Laramie County Library System v. Bunya

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
In re 	)
)
ELIZABETH LYNN BUNYA, 	) 	Case No. 	08-20762
) 	Chapter 7
Debtor. 	)
)
LARAMIE COUNTY LIBRARY 	)
SYSTEM, 	)
)
Plaintiff, 	)
)
v. 	) 	Adv. No. 09-2002
)
ELIZABETH LYNN BUNYA. 	)
)
Defendant. 	)
OPINION ON COMPLAINT OBJECTING TO DISCHARGE
On August 25, 2010, this matter came before the Court for trial on the Complaint
Objecting to Discharge filed by the Laramie County Library System ("Library") and the
Answer filed by Elizabeth Lynn Bunya ("Debtor"). The Library was represented by James
R. Salisbury. Ms. Bunya represented herself. I The Court having considered the testimony,
evidence and arguments of the parties, and for the reasons stated below, denies the
complaint.
JURISDICTION
The Court has jurisdiction of this matter under 28 U.S.C. §§ 157 and 1334. This is
I The Debtor was represented by Ken McCartney in the underlying bankruptcy case No. 08-20762 and this
adversary. Mr. McCartney was allowed to withdraw by the order entered October 9, 2009.
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a core proceeding under 28 U.S.C. § lS7(b)(2)(J).
FACTS
The Library and the Debtor began their business relationship when the Library wanted
to include a cafe in the new facility. After soliciting proposals from venders, Synergy Cafe,
Inc? ("SCI") was selected. The Debtor testified that she was the director and officer of SCI.
Her sister was the secretary ofthe corporation. She, her parents, husband and "Macky" were
shareholders. 	SCI and the Library entered into the "Library Food and Beverage Lease
Agreement," ("Agreement") "to allow for the construction, equipping and operation of a food
and beverage service ... and to provide for the lease of the space for the same." 	Dale
Anderson, "Chair LCL Board of Directors" executed the agreement on April 26, 2007 on
behalf of the Library. The Debtor executed the agreement on May 20, 2007 on behalf of
"Synergy Cafe."
The Agreement sets out the Contractor's responsibilities, in part:
"(a) 	CONTRACTOR will complete decor and equipment selection
and installation in a professional and workmanlike manner and in compliance
with all applicable laws and other governmental requirements, and subject to
LIBRARY'S approval of all plans and specifications. 	Such items will be
purchased and installed at CONTRACTOR'S expense ... ,,3
SCI entered into a Lease Agreement ("Lease") with Summit Commercial Financial
2 Synergy Cafe, Inc. filed for bankruptcy protection on March 6, 2009. The case was closed without
discharge on May 4, 2007.
J Emphasis added.
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Company on September 19, 2007. 	Debtor executed a "Guarantee" of the Lease on
September 10, 2007. SCI leased "all property described in the agreement."
The Library and SCI entered into the "Addendum to Library Food and Beverage Lease
Agreement - Laramie County Library System, Cheyenne, Wyoming & Synergy Cafe, Inc."
("Addendum") on September 25,2007. Denise Kelsey, "Chair LCL Board of Directors,"
executed the document on behalf of the Library. 	Liz Bunya, President, executed the
Addendum on behalf of Synergy Cafe.
The modifications, as stated in the Addendum, were:
"A. 	LIBRARY agrees to waive for one month the $1,000 security
deposit which will now be due on Oct[.] 15,2007.
B. 	The purpose of this addendum is to extend the Agreement to a
period of three years to accomplish the purposes set forth herein.
C. 	Due to shortfalls in funding available to CONTRACTOR, 4
LIBRARY agrees to fund the following items in consideration for payment by
CONTRACTOR over the period of, and in accordance with, the terms of the
Agreement and this Addendum:
1) 	Building 	tenant 	finishing 	including: 	free 	standing
condiment/waste receptacle, drink rail ( a stool high counter that
is along windows), hooking up owner supplied fixtures and
equipment including doing such things as drilling holes in
counter tops, installing specialty lighting, installing various
pieces of equipment, etc.
2) 	Various equipment, furniture, decor items and signage
necessary for the operation ofthe cafe facilities, said equipment
more particularly described in Attachment "A" affixed hereto
and fully incorporated in this Agreement and Addendum[.]
