If a corporation is not able to pay its debt, can creditors of the corporation demand payment legally from the owners of the business who filed for bankruptcy relief? For example, Nobama buys Kodak from the profits he made from Netflix stocks which doubled in the last 45 days. Kodak filed for Chapter 11 protection last week. Kodak rescinds its contract with the Kodak theatre for future sponsorship of the theatre. Kodak owes the Theatre $74 million for cancelling the contract. Nobama then files for Chapter 7 protection because he loses his job. Can Kodak theatre successfully sue Nobama in his Chapter case to collect the $74 million owed by Kodak?

This was the question answered by the bankruptcy court in Coughlin Chevrolet v. Thompson. In this case, Mr. Thompson was an owner and operator of several businesses including a car-sales-and- leasing company called Florida Physicians Leasing Co. Inc. In August 2008, FPL contracted with the plaintiff for the purchase of a 2009 Toyota Camry. The contract was executed on behalf of FPL by an FPL salesperson. FPL was buying the car for resale to a client. FPL purchased an average of one car per month from the plaintiff. Mr. Thompson was not involved in negotiations of the sale, did not discuss the purchase of the Camry with the plaintiff, and was not any more closely involved in this transaction than any other done by FPL. In fact, the debtor rarely knew about the specific transactions unless the salesperson needed assistance that a supervisor could not provide. This transaction was the only one with the plaintiff that FPL defaulted on. After Mr. Thompson filed for bankruptcy protection, the plaintiff sued him asserting that it held a non-dischargeable claim against them for the purchase price of the car.

This sounds like an absurd claim, doesn’t it? Plaintiff would have to pierce the corporate veil of FPL to get to debtor but it certainly looks like debtor kept himself separate and apart from FPL. The bankruptcy court found that the debt was owed by FPL, and that the plaintiff could not pierce the corporate veil to reach the debtor. Dealing with the plaintiff’s claim against the debtor, the court said: “Although debtor admittedly held ultimate control over the businesses, the Court cannot find that [his]control over FPL was so complete that the corporation had not separate mind, will, or existence of its own. There were multiple levels of management of the company, many of whom made important company decisions, such as hiring, and firing employees, negotiating sizable contracts, and handling company accounts.”