{"id":4223,"date":"2011-03-19T07:14:23","date_gmt":"2011-03-19T14:14:23","guid":{"rendered":"http:\/\/www.keytlaw.com\/azllclaw\/?page_id=4223"},"modified":"2016-11-16T08:23:29","modified_gmt":"2016-11-16T15:23:29","slug":"martin-v-freeman","status":"publish","type":"page","link":"https:\/\/www.keytlaw.com\/azllclaw\/martin-v-freeman\/","title":{"rendered":"Martin v. Freeman"},"content":{"rendered":"

Colorado Court of Appeals — February 2, 2012<\/strong>
\n2012 COA 21. No. 11CA0145. Martin v. Freeman.<\/em><\/p>\n

Court of Appeals No. 11CA0145
\nEl Paso County Court No. 10CV1445
\nHonorable David S. Prince, Judge<\/p>\n

Robert L. Martin, Plaintiff-Appellee,<\/p>\n

v.<\/p>\n

Dean C.B. Freeman; and Tradewinds Group, LLC, a Delaware limited liability company
\nDefendants-Appellants.<\/p>\n

JUDGMENT AFFIRMED
\nDivision VII
\nOpinion by JUDGE NEY*
\nCasebolt, J., concurs J. Jones, J., dissents
\nAnnounced February 2, 2012<\/p>\n

Mulliken Weiner Karsh Berg & Jolivet, P.C., Murray I. Weiner, Colorado Springs, Colorado, for Plaintiff-Appellee<\/p>\n

Rothgerber Johnson & Lyons LLP, Michael Francisco, Colorado Springs, Colorado, for Defendants-Appellants<\/p>\n

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art. VI, \u00a7 5(3), and \u00a7 24-51-1105, C.R.S. 2011.<\/p>\n

\u00b61 In this limited liability company (LLC) veil-piercing case, defendants, Dean C.B. Freeman and Tradewinds Group, LLC, appeal the trial court\u2019s judgment in favor of plaintiff, Robert C. Martin. We affirm.<\/p>\n

I. Factual Background<\/strong><\/p>\n

\u00b62 Freeman managed Tradewinds as a single member LLC. Tradewinds contracted to have Martin construct an airplane hangar. In 2006, Tradewinds sued Martin for breaching the construction agreement. In 2007, while the litigation against Martin was pending, Tradewinds sold its only meaningful asset, an airplane, for $300,000, and the proceeds of that sale were diverted to Freeman, who paid Tradewinds\u2019 litigation expenses. In 2008, a judgment was entered in favor of Tradewinds. Martin appealed. Another division of this court concluded that Tradewinds\u2019 damages were speculative and remanded with directions to enter judgment in Martin\u2019s favor. Tradewinds Group, L.L.C. v. Martin, (Colo. App. No. 08CA1300, June 11, 2009) (not published pursuant to C.A.R. 35(f)). On remand, the trial court declared Martin the prevailing party and awarded him $36,645.40 in costs.<\/p>\n

\u00b63 Because the proceeds of the sale of Tradewinds\u2019 only significant asset, the airplane, went directly to Freeman, the LLC was without any assets. Martin initiated this action to pierce the LLC veil. Following a bench trial in 2010, the trial court pierced the LLC veil and found Freeman personally liable for the cost award entered against Tradewinds. Defendants appeal.<\/p>\n

II. Veil Piercing<\/strong><\/p>\n

\u00b64 Defendants contend that the court erred in piercing the LLC veil. We disagree.<\/p>\n

\u00b65 The piercing of an LLC veil is a mixed legal and factual question. See McCallum Family L.L.C. v. Winger, 221 P.3d 69, 73 (Colo. App. 2009) (standard of review for piercing corporate veil); see also Sheffield Services Co. v. Trowbridge, 211 P.3d 714, 721 (Colo. App. 2009) (veil piercing applies to limited liability companies). Defendants have not designated the trial transcripts and do not dispute the court\u2019s factual findings. We therefore accept the court\u2019s factual findings and review de novo its application of the law to those facts. See McCallum Family L.L.C., 221 P.3d at 73.<\/p>\n

\u00b66 To pierce the LLC veil, the court must conclude (1) the corporate entity is an alter ego or mere instrumentality; (2) the corporate form was used to perpetrate a fraud or defeat a rightful claim; and (3) an equitable result would be achieved by disregarding the corporate form. Id. at 74. The third prong, in particular, recognizes that veil piercing is a \u201cfact-specific\u201d inquiry. See id. at 79; see also Micciche v. Billings, 727 P.2d 367, 373 (Colo. 1986) (in the absence of a fully developed factual record and adequate factual findings, appellate court could not determine whether to disregard the corporate form).<\/p>\n

\u00b67 Defendants contend that the court\u2019s factual findings do not support piercing the LLC veil. Specifically, they challenge the court\u2019s conclusions that the first and second prongs were satisfied. We address each prong in turn.<\/p>\n

A. Alter Ego<\/strong><\/p>\n

\u00b68 Defendants contend that the court erred in finding that Tradewinds was Freeman\u2019s alter ego. We disagree.<\/p>\n

\u00b69 Courts consider a variety of factors in determining alter ego status, including whether (1) the entity 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\u2019s ownership and control facilitate insider misuse; (5) the business is thinly capitalized; (6) the entity is used as a mere shell; (7) legal formalities are disregarded; and (8) entity funds or assets are used for non-entity purposes. McCallum Family L.L.C., 221 P.3d at 74.<\/p>\n

\u00b610 In concluding that Tradewinds was Freeman\u2019s alter ego, the court found:<\/p>\n