Yesterday a Florida court reversed a judgment entered against the owner of a flooring company individually because even though he had commingled personal and business funds, he had not engaged in conduct that warranted setting aside the company and imposing liability on him personally.
Flooring Depot FTL, Inc. v. Wurtzebach, arose from a dispute between a homeowner and a flooring supplier. The homeowners ordered 3,950 square feet of flooring from the supplier for $37,800.13. Later, the homeowner made a change, which resulted in the supplier having to order 2,005 square feet of a different flooring material, and 1,911 square feet of the original material. While the homeowner paid for all of the materials, the flooring company only delivered the 2,005 square feet of material ordered. Ultimately the homeowners obtained the remaining 1,911 square feet from another company.
The homeowners sued claiming breach of contract and fraud. Following trial, the court entered an order in favor of the homeowners, requiring they be paid back 50% of the amounts paid for the flooring, 50% of a restocking fee, and pre-judgment interest, a total of $28,190.00. The court entered this order against both the flooring company and the individual owner of the flooring company. Both the company and its owner appealed the ruling.
On appeal, the court lowered the judgment by $693.00 to account for a mathematical error. More importantly though, the appellate court reversed the judgment against the individual, finding that the homeowners had not established all of the facts necessary to pierce the corporate veil of the company and reach the owner individually.
In Florida, the corporate veil can only be pierced by demonstrating improper conduct—specifically, that the corporation was “actually organized to use or mislead creditors or perpetrate a fraud upon them. To evaluate whether this happens, the party claiming improper conduct must prove that
(1) the [individual] dominated and controlled the corporation to such an extent that the corporation's independent existence, was in fact non-existent and the shareholders were in fact alter egos of the corporation;
(2) the corporate form must have been used fraudulently or for an improper purpose; and
(3) the fraudulent or improper use of the corporate form caused injury to the claimant.
At trial, the only information provided about the owner of the flooring company was that he commingled his business and personal assets and that he used business funds to make personal purchases. This did not satisfy the requirements to impose liability on the owner of the flooring company, and therefore, the appellate court reversed the judgment against him individually.
The key takeaway from this case is that while contractors need to be diligent in making sure they run their business properly, perfection is not required to ensure that the protections from individual liability that come with owning a company stay in place.