Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions


Touch N' Go
, the DeskTop In-and-Out Board makes your office run smoother.

 

You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Pister v. State, Dept. of Revenue (7/24/2015) sp-7022

Pister v. State, Dept. of Revenue (7/24/2015) sp-7022

         Notice:  This opinion is subject to correction before publication in the PACIFIC  REPORTER .  

         Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,  

         303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email  

                                                                                   

         corrections@akcourts.us.  



                   THE SUPREME COURT OF THE STATE OF ALASKA  



JAMES D. PISTER, SKYRAD                              )  

MEDICAL IMAGING, INC., and                           )        Supreme Court No. S-15332  

NORTHWEST MEDICAL                                    )  

IMAGING, INC.,                                       )        Superior Court No. 1JU-08-00847 CI  

                                                     )  

                           Appellants,               )        O P I N I O N  

                                                     )  

         v.                                          )        No. 7022 - July 24, 2015  

                                                     )  

STATE OF ALASKA,                                     )  

DEPARTMENT OF REVENUE,                               )
  

                                                     )
  

                           Appellee.                 )
  

                                                     )
  



                  Appeal from the Superior Court of the State of Alaska, First  

                                     

                  Judicial District, Juneau, Louis J. Menendez, Judge.  



                  Appearances:  James D. Pister, M.D., pro se, Federal Way,  

                                                                                

                  Washington, and William M. Bankston, Bankston Gronning  

                  O'Hara,  P.C.,  Anchorage,  for  Appellants.    Christopher  

                  Peloso,     Assistant      Attorney       General,      and    Michael      C.  

                  Geraghty, Attorney General, Juneau, for Appellee.  



                  Before:  Fabe, Chief Justice, Winfree, Stowers, Maassen, and  

                                      

                  Bolger, Justices.  



                  FABE, Chief Justice.  



I.       INTRODUCTION  



                  The State seeks to hold the sole shareholder, director, and employee of a  



closely held Washington corporation personally liable for the corporation's unpaid tax  


----------------------- Page 2-----------------------

                                                                                                         

debts.    The  superior  court  pierced  the  corporation's  corporate  veil,  ruled  that  the  



shareholder's successor corporation was liable for the tax debt, voided two contract  



transfers  as  fraudulent  conveyances,  and  ruled  that  the  shareholder  had  breached  



                                                            

fiduciary  duties  to  the  corporation  and  the  State  as  the  corporation's  creditor.    The  



                                                                                                           

shareholder and corporation appeal the superior court's decision to pierce the corporate  



veil,  arguing  that  the  superior  court  erred  by  not  barring  the  State's  suit  under  the  



principle of res judicata, by applying Alaska rather than Washington veil-piercing law,  



and by making clear factual errors.  The shareholder and corporation also appeal the  



superior court's finding that two contracts were fraudulently conveyed.  



                   We conclude that res judicata does not bar the State from seeking to pierce  



the corporation's corporate veil to collect a corporate tax debt established in an earlier  



case.  We further conclude that the corporation's corporate veil was properly pierced  



                                                             

under both Alaska and Washington law.  And although the superior court's fraudulent  



                                                                                                                 

conveyance determination contained errors of fact, they are unlikely to affect the relief  



                                                                                     

the State seeks.  We therefore affirm the superior court's decision in part, reverse it in  



part, and remand for further proceedings only to the extent necessary.  



II.       FACTS AND PROCEEDINGS  



                                            

                   Dr. James Pister has practiced radiology in Alaska since 1977.  In 1988 he  



incorporated his radiology business as a Washington corporation, Northwest Medical  



                                                                                                 

Imaging, Inc. (Northwest Medical).  Washington administratively dissolved Northwest  



                                         

Medical in 1990, although Pister was apparently not aware of this until 1998.  Pister  



                                                                                           

wound  up  the  affairs  of  Northwest  Medical  from  late  1998  into  early  2001,  and  he  



                                                                             

incorporated a new Washington corporation, Skyrad Medical Imaging, Inc. (Skyrad), in  



2000.  



                   In 1997 the Alaska Department of Revenue assessed Northwest Medical  



                                                                                            

for unpaid taxes, penalties, and interest for improper deductions between 1992 and 1995.  



                                                             -2-                                                      7022
  


----------------------- Page 3-----------------------

                                                                                                             

In the ensuing litigation, the Office of Tax Appeals twice decided that the State could not  



                          

assess corporate income taxes against Northwest Medical post-dissolution, "apparently  



                                                                              

relying in part on the notion that Dr. Pister could be held personally liable for the actions  

                                            1  The superior court twice reversed this determination, and  

of the dissolved corporation."                                                      



in Northwest Medical Imaging, Inc. v. State, Department of Revenue , we agreed that  

                                                                                         



Northwest Medical was responsible for unpaid corporate taxes because it had "continued  



to  contract  and  provide  services  under  its  corporate  name"  after  its  administrative  

dissolution.2  



                    Our decision addressed one theory of personal liability for Pister.   We  



disagreed with the Office of Tax Appeals's determination that Pister was necessarily  



personally  liable  for  post-dissolution  actions,  and  instead  determined  that  under  



Washington law "the imposition of personal liability requires actual knowledge that there  



                                   3  

was no incorporation."   Under this framework, "Dr. Pister would not be personally  

                                                                                   



liable for the debts of Northwest Medical because he did not know that the corporation  

                                                                



                               4  

had been dissolved."   Thus, to avoid the inequitable result of no party being liable for  

                                             



          1         Nw. Med. Imaging, Inc. v. State, Dep't of Revenue  (Nw. Med.), 151 P.3d  



434, 442 (Alaska 2006).  



