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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 89350
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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Massachusetts - Lawsuit

Customer Question

I am currently being sued by a company for inventory purchased when I was owner of an incorporated company. The company was essentially one person - myself - and my girlfriend at the time (who did little work, but her name was on the business). It was a small internet business and the business address was the address at which we used to live. We had purchased a quantity of inventory, paid for most of it, and were sued for the balance when we could not pay (by the company that sold the products). When I say "were sued" I mean our company was sued. We went out of business in 2007, after the suit was filed, and the creditor obtained judgment. The amount is a little over $5000. We entered into an agreement to make $500 per month payments, but defaulted because there was simply no money. One payment was made. Hence, we did not honor the stipulated payment agreement.
Submitted: 5 years ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 5 years ago.
In order to come after you personnally you would have had to agreed to be personally libel for the debt when you made the purchase or at the time of the settlement agreement, if not they will have to pierce your corporate veil if you were a registered business entity because the owners of a business are not liable for the debts of the business unless they signed a personal guarantee. You should move to dismiss as improper parties as the debt belonged to the corporation, you should also allege "res judicata" against the corporation and that if they wanted to pierce the corporate veil it should have been done in that suit.

If they pierce the corporate veil or if you / girlfriend signed personal guarantees for the items or signed guaranteeing the settlement, then they can come after both of you for the debt.

At this point, getting an attorney to represent both of you since your positions are consistent with one another would be the best thing and answer the suit.


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Customer: replied 5 years ago.

Thank you very much for your response. I have some followup questions. I was basically able to gather some of what you wrote from general searches through Google.

 

1. As far as piercing the corporate veil goes, how would they go about doing this? There was no personal guarantee in writing - not by my girlfriend or myself - that we would be personally held liable for any of the debts of the corporation.

 

2. Is it even possible for them to sue us twice through their lawyer? Please remember they already have one judgment against the corporation. Now they're coming after us personally for the same thing. Is it possible for them to do this? Just thinking out loud, wouldn't that be two judgments for the same debt?

 

3. Is this standard procedure - meaning that if a company suing an out-of-business corporation goes after the owner(s) personally? Are they grasping at straws to see what they can recover because they know they can't collect on the initial judgment?

 

I appreciate what you've written so far and might have a follow-up question or two after you reply. I'm just trying to understand everything. I await your reply, and again, am very grateful.

Customer: replied 5 years ago.

Also, one thing I forgot in the last message...

 

When filing an answer, do we have to file together or separately?

 

Can I just be the only one to file an answer?

 

Thanks in advance.

Expert:  Law Educator, Esq. replied 5 years ago.
1) There are over a dozen factors looked at by the court in determining whether or no to pierce the corporate veil. All of the factors center around whether or not you were using the corporation as your "alter ego." They look at whether or not you mingled company funds with your personal funds, whether or not you were adequately capitalized, had sufficent insurance, followed corporate formalities like keeping corporate minutes and hosts of other factors. Handling a piercing case you really should have an attorney they can get fairly complex.

2) That is where the defense of "res judicata" comes in, since that defense means that the issue was already decided against the corporation and that if they wanted to sue you then they should have named you in the initial suit.

3) What they are doing here is because the company went bankrupt is grasping at straws. They will make sure you properly closed the company and if you didn't properly put it into bankruptcy or receivership, this is something that could cause you as owners (both of you) to be liable and for them to pierce the veil.

4) You cannot submit an answer for your GF. If you went to an attorney, the attorney could answer for both of you, but if you are going to do this pro-se then you each need to submit your own answer separately.
Customer: replied 5 years ago.
Thank you for the reply.

Is it possible for me to accept liability and arrange a payment plan with the company? I would like to settle this and avoid having an ongoing battle. The amount is a hair over $5,000.

Can you suggest anything? I appreciate the help and this is probably my last question. I have 12 days to file an answer, and I have not contacted the company or their attorney. Do you think I should do that and try to settle this? I can pay $200-$300 per month. Would they be likely to accept this?

Note: I don't own property, my car is valued at $1000, and my girlfriend doesn't own anything either.

Let me know.
Customer: replied 5 years ago.
Last question: we were listed next to each other on the lawsuit - so can we file one answer and both sign it, or do we have to file two separate answers.
Expert:  Law Educator, Esq. replied 5 years ago.
They may not settle now because you failed to pay last time you entered into a payment agreement. They may push for a judgment that they can enforce against you. The debt really isn't yours (if they cannot pierce the veil) unless you agree in writing to assume liability for the debt, Now, they may agree to settle if you offer to give them something in writing assuming personal liability for the debt, but if you do not pay they will end up coming after you, seizing bank accounts, garnishing wages. Judgments are good for 20 years and can be renewed, so the judgments can follow you for a long time.

I think you must answer and she must answer and then try to negotiate a settlement after you answer, it gives you more time to negotiate.

I answered above that you cannot file one answer if you are filing without an attorney because if you do it would be considered unauthorized practice of law by the party filling it out on behalf of the other party. If you hire an attorney, the attorney can represent both of you and file one answer.
Customer: replied 5 years ago.
This is so confusing.

So, I, meaning me, can accept personal liability for the debt? Would this then absolve my ex-girlfriend?

Also, if we were to settle on an agreement, could I include language that upon repayment, any notations be removed from my credit report?
Expert:  Law Educator, Esq. replied 5 years ago.
As part of the settlement you could get them to agree to relieve her from any liablity and you can also negotiate settlement to be removed from your credit report, BUT if this was a company debt it should not be on your credit report to begin with and you should be seeking to have it removed no matter what.

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