4 CONTRACTOR is identified as Synergy Cafe, Inc. in both the Agreement and the Addendum.
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D. 	In consideration for the provision of the above described,
CONTRACTOR agrees and warrants that in addition to the sum agreed to in
item 5e5 ofthe Agreement; it will pay an additional $1,700 per month on the
same time frame as indicated in 5e for a total ofan additional $51,485.00 over
the period of this Agreement and Addendum. 	Upon successful and full
completion ofthe terms of this Agreement and Addendum and payment of the
full additional amount, LIBRARY will provide ownership of the above
described equipment, furniture, decor, and signage, excluding any items which
have become by nature of their installation, fixtures., in accord with section
5(a) of the Agreement. 	No penalty for pre-payment shall be imposed. 	If
conclusion or termination of the agreement occurs sooner than 3 years, without
fault 	and 	not 	for 	cause 	or 	breach 	necessitated 	by 	the 	actions 	of
CONTRACTOR, CONTRACTOR may acquire ownership of the items listed
herein by paying any remaining amount required by the agreement. .. "
Attachment "A," referenced in the Addendum, included numerous invoices from
different venders, reflecting the purchase prices for the necessary equipment needed for the
operation of the cafe. The invoices do not reflect that the equipment was to be leased.
On October 2,2007, the Library issued a check in the amount of$51,485.00, payable
to SCI. 	The Debtor endorsed the check and deposited the funds into the SCI account at
American National Bank in Cheyenne, Wyoming. On that same date, the Debtor transferred
$41,485.00 to an account at First Education Federal Credit Union, ("Credit Union") in
Cheyenne owned by Ken Bunya and Elizabeth Bunya. The Library terminated the lease with
SCIon April 18, 2008 citing section 6(c )(1) of the Agreement, that states, "This agreement
may be terminated ... by either party at any time upon the breach by the other party ofa term
5 5e of the Agreement states "CONTRACTOR agrees and warrants that it will pay LIBRARY the sum of
four hundred dollars ($400) per month, on or before the first day of each month, from the commencement of this
Agreement, as compensation to operate the food and beverage sale operation in the Library. If payment is not
received by the tenth day of each month a $25.00 late charge will be assessed. The payment amount will be
reviewed on an annual basis."
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or condition of this Agreement;" .
On June 9, 2008, the Library filed a civil action against the Debtor and SCI in the
District Court, First Judicial District, Laramie County, Wyoming, alleging: (1) lease default;
2) addendum default; (3) recovery of title to equipment; (4) damage to premises; (5)
attorney's fees and costs; and (6) disregard of corporate existence. 	The Debtor filed for
Chapter 7 bankruptcy protection on December 3, 2009. The Library filed a notice in the state
district court action staying that proceeding pending resolution in the Bankruptcy Court.
The Library initiated this adversary proceeding on February 5, 2009, alleging that the
Debtor obtained money by false pretenses and false representations to the Library, that
resulted in the Library advancing funds to SCI to purchase equipment, furniture, decor items
and signage, with the understanding that such items would be owned by the Library, subject
to the agreement that SCI would repurchase the items from the Library on a separate
installment sales contract.
ANALYSIS
The first issue that the Court must address is whether the Debtor is personally liable
for the debts of SCI. Elizabeth Lynn Bunya filed an individual Chapter 7 bankruptcy. The
Debtor testified and the evidence shows that the Library and SCI entered into the Agreement
and later, the Addendum. 	Neither document shows that the Debtor personally guaranteed
SCI's obligations on either contract.
The Library alleges that the Debtor commingled the funds provided to SCI from the
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Library into her personal accounts, alluding to a "piercing the corporate veil" claim. "As a
general rule, a corporation is a separate entity distinct from the individuals comprising it.,,6
Wyoming statutes governing corporations do not address the circumstance when the veil can
be pierced. The Wyoming Supreme Court determined that the corporation's legal entity will
be disregarded whenever the recognition of it, in a particular case leads to injustice.7 The
circumstances under which the corporate veil would be pierced under Wyoming law would
be when it appears that the corporation is not only influenced and governed by that person,
but that there is such a unity of interest and ownership that the individuality, or separateness,
of such person and corporation ceases and that the facts are such that an adherence to the
fiction of the separate existence of the corporation, would under particular circumstance,
sanction a fraud or promote injustice.8
Among the factors for a court to determine if the corporate veil can be pierced, are:
"commingling of funds and other assets, failure to segregate funds of
the separate entities, and the unauthorized diversion of corporate funds or asset
to other than corporate uses; the treatment by an individual of the assets of the
