Help suing single owner corporation

I am trying to sue a one owner corporation and need some help. This person owned a restaurant and sold the restaurant back in June. I supplied product to him and he left me with $3800 in uncollectable debt. First he told me that everyone else got paid except for me because he didn't like the way he was spoken to. Then in court he told the judge that there were no assets and that he just closed the business. I happen to know for a fact that the business was sold. I tried to sue him personally, but, I had no personal guarantee so the judge threw it out. I am due back in court on Wednesday at which time I will need to provide a personal guarantee (which I don't have). The person I am suing has agreed to let me place a judgment against his corporation. I don't want to do that because I don't think I'll be able to collect on it as he will undoubtedly hide behind the coporate veil. Any advice from those of you that have been through similiar experiences???

Sounds like he's got you snaked in all directions.

I'd go ahead with the judgment on the corporation.

Might not be worth dollars to you but a judgment is good for many years and you can monitor the corporation for any activity that would indicate that it has assets or is doing business.

Of course, if he just lets the corporation lapse he'll have to form another one if he needs one and that'll cost him money. Not much satisfaction for you there.

You don't mention whether you made any efforts to pierce the corporate veil at trial or whether you will seek to do that by filing a motion with points and authorities supporting such a motion.

Unfortunately, hiring a lawyer to do that for you may not be cost effective considering the amount in question.

But you can read up on the subject at the following link.

http://www.njb.uscourts.gov/chambers2/stripp/98js007p.pdf


It's a NJ bankruptcy case but I post it because it spends some time discussing the elements of piercing the corporate veil which may assist you in raising the issue regardless of the outcome in this particular case.

Thanks for the quick response.

A few more questions: Do you think it would help if I could get the person who recently purchased the property to give me in writing the purchase amount? I'm not really familiar with motions but would discovery apply in this respect? How can I find out what the assets of the corporation were on the date of sale. I don't believe for a minute that there are no assets. If this is true, can't I force the corporation to declare bankruptcy and equally split any assets between all remaining parties?

Any insight is apprciated

I'm going to ramble a bit because your questions raise more questions.

NJ small claims limit is 3000 so are you suing in a higher court?

"would discovery apply in this respect?"

Small claims generally doesn't lend itself to discovery. People just bring their evidence to the hearing.

If your case is in a higher court you do discovery by presenting interrogatories and requests for documents to the other party.

"Do you think it would help if I could get the person who recently purchased the property to give me in writing the purchase amount?"

A written statement might be OK for informational purposes but likely no good in court unless the writer of the statement comes in to testify. Otherwise the other party can get it ruled inadmissible.

But a better way is if you can subpoena contemporaneous records and documents from the new owner if you feel they would be helpful.

If you subpoena the new owner of the restaurant I would want the sale/purchase contract because that's likely to have listed the assets that went with the restaurant.

It will also show you if the new owner assumed the liabilities of the restaurant as well as the assets.

And it will be a document that can be introduced as evidence.

"How can I find out what the assets of the corporation were on the date of sale."

Try looking up the corporations records online at whatever serves as a corporation commision, probably at the Secretary of State website.

Corporations are typically required to file annual reports that may have some financial information.

If you have the opportunity to do discovery by interrogatories and requests for documents I'd want to look at tax records (form C for the restaurant) that would typically include a schedule of depreciable assets.

"I don't believe for a minute that there are no assets. If this is true, can't I force the corporation to declare bankruptcy and equally split any assets between all remaining parties?"

I doubt it.

For one thing, the corporation likely sold the restaurant assets and now exists only on paper.

For another, trying an involuntary bankruptcy is likely to cost you big bucks.

Besides, if you started your lawsuit after the restaurant was sold you might be hampered by other factors that I cannot discern at the moment.

Whatever you do, it seems like you will have to do it on the cheap. Start racking up attorney fees and you will eat up that 3800 real fast and likely not get it back.

I'm assuming there's three entities:

Joe Blow
Joe Blow Business Inc
Good Food Restaurant (as a DBA of the Inc)

Which one owes you the money?

If you were supplying restaurant product, were you invoicing Good Food Restaurant?

If so, it's possible that the debt incurred prior to the sale would now be the responsibility of the new owner.

One idea might be to sue the restaurant itself. If you can nail the new owner with the bill, he might have better luck getting it back from his seller since there is more likely some sort of personal guarantee of the seller in the sale/purchase contract.

Thank you. The owner of the restaurant, Joe Blow, is the person I tried to sue. That didn't hold any water because I had no personal guarantee. Joe Blow the Corporation is supposedly the person I should be suing. Joe Blow the restaurant has not done business with us since February and the new owner has never done business with us. If I turn this over to a collection attorney, all attorney fees will have to be paid by the owner of the corporation. Also, I would be able to sue for the full amount of $3800 rather than $3000. I'm assuming I could add finance charges to the base sum as well.

I hate to be taken advantage of. We dealthwith this person for over 5 years before things went sour. I suppose I could put the word out on the wires that he has defaulted. At best, it will make it difficult for him to secure credit in the future.

I have a call into our local legislator to see in NJ has a website where you can view corporate filings. I'll keep you posted. Thanks again.

Since you don't have a personal guarantee and your contract was evidently with the corporation, you are left to sue the corporation and collect against its assets. I assume when he sold the business, he just sold its assets, not the corporation itself. If he sold the corporation itself, it is still liable to you no matter who owns it.