          2         151 P.3d 434, 441 (Alaska 2006).    We addressed, and ultimately rejected,     



Northwest Medical's threshold argument that no court had subject matter jurisdiction  

over a corporation that was dissolved during the years of an alleged tax liability.  See  

                                                                                                               

id. at 438-39.  



          3         Id. at 442 (citing Equipto Div. Aurora Equip. Co. v. Yarmouth , 950 P.2d  

                              

451, 456 (Wash. 1998)).  



          4         Id.  



                                                               -3-                                                         7022
  


----------------------- Page 4-----------------------

the taxes, and to follow our decision in  University of Alaska v. Thomas Architectural  

                      5 we held that Northwest Medical was liable for the assessed taxes.6  

Products, Inc.,  



                                       

                    On remand in August 2007, the Office of Tax Appeals entered judgment  



                                                                

against Northwest Medical for $123,118.  In September 2008 the State filed a complaint  



                                               

in  the  superior  court  against  Pister  and  Northwest  Medical,  seeking  to  collect  that  



                                  

judgment from Pister personally under theories of piercing the corporate veil, successor  



liability, and fraudulent conveyance.  



                    In July 2012  Superior Court Judge Louis J. Menendez issued an order that  



                                                                                             

resolved several preliminary issues.  The order rejected Pister and Northwest Medical's  



                                                                                                     

argument  that  the  State  was  either  precluded  or  estopped  from  piercing  Northwest  



                                                                                                           7 

Medical's corporate veil. The superior court applied issue preclusion law  and found that 

                                                                                                              



our holding in Northwest Medical that Pister was not personally liable for Northwest  

                                                                                                    



Medical's  tax  debts  was  a  determination   of  the  issue  of  personal  liability  for  

                                                                           



post-dissolution debts, "a distinct issue from whether [Northwest Medical's] corporate  

                                        



veil  could  potentially  be  pierced,  once  [Northwest  Medical's]  legal  existence  as  a  



corporation was established."  The latter issue had not been actually litigated, and so the  



superior court determined that it was not precluded.  The superior court similarly refused  



          5         907 P.2d 448, 450 (Alaska 1995) (holding that a dissolved corporation's  



failure to comply with wind-up requirements made it susceptible to suit by creditors who  

                                                                             

did not receive notice of dissolution).  



          6         See Nw. Med., 151 P.3d at 443-44.  



          7  

                                                                                   

                    See, e.g., Latham v. Palin , 251 P.3d 341, 344 (Alaska 2011) ("We require  

four  elements  before  applying  collateral  estoppel:  (1)  the  party  against  whom  the  

preclusion is employed was a party to or in privity with a party to the first action; (2) the  

                                                                                                                         

issue  precluded from relitigation is identical to the issue decided in the first action;  

(3) the issue was resolved in the first action by a final judgment on the merits; and (4) the  

                                                                                               

determination of the issue was essential to the final judgment.").  



                                                               -4-                                                         7022
  


----------------------- Page 5-----------------------

                                                     8 

                                                                                                                           

to find that the State was estopped  from pursuing its veil-piercing claim based on its 



         

prior litigation positions, both because the State's argument in Northwest Medical was  



                                               

not fatally inconsistent with its argument that Northwest Medical's corporate veil should  



                        

be pierced, and because the State explicitly reserved the right to seek to pierce Northwest  



Medical's corporate veil in its briefing in the earlier case.  



                                                                               

                    The superior court's July 2012 order also resolved a dispute over which  



state's law applies to veil-piercing claims against foreign corporations.  The superior  



                                                                                                                

court noted that the answer to this question was not clear particularly in light of some  



authorities  suggesting  that  because  veil  piercing  relates  to  a  corporation's  "internal  



affairs," such affairs are governed by the law of the state of incorporation.  But the  



                                                                                

superior court ruled that the veil-piercing claim was controlled by Alaska law because,  



                                                                                                               

in its assessment, we had repeatedly applied Alaska law to veil-piercing claims against  



                                                   

foreign corporations and because Alaska might have a more significant relationship with  



                                                                                                      

the transaction under the analysis in section 309 of the Restatement (Second) of Conflict  



of Laws.  



                                                                               

                    In September the parties tried the case to the court.  In April 2013, after the  



                                                                      

bench trial, the superior court issued an order holding both Pister and Skyrad liable for  



Northwest  Medical's  tax  debts  and  nullifying  certain  contract  transfers.    The  order  



                                                                                                      

contained five legal determinations:  (1) that Northwest Medical's corporate veil could  



be pierced under Alaska's mere instrumentality standard, (2) that Northwest Medical's  



                                                                                                        

corporate veil could be pierced under Alaska's misconduct standard, (3) that Skyrad was  



          8         See, e.g., John's Heating Serv. v. Lamb , 46 P.3d 1024, 1040 (Alaska 2002)   



("Quasi-estoppel 'precludes a party from taking a position inconsistent with one . . .  

previously         taken      where       circumstances           render       assertion       of    a   second        position  

unconscionable.' " (alteration in original) (quoting Jamison v. Consol. Utils., Inc. , 576  

                                                                                                            

P.2d 97, 102 (Alaska 1978))).  



