Ala. R. Civ. P. 56(f), Piercing the Corporate Veil and Breach of Contract Damages

Shorter Brothers, Inc. v. Vectus 3, Inc., [Ms. 1190876, 1190903, June 25, 2021] __ So. 3d __ (Ala. 2021). The Court (Mitchell, J.; Parker, C.J., and Shaw and Bryan, JJ., concur; Mendheim, J., concurs in the result) affirms judgments entered by the Jefferson Circuit Court in favor of Vectus 3, Inc. and against Shorter Brothers, Inc. in a breach of contract action whereby Shorter Brothers allegedly failed to pay for its purchase of Vectus’s operation of FedEx ground delivery routes and nine delivery trucks.

The Court first concludes the circuit court did not err in denying Shorter Brothers’s Ala. R. Civ. P. 56(f) motion which requested the court to deny a motion for summary judgment and allow them the “opportunity to finish discovery.” Ms. **4-5. The Court concludes there was no error, because at the time Shorter Brothers filed its Rule 56(f) motion, it had not served or conducted any discovery and had disregarded its own discovery production obligations as the circuit court had granted two motions to compel and one motion for sanctions filed by Vectus. “Whether to grant a continuance under Rule 56(f) is ‘within the sound discretion of the trial court.’” Ms. *7, quoting Rosser v. AAMCO Transmissions, Inc., 923 So. 2d 294, 300 (Ala. 2005). The Court reiterates that “[i]f the party opposing summary judgment ‘properly establishes before the trial court that unresponded-to discovery is crucial to the party’s case, it is error for the trial judge to enter a summary judgment before the discovery has been supplied.’ Id. But ‘[o]nly rarely will an appellate court find that the trial court has exceeded its discretion in not allowing a requested continuance for the purpose of conducting further discovery.’” Ms. *7, quoting Rosser, 923 So. 2d at 301.

The Court also concludes the circuit court did not err by piercing the corporate veil. Citing First Health, Inc. v. Blanton, 585 So. 2d 1331, 1334 (Ala. 1991), the Court notes (Ms. *11) “[p]iercing the corporate veil is not a power that is lightly exercised” but “... may be appropriate when the corporate entity is (1) undercapitalized, (2) formed or operated with a fraudulent purpose, or (3) operated ‘as an instrumentality or alter ego’ of its shareholders.” Here, Vectus established that Shorter Brothers was operated as an alter ego of its owners because its principals did not observe the corporate form, maintained inadequate corporate records (i.e., failed to produce in response to discovery requests any by-laws, operating agreement, shareholder agreement, corporate minutes, or other documents demonstrating a separate corporate existence) “had little, if any, financial records at that time” and “produced no information about employee numbers, roles, or duties.” Ms. **12-13, citing Econ Mktg., Inc. v. Leisure Am. Resorts, Inc., 664 So. 2d 869, 870-71 (Ala. 1994) (holding the trial court erred by not piercing corporate veil when entity failed to keep complete and correct records of all transactions, minutes of the proceedings of its shareholders and board directors and where the financial records, books, or minutes of the meetings of the directors could not be located).

With respect to Vectus’s cross appeal contending the circuit court erred in awarding insufficient damages, the Court notes (Ms. *16) that “[d]amages for a breach of contract ‘should return the injured party to the position he would have been in had the contract been fully performed.’” Garrett v. Sun Plaza Dev. Co., 580 So. 2d 1317, 1320 (Ala. 1991). The sum awarded “is within the discretion of the fact-finder and is presumed to be correct.” Ms. *17, quoting Tri-Tube, Inc. v. O E M Components, Inc., 672 So. 2d 1303, 1306 (Ala. Civ. App. 1995). Parsing through Vectus’s damages calculations (Ms. **17-20), the Court concludes there were apparent defects in the calculations such that “we cannot say that the trial court exceeded its discretion in ignoring [the defects] or that Vectus has overcome the presumption that the trial court’s damages award is correct.” Ms. *19-20, citing Tri-Tube, 672 So. 2d at 1306.

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