Randall L. Seaver v. Burwell Family Limited Partner ( 2008 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
____________
08-6004MN
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In re: *
*
John R. Burwell, *
*
Debtor *
*
* Appeal from the United States
Randall Seaver, Trustee, * Bankruptcy Court for the
* District of Minnesota
Plaintiff-Appellee, *
*
v. *
*
Burwell Family Limited *
Partnership and RHFP, LLC, *
*
Defendants-Appellants. *
*
________
Submitted: August 5, 2008
Filed: August 7, 2008
________
Before FEDERMAN, MAHONEY, and VENTERS, Bankruptcy Judges.
________
MAHONEY, Bankruptcy Judge.
Two partnerships appeal the bankruptcy court’s entry of a default judgment
which determined that they were the alter ego of the Debtor and which ordered the
assets of the partnerships to be included in the bankruptcy estate. We affirm.1
BACKGROUND
John R. Burwell filed a Chapter 7 petition on October 4, 2006, and on January
12, 2007, the Trustee filed a complaint against Burwell, Burwell Family Limited
Partnership (“BFLP”), Albert Kelly, Jr., and RHFP, LLC. On June 5, 2007, the
Trustee filed an amended complaint. Counts I, II, and III are most relevant to this
appeal because they related to the Trustee’s contention that the two partnerships
should be treated as the alter egos of Burwell himself. Count I sought a declaratory
judgment that Burwell utilized the partnerships to defraud his creditors, and that
honoring the corporate entities of the partnerships would “result in injustice to
Debtor’s creditors and would be fundamentally unfair.” Count II sought relief
pursuant to 11 U.S.C. § 105 enjoining the defendants from interfering with assets of
the estate, including those owned by the partnerships. Count III sought turnover of the
assets of the partnerships, based on their being property of the Debtor’s estate.
Burwell answered the complaint, and Kelly filed a motion to dismiss. The partnerships
did not respond to the Complaint.
On August 8, 2007, the Trustee filed a motion for default judgment against the
two partnerships. The Notice of Hearing and Motion for Default Judgment stated that
if a responsive pleading was not filed by August 17, the court may grant the motion
without a hearing. Neither partnership defendant responded to the motion. Default
judgment was entered on August 22.
1
The Honorable Nancy C. Dreher, who was appointed Chief Judge of the
United States Bankruptcy Court for the District of Minnesota on September 25,
2007, after the judgment referred to herein was entered.
2
Burwell, a non-lawyer purporting to act on behalf of the two partnerships,
timely appealed the default judgment. An administrative panel of the BAP refused to
permit him to prosecute the appeal without counsel appearing on behalf of the
partnerships. Thereafter, an attorney entered an appearance. The partnerships have not
requested a stay pending appeal, and the Trustee is apparently liquidating some
partnership property. On December 17, 2007, the Trustee dismissed the complaint
against Burwell and Kelly, making the default judgment a final order for purposes of
appeal.
On May 2, 2008, the B.A.P. sent a letter regarding oral argument, giving the
parties until May 12 to respond. The Trustee waived oral argument; the appellants did
not respond. The matter has, therefore, been submitted on the record and briefs,
without oral argument.
THE COMPLAINT
According to the language of the Complaint, which was incorporated into the
trial court’s Findings of Fact, Conclusions of Law and Order for Judgment, Burwell
formed BFLP several years prior to filing the bankruptcy petition and then transferred
his interest in the partnership to Kelly. Burwell testified that Kelly is the sole owner
of RHFP, LLC.
After a state court judgment was entered against him and collection efforts had
begun, Burwell used both the BFLP and RHFP bank accounts to manage his personal
financial affairs and to protect his assets from creditors.
About the same time that he sold his interest in BFLP to Kelly, in May 2003,
Burwell sold real estate in Stillwater, Minnesota, to Katherine Norton. As part of that
transaction, Burwell retained an option to purchase five acres of that land for $1.00.