                                                               -5-                                                         7022
  


----------------------- Page 6-----------------------

                                                                                                 

liable as a successor corporation, (4) that two contracts were fraudulently conveyed, and  



                                                                      

(5) that Pister breached his fiduciary duties of care and loyalty to Northwest Medical and  



the State as a corporate creditor.  



                                                                                  9 

                      Pister, Northwest Medical, and Skyrad  appeal the superior court's decision 



                                                                                                                   

to pierce Northwest Medical's corporate veil and to void the transfer of two contracts as  



                                                                 

fraudulent conveyances.  They do not appeal Skyrad's liability as a successor or the  



finding that Pister breached his fiduciary duties.  



III.       STANDARD OF REVIEW  



                                                                                                      

                      "Whether  res  judicata  applies  is  a  question  of  law  that  we  review  de  

novo."10  



                      "The appropriate choice of law is a legal question to which we apply our  

independent judgment."11  



                      The factual findings of the trial court are reviewed for clear  

                                   

                      error, a standard that is met if, after a thorough review of the  

                      record,  we  come  to  a  definite  and  firm  conviction  that  a  

                                                                                          

                      mistake has been made.  The trial court's findings regarding  

                                                                                        

                      the credibility of witnesses and weighing of the evidence may  

                      be reversed only if clearly erroneous.  In reviewing the trial  



           9          When Pister first filed this appeal on behalf of himself, Northwest Medical,         



and Skyrad, he was not represented by counsel. But because he is not a licensed attorney      

in the state of Alaska he was only able to represent himself,                                     see AS 08.08.210; Alaska  

Bar R. 63;  Christiansen v. Melinda, 857 P.2d 345, 346-47 (Alaska 1993), and under  

Alaska  law,  corporations  can  only  appear  in  court  proceedings  through  an  attorney  

unless  an  exception  has  been  explicitly  made  by  law.    See  AS  22.20.040(a)(2).  

            

Northwest Medical and Skyrad were thus briefly dismissed as appellants.  The corporate  

                                                                                                

entities were reinstated as appellants when an attorney filed an entry of appearance on  

behalf of all appellants.  



           10         Smith v. CSK Auto, Inc., 132 P.3d 818, 820 (Alaska 2006).  



           11         Savage Arms, Inc. v. W. Auto Supply Co., 18 P.3d 49, 52 (Alaska 2001).  



                                                                    -6-                                                             7022
  


----------------------- Page 7-----------------------

                     court's factual findings, we view the evidence in the light  

                                                                                   

                    most favorable to the party prevailing in the trial court.  We  

                                                                        

                    may affirm the trial court's result on any basis supported by  

                                     [12] 

                    the record.  



IV.	      DISCUSSION  



                                                                                    

          A.	        The   Superior   Court's   Decision   To   Pierce   Northwest Medical's  

                     Corporate Veil Was Correct.  



                                                               

                     1.	       The State's suit to pierce Northwest Medical's corporate veil  

                              was not barred by res judicata.  



                                                                           

                    Pister argues that the State's suit to pierce Northwest Medical's corporate  



                                                                     

veil to collect the corporation's tax debt from Pister personally is barred by the principle  

of claim preclusion, or res judicata.13  

                                                          We disagree.  



                                                                                                     

                    "The doctrine of res judicata as adopted in Alaska provides that a final  



judgment in a prior action bars a subsequent action if the prior judgment was (1) a final  



                                                                                                                      

judgment on the merits, (2) from a court of competent jurisdiction,  (3)  in  a dispute  



                                                                                                                     14  

between the same parties (or their privies) about the same cause of action."                                             "[R]es  



                                                       

judicata bars not only relitigation of the same cause of action, but also new claims arising  



          12        Rausch  v.  Devine ,  80  P.3d  733,  737  (Alaska  2003)  (internal  footnotes  



omitted).  



          13        Pister largely employed the language of issue preclusion, rather than claim   



preclusion,  in  his  arguments  before  the  trial  court.    However,  "[w]e  will  consider  

arguments not raised explicitly in the trial court if the issue is 1) not dependent on any  

                                                                              

new or controverted facts; 2) closely related to the appellant's trial court arguments; and  

                                                                             

3)  could  have  been  gleaned  from  the  pleadings." Asa'carsarmiut  Tribal  Council  v.  

                                                       

 Wheeler, 337 P.3d 1182, 1188 (Alaska 2014) (internal quotation marks and alteration in  

                                                                      

original omitted) (quoting McConnell v. State, Dep't of Health & Soc. Servs., Div. of  

Med. Assistance , 991 P.2d 178, 183 (Alaska 1999)).  



          14  

                                                                                 

                    Plumber v. Univ. of Alaska Anchorage , 936 P.2d 163, 166 (Alaska 1997).  



                                                                -7-	                                                       7022
  


----------------------- Page 8-----------------------

                                                                                 15  

from  the  same  transactions  as  those  in  the  first  suit."                       "What  factual  grouping  



                                                                                             

constitutes a 'transaction' is determined by 'whether the facts are related in time, space,  



                                                                                                      16  

                                                                                                           At issue in  

origin, or motivation,' and 'whether they form a convenient trial unit.' " 



this case is whether the State's suit to pierce Northwest Medical's corporate veil stems  

                                             



from "the same cause of action" or "same transaction" as its previous suit to establish  

                                 



Northwest Medical's tax debt.  



