W.C. No. 4-365-810Industrial Claim Appeals Office.
December 14, 2000
ORDER OF REMAND
The claimant seeks review of an order and supplemental order of Administrative Law Judge Coughlin (ALJ), insofar these orders determined the claimant failed to carry his burden of proof to pierce the corporate veil and impose personal liability on respondents Darin and Wendy Asay (Asays). The claimant argues inter alia, the ALJ misconstrued the effect of the Asays’ exercise of their Fifth Amendment privilege against self-incrimination. We agree, and, therefore, remand for entry of a new order.
As the ALJ found, the claimant entered into a contract with Leading Edge Aviation, Inc. (LEA) to act as an airplane pilot. On August 12, 1997, the claimant sustained injuries in an automobile accident arising out of and in the course of his employment for LEA. The claimant filed a claim for workers’ compensation benefits against LEA, and Platinum Business Support, Inc., (PBS). The claimant also sought to pierce the corporate veil and impose personal liability on the shareholders of LEA and PBS, the Asays.
The claimant testified to various facts suggesting that LEA and PBS were undercapitalized, and operated as the “alter ego” of the Asays. For instance, the claimant testified that Darin Asay told him that the Asays’ various corporations were mere “shells,” that various airplane trips, which the claimant piloted for LEA, were mere pleasure trips for the Asays, and Wendy Asay leased the airplane at rates substantially lower than were ordinarily charged to business customers. (Tr. pp. 79-84).
The Asays did not appear or testify at the hearing. Instead, they submitted the affidavit of an attorney, John Richilano, who represents them with respect to a federal indictment involving alleged fraud in the sale of pharmaceuticals. In the affidavit, Richilano stated that various business records were unavailable because they had been confiscated by the federal government, and that he advised the Asays to assert their privilege against self- incrimination and not testify at the workers’ compensation hearing.
In an order dated September 27, 1999, and a supplemental order dated June 16, 2000, the ALJ determined the claimant failed to meet his burden of proof to establish grounds to pierce the corporate veils of LEA and PBS. Specifically, the ALJ found claimant did not make a “sufficient evidentiary showing” to permit the conclusion that the Asays used the corporations as mere conduits for the transaction of personal business, or for evading an important legislative policy, or to perpetrate a fraud or wrong. In so doing, the ALJ discredited all of the claimant’s testimony which could not be “corroborated by other evidence.” The ALJ further stated that she “did not consider the Asays’ refusal to testify or any of the Claimants’ uncorroborated statements against the Asays in making her decision.”
On review, the claimant contends the ALJ “misconstrued” the evidentiary significance of the Asays’ exercise of their Fifth Amendment privilege. The claimant argues the Asays’ could have appeared and exercised their privilege selectively, and that it was “absolutely wrong” to “penalize” the claimant’s case based on the Asays’ failure to appear. Because the ALJ misapplied the law, we remand for entry of a new order.
In workers’ compensation proceedings, an ALJ may disregard the corporate form and impose personal liability on corporate shareholders if they used the corporate form as a mere instrumentality for the transaction of their own business, or for the purpose of defeating or evading an important legislative policy, or to perpetrate a fraud or wrong on another. Micciche v. Billings, 727 P.2d 367 (Colo. 1986). The party seeking to impose personal liability bears the burden of proof, and the question of whether the party has presented sufficient evidence to meet its burden is one of fact for determination by the ALJ. Smithour v. American Dream Enterprises, Inc., 778 P.2d 302 (Colo.App. 1989). We must ordinarily defer to the ALJ’s factual determinations including her resolution of conflicts in the evidence, her credibility determinations, and the plausible inferences she drew from the record. Section 8-43-301(8), C.R.S. 2000; Metro Moving and Storage Co. v. Gussert, 914 P.2d 411 (Colo.App. 1995). However, in this case, the ALJ’s order reflects an error of law concerning the evidentiary effect of the Asays’ exercise of their Fifth Amendment privilege.
Although not required, the trier of fact in a civil case may consider a party’s exercise of its Fifth Amendment privilege and draw an adverse inference from the exercise of that privilege. This is true because a party who refuses to answer questions based on the exercise of the Fifth Amendment privilege creates a strong inference that the answers would be unfavorable. Further, exercise of the privilege may substantially hamper a civil litigant’s ability to establish critical facts in the possession of the party exercising the privilege. Chaffin, Inc. v. Wallain, 689 P.2d 684 (Colo.App. 1984); Asplin v. Mueller, 687 P.2d 1329
(Colo.App. 1984).
Here, the ALJ explicitly declined to consider the evidentiary significance of the Asays’ “refusal to testify” concerning the operation of LEA and PBS. Under these circumstances, the ALJ misapplied the law by failing to recognize that she might draw inferences adverse to the Asays based on their refusal to testify concerning facts related to piercing the corporate veil. Conversely, the ALJ appears to have discredited portions of the claimant’s testimony because it was not corroborated, even though the Asays deprived the claimant of the opportunity to ask questions which may have corroborated his testimony.
Consequently, the ALJ’s order and supplemental order must be set aside insofar as she declined to impose personal liability on the Asays. The matter is remanded with instructions to reconsider the evidence in light of the principles set forth in this opinion. In reaching this result, we should not be understood as expressing any opinion concerning the weight or inferences to be drawn from the Asays’ refusal to testify, or the claimant’s credibility. Those issues are ultimately matters of fact for resolution by the ALJ. In light of this result, we need not reach the other issues raised by the claimant.
IT IS THEREFORE ORDERED that the ALJ’s order dated September 27, 1999, and supplemental order dated June 20, 2000, are set aside insofar as they declined to impose personal liability on Darin and Wendy Asay. The matter is remanded for entry of a new order on this issue in accordance with the views expressed herein.
INDUSTRIAL CLAIM APPEALS PANEL
____________________________________ David Cain
____________________________________ Kathy E. Dean
Copies of this decision were mailed December 14, 2000 to the following parties:
Edward K. Quick, 2634 S. Lima St., Aurora, CO 80014
Wendy and Darin Asay, Platinum Business Support, Inc., Leading Edge Aviation, Inc., 5250 S. Rainbow Blvd., #1036, Las Vegas, NV 89118-0626
Wendy and Darin Asay, Platinum Business Support, Inc., Leading Edge Aviation, Inc., 1435 Autumnwood Ln., Evergreen, CO 80439
Michael S. Krieger, Esq., 3333 S. Bannock St., #888, Englewood, CO 80110 (For Claimant)
BY: A. Pendroy