Winey v. Cutler

Annotate this Case
Winey v. Cutler  (95-167); 165 Vt 566; 678 A.2d 1261

[Opinion Filed 30-Apr-1996]


                               ENTRY ORDER

                      SUPREME COURT DOCKET NO. 95-167

                             MARCH TERM, 1996


Lee Winey                            }     APPEALED FROM:
				     }
				     }
     v.                              }     Bennington Superior Court
				     }
Richard Cutler d/b/a Cutler          }
Construction Co., and Richard A.     }     DOCKET NO. S101-86 BnC
Cutler Construction Company, Inc.    }


       In the above-entitled cause, the Clerk will enter:

       Plaintiff Lee Winey won a judgment for damages against Richard Cutler
  and his business (a sole proprietorship), the general contractor hired to
  build her home in Shaftsbury.  See Winey v. William E. Dailey, Inc., 161
  Vt. 129, 144-45, 636 A.2d 744, 754 (1993) (upholding judgment on appeal). 
  This trustee action was brought against the corporation that now runs the
  business.  Plaintiff proceeded in this collection action under 12 V.S.A. §§
  3167-3171 (trustee process against earnings).  The trial court granted
  trustee process.  We affirm.

       While Richard Cutler owns substantial assets, more than enough to pay
  this judgment, he has refused to pay and has sheltered his assets from
  plaintiff's reach.  Consequently, plaintiff has attempted to satisfy the
  judgment by seeking payments from a portion of Richard Cutler's earnings
  from the corporation.  He and his wife, Deborah Cutler, jointly own 100% of
  the stock, and both work for the corporation.  Between 1989 and 1993, the
  corporation paid Richard Cutler annual salaries ranging from a high of
  $280,000 to a low of $40,000 and Deborah $20,000 each year.  Each salary
  was a once-a-year payment designated a bonus.  At oral argument, defendant
  represented to the Court that currently no salary is paid to Richard, even
  though he works full time.  His wife Deborah continues to receive a salary. 
  Defendant claimed not to know whether Deborah's salary had substantially
  increased since Richard stopped receiving compensation.

       The court issued trustee process by determining that Richard Cutler
  earned an average of over $100,000 a year.  It chose a conservative yearly
  net earnings figure of $40,000 plus $1,000 paid from a pension fund and
  ordered defendant to pay 25% of his weekly disposable earnings, calculated
  according to 12 V.S.A. §§ 3169-70, to plaintiff.  Defendant does not
  challenge the court's calculations.

       Defendant agrees that plaintiff was entitled to an order of trustee
  process in this case except in one respect.  It claims that plaintiff is
  not entitled to an order requiring defendant to pay her anything from
  Richard Cutler's wages if the corporation does not owe him any wages. Since
  the decision whether Richard is owed wages is controlled by him and his
  wife, defendant asserts any disbursements to Richard can either be diverted
  to Deborah or paid to Richard before plaintiff is able to "attach" the
  funds.

       The issue for us is a simple one:  may trustee process against
  earnings be defeated as defendant proposes in cases where the
  judgment-debtor employee controls the corporate-trustee

 

  employer?

       The statutory scheme in issue allows trustee process only against
  earnings.  "Earnings" is defined as "compensation paid or payable for
  personal services, whether denominated as wages, salary, commission, bonus
  or otherwise, and includes periodic payments pursuant to a pension or
  retirement program." 12 V.S.A. § 3169(b)(1).

       The essence of defendant's argument rests on the definition of
  "payable."  It contends that "earnings" here were not "payable" unless and
  until the corporate employer declared them payable.  Any reasonable
  construction of the term "compensation paid or payable" cannot include only
  "declared amounts due" because trustee process on earnings would become an
  elusive remedy.  "Compensation paid" cannot simply mean money already paid
  to an employee, because that money is already in the employee's possession
  and is no longer available to be paid by the trustee to the judgment
  creditor.  The phrase "compensation paid," as used in the statute, must
  mean compensation ordinarily and regularly due the employee in the course
  of employment.  The modifier "payable," in similar fashion, must mean
  something different from "compensation paid."  The only reasonable
  interpretation of "payable" compensation is an amount to be determined
  based on future contingencies, such as the giving of bonuses and raises.

