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Sturtevant v. Town of Winthrop
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MAINE SUPREME JUDICIAL COURT							Reporter of Decisions
Decision:	1999 ME 84
Docket: 	Ken-98-365
Argued:	April 5, 1999
Decided:	May 28, 1999

Panel: 	WATHEN, C.J., and CLIFFORD, RUDMAN, DANA, SAUFLEY, and CALKINS, JJ.
Majority:WATHEN, C.J., and  RUDMAN,  SAUFLEY, and CALKINS, JJ.
Dissent:	CLIFFORD, and DANA, JJ.



MARK E. STURTEVANT, d/b/a M.E.S. ENVIRONMENTAL SERVICES v. TOWN OF WINTHROP

CALKINS, J.

	[¶1]  Mark Sturtevant appeals from a judgment entered in favor of the
Town of Winthrop after a jury trial in the Superior Court (Kennebec County,
Marden, J.).  On appeal, Sturtevant contends that the trial court erred in
setting aside the jury verdict in his favor on the ground that he lacked
standing to bring the breach of contract claim against the Town.  We agree
with the trial court that Sturtevant lacked standing, and we affirm the
judgment.
	[¶2]  Mark Sturtevant first entered into a written contract to provide
snowplowing services to the Town of Winthrop in 1986.  Between 1972 and
1986 Sturtevant was in the business of earth moving and trucking as well as
snow removal and septic system service.  He did business as M.E. Sturtevant,
Contractor, and he had a corporation, M.E. Sturtevant Contractors, Inc.,
which did business with the Town in the late 1980s hauling solid waste.{1}
	[¶3]  In March 1991, Sturtevant formed a new corporation, M.E.S.
Environmental Services, Inc.  Sturtevant was the president and sole
shareholder of M.E.S. Environmental Services, Inc.  In May 1991, M.E.S.
Environmental Services, Inc., and the Town entered into a five-year contract
for snowplowing.  Sturtevant signed the contract as president of the
corporation. The contract required the corporation to meet certain
standards for its snowplowing equipment and gave the Town the right to
cancel the contract for unsatisfactory performance. 
	[¶4]  In July 1992, Sturtevant dissolved M.E.S. Environmental
Services, Inc., by filing a statement of intent to dissolve and articles of
dissolution with the Secretary of State.  There was no evidence that
Sturtevant delivered a copy of either document to the Town.  There is no
evidence as to when or how he notified the Town of the corporate
dissolution.  After the dissolution, Sturtevant continued to snowplow, and
the Town continued to pay him for snowplowing.{2}  In October 1994, the
Town canceled the snowplowing contract, citing equipment and
performance failures. 
	[¶5]  Shortly thereafter, Sturtevant filed a complaint against the Town
claiming breach of contract and demanding lost profits for the remainder of
the contract term.  In its answer the Town raised the affirmative defense
that Sturtevant lacked standing in that he was an improper party because
the contract was between the corporation and the Town.  The case was tried
to a jury.  The jury found that the Town breached the contract and assessed
damages in favor of Sturtevant of $156,000. 
	[¶6]  At the close of Sturtevant's case and at the close of the evidence,
the Town moved for judgment as a matter of law on the ground that
Sturtevant lacked standing.  The Town renewed the motion after the jury
verdict.  By agreement and with the court's consent, the parties submitted
the factual issues regarding standing to the court.  After hearing argument
and reviewing additional evidence submitted by Sturtevant in the form of an
affidavit, the trial court entered judgment for the Town, holding that
Sturtevant lacked standing to sue on the corporation's contract.
I. CORPORATE DISSOLUTION PROCESS
	[¶7]  The statutory scheme governing the voluntary dissolution of
Maine corporations requires the corporation to file with the Secretary of
State a statement of intent to dissolve.  13-A M.R.S.A. §§ 1102(2), 1105
(1981).  At that point the corporation ceases to carry on its business except
as needed to wind up the business.  Id. §§ 1105, 1106(1).  The corporation
is required to immediately notify all known creditors of the intent to
dissolve. Id. § 1106(2).  The corporation is required to "fulfill or discharge
its contracts" and take all other action necessary "to wind up and to
liquidate its business and affairs, as expeditiously as practicable."  Id.
