposed is a complex question involving the assessment and weighing of numerous factors. See e.g., Micciche v. Billings, 727 P.2d 367 (Colo. 1986). In Micciche the court observed that a corporate principal could be equitably liable for a corporation’s actions when it would be unfair to recognize the corporation as a distinct legal entity. Id. at 372-73. As examples, the court referred to situations in which shareholders used the corporation merely for “their own affairs without regard to separate and independent corporate existence,” or for “defeating or evading important legislative policy,” or “to perpetrate a fraud or wrong on another.” Id. at 373. In a later case the court recognized an action to invoke what is described as “reverse piercing of the corporate veil doctrine,” in which corporate assets

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are available to a claimant aggrieved by the actions of a “dominant shareholder or other corporate insider.” Phillips v. Englewood Post No. 322 Veterans of Foreign Wars of the Unites States, Inc., 139 P.3d 639, 641 (Colo. 2006). The court reviewed traditional notions concerning piercing the corporate veil and reiterated that “[individual liability is appropriate when the corporation is merely the alter ego of the shareholder . . . and the corporate structure is used to perpetuate a wrong.”Id. at 644. The corporation is the alter ego of the shareholder or other principal when it “is a `mere instrumentality for the transaction of the shareholders’ own affairs, and there is such unity of interest in ownership that the separate personalities of the corporation and the owners no longer exist.” Id., quoting Krystkowiak v. W.O. Brisben Co., Inc., 90 P.3d 859, 867 n. 7 (Colo. 2004). The court set out the following factors to be included in determining whether shareholders and the corporation should be treated as alter egos:

[W]hether (1) the corporation is operated as a distinct business entity, (2) funds and assets are commingled, (3) adequate corporate records are maintained, (4) the nature and form of the entity’s ownership and control facilitate misuse by an insider, (5) the business is thinly capitalized, (6) the corporation is used as a `mere shell,’ (7) shareholders disregard legal formalities, and (8) corporate funds or assets are used for noncorporate purposes.

Id., quoting Leonard v. McMorris, 63 P.3d 323, 330 (Colo. 2003). These factors go to the “underlying principle that the court should only pierce when the corporate form has been abused.” Id. If these factors indicate that “the corporate form has been abused,” it must be determined whether justice requires piercing the veil “because the corporate fiction was `used to perpetrate a fraud or defeat a rightful claim.'”Id., quoting Contractors Heating Supply Co. v. Scherb, 163 Colo. 584, 588, 432 P.2d 237, 239 (1967). It must further be determined “whether an equitable result will be achieved by disregarding the corporate form and holding the shareholder personally liable for the acts of the business entity.” Id. We have reviewed the record, including the transcripts of the hearings, and conclude that this issue was not endorsed or tried, by consent or otherwise.

Under these circumstances, the claimant was not afforded adequate notice that the issue of piercing the corporate veil would be adjudicated. Therefore, we modify the order by vacating the portion of the ALJ’s order concluding that the claimant failed to pierce the corporate veil. Since no other issue on appeal has been raised, we affirm the order as modified.

IT IS THEREFORE ORDERED that the portion of the order concluding that the claimant failed to make a sufficient showing that the corporate veil should be pierced is

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set aside and vacated and, as modified, the ALJ’s order dated February 19, 2010, is otherwise affirmed.

INDUSTRIAL CLAIM APPEALS PANEL

______________________________ John D. Baird

______________________________ Curt KriksSciun

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REBECCA GUZMAN, FT COLLINS, CO, (Claimant).

THE LAW OFFICES OF REGINA M. WALSH ADAMS, Attn: REGINA M. WALSH ADAMS, ESQ., GREELEY, CO, (For Claimant).

SANDERS ASSOCIATES, Attn: CRAIG SANDERS, ESQ., FT. COLLINS, CO, (For Respondents).

RING ASSOCIATES, PC, Attn: DOUGLAS L. STRATTON, FT COLLINS, CO, (Other Party).

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