                   The previous litigation between the State and Northwest Medical concerned  



the propriety of certain deductions Northwest Medical had claimed as business expenses  



and   Northwest   Medical's   susceptibility   to   being   taxed   given   its   administrative  



                 17  

                     The State did not have to demonstrate that Pister had ignored corporate  

dissolution.                        



formalities or used the corporate form to commit fraud or a crime in that case.  Nor were  

                                                                                                               

such determinations particularly "related in time, space, origin, or motivation"18 to the  



determinations on which the earlier case turned.   



                   Piercing the corporate veil is  not  a claim for damages; instead, it "is a  



               

means of imposing liability on an underlying cause of action such as a tort or breach of  



              19  

                  It is a procedural rather than a substantive claim, and it "is an equitable  

contract."                                                                                       



          15       Id.  



          16       Id.  at  167  (quoting  RESTATEMENT  (SECOND)  OF  JUDGMENTS     24(2)  



(1982)).  



          17       See Nw. Med., 151 P.3d 434, 436 (Alaska 2006).  



          18       Plumber , 936 P.2d at 167 (quoting RESTATEMENT (SECOND) OF JUDGMENTS  



 24(2)).  



          19       1  FLETCHER CYCLOPEDIA OF THE LAW OF  CORPORATIONS   41.10 (2015)  



(emphasis added) (footnotes omitted).  



                                                           -8-                                                     7022
  


----------------------- Page 9-----------------------

                                                                                                                                              20  

                                             

doctrine, premised on the court's ability to look past the 'legal fiction' to do equity." 



It would not be equitable to require that every party adverse to   a  corporation either  



investigate whether it is necessary and appropriate to pierce the corporation's veil during  



                               

its original action or else risk later being barred from collecting the judgment it achieves  



from shareholders who have abused the corporate form.  



                                                                                                              

                       Other courts that have considered this question have held that veil piercing  



                                                           21 

                                                                                                                 

 should not be barred by res judicata.                          The Supreme Court of Texas explained that using  



                                                                

this doctrine to prevent collection of a judgment "would be to pervert the sanctity of  



                                                     22  

                                                                           

judgments, not preserve them."                           A federal district court explained that "[t]o hold that  



                                                                                                              

the plaintiff could not bring a second suit asserting veil-piercing claims to collect their  



                                                                                                                   

judgment would protect individuals who fraudulently transfer assets from a corporation  



                                                            23  

to  avoid  judgments  against  them."                             And  another  federal  district  court  rejected  the  



                                                           

argument Pister advances because it "would also logically imply that all post-judgment  



                                                    

veil-piercing claims against a corporation's owners are barred by res judicata because  



           20         Brown v. Knowles , 307 P.3d 915, 928 (Alaska 2013).  



           21          See Glenn M. Gottlieb, Res Judicata and Collateral Estoppel Beneath the                



 Corporate Veil, 66 CAL . L. REV . 1093, 1096 (1978)                                  ("A finding of corporate                  liability in  

a suit against the corporation alone has traditionally not been considered to merge the   

plaintiff's entire cause of action into the judgment.     Thus, the plaintiff may bring a  

 subsequent suit against the owner, claiming that he should be held individually liable for  

the corporate obligation.") (footnote omitted).  Indeed, some "courts have required a  

prior judgment against a corporation before considering an action to pierce a corporate  

                                                                                                                    

veil."  1 F 

                 LETCHER CYCLOPEDIA OF THE LAW OF  CORPORATIONS   41.28.70 (emphasis  

added).  



           22         Matthews Constr. Co. v. Rosen , 796 S.W.2d 692, 694 (Tex. 1990).  



           23         JNS Aviation, Inc. v. Nick Corp.                      , 418 B.R. 898, 910-11 (N.D. Tex. 2009).     



                                                                      -9-                                                               7022
  


----------------------- Page 10-----------------------

                                                                                                    

those owners are necessarily in privity with the corporation against which the judgment  

was rendered."24  



                    We are persuaded by the reasoning of these courts, which is consistent with  



                                                                                                        

the purposes served by claim preclusion.  We therefore conclude that res judicata does  



not bar the State's suit to collect Northwest Medical's tax debt from Pister personally.  



                                             

                    2.	       We have not previously decided which law Alaska courts should  

                              apply to suits to pierce the veils of foreign corporations.  



                                                                

                    Pister argues that the superior court erred by ruling that Alaska law controls  



                                                                                                         

whether  Northwest  Medical's  corporate  veil  should  be  pierced.                                    He  argues  that  



                                                                     

Washington law, as the state of incorporation, should apply instead.  The State responds  



                                                                            

by  arguing  that  we  have  already  decided  this  issue  by  applying  Alaska  law  in  



veil-piercing cases involving foreign corporations.  



                    We disagree with the State's characterization of our earlier decisions.  In  



one of the cases the State cites we concluded that the choice-of-law issue had been  

                      25  In another we affirmed an order piercing the veils of two corporations,  

waived at trial.                                                 



one incorporated in Oregon and the other in Alaska, using Alaska law, but there is no  

                                                                                                            



                                                                                            26                   27 

indication that any party argued that Oregon law should apply.    Neither case                                       decided  



          24        Am. Federated Title Corp. v. GFI Mgmt. Servs., Inc.                          , 39 F. Supp. 3d 516,  



524 (S.D.N.Y. 2014).  