He commenced an action against her on August 26, 2005, seeking to enforce the
3
option. During the pendency of that action, he purportedly transferred the five-acre
option to BFLP in exchange for tobacco rights which BFLP owned. Burwell sold the
tobacco rights in January 2006 and deposited the $64,600 in proceeds into RHFP’s
bank account. He withdrew the tobacco proceeds from the RHFP account and
deposited them into the BFLP account in February 2006. He then withdrew the
tobacco proceeds from the BFLP account in increments of $9,900 so as not to trigger
federal reporting requirements. (There were at least five of those withdrawals in the
four-day period between February 3 and 7, 2006.) The tobacco proceeds and other
BFLP funds were used for Burwell’s personal affairs. Burwell candidly testified at the
§ 341 meeting that he was using the partnership accounts to manage his personal
affairs so that the judgment creditor couldn’t get the money. The judgment creditor
had garnished his personal accounts twice before, and he “didn’t want that to happen
again.” He was also depositing his social security checks into the BFLP account.
As to the RHFP account, Burwell was not a signatory. Kelly was. However,
Burwell had a rubber stamp of Kelly’s signature. Burwell wrote all the checks on that
account and stamped Kelly’s name.
On the day the petition was filed, the RHFP account had a balance of $2,300,
and a check for $9,000 was deposited into it the day after the petition was filed. The
Complaint asserted that, based on the records, it appeared that more than $225,000
was deposited into and taken out of the RHFP account in the year prior to the
bankruptcy.
THE JUDGMENT
The Order for Judgment states that Burwell “controlled each RHFP and BFLP
and he is the beneficial owner of assets held in their names and they are his alter egos.
The assets of each are therefore, and should be considered to be assets of this
bankruptcy estate.”
4
In addition to the alter ego claims for relief, the Complaint asserted that the
Debtor had listed a $25,000 diamond ring and a $4,000 BMW on his schedules and
that he purportedly granted a security interest in the ring and car to BFLP but neither
lien was perfected. These liens were the subject of Counts VI through IX. The
judgment avoided them.
APPELLANTS’ POSITION
The appellants are not arguing improper service or any other procedural defects.
Rather, appellants argue that the court erred in holding that the partnerships were the
alter ego of Burwell and all of the assets of the partnerships were included in
Burwell’s bankruptcy estate. The appellants’ brief contains assertions of fact to
support their position. However, none of the “facts” now being presented are part of
the record in the trial court. Accordingly, the trial court did not have an opportunity
to consider them.
STANDARD OF REVIEW
We review the entry of a default judgment for an abuse of discretion. Jones
Truck Lines, Inc. v. Foster’s Truck & Equip. Sales, Inc. (In re Jones Truck Lines,
Inc.), 63 F.3d 685, 686-87 (8th Cir. 1995); Am. Gen. Fin. v. Washington (In re
Washington), 248 B.R. 565, 566 (B.A.P. 8th Cir. 2000).
DISCUSSION
Default judgments under Federal Rule of Bankruptcy Procedure 7055 and
Federal Rule of Civil Procedure 55 are disfavored. United States ex rel. Time Equip.
Rental & Sales, Inc. v. Harre, 983 F.2d 128, 130 (8th Cir. 1993). Because of that,
courts have an independent duty to determine the sufficiency of the complaint. Fed.
R. Civ. P. 55(b)(2); Miller v. Kasden (In re Kasden), 209 B.R. 236, 239 (B.A.P. 8th
5
Cir. 1997). A default judgment must be entered upon facts clearly pleaded or
otherwise established tending to prove the trustee is entitled to the relief granted. Id.
A party is not entitled to a default judgment as of right; rather, the decision calls
for the court’s exercise of sound judicial discretion. Lovell v. McArthur (In re
McArthur), 258 B.R. 741, 746 (Bankr. W.D. Ark. 2001) (citing Jones Truck Lines,
Inc., 63 F.3d at 686 and Howell Enter. Inc. v. First Nat'l Bank (In re Howell Enter.,
Inc.), 99 B.R. 413, 415 (Bankr. E.D. Ark. 1989)). A hearing on the merits is favored
by the policies underlying the Federal Rules of Civil Procedure. McArthur, 258 B.R.
at 746. When the grant of a default judgment precludes consideration of the merits of
a case, even a slight abuse of discretion may justify reversal. Johnson v. Dayton Elec.
Mfg. Co., 140 F.3d 781, 785 (8th Cir. 1998) (decided in the context of a Rule 55(c)
motion to set aside a default judgment).
