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Modification of Liens and Piercing the Corporate Veil

By: James C. Busch

On March 19, 1992 the Georgia Court of Appeals in the case of Summit-Top Development, Inc. et al. vs. Williamson Construction, Inc. addressed the issues of modifications of liens and an attempt to pierce the corporate veil. This case may be of some interest to readers due to the nature of the issues. In addition, this case shows the Court’s willingness to view liens under a “substantial” compliance stance rather than total in terms of “strict” compliance.

Summit-Top Development, Inc. (hereinafter referred to as Summit) retained Williams Construction, Inc. (hereinafter referred to as Williams) for grading, clearing and sewer installations. Summit was paid monthly until receiving a invoice on September 18, 1988 for $342,303.90 for blasting and removal of mass rock. The parties met on several occasions in an attempt to reconcile their differences but ultimately failed to come to any agreement. Summit ceased work on the project and filed a lien. Summit then brought suit to collect the outstanding invoices. Shortly there-after Summit discovered that the lien included charges for work which Summit had not performed and filed a release of lien removing $47,421.62 from the lien originally filed. Upon trial of the case by jury Summit was awarded $347,039.08 in actual damages, a special lien, attorney’s fees and prejudgment interest.

Williams appealed the case based on two general theories; 1) that the original lien was not in strict compliance with the Georgia lien statutes, and 2) that the evidence failed to establish that the principals of Williams had abused the corporate form. With respect to strict compliance of Georgia lien statutes the Court of Appeals held that the non-lienable items were easily separable from the lienable items and that the mistake was in part as a result of Williams’ invoicing instructions. As a result the Court of Appeals indicated that there is an exception to the lien statutes which allows easily separable non-lienable items to be omitted from a lien and still preserve the lien. It is important to note that Summit provided the trial court with 34 pages of documentation illustrating the basis for the charges and demonstrated with ease the computed difference in lienable and non-lienable items. While the Court of Appeals did not specifically state liens in general may now be modified it did indicate that there is a narrow exception to the strict compliance theories normally applied to Georgia liens.

In addition to upholding Summit’s lien the Court of Appeals affirmed the trial court’s decision to pierce the corporate veil and hold the corporate officers personally liable for the corporation’s actions. In reaching this decision the trial court heard testimony concerning the individual officers’ considerable knowledge of corporate protections against personal liability. The trial court also heard testimony that the individuals waited until the project was almost complete before refusing to pay, then misrepresented their ability to make payment. Further, the individuals involved had previously formed other corporations to develop properties which also owed large sums to subcontractors. The Court of Appeals held that these facts indicated a course of conduct by these individuals to abuse the corporate form and such actions were used to defeat justice, perpetuate fraud and to constantly evade statutory and contractual responsibility. As a result the Court of Appeals affirmed the trial court’s decision to hold the individual officers personally liable for the judgment rendered against the corporation.

Therefore, with respect to corporate officers in certain instances it is important to determine which other corporations they have been officers of or are presently officers of and the history of those corporations. While this information is not a guarantee that one will be able to pierce the corporate veil it will assist in identifying other options and the relative strength of each. This is even more important if a personal guarantee has not been executed.

Summit indicates the Court of Appeals’ willingness to move slightly away from the “strict” compliance standard for Georgia liens. However, it should be noted that as a general rule strict compliance is the rule not the exception. In addition, this case also confirms the fact that information can be a powerful tool and increase one’s legal options. If Summit had not obtained the corporate histories of the officers they most likely would not have prevailed against the individual officers and thereby secure a second source of funds for collection.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia

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