corporate debts are not my personal responsibility, right?...are you one of the many people who...

Are you one of the many people whothink that just because your business isincorporated a creditor can’t reach yourpersonal assets? Think again. The recentcase of Fletcher-Harlee Corporation v.Szymanski, a decision of the SuperiorCourt of Pennsylvania, fires a warning shotacross the bow of those individuals whoconduct corporate businesses like a soleproprietorship and think their personalassets are beyond reach of corporatecreditors.

Fletcher-Harlee filed an arbitrationdemand against Delmarva Concrete, Inc.David Szymanski was its sole shareholder.Delmarva chose not to defend thearbitration and an award was enteredagainst it. Later, Delmarva filed forbankruptcy and Szymanski remained inbusiness, operating a corporationperforming concrete construction, inwhich he was the sole shareholder.

Seeking to “pierce the corporate veil”and reach the personal assets ofSzymanski and others, Fletcher-Harleefiled suit to recover the arbitration awardwhich was in excess of $300,000.

After a non-jury trial, the Court ruledin favor of Szymanski. The trial courtverdict was appealed. On appeal, Fletcher-Harlee argued that the trial court reachedthe wrong decision because it found thatSzymanski had not committed commonlaw fraud. Proof of common law fraud wasnot required in order to reach Szymanskiindividually, Fletcher-Harlee argued.The Superior Court agreed with Fletcher-Harlee, reversing the trial court’s decision.

The Superior Court, in reaching itsdecision, placed importance on thefollowing factors:

1. Delmarva was undercapitalized;2. Szymanski failed to follow corporate

formalities and maintain relevantcorporate records;

3. To a limited extent, Szymanskiintermingled his personal funds withDelmarva’s assets;

4. Szymanski disregarded the separatelegal status of Delmarva.

The Superior Court agreed with thetrial court that Fletcher-Harlee failed toprove that Szymanski perpetrated a fraudupon Fletcher-Harlee but said proof of fraud was not required to pierce thecorporate veil.

By Robert A. Korn, Esquire“Robert A. Korn is a principal and member of the Construction & SuretyLaw and Commercial Litigation groups. He handles contract negotiation,dispute resolution through negotiation, mediation, arbitration and trial.Mr. Korn represents public owners, owner/developers, constructionmanagers, general contractors, subcontractors, fabricators, designprofessionals, insurers and sureties. He can be reached at610.941.2512 or rkorn@kaplaw.com.”

To avoid such an unfavorable result,corporations should, at the very least, do the following:

1. Update the corporate minutes atleast yearly;

2. Prepare corporate resolutions fortransactions that are not typicallyentered into with the corporation,such as rental or purchase of real estate;

3. Evidence all loans to thecorporation with the appropriatedocumentation;

4. Do not use the corporation as abank, draining it of its workingcapital – maintain propercapitalization;

5. Have separate leases for differentcorporations using the samespace;

6. Use separate computer systemsfor different corporations – to theextent this is possible;

7. Use separate leases for the costsharing agreement;

8. Sign all contracts in a corporate capacity, clearly stating your titleor corporate position.

These are a few of the pointers which, if followed, should allow you to sleep easy at night. Be aware, however, that the Fletcher-Harlee decision will be relied upon byattorneys seeking to recover monies owed by“dry” or bankrupt corporations.

Corporate Debts Are Not My Personal Responsibility, Right?