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Fifth Circuit Affirms District Court Decision Finding Owner of a Corporation Personally Liable for Corporate Liabilities after Administration Dissolution

In 4 H Construction Corporation v. Superior Boat Works, Inc. and Collins Brent (Case Number 09-60838), the Fifth Circuit Court of Appeals affirmed the decision of the Northern District of Mississippi, holding that a corporation that had been administratively dissolved by the Mississippi Secretary of State was not a viable entity with standing to pursue a counterclaim in the state. The Fifth Circuit also affirmed the District Court's holding that the president of the dissolved corporation could be held personally liable for the corporate liabilities of the company because he played an active role in the day to day operations of the business.

In 2008, Superior Boat Works, Inc. ("Superior") performed maritime repairs on two (2) deck barges owned by 4 H Construction Corporation ("4 H"). The repairs were made at Superior's shipyard in Greenville, Mississippi. Superior refused to release the barges without full payment for repairs 4 H claimed Superior was not authorized to make. 4 H filed a complaint against Superior and its president, Collins Brent ("Brent"), alleging conversion. Superior denied this claim and filed a counterclaim seeking damages for breach of contract, misrepresentation, and quantum meruit, and asserted a maritime lien as security for its damages. After a bench trial, the District Court dismissed Superior's claims as moot because Superior had been administratively dissolved as a corporation in 2003 and therefore, did not have standing to maintain a suit in the state. By being administratively dissolved, the entity was not authorized to carry on any business, except that business which was necessary to wind up and liquidate its business and affairs. The Mississippi dissolution statute allowed Superior five (5) years (i.e – until December 30, 2008) from the date of dissolution to reinstate the corporation, but no action was ever taken to reinstate the entity. The District Court also found Superior and Brent liable for conversion of both barges and entered judgment against them, jointly and severally, for USD 17,875. Shortly thereafter, Superior filed for bankruptcy. On December 26, 2012, upon resolution of the bankruptcy, Superior was reinstated as a corporation in Mississippi.

After its corporate status was reinstated, Superior filed a motion in the District Court for leave to file a motion for relief from the judgment, on the grounds that the corporation had been reinstated and now had standing to pursue a counterclaim. This motion was denied in the District Court. On appeal, Superior argued that the denial of the motion was in error because the Mississippi dissolution statute had been amended in 2009 to allow entities to be reinstated at any time. Superior further argued that Brent's could no longer be held individually liable for the corporation's liabilities once the corporation had been reinstated.

The Fifth Circuit found that Superior could not maintain a suit during the time that the corporation was suspended, regardless of the amendment to the corporate dissolution statute, because the amendment did not take effect until after the trial in the District Court had been completed. Furthermore, the Fifth Circuit found that Brent, as President of Superior, was liable for the corporate liabilities after its administrative dissolution because he played an active role in the day to day operations of the corporation.

To read a copy of the Fifth Circuit's decision click here.

For more information about the Court's decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

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