If you have the evidence to support piercing the corporate veil, you can do that to establish personal liability by the owner. Also, if the corporation sold all its assets to the new buyer, if your state still has a bulk sales transfer act, you might still have recourse against the business assets. Finally, if the corporation distributed assets to its owner without first paying you the debt you are owed, then you may have a claim against the owner personally under a transferee liability claim. These kinds of claims are not particularly easy to litigate, especially if you are not a lawyer and not familiar with the rules for these various forms of liability and are not familiar with litigation generally.

"The owner of the restaurant, Joe Blow, is the person I tried to sue. That didn't hold any water because I had no personal guarantee."

Right.

"Joe Blow the Corporation is supposedly the person I should be suing."

Correct as far as it goes.

But

"Joe Blow the restaurant has not done business with us since February and the new owner has never done business with us."

Again, the new owner may have assumed the obligations of the business when he bought the restaurant: rent, phone, other services, etc.

"If I turn this over to a collection attorney, all attorney fees will have to be paid by the owner of the corporation."

Maybe not. Attorney fees are generally not awarded unless your original agreement specified that loser pays attorney fees in the event of litigation.

Collection agencies always tack on attorney fees and other costs anyway. Having somebody after you for a 3800 debt that is suddenly 5000 or 6000 is basically a scare tactic to get people to start sending money. Sometimes it works, sometimes it doesn't.

"Also, I would be able to sue for the full amount of $3800 rather than $3000."

That might be true if the collection agency uses a higher court. Trouble is, collection agencies generally avoid suing because they have to front the costs. They are in the business to get money not spend it.

If you hire them to collect on a commission basis, chances are they'll never sue and it'll be up to you anyway. If you sell the debt to them you may end up with half or less.

"I'm assuming I could add finance charges to the base sum as well."

Pre-judgment interest is also generally not awarded unless interest is specified in the original agreement. But post-judgment interest is probably a given.

"I hate to be taken advantage of. We dealthwith this person for over 5 years before things went sour."

Believe me, I know all about that. I was a landlord for 20 years. Had quite a few losers and uncollectible judgments in my time.

"I suppose I could put the word out on the wires that he has defaulted. At best, it will make it difficult for him to secure credit in the future."

I'd not do that. It can backfire with a defamation lawsuit against you. Even if you can beat the lawsuit you still get to spend lots of money on attorney fees to do it.

"I have a call into our local legislator to see in NJ has a website where you can view corporate filings"

I'll save you some time:

http://www.nj.gov/njbusiness/registration/

Look at the Public Record heading near the middle of the page. That should get you to it.

"I tried to sue him personally, but, I had no personal guarantee so the judge threw it out. I am due back in court on Wednesday at which time I will need to provide a personal guarantee (which I don't have)."

I don't understand. If the judge already "threw it out," why are you going "back in court" on the same issue?

"Any advice from those of you that have been through similiar experiences?"

There's not much that can be said. This is the reality of doing business with corporate entities. Sometimes businesses fail, and the whole point of doing business as a corporation is so that the owner(s) can "hide behind the corporate veil" if that happens. Unless you can prove an alter ego claim or show that he received assets that should have gone to pay creditors when the corporation was liquidated, you won't be able to collect.

"Do you think it would help if I could get the person who recently purchased the property to give me in writing the purchase amount?"

By itself, such information is meaningless.

"How can I find out what the assets of the corporation were on the date of sale."

By taking discovery.

"If this is true, can't I force the corporation to declare bankruptcy and equally split any assets between all remaining parties?"

A single creditor cannot force an involuntary bankruptcy.

Unless you can prove an alter ego claim or show that he received assets that should have gone to pay creditors when the corporation was liquidated, you won't be able to collect.

How can I prove that he received assets?

An assest can be the money ge got for the business.

You can examine his corporate and buiness bank accounts to see if you can trace the money from the sale of the restaurant.

I can't really answer that question in the abstract. If you've already sued him and lost, though, you don't get a second bite at the apple.

I actually haven't lost. Defendant claims I am suing the wrong party. I'm suing him personally and I should be suing the corporation. In court last week, he said he would take a judgement against the corporation because it has no assets. The judge gave me one week to produce a personal guarantee. I don't have one. Now, I'm free to pursue suit against the corporation because I never sued them. The defendant wants to make it easy and just accept the judgment. I say that he sold the restaurant and the other creditors were paid without consideration to us. His corporation did not declare bankruptcy. He told the judge that he didn't sell, he just closed the doors, however, there is a new owner there. My plan is to tell the judge tomorrow that I don't have a personal guarantee and that I plan to seek legal counsel to sue the corporation for the full amount of the claim plus legal fees.

"he said he would take a judgement against the corporation because it has no assets."

I doubt if anybody would offer that if the corporation did have assets.

"My plan is to tell the judge tomorrow that I don't have a personal guarantee and that I plan to seek legal counsel to sue the corporation"

All the judge will hear is that you don't have a personal guarantee and he'll dismiss. He won't care what you "plan" to do.

I think you should try to keep your options alive about piercing the corporate veil. Cite some points and authorities about it and ask for a continuance, maybe 60 days.

That'll give you some some time to check out the new owner of the restaurant (licenses, corporation, etc) and request documents from the plaintiff or subpoena them from the restaurant.

If you can put your defendant on the hot seat for denying you his records and/or can show that he's lying about closing up the restaurant, you may get somewhere. It's all a matter of strategy.

"I say that he sold the restaurant and the other creditors were paid without consideration to us."

FYI, it does not matter that he preferred other creditors to you. What matters is that he didn't give preference to his own interest in the corporation ahead of the interests of creditors.