          25        See Nerox Power Sys., Inc. v. M-B Contracting Co., 54 P.3d 791, 802 n.45  

                                                                

(Alaska 2002).  



          26        See Eagle Air, Inc. v. Corroon & Black/Dawson & Co. of Alaska, Inc., 648  

                                                                                               

P.2d 1000, 1002-04 (Alaska 1982).  



          27        The  State  also  cites  two  cases  that  do  not  involve  attempts  to  pierce  



corporate veils but instead cite veil-piercing doctrine as an analogy for distinct questions  

                                                                                  

of corporate unity.  See Croxton v. Crowley Mar. Corp., 817 P.2d 460, 464-66 (Alaska  

                                                                                                            (continued...)  



                                                             -10-	                                                       7022
  


----------------------- Page 11-----------------------

what law Alaska courts should apply to veil-piercing claims brought against foreign  



corporations.  



                   Courts across the country have reached different conclusions about the  



                                                                                                                     28  

                                                      

proper law to apply when veil-piercing claims are brought against foreign corporations. 



                                                                                          29  

Some apply the law of the state of the incorporation in every case.                           Others apply more  

                                                                                                         



general  choice-of-law  principles,  such  as  an  evaluation  of  the  states'  respective  

                                                          

interests.30  Because we hold that the superior court's findings justify piercing Northwest  

                                              



Medical's corporate veil under both Alaska and Washington law, we do not need to  



decide this question in this appeal.  



         27(...continued)  



1991)       (construing       the    reach      of    the    Alaska      Workers'         Compensation          Act);  

Volkswagenwerk,  A.G.  v.  Klippan,  GmbH,  611  P.2d  498,  505-06  (Alaska  1980)  

(construing the scope of a contract's forum selection clause).  Our citation of Alaska  

veil-piercing law in these cases involving foreign corporations does not decide the issue  

                                                                                              

before us.  



         28       See  1  FLETCHER  CYCLOPEDIA  OF  THE  LAW  OF  CORPORATIONS,  supra  



note 19,  43.72.  



         29       See, e.g., Kalb, Voorhis & Co. v. Am. Fin. Corp. , 8 F.3d 130, 132-33 (2d  



Cir. 1993) (applying New York choice-of-law principles).  



         30       See, e.g.,  TAC-Critical Sys., Inc. v. Integrated Facility Sys., Inc., 808 F.  



Supp.  2d  60,  64-65  (D.D.C.  2011)  (citing  Gregory  Scott  Crespi,  Choice  of  Law  in  

Veil-Piercing  Litigation:  Why  Courts  Should  Discard  the  Internal  Affairs  Rule  and  

Embrace General Choice-of-Law Principles , 64 N.Y.U. A 

                                                                               NN . SURV . AM . L. 85 (2008)).  



                                                         -11-                                                   7022
  


----------------------- Page 12-----------------------

                        3.	        The   superior   court's   findings   justify   piercing   Northwest  

                                   Medical's corporate veil under both Alaska and Washington  

                                   law.  



                                   a.	         Alaska veil-piercing law  



                        Alaska law provides that although corporate veils should be pierced "only  

in exceptional circumstances,"31 it is appropriate to do so "if the corporate form is used  



to defeat public convenience, justify wrong, commit fraud, or defend crime."32                                                                   The  



misconduct  standard  of  veil  piercing  "exists  to  prevent  a  party  from  obtaining  an  

advantage through deceptive or manipulative conduct."33  



                        The superior court partially based its finding of misconduct sufficient to   



justify  piercing  the  corporate  veil  on  the  way  that  Pister  used  Northwest  Medical's  



                                                                                       

corporate  form  to  avoid  paying  corporate  and  personal  taxes.    Northwest  Medical  



purportedly rented two offices from a family partnership Pister controlled, Northwest  



                                                                                                               

Homestead  Limited  Partnership  (Homestead),  and  deducted  this  rent  as  a  business  



                                                            

expense.  But the Office of  Tax  Appeals disallowed this deduction, in part because  



Northwest Medical "failed to provide any documentation to show that rent was actually  



                                                                                                     

paid to anyone."  The superior court examined this matter further and found that the rent  



Northwest  Medical  claimed  as  a  deduction  significantly  exceeded  Homestead's  



                                                                                                                

underlying mortgage and lease payments, frequently resulting in rent deductions that  



                                                                    

were  double  or  triple  Homestead's  actual  costs.    The  rent  amounts  also  varied  



dramatically year to year and seemed to reflect Northwest Medical's earnings, rather than  



                                                                                                                                 

the properties' value.  Most importantly, Homestead was a flow-through entity that did  



            31         L.D.G., Inc. v. Brown , 211 P.3d 1110, 1125 (Alaska 2009).  



            32         Id. (quoting Elliott v. Brown , 569 P.2d 1323, 1326 (Alaska 1977)).  



            33          Elliott , 569 P.2d at 1326.  



                                                                        -12-	                                                                  7022
  


----------------------- Page 13-----------------------

              

not itself file tax returns, and Pister did not report the full amount of Northwest Medical's  



purported payments, or in some years any payments, as rental income on his personal  



income taxes.  



                   These  findings,  which  Pister  does  not  meaningfully  contest,  form  a  



sufficient  basis  to  affirm  the  superior  court's  order  piercing  Northwest  Medical's  



                        

corporate veil.  As one treatise puts it, "[t]he guiding principle concerning observance  



                                                                                                     

or disregard of the [corporate] entity in tax matters is the protection of the government  



                              34  

                                  Pister structured a rent deal between his corporation and his  

against tax evasion." 



