United States District Court, S.D. Indiana, New Albany Division
LESTER L. LEE, Appellant,
THE WILLIAM R. LEE IRREVOCABLE TRUST and DONALD EUGENE LEE AND ROBERT EARL LEE, as co-Trustees, Appellees. IN RE LESTER L. LEE, Debtor. THE WILLIAM R. LEE IRREVOCABLE TRUST and DONALD EUGENE LEE AND ROBERT EARL LEE, as co-Trustees, Plaintiffs,
LESTER L. LEE, Defendant. Bankruptcy No. 12-90007-JJG-7A Adversary Proceeding 13-59056
APPEAL FROM THE UNITED STATES BANKRUPTCY
RICHARD L. YOUNG, JUDGE.
7 debtor Lester L. Lee appeals a summary judgment order
entered against him by the Honorable Jeffrey Graham of the
United States Bankruptcy Court for the Southern District of
Indiana. The William R. Lee Irrevocable Trust and its
co-Trustees, Donald Eugene Lee and Robert Earl Lee,
(collectively, the “Trust”) initiated this
adversary proceeding against Lester, seeking to hold him
personally liable for a $7, 522, 879.73 judgment entered on
December 30, 2008 against Lees Inns of America, Inc.
(“LIA”), a dissolved Indiana corporation that
Lester presided over, directed, and solely owned. The
Bankruptcy Court found in favor of the Trust and pierced the
corporate veil. Lester maintains that this was in error. For
the reasons set forth below, the court AFFIRMS the judgment
of the Bankruptcy Court.
LIA Merger and the Subsequent Appraisal
and the Trust were the shareholders of LIA, which was created
in 1974 as a public company to build and operate hotels.
(Findings and Conclusions at Finding of Fact
(“FF”) 1). LIA also had subsidiary companies
including Lees Inns Management Corporation, Hospitality
Designers and Consultants, Inc., Prime Construction
Management, Inc., and State Mortgage Corporation
(collectively, the “LIA Subsidiaries”).
(Id. at FF 3). Lester was president and chairman of
the board of directors of LIA. (Id. at FF 4).
gained sole ownership of LIA by “merging out” the
Trust. (Id. at FF 11). On April 4, 2000, Lester, as
the majority shareholder of LIA and the sole shareholder of
LLL Acquisition, approved a merger of the two entities.
(Id.). On June 26, 2000, LIA was merged into LLL
Acquisition, the Trust's shareholder status ceased, and
Lester became the sole shareholder of LIA. (Id.).
The Trust dissented to the merger, asserted its rights, and
demanded payment for the value of its shares, all pursuant to
Indiana's Dissenters' Rights Statute, Ind. Code
§ 23-1-44-1 et seq. (Id. at FF 12).
LIA filed a Petition for Determination of Fair Value, and in
September and October 2008, the Jennings Circuit Court held a
bench trial. (Id. at FF 13).
December 30, 2008, the Jennings Circuit Court issued its
Findings and Conclusions. (Id.). The court entered
judgment in favor of the Trust and against LIA in the amount
of $7, 522, 879.73. (Id. at FF 14). The Indiana
Court of Appeals affirmed in March 2010. (Id. at FF
Lester's Post-Merger Conduct
the merger, Lester sought to devalue LIA in order to render
the Trust's claims worthless. (Id. at Conclusion
of Law (“CL”) 20). To this end, on November 1,
2000, approximately four months after the merger date, Lester
executed a Real Estate Conditional Sales Contract with LIA,
pursuant to which he purchased from LIA forty-one acres of
real property located in Shelbyville, Indiana for $1.3
million. (Id. at FF 21). Lester was not
required to make any annual principal payments towards the
purchase price for thirty years. (Id. at FF 22).
Instead, Lester was merely required to make interest only
annual payments of $76, 577.44. (Id.). In addition,
Lester could prepay the purchase price without penalty.
November 26, 2002, 25.5 acres of the Shelbyville property was
sold to Wal-Mart Stores East, L.P. for $1.7 million.
(Id. at FF 23). Upon consummation of the sale,
Lester personally profited approximately $400, 000 and still
retained 17.5 acres of the Shelbyville property.
(Id. at FF 24). Lester sold a portion of the
remaining real estate to Ritter's of Shelbyville LLC for
$395, 472. (Id. at FF 25).
the Merger Date, LIA owned all of the stock in the LIA
Subsidiaries. (Id. at FF 26). During the pendency of
the Dissenters' Rights action, the LIA Subsidiaries were
transferred from LIA to the Lee Group Holding Company, LLC, a
limited liability company owned by Lester's immediate
family but controlled by Lester, for little or no
consideration. (Id. at FF 27-28, 34, 39).
five weeks before the trial began in the Dissenters'
Rights action, Lester, the Lee Group, Johnson County Motel
Corporation (“JCMC”), and Lees Real Estate
Investments, LLC filed a Complaint against LIA in the
Jefferson Circuit Court. (Id. at FF 29). In addition
to serving as LIA's president, Lester was also the
president of JCMC, the managing member of the Lee Group, and
the managing member of Lees Inns Real Estate Investments.
(Id. at FF 33-34). He therefore controlled all the
parties named in the Complaint. (Id. at FF 35).
Notably, this suit was filed in Jefferson County, as opposed
to the preferred venue, Jennings County. (Id. at FF
Complaint alleged defaults by LIA on notes secured by all of
LIA's property (including notes receivable, inventory,
equipment, intellectual property, and all general
intangibles) and on various leases. (Id. at FF
30-31). Lester made no investigation into any possible
defenses to the allegations contained in the Complaint.
(Id. at FF 32). In October 2008, Lester obtained an
Amended Agreed Judgment-signed by himself on behalf of every
party in that case (i.e., each plaintiff and the
defendant)-that granted a judgment in favor of the plaintiffs
and against LIA for $7, 846, 686.87. (Amended Agreed
Judgment; Findings and Conclusions at ¶ 36-37). This sum
included $3, 380, 396.14 owing to Lester, $2, 121, 777.71
owing to the Lee Group, $1, 466, 153 owing to JCMC, and $878,
360 owing to Lees Real Estate Investments. (Findings and
Conclusions at ¶ 37). Contrary to the terms of the
Amended Agreed Judgment, on or about August 20, 2008, Lester
caused LIA to transfer all of its assets (valued at $7, 732,
921 in the Amended Agreed Judgment) to just the Lee Group.
(Id. at FF 39).
September 2, 2008, Lester, as sole shareholder and president
of LIA, voted to dissolve the corporation. (Id. at
FF 40). He subsequently filed Articles of Dissolution with
the Indiana Secretary of State on November 13, 2008.
(Id.). Thus, LIA ceased its legal existence on that
Amended Agreed Judgment, the LIA Subsidiaries transfer, and
the transfer of the Shelbyville property were each unknown
and not disclosed to the Trust until discovery during
proceedings supplemental in March 2009 through April 2009.
(Id. at FF 41).
January 3, 2012, Lester filed his voluntary petition under
Chapter 7 of the United States Bankruptcy Code. In August
2013, the Trust initiated this adversarial proceeding to
pierce the corporate veil and hold Lester personally liable
for the Jennings Circuit Court judgment. The Trust ultimately
moved for summary judgment, arguing that Lester's
pre-merger and post-merger conduct each warranted veil
piercing. The Bankruptcy Court granted summary judgment in
favor of the Trust in December 2015. The court held that the
exclusivity provision of Indiana's Dissenters' Rights
Statute barred the Trust from piercing the corporate veil
based on Lester's pre-merger conduct. However, the court
went on to hold that Lester's post-merger conduct