corporation as his own; the failure to obtain authority to issue or subscribe to
stock; the holding out of adequate corporate records and the confusion of the
records of the separate entities; the identical equitable ownership in the two
entities; the identification of the equitable owners with the domination and
supervision 	and 	management; 	the 	failure 	to 	adequately 	capitalize 	a
corporation; the absence of corporate assets and undercapitalization; the use
of 	a 	corporation 	as 	a 	mere 	shell, 	instrumentality 	or 	conduit 	for 	a
6 Opal Mercantile v. Tamblyn, 616 P.2d 776, 778 (Wyo. 1980).
7 Caldwell v. Roach, 12 P. 2d 376, 380 (I 932).
8 Miles v CEC Homes, Inc., 753 P.2d 1021, 1023 (Wyo. 1988), (quoting Amfac Mechanical Supply Co., v.
Federer, 645 F.2d 73 (Wyo. 1982).
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misrepresentation ofthe identity of the reasonable ownership, management and
financial interest or arm's length relationships amount the entities; the use of
the corporate entity to procure labor, services or merchandise [from others] for
another person or entity; the diversion of assets from a corporation or a
stockholder or other person or entity, to the detriment of creditors; or the
manipulation of assets and liabilities between entities so as to concentrate the
assets in one and the liabilities in another; the contracting with another with
intent to avoid performance by use of corporation as a subterfuge of illegal
transactions and the formation and use of a corporation to transfer to it the
existing liability of another person or entity.'~
The Wyoming Supreme Court recognized that piercing the corporate veil is an
equitable doctrine. 10 It is a judicially created remedy for situations where corporations have
not been operated as separate entities as contemplated by statute and are not entitled to be
treated as a separate entity. 	The determination of whether the doctrine applies centers on
whether there is an element of injustice, fundamental unfairness, or inequity. I I
The Debtor testified that the account at the Credit Union was a "seed account,"
segregated from her and her husband's personal funds and only used to pay cafe operating
costs and daily expenses. The Debtor testified that she transferred the funds from the cafe's
daily operating account at ANB and into the "seed account" on the advice of professionals.
She further testified that the only amount she could not account for being SCI expenses was
a total of $160.00. The Debtor, by her testimony, was able to cross reference withdrawals
from the "seed account" at the Credit Union against deposits into the cafe's operating
9 Miles at 1023-24.
10 State ex rei. Christensen v. Nugget Coal Co., 144 P.2d 944 (Wyo. 1944).
II In re Kaycee Land and Livestock v Flahive, 46 P.3d 323 (Wyo. 2002).
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account at ANB and accounted for expenses attributed to SCI. The Court finds that the funds
received by the Library were used by SCI for operating expenses. The Library did not prove
that SCI and the Debtor commingled funds.
Additionally, the Court considered other factors listed above to determine if the
Debtor's actions allow for the corporate veil to be pierced. The only factor that this Court
finds as appJicable is that the cafe was not adequately capitalized. However, it is apparent
that the Library knew this factor upon entering into the Addendum. 	The wording in the
Addendum states, "Due to the shortfalls in funding available to CONTRACTOR, the
LIBRARY agrees to fund the following items ... " 	Additionally, the Debtor admitted to
Library, 	that her "angel" investor had withdrawn support, prior to receiving the Library
funds. However, the Library acknowledged this, and agreed to the terms of the Addendum.
The testimony and evidence showed that SCI maintained its own bank account; filed
its own tax return; had retained a bookkeeper and accountant for tax purposes; had
employees on the SCI payroll, not the Debtor's; the Lease was in the name of SCI, not the
Debtor's; the personal guarantee on the Lease, was individually, by the Debtor and her
husband. 	SCI was operated as a separate entity. 	This Court finds that the Library did not
meet its burden in establishing that the Debtor's action with regard to SCI rise to the level
that the corporate veil may be pierced.
The Library filed this complaint objecting to the Debtor's discharge under 11 U.S.C.
§ 523(a)(2)(A), which states that an individual debtor is not discharged "from any debt for
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money ...to the extent obtained by false pretenses, a false representation ... " For the reasons
stated above, the Debtor is not personally liable for the debt between the Library and SCI.
Therefore, the Library's objection to the Debtor's discharge is denied.
This opinion constitutes the Court's findings of fact and conclusions of law. 	A
separate order shall be entered pursuant to Fed. R. Bankr. P. 9021.
DATED this ci2 	day of November, 2010.
By the Court
Service to:
James Salisbury
Elizabeth Bunya
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