                               

family partnership to artificially reduce the corporation's earnings without increasing his  



                                                                                                     

personal tax liability.  By doing so he manipulated the corporate form to evade both state  



and federal taxes.  Exploiting a corporation's balance sheet to camouflage tax evasion  



                                 

is  exactly  the  type  of  misconduct  that  forfeits  the  protection  of  limited  liability  for  



                       35  

                           We therefore affirm the superior court's order piercing Northwest  

corporate debts. 

Medical's corporate veil under Alaska's misconduct standard.36  



         34        1 FLETCHER CYCLOPEDIA OF THE LAW OF CORPORATIONS, supra note 19,  



 45.10 (footnote omitted).  



         35        See  L.D.G.,  Inc.,  211  P.3d  at  1126-27  ("The  inferences  regarding  



manipulations of the corporate form to avoid taxes . . . are also sufficient to create a jury  

question on whether [a corporation's individual owner] violated the misconduct standard  

- that is, whether he used the corporate form . . . 'to defeat public convenience, justify  

wrong, commit fraud, or defend crime.' " (quoting Uchitel Co. v. Tel. Co., 646 P.2d 229,  

                                                                                                        

234 (Alaska 1982))).  



         36        Because the misconduct standard was met, we do not evaluate the superior  

                                                                                     

court's alternative ruling that Northwest Medical's corporate veil could be pierced under  

the mere instrumentality standard.  "The relation between the theories is disjunctive, not  

                                                                                                   

conjunctive," Brown v. Knowles , 307 P.3d 915, 929 (Alaska 2013), and "[t]he primary  

                                                                                                 

consideration in determining whether to pierce the corporate veil is whether the corporate  

form has been abused by the person sought to be charged."  Gold Dust Mines, Inc. v.  

                                                                                                       (continued...)  



                                                          -13-                                                     7022
  


----------------------- Page 14-----------------------

                             b.        Washington veil-piercing law  

                                  



                   Washington law provides that "to pierce the corporate veil the plaintiff must  



                                                          

show that the corporate form was used to violate or evade a duty and that the corporate  

                                                                                                      37   "With regard  

                                                                                                          

veil must be disregarded in order to prevent loss to an innocent party." 

to the first element, the court must find an abuse of the corporate form."38  This "typically  

                                                            



involves 'fraud, misrepresentation, or some form of manipulation of the corporation to  

                                                                 



                                                                               39  

the  stockholder's  benefit  and  creditor's  detriment.'  "                         "With  regard  to  the  second  



element, wrongful corporate activities must actually harm the party seeking relief so that  

                                                                



disregard is necessary.  Intentional misconduct must be the cause of the harm that is  

                   

avoided by disregard."40  



                   Pister argues that the second element of Washington veil-piercing law is not  



met here because the superior court ruled that Skyrad is liable for Northwest Medical's  

                                                                    



tax debt, a ruling that neither Pister, nor Northwest Medical, nor Skyrad appeals.  His  

                                                                            



view is that because "the State has a remedy [against Skyrad]," it is "not necessary to  

                                                                                                            



          36(...continued)  



Little Squaw       Gold Mining Co., 299 P.3d 148, 169 (Alaska 2012) (quoting Murat v. F/V  

Shelikof Strait, 793 P.2d 69, 76 (Alaska 1990)) (internal quotation marks omitted).  



          37        Chadwick Farms Owners Ass'n v. FHC LLC, 207 P.3d 1251, 1262 (Wash.  



2009).  



          38       Meisel  v.  M  & N  Modern Hydraulic Press Co. ,  645 P.2d 689, 692 (Wash.  



 1982).  



          39       Id. (quoting Truckweld Equip. Co. v. Olson,  618 P.2d 1017,   1021 (Wash.  



App. 1980)).  



          40       Id. at 693.  



                                                            -14-                                                      7022
  


----------------------- Page 15-----------------------

                                                                                   

disregard Northwest's corporate form," and therefore Washington law would not permit  



                     41  

veil piercing.           



                     But this misconstrues the second element of Washington veil-piercing law.  

                                                            



Washington courts have not described this second element as a requirement that the  



                                                                                                     

courts pursue every possible path to making a victim whole before piercing the corporate  



                                                                                                                

veil.  Instead, one appellate court recently described the second element as "focus[ing]  



                                                                                               

on the nexus between the abuse of the corporate form and the injury the plaintiff claims  



                                                                       42  

justifies the disregard of the corporate form."                             This is a persuasive interpretation of  



                                                                                                

Washington law, which contains no suggestion that successor liability and veil piercing  

are mutually exclusive.43  



                                                                                               

                     The nexus requirement under Washington law is met in this case.  Pister  



                                                             

abused Northwest Medical's corporate form by having the corporation pay elevated and  



inconsistent rents to Homestead and then deduct these amounts as business expenses.  



                                                                                                                  

This impermissibly reduced Northwest Medical's corporate tax liability, which is "the  



           41        It is hardly clear that the State actually could collect the tax debt from  



 Skyrad.  As the State noted at oral argument, Skyrad has not paid the debt even though  

                                                                                                            

it did not appeal the finding of successor liability and doing so would end the State's  

                                              

efforts to collect the judgment from Pister personally.  