This court addressed in great detail the necessary underpinnings of a default
judgment in the Kasden case, in which the bankruptcy trustee attempted to get the
debtor to remove his personal property from real estate the trustee wanted to sell. The
debtor did not oblige, so the trustee removed it and put it into storage. He notified the
debtor that if the debtor did not identify and claim whatever personal property he
wanted, the trustee would sell it. The debtor evidently objected to the threat to sell the
items, but did not identify or claim them to the trustee’s satisfaction. The trustee then
filed an adversary complaint requesting a court ruling that the items did in fact belong
to the debtor and the debtor should pay the costs of their removal and storage. The
debtor was properly served, but failed to answer or appear. On the trustee’s motion,
the court entered a default judgment in favor of the trustee, essentially repeating in the
judgment’s factual findings the allegations of the complaint. The debtor appealed.
6
The B.A.P. laid out the requirements for the sufficiency of a default judgment:
The granting of a default judgment for failure to defend, as is the
situation now before the court, is appropriate where the failure to comply
with the time requirements is more than a marginal failure and where the
nonresponding party's conduct includes “willful violations of court rules,
contumacious conduct, or intentional delay.” Harre, 983 F.2d at 130. See
also Ackra Direct Marketing Corp. v. Fingerhut Corp., 86 F.3d 852, 855
(8th Cir. 1996). However, a default judgment may not be entered on a
complaint that fails to support the claim for relief and on appeal, a
defaulted defendant may always challenge the legal sufficiency of the
complaint allegations. Alan Neuman Productions, Inc. v. Albright, 862
F.2d 1388, 1392 (9th Cir. 1988).
Upon entry of a default judgment, facts alleged to establish
liability are binding upon the defaulting party, and those
matters may not be re-litigated on appeal. However, it
follows from this that facts which are not established by the
pleadings of the prevailing party, or claims which are not
well-pleaded, are not binding and cannot support the
judgment. On appeal the defendant, although he may not
challenge the sufficiency of the evidence, is entitled to
contest the sufficiency of the complaint and its allegations
to support the judgment.
Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978).
Kasden, 209 B.R. at 238-39. The court then found that the complaint failed to state
facts to support a judgment in favor of the trustee. The court remanded the case to the
bankruptcy court for further findings.
The Eighth Circuit Court of Appeals dismissed the trustee’s appeal of the
remand order, holding that it was not a final, appealable order. However, the Eighth
Circuit court noted that the debtor’s statements in the pleadings, particularly his letter
objecting to the trustee’s decision to sell the personal property, may have been
sufficient to support the bankruptcy court’s entry of the default judgment.
7
Nevertheless, the bankruptcy court did not cite the letter in its judgment, and the court
of appeals said “the bankruptcy court’s findings echoed [the trustee’s] complaint, and
the B.A.P. concluded the complaint was legally insufficient to support the default
judgment.” Miller v. Kasden (In re Kasden), 141 F.3d 1288, 1290 (8th Cir. 1998).
Therefore, in light of the requirements of Rule 55 and Eighth Circuit caselaw,
a bankruptcy court must review the underlying complaint to determine whether the
necessary facts to support a claim for relief have been pleaded before granting default
judgment . Price v. America’s Serv’g Co. (In re Price), 377 B.R. 224, 225 n.1 (Bankr.
E.D. Ark. 2007) (citing Kasden).
The Complaint alleged the following causes of action: declaratory judgment,
injunctive relief, turnover, and fraudulent and avoidable transfers. The elements of
each of those causes of action are set forth below:
1. Count I declaratory judgment that debtor ignored corporate formalities
and used RHFP and BFLP to defraud creditors.
a. The court can pierce the corporate veil and disregard the corporate
facade when the corporate entity is the alter ego of the debtor and
the debtors use corporate assets as their own, with no regard for
corporate structure. St. Francis County Farmers Ass’n v. Wright
(In re Wright), 353 B.R. 627, 648 (Bankr. E.D. Ark. 2006).
b. Minnesota courts use a two-step analysis in determining whether
an entity is the alter ego of an individual. United States v.