§ 1106(3).   Once the debts of the corporation have been paid and the assets
have been distributed to the shareholders, the corporation is required to
execute and file articles of dissolution.  Id. § 1110.  The corporation then
has a two-year time period starting from the date of filing the articles of
dissolution in which an action must be commenced for any remedy against
or available to the corporation, its officers, directors or shareholders.  Id.
§ 1122(1).{3}  This latter provision is referred to as the survival statute.  In
this case the statement of intent to dissolve and the articles of dissolution
were both filed with the Secretary of State on July 17, 1992, making that
date the date of dissolution.
II. ASSIGNMENT OF CORPORATE CONTRACT
	[¶8]  Sturtevant argues that the corporation assigned its assets
including the snowplowing contract to him, and because of that assignment
he has standing as an individual to claim breach of contract by the Town,
even though the snowplowing contract was between the Town and M.E.S.
Environmental Services, Inc.  He submitted to the trial court an affidavit
signed by him dated September 15, 1997, which states that all corporate
assets and liabilities were distributed to him personally.  He further states in
the affidavit that as the sole shareholder, president, liquidating trustee and
sole distributee of the assets, he authorizes and ratifies his actions in
seeking damages for the Town's breach of contract.  
	[¶9]  The trial court found that Sturtevant's evidence of assignment
was insufficient and that "as a factual matter the purported assignment
never occurred."  We review the factual finding by the clearly erroneous
standard:  "[T]he trial judge's findings stand unless they clearly cannot be
correct because there is no competent evidence to support them."  Harmon
v. Emerson, 425 A.2d 978, 982 (Me. 1981).  "[T]he function of an appellate
court is not to review a cold transcript and draw its own factual inferences;
rather, appellate review of factual findings is limited to investigation of the
record before it to determine whether competent evidence exists to
support the lower tribunal's factual conclusions."  Lewisohn v. State, 433
A.2d 351, 354 (Me. 1981).
	[¶10]  Sturtevant, as the plaintiff, had the burden of proof on the issue
of assignment.  See Britton v. Co-Op Banking Group, 4 F.3d 742, 746 (9th
Cir. 1993); Alpine Assocs., Inc. v. KP & R, Inc., 802 P.2d 1119, 1121 (Colo.
Ct. App. 1991).  He had to demonstrate to the trial court, to whom he and
the Town entrusted the task of fact finding, by a preponderance of the
evidence, that M.E.S. Environmental Services, Inc., assigned the snowplow
contract to himself as an individual.
	[¶11]  For an assignment to be enforceable there must be an act or
manifestation by the assignor indicating the intent to transfer the right to
the assignee.  See Doughty v. Sullivan, 661 A.2d 1112, 1124 (Me. 1995); see
also Restatement (Second) of Contracts § 324 (1981).  In this case there was
no evidence of a manifestation of the corporate intent to transfer the
contract rights at the time the corporation was in existence, and the trial
court was not compelled to find that an assignment had occurred.{4}  No 
corporate records were presented to show that an assignment had taken
place while the corporation was in existence.
	[¶12]  The dissenting opinion concludes that the trial court was
compelled to find the existence of an assignment because of the dissolution
of the corporation and because of Sturtevant's conduct in continuing to plow
for the Town after the dissolution.  Simply because a corporation is dissolved
and the shareholder represents, in the boilerplate language of the articles of
dissolution form, that the corporate assets have been distributed to the
shareholder does not necessarily mean that a contract to which the
corporation was a party has been assigned to the shareholder.  As the trial
court noted, Maine's dissolution statutes treat contracts differently from
assets.  The corporation is required to "fulfill or discharge its contracts,"
while assets are distributed to the shareholders once provision has been
made for all obligations.  13-A M.R.S.A. § 1106(3), (4).  Because "contracts"
are not necessarily the same as "assets," the form language in the articles of
dissolution, that all assets have been distributed, does not mean that all
contracts have been assigned.  Furthermore, the trial court could have
concluded that the representation by Sturtevant in the articles of dissolution
was for the mere purpose of completing the form or that it was not
credible.{5}  At no time did Sturtevant testify that, in his capacity as president
and sole shareholder of the corporation, he had assigned the snow removal
contract to himself, nor did he testify that, in his individual capacity, he had
accepted an assignment of the snow removal contract from the corporation. 