       Defendant's argument is also predicated in part on a general trustee
  process provision, which states: "A person shall not be adjudged a trustee
  by reason of any money or other thing due from him to the principal
  defendant, unless it is due absolutely and without contingency at the time
  of the service of the writ upon him . . . ."  12 V.S.A. § 3019 (emphasis
  added). Section 3019, however, is not specifically applicable to earnings,
  and, even if it were, it contradicts the definition of earnings.  See
  Lomberg v. Crowley, 138 Vt. 420, 423, 415 A.2d 1324, __ (1980) (specific
  statutes control over general statutes, and if two statutes deal with same
  subject matter, more recent controls).

       The statutory scheme on trustee process of earnings works well when
  the employer is not the "alter ego" of the employee.  Where the employee
  and employer have an arm's length relationship, the employer serves merely
  as a collection conduit for the judgment creditor.  The question remains,
  may the trustee process on earnings law be defeated when the judgment
  debtor is the alter ego of his corporate employer and the debtor's salary
  may be diverted to another? We do not think the Legislature intended that
  the law could be so easily evaded.

       No legitimate purpose of the corporate form of ownership and doing
  business contemplates the outcome defendant proposes.  Although one purpose
  of corporation law is to limit shareholders' liability for corporate debts,
  and thereby encourage investment, see 11A V.S.A. § 6.22(b) (shareholder not
  personally liable for debts of corporation), corporations are not intended
  to be used to shelter the assets of shareholders from lawful claims of
  judgment creditors.  In this case, the corporate form is being manipulated
  for just such a purpose. Defendant concedes that it has not paid Richard
  Cutler since the trustee process order became effective.  The only reason
  defendant has stopped paying Richard Cutler is because it must pay
  plaintiff 25% of Richard Cutler's net disposable earnings.  Richard Cutler
  loses nothing by not being paid any compensation because his earnings may
  be diverted to his wife and then deposited into their joint account.  Thus,
  here, the corporate shell is used merely as a sham to deprive plaintiff of
  a remedy.

       If we sanction what defendant proposes, all judgment debtors who have
  sufficient influence over a corporate employer to control the payment of
  their compensation would be immune from trustee process of earnings.  We
  have no evidence the Legislature had that result in mind in passing the
  law.  See, e.g., Permian Petroleum Co. v. Petroleos Mexicanos, 934 F.2d 635, 643 (5th Cir. 1991) ("The alter ego doctrine may also apply in
  `reverse piercing' situations in which a party seeks to hold a corporation
  liable for the obligations of a

 

  shareholder."); W. Passalacqua Builders, Inc. v. Resnick Developers South
  Inc., 933 F.2d 131, 141 (2nd Cir. 1991) (court may disregard corporate form
  where excessive control causes complained of loss);  United States v.
  Fidelity Capital Corp., 920 F.2d 827, 836-37 (11th Cir. 1991) (when person
  who owns or controls corporation uses corporate form to evade contract or
  tort responsibilities, court may pierce corporate veil to correct abuse);
  Wolfe v. United States, 798 F.2d 1241, 1243 (9th Cir. 1986) (corporation
  dominated by its owner may be disregarded under alter ego doctrine); Jack
  C. Keir, Inc. v. Robinson & Keir Partnership, 151 Vt. 358, 360, 560 A.2d 957, 959 (1989) (where recognition of corporate status would result in
  fraud or injustice, courts will pierce corporate veil).

       Plaintiff is entitled to attorneys' fees and expenses.  See Cameron v.
  Burke, 153 Vt. 565, 576, 572 A.2d 1361, 1367 (1990) (court may grant fees
  in exceptional cases as justice requires).

       Affirmed.  Defendant is ordered to pay all sums due under the trial
  court's order of trustee process plus interest at the legal rate and all
  reasonable attorneys' fees and expenses incurred in this collection action
  since its inception, including those incurred in this appeal. Plaintiff
  shall submit an affidavit on attorneys' fees within ten days of this entry;
  defendant may respond to plaintiff's claim for fees and expenses within
  seven days thereafter.





     BY THE COURT:



     _______________________________________
     Ernest W. Gibson III, Associate Justice

     _______________________________________
     John A. Dooley, Associate Justice

     _______________________________________
     James L. Morse, Associate Justice

     _______________________________________
     Denise R. Johnson, Associate Justice

     _______________________________________
     John P. Meaker, Superior Judge
     Specially Assigned