           42        Landstar Inway, Inc. v. Samrow , 325 P.3d 327, 339 (Wash. App. 2014).  



This description of the second element is consistent with one commentator's view that  

the second element asks "if any of the wrongful corporate activities actually harmed the  

                                                      

party  seeking  relief."    Thomas  V.  Harris,   Washington's  Doctrine  of  Corporate  

                                                      

Disregard , 56 W 

                           ASH .   L.   REV .   253, 261 (1981).  The Washington Supreme Court has  

cited this analysis approvingly.  See Meisel, 645 P.2d at 692.  



           43        See, e.g., Meisel, 645 P.2d at 692 ("While the results of successor liability       



and  corporate  disregard  theories  are  often  the  same,  the  inquiries   are  conceptually  

distinct.").  



                                                                -15-                                                         7022
  


----------------------- Page 16-----------------------

                                                                                                              44  

injury  the  [State]  claims  justifies  the  disregard  of  the  corporate  form."                                 Under  



Washington  law,  "disregard  is  necessary"  in  this  case,  notwithstanding  Skyrad's  



concurrent liability for the same debt on a different theory.  



                                                                                             

                   The first element of Washington veil-piercing law is also met in this case.  



                                                     

As discussed above, Pister does not convincingly rebut the superior court's finding that  



                                                                                 

he structured a rent deal between his corporation and his family partnership to artificially  



                 

reduce the  corporation's earnings without increasing his personal tax liability.  This  



                                                                                                           

action fits easily within Washington's definition of abuse of the corporate form:  "fraud,  



                                                                                                  

misrepresentation, or some form of manipulation of the corporation to the stockholder's  

benefit and creditor's detriment."45  We therefore conclude that the superior court's order  



provided  a  proper  basis  for  piercing  Northwest  Medical's  corporate  veil  under  



Washington law.  



          B.	      The Superior Court's Finding That Two Contracts Were Fraudulently  

                   Conveyed Was Clearly Erroneous.  



                   The superior court ordered that "[t]he transfers of the ANHS contract and  

                                                                                         



Maniilaq contract are null and void" because it found that they had been fraudulently  



conveyed from Northwest Medical to Skyrad.  Because we affirm the superior court's  



                                                                                             

decision to hold Pister personally liable for Northwest Medical's tax debt to the State and  



because  Pister  and  Skyrad  did  not  appeal  Skyrad's  liability  for  the  same  debt  as  a  



                                                                                                                

successor corporation, the continuing effect of this ruling as an independent avenue of  



relief is uncertain.  But to the extent the superior court's decision to void the transfers  



remains a live issue, we address the ruling.  



          44	      Landstar Inway , 325 P.3d at 339.  



          45       Truckweld Equip. Co. v. Olson                , 618 P.2d 1017, 1021 (Wash. App. 1980).  



                                                            -16-                                                         7022  


----------------------- Page 17-----------------------

                    1.        The ANHS contract  



                                                                                                         

                    The  first  contract  that  the  superior  court  concluded  was  fraudulently  



                                                                   

conveyed was between Northwest Medical and the Alaska Area Native Health Service  



                                                                                                                      

(ANHS), a federal agency.  The contract was signed on October 1, 1993, and at that point  



                                                             

it  required  ANHS  to  pay  Northwest  Medical  $412,515  for  one  year  of  monthly  



                                                            

radiological  services  at  four  clinics.                 The  contract  was  then  extended  six  times  and  



modified  twice.    With  each  extension  the  contract  price  changed:  to  $618,515  in  



October 1994, $959,955 in September 1995, $1,119,955 in October 1996, $1,239,955  



in March 1997, $1,389,955 in September 1997, and finally $1,471,955 in April 1998.  



At trial Pister testified that the contract expired in early 1999.  



                                                   

                    The superior court rejected Pister's explanation and instead accepted the  



State's view that "[i]n November, 2000, that contract was still in existence and worth  



                                                                       

over 1.4 million dollars."  The superior court concluded that Pister had conveyed the  



                                                                                    

ANHS contract but "received no consideration" for it.  The superior court faulted Pister  



because  Northwest  Medical's  "ledger  for  1998  does  not  reflect  receipts  totaling  



                                                                                    

anywhere near 1.4 million dollars, nor do the ledgers for 1999 or 2000."  But this is  



                                        

exactly  what  one  would  expect  if  the  April  1998  contract  extension  was  the  final  



                                           

extension - some amount of income from ANHS each year from 1993 through 1999,  



totaling 1.4 million dollars, not a 1.4 million dollar payout at the contract's conclusion.  



                                                                                   

                    The superior court bolstered its view that Pister had somehow acquired the  



                                   

ANHS contract for his own use rather than selling it to satisfy Northwest Medical's debts  



                                                             

by reference to Pister's 2002 testimony before the Office of Tax Assessment, in which  



                                                                                                              

he stated that the ANHS contract is "now in my name."  But looking at that testimony  



in context indicates that the superior court may have misunderstood it.  When Pister  



testified that  "[t]he contract is now in my name," he did so in response to a question that  



                                                                                      

asked him to identify the differences between the ANHS contract and an earlier contract,  



                                                              -17-                                                         7022
  


----------------------- Page 18-----------------------

which  had  not   been   in  his  name.    He  was  not  testifying  that  as  of  the  date  of  his  



testimony  the  ANHS  contract  had  been  placed  in  his  name  rather  than  Northwest  



Medical's  but  instead  was  contrasting  it  with  a  prior  contract  that  had  different  



                               

contracting parties.  This is perfectly consistent with Pister's testimony at this trial "that  



                                                                                                                        

the contract expired 'long before' 2000, and therefore the word 'now' did not refer to the  



year 2002."  