The court could have found that the notion of assignment first occurred to
Sturtevant after the litigation began and his status as a party became an
issue, which was long after the corporation ceased to exist.
	[¶13]  The fact that Sturtevant continued to plow for the Town for two
years after the corporation was dissolved did not compel a finding of an
assignment. That fact says nothing about the intent of the corporation to
assign the contract.  The court could have believed that Sturtevant simply
continued to plow for the Town after dissolution in the same manner that he
had plowed for the Town before incorporation.  Sturtevant, either through
one of his corporations or individually, had been plowing for the Town for a
number of years.  The court could have considered that Sturtevant did not
seem to be concerned whether he was acting in a corporate capacity or as
an individual.{6}
	[¶14]  In short, there was no evidence presented by Sturtevant from
which the fact-finder was compelled to find that the corporation assigned
the contract to its sole shareholder.  The evidence taken as a whole
supports a finding that the contract was not assigned.  The trial court did
not clearly err in finding no assignment.
III. VESTING OF CORPORATE CONTRACT CLAIM IN SHAREHOLDER
	[¶15]  Sturtevant also argues that, as a matter of law, he is entitled to
enforce the snowplowing contract because he was the sole shareholder and
all assets of a dissolved corporation devolve to the former shareholders.
"The equitable principle that former shareholders have the right to a fair
share of assets in a dissolved corporation is well-established in many states." 
Hutson v. Fulgham Industries, Inc., 869 F.2d 1457, 1461 (11th Cir. 1989). 
There is a split of authority as to whether contracts are assets that pass by
law to the shareholders of a corporation.
	[¶16]  In Hutson the Eleventh Circuit, applying Alabama law, held that
a corporation's contract claim which was not asserted within the time
period of the survival statute is not an asset that devolves to the shareholder
following the corporation's dissolution.  The reasoning of the Hutson court is
that allowing unasserted contract claims to devolve to the shareholder by
operation of law and to allow claims to be brought by the shareholder after
the survival period renders the survival statute a nullity.   The policy behind
the survival statute, which is to provide a definitive period for resolving
claims by and against a dissolved corporation, would be thwarted.  Hutson,
869 F.2d at 1463.  Other courts are in agreement.  See Davis v. St. Paul Fire
& Marine Ins. Co., 727 F. Supp. 552-53, 549 (D.S.D. 1989); Halliwell Assocs.,
Inc. v. C.E. Maguire Servs., Inc., 586 A.2d 530, 534-35 (R.I. 1991) (applying
Massachusetts law).   
	[¶17]  On the other hand, some courts have held that unasserted
contract claims pass to the shareholders of a dissolved corporation in their
individual capacities.  In Fischer v. City of Dover, 554 A.2d 1293, 1297 (N.H.
1989), the court stated that the survival statute served to expand the rights
of corporations and did not limit the equitable rule that all assets devolve to
former shareholders.
	[¶18]  Both the Alabama survival statute in Hutson and the New
Hampshire survival statute in Fischer are virtually identical to the Maine
survival statute.  We accept the reasoning of the Hutson court in interpreting
the statute.  We are persuaded that in enacting the survival statute the
Legislature intended that a corporation assert all of its claims within the
two-year period and claims that are not asserted are lost.  It was incumbent
upon Sturtevant as the dissolving corporation's president to make provision
for the contract before filing the articles of dissolution.  The record is
devoid of evidence that Sturtevant took any steps before dissolution to
insure that he, as an individual, would be able to enforce the contract. 
