W.C. No. 4-365-810Industrial Claim Appeals Office.
June 14, 2001
ORDER OF REMAND
The claimant seeks review of an order of Administrative Law Judge Coughlin (ALJ) insofar as it denied his request to pierce the corporate veil and impose personal liability on respondents Darin and Wendy Asay (the Asays). The claimant argues, inter alia, that one of the pertinent findings of fact is not supported by substantial evidence. We set aside the ALJ’s order and remand for entry of a new order.
This case is before us for the second time. In an order dated December 14, 2000, we remanded the matter with instructions to reconsider the evidence in light of the Asays’ exercise of their Fifth Amendment privilege against self-incrimination. Our Order of Remand contains a partial statement of the facts, and that statement is incorporated herein.
On January 18, 2001, the ALJ entered an Order after Remand with Additional Findings of Fact and Conclusions of Law. In this order, the ALJ again declined to impose personal liability on the Asays for the claimant’s compensable injury. Discrediting the claimant’s testimony to the extent it could not be corroborated by other evidence, the ALJ concluded the claimant “failed to establish by sufficient credible evidence that the Asays used LEA [Leading Edge Aviation] or Platinum [Platinum Business Support] either as mere conduits for the transaction of their personal business, or for the purpose of evading an important legislative policy, or to perpetrate a fraud on another.” In support of this determination the ALJ explicitly found that “neither LEA or Platinum were [sic] named in the federal indictment as being a material part of the criminal scheme.” (Finding of Fact 26).
On review, the claimant argues Finding of Fact 26 is not supported by the evidence because the federal indictment against the Asays lists Platinum as “a material part of the criminal scheme.” We agree with the claimant, and conclude the ALJ’s error is not harmless.
The corporate entity may be disregarded and principals and shareholders held personally liable where the corporate structure is used so improperly that the continued recognition of the corporation as a separate legal entity would be unfair. Thus, if the corporate entity is used “for the purpose of defeating or evading important legislative policy, or in order to perpetrate a fraud or wrong on another, equity will permit the corporate form to be disregarded.” Micchie v. Billings, 727 P.2d 367 (Colo. 1986). Thus, it has been held the corporate form may not be used as a method to defend crime and defeat liability for legitimate claims. LaFond v. Basham, 683 P.2d 367 (Colo.App. 1994).
Generally, the question of whether the claimant presented sufficient evidence to justify piercing the corporate veil is an issue of fact for resolution by the ALJ. LaFond v. Basham , supra. Consequently, we must uphold the ALJ’s order if supported by substantial evidence in the record. Section 8-43-301(8), C.R.S. 2000. Further, we note that failure to carry workers’ compensation insurance is not sufficient, standing alone, to establish per se grounds for piercing the corporate veil Smithour v. American Dream Enterprises, 778 P.2d 302 (Colo.App. 1989).
Here, we agree with the claimant the evidence does not support Finding of Fact 26 insofar as it states the federal indictment did not name Platinum as a “material part of the criminal scheme.” To the contrary, Count 27 of the indictment, described as money laundering forfeiture, provides that upon conviction the Asays “shall forfeit to the United States” all property involved in the illegal transactions, and “all property traceable to such property including: 1) all money or other property that was the subject of each transaction; 2) all property constituting proceeds obtained as a result of those violations; 3) all property used in any manner or part to commit or to facilitate the commission of those violations, as to which properties said defendants are jointly and severally liable.” The indictment contains a Notice of Property Subject to Forfeiture including moneys located in the bank account of “Platinum Business Support.”
Thus, contrary to the ALJ’s finding, the federal indictment alleges that funds held in Platinum’s bank account were the subject of illegal transactions, or represented the proceeds of illegal transactions, or that the bank account was used to facilitate illegal transactions. Although the indictment does not state precisely which category applies to Platinum, it most assuredly alleges the corporation’s bank account held illegally obtained funds, or was used to facilitate illegal transactions. Under these circumstances, the evidence does not support the finding that the indictment does not list Platinum as a “material part” of the criminal scheme.
Further, this error is not harmless. Because the claimant alleges that Platinum was his employer at the time of the injury, and the ALJ has not found to the contrary, the question arises whether the Asays used Platinum for the purpose of evading important legislative policy by defeating a valid claim for workers’ compensation benefits. Here, the federal indictment contains some evidence indicating the Asays used Platinum as a conduit for laundering illegally obtained funds, or as an entity to facilitate the illegal sale of pharmaceuticals. Further, by allegedly conducting business in this manner, the Asays subjected Platinum’s assets to seizure by the United States government. This evidence, taken with the claimant’s testimony, could permit the inference the corporate form was used as a method to defeat lawful claims of Platinum’s creditors by rendering its assets unavailable, and by insulating the personal assets of the Asays.
Under these circumstances, the matter must be remanded for entry of a new order without regard to the finding which is not supported by the evidence. The ALJ should reconsider the evidence, including the claimant’s testimony, in light of this conclusion. Further, we need not consider the claimant’s remaining arguments as they may be rendered moot on remand.
IT IS THEREFORE ORDERED that the ALJ’s order dated January 18, 2001, is set aside, and the matter is remanded for entry of a new order consistent with the views expressed herein.
INDUSTRIAL CLAIM APPEALS PANEL
____________________________________ David Cain
____________________________________ Kathy E. Dean
Copies of this decision were mailed June 14, 2001 to the following parties:
Edward K. Quick, 2634 S. Lima St., Aurora, CO 80014
Platinum Business Support, Inc., Leading Edge Aviation, Inc., Wendy and Darin Asay, 4582 Laguna Vista St., Las Vegas, NV 89147-6098
Darin Asay, 9595 W. Quincy Ave., Lakewood, CO 80123
Wendy Asay (Almanza), Bear Creek Cabins, 27400 Highway 74, Evergreen, CO 80439
Michael S. Krieger, Esq., 3333 S. Bannock St., #888, Englewood, CO 80110 (For Claimant)
BY: A. Pendroy