                                                                                                       

                    The  State's  defense  of  this  ruling  is  unpersuasive.    It may  be  true  that  



                                                                                                   

"nothing in the record shows that the contract could not have been further extended via  



                                                                               

other documents that were not produced at trial."  But the superior court's findings were  



                                                                                           

not based on the possibility that there were further contract extensions outside of the  



record.  Instead, its ruling was based on the "missing" 1.4 million dollars and Pister's  



2002  testimony.    Because  both  of  these  bases  were  unfounded  the  superior  court's  



findings regarding the ANHS contract are not supported by the record, which clearly  



demonstrates that rather than being fraudulently conveyed, this contract expired.  



                    2.       The Maniilaq contract  



                                                                

                    The second contract that the superior court concluded was fraudulently  



                                                                                   

conveyed  was  between  Northwest  Medical  and  the  Maniilaq  Medical  Center  in  



                                                

Kotzebue.  This contract began in October 1997 as a three-year contract for radiology  



services, and it provided that it would be "automatically renewed for another three-year  



                                                                                                          

term" unless either party notified the other prior to its expiration that the contract would  



not be renewed.  



                                                     

                    In July 2000, prior to the contract renewal date, Pister told Maniilaq that  



                                                                            

Northwest Medical would not renew the contract.  He then had it valued by Northwest  



Medical's accountant, Thomas Swanson, who calculated its current value as $4,367  



(based   on   expected   revenues   of   $18,000   for   the   one   month   remaining)   in   a  



                                            

September 2000 letter. Later in September Pister's new corporation, Skyrad, transferred  



                                                             -18-                                                       7022
  


----------------------- Page 19-----------------------

                                                      

$4,367 to Northwest Medical and Pister told Maniilaq that he had "recently elected to  



transfer the contract . . . to Skyrad," and asked them to make all future checks out to  



Skyrad.  Pister then executed a new three-year contract between Maniilaq and Skyrad.  



                                                                          

                    The superior court ruled that this transfer was a reduction of Northwest  



                                                                                                                    

Medical's assets that served to capitalize Skyrad. The court calculated that, valued as a  



                  

three-year  contract,  the  Maniilaq  contract  was  worth  $648,000,  that  is,  $18,000  in  



                                                                                          

monthly value multiplied by 36 months.  It suggested that the contract could have been  



                                                                                                          

sold for this amount to an unrelated company, and that the resulting funds could have  



                                                         

paid Northwest Medical's tax debts. The court also suggested that the transfer to Skyrad  



                                                                                                                 

might have been made with an eye to Northwest Medical's dissolution defense, first  



                                                     

raised in November 2000, and the subsequent danger of Northwest Medical's corporate  



veil being pierced and Pister being held personally liable for its tax debts.  



                                           

                    Pister  argues  that  the  superior  court's  valuation  was  flawed  because  it  



conflated the revenue a contract is expected to produce with the contract's value.  We  



                                                                

agree.  A service contract's value must be calculated by reference not just to the revenue  



                                         

it will produce but also to the cost of performing the required services.  Therefore, the  



superior  court's  conclusion  that  Northwest  Medical  could  have  sold  the  Maniilaq  



contract for $648,000 was incorrect.  



                    This  error  does  not  necessarily  mean  that  the  Maniilaq  contract  was  



lawfully conveyed.  Northwest Medical's accountant calculated the contract's value as  



                                                                                                     

if it were a month from expiration.  But the contract provided for automatic renewal of  



                                                                                                                        

another three-year term, and indeed Skyrad performed the same contract after Pister, in  



                                                       

his own words, "elected to transfer the contract" to his new corporation.  Just as proper  



                                                                                                             

contract valuation must distinguish between revenue and value, it must also account for  



                                    

the likelihood that the contract will be extended.  Pister's sale price for the Maniilaq  



contract did not properly account for the likelihood of renewal.   



                                                               -19-                                                         7022
  


----------------------- Page 20-----------------------

                                                                                            

                   Although  there  was  clear  error  in  this  portion  of  the  superior  court's  



findings, we cannot decide whether the Maniilaq contract was fraudulently conveyed on  



                                                                                               

the record before us on appeal.  Therefore, if the conveyance of this contract becomes  



                                                               

material to the State's ability to satisfy the judgment against Pister, Northwest Medical,  



                                      

and Skyrad, the superior court will need to make additional findings with respect to the  



                                                                                            

adequacy of the consideration exchanged in light of the proper valuation of the contract  



when it was sold and the other circumstances surrounding the sale.  



V.        CONCLUSION  



                                                                                                            

                   We REVERSE the superior court's fraudulent conveyance decision and  



                                            

remand only to the extent that the conveyance of the Maniilaq contract becomes material  



to the State's ability to satisfy its judgment.  We AFFIRM the superior court's order in  



all other respects.  



                                                            -20-                                                       7022
  

Case Law
Statutes, Regs & Rules
Constitutions
Miscellaneous


IT Advice, Support, Data Recovery & Computer Forensics.
(907) 338-8188

Please help us support these and other worthy organizations:
Law Project for Psychiatraic Rights
Soteria-alaska
Choices
AWAIC