IV. EQUITABLE ESTOPPEL
	[¶19]  Sturtevant contends that the Town is equitably estopped to
assert a lack of standing against him.  "[T]he doctrine of equitable estoppel
states that 'a party (1) who is guilty of a misrepresentation of existing fact,
including concealment, (2) upon which the other party justifiably relies,
(3) to his injury, is estopped from denying his utterances or acts to the
detriment of the other party.'"  Chrysler Credit Corp. v. Bert Cote's L/A Auto
Sales, 1998 ME 53, ¶ 25, 707 A.2d 1311, 1318 (quoting J. Calamari &
J. Perillo, Contracts § 11-29(b), at 489 (3d ed. 1987)).  We review the trial
court's conclusion that equitable estoppel does not apply for clear error. 
Littlefield v. Adler, 676 A.2d 940, 943 (Me. 1996).
	[¶20]  Sturtevant claims that the Town misled him by continuing to
deal with him in his individual capacity and by not objecting to the corporate
dissolution.  He argues that if the Town had objected to the dissolution, he
would have withdrawn the dissolution and kept the corporation in existence. 
He does not explain why or how the Town's silence or failure to object were
misleading.  In order for this argument to have any credibility Sturtevant
would have had to show when the Town learned of the dissolution.  The
Town could hardly be expected to object to something it did not know
about.  Sturtevant, however, failed to present any evidence as to when he
notified the Town about the dissolution or when the Town learned about the
dissolution.  The trial court did not commit clear error in refusing to apply
equitable estoppel against the Town.
V. ALTER EGO THEORY
	[¶21]  Sturtevant argues that he has standing to sue for breach of the 
corporation's contract because he was the corporation's alter ego.  In the
ordinary case in which alter ego or piercing the corporate veil is raised, a
third party seeks to disregard the corporate form in order to impose the
corporation's liabilities on a shareholder.  See, e.g., Johnson v. Exclusive
Props. Unlimited, 1998 ME 244, ¶¶ 4-9, 720 A.2d 568, 570-72. 
Sturtevant, in contrast, seeks to disregard the corporate form so that he, as
a former shareholder, can hold a third party liable on a contract with the
corporation.  Although some courts have allowed "reverse piercing,"{7} the
weight of authority is against reverse piercing.  A leading commentator notes
that the procedure of reverse piercing,
has been justified based upon the equity of piercing the
corporate veil.  However, the better rule would seem to be that a
person who has voluntarily adopted the corporate form to
engage in business is precluded from asking courts to disregard
that form merely because the person is disadvantaged by its use.
1 Fletcher Cyclopedia of the Law of Private Corporations § 41.70, at 686
(perm. ed. 1999) (footnote omitted); see also id. § 41.35, at 672-73 ("The
corporate form may be disregarded only where equity requires the action to
assist a third party.  Accordingly, a sole shareholder may not choose to
ignore the corporate entity when it suits his or her convenience.") (footnote
omitted).{8}	
	[¶22]  Even if we were to allow reverse piercing, Sturtevant has not
met his burden of showing that an injustice will occur unless the corporate
form is disregarded.  Sturtevant voluntarily formed the corporation and then
voluntarily dissolved it.  Before dissolution he should have taken steps to
enforce, renegotiate or assign the contract, but he did not.  He continued to
do the plowing himself after the corporate dissolution, and he was paid for
the plowing that he did.  His only argument with the Town is that he
believes he should reap the benefit of the corporation's contract through the
term of the contract even though he dissolved the very entity that entered
into the contract.  No injustice will occur if Sturtevant fails to obtain the
profits that the corporation would have earned had it continued to remain in
business.
	[¶23]  There is an additional flaw in Sturtevant's alter ego analysis. 
The corporation no longer exists and has not existed since the articles of
dissolution were filed, except that it could sue or be sued within the
following two years under the survival statute.  See 13-A M.R.S.A. § 1122(1). 
By the time Sturtevant filed the breach of contract action, there was no
corporation to which he was an alter ego.  Only by retroactively piercing the
corporate veil of a dissolved corporation could Sturtevant gain standing, and
it is not apparent that any court has ever allowed retroactive reverse
piercing.  There is no basis for concluding that the trial court erred in
refusing to recognize Sturtevant's standing as an alter ego of the
corporation.
	The entry is:
	Judgment affirmed.

On to the dissenting opinion.

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