Wetzel v. Sandlow

When determining the adequacy of a corporation’s capitalization, a court evaluates whether capital is sufficient to cover anticipated liabilities. Klokke Corp. v. Classic Exposition, Inc., 139 Or App 399, 405, 912 P2d 929, rev den, 323 Or 690 (1996). As part of the issue of veil-piercing, plaintiffs have the burden of proof for showing insufficient capitalization. See Rowden v. Hogan Woods, LLC, 306 Or App 658, 680, 476 P3d 485 (2020).

Better Health Solutions, Inc (BHSI) and Sandlow, BHSI’s president, appealed the trial court’s judgment in favor of plaintiff, Lessor.  Lessor sued BHSI and Sandlow under a veil-piercing theory for unpaid rent.  On appeal, Sandlow asserted that the trial court erred by concluding that “no genuine issue of material fact existed regarding BHSI’s alleged undercapitalization.”  When determining the adequacy of a corporation’s capitalization, a court evaluates whether capital is sufficient to cover anticipated liabilities.  Klokke Corp. v. Classic Exposition, Inc., 139 Or App 399, 405, 912 P2d 929, rev den, 323 Or 690 (1996).  As part of the issue of veil-piercing, plaintiffs have the burden of proof for showing insufficient capitalization.  See Rowden v. Hogan Woods, LLC, 306 Or App 658, 680, 476 P3d 485 (2020).  The Court found that the only evidence related to BHSI’s capitalization presented to the trial court was the $100,000 initial capitalization found in BHSI’s certificate of incorporation.  The Court held that a material issue of fact remained as to whether the $100,000 was insufficient to cover BHSI’s liabilities under the lease.  General judgment as to Sandlow reversed and remanded; otherwise affirmed.