Scherping, 187 F.3d 796, 802 (8th Cir. 1999), cert. denied, 528
U.S. 1162 (2000). First, the court considers the relationship
between the corporation and the individual, focusing on factors
such as the failure to observe corporate formalities, siphoning of
funds by the individual, absence of corporate records, and the
8
existence of the corporation as merely a facade for the individual.
Id. Next, the court considers the nature of the relationship between
the corporation and the party seeking to disregard it; the entity
will be disregarded only if it has operated in a fraudulent or unjust
manner toward that party. Id. “[W]here the formalities of
corporate existence are disregarded by one seeking to use it, . . .
[the] existence [of the corporation] cannot be allowed to shield the
individual from liability for damages incurred by those dealing
with the corporation.” Id. (quoting Victoria Elevator Co. v.
Meriden Grain Co., 283 N.W.2d 509, 512 (Minn. 1979)).
2. Count II injunctive relief pursuant to 11 U.S.C. § 105.
The bankruptcy court can apply its equitable powers under § 105(a) to enjoin
the defendants’ interference with the estate and its assets if the Dataphase factors
support such a decision. The court should consider (1) the threat of irreparable harm
to the movant; (2) the state of balance between this harm and the injury that granting
the injunction will inflict on the other parties; (3) the probability that the movant will
succeed on the merits; and (4) public interest. Dataphase Sys., Inc. v. C.L. Sys., Inc.,
640 F.2d 109, 114 (8th Cir. 1981).
3. Count III turnover.
a. The Code requires any entity in possession, custody, or control of
estate property to deliver such property to the trustee or account
for its value. § 542(a).
b. The debtor acknowledged at the § 341 meeting that he deposited
personal funds into the corporate accounts to protect the funds
from creditors.
4. Counts VI and VII avoidance of diamond ring and BMW security
interests under § 544.
9
11 U.S.C. § 544(b) authorizes the trustee to exercise an existing unsecured
creditor's right to avoid a transfer if the creditor holds such a right under
non-bankruptcy law. If the trustee identifies such a creditor with an allowable claim
and a valid right to avoid the transfer, the trustee may avoid the claim and recover the
entirety of the property or value of the property “for the benefit of the estate.” 11
U.S.C. § 550(a); Stalnaker v. DLC, Ltd., 376 F.3d 819, 823 (8th Cir. 2004).
5. Counts VII and IX avoidance of diamond ring and BMW security
interests under § 547.
Section 547(e)(2) establishes the time at which a transfer is considered to have
been made, and if the transfer has not been perfected within an allowed time, the
transfer is deemed to have occurred prepetition.
Although the Complaint did not use the phrase “pierce the corporate veil,” it did
clearly lay out the factual allegations necessary to support a claim for relief based
upon the “alter ego” theory under Minnesota law as referred to above.. The Complaint
describes in detail how Burwell controlled the bank accounts of the two entities, even
though he claimed to have no ownership or other interest in them. A summary of such
allegations is contained in the “Complaint” section above and, to avoid unduly
lengthening this opinion, those factual allegations will not be repeated here.
After detailing Burwell’s actions concerning the partnership accounts, the
Complaint specifically asserts, at paragraph 27, that the “Debtor controlled each
RHFP and BFLP and he is the beneficial owner of assets held in their names and they
are his alter ego. The assets of each are therefore, and should be considered to be
assets of this bankruptcy estate.” Then, in Count I, at paragraphs 38 and 39, the
Complaint alleges that, with respect to each entity, the Debtor utilized them as
instruments to defraud his creditors, corporate formalities were ignored, their sole
purpose was to protect assets of the Debtor and each was simply a facade for the
Debtor. Suffice it to say that the allegations fully supported each claim for relief.
10
CONCLUSION
The Trustee’s Complaint supplied detailed factual allegations, as described
above, sufficient to support each claim for relief. Upon the failure of the appellants to
respond to the Complaint, it was not an abuse of discretion for the trial court to enter
the default judgment, and the judgment is affirmed.
FEDERMAN, Bankruptcy Judge, dissenting
At the outset, it is not entirely clear under what theory the Trustee argued, and
the bankruptcy court determined, that BFLP and RHFP were Burwell’s alter egos.
Although the Complaint summarily mentioned some of the elements of a finding of
alter ego under Minnesota law (discussed below), the only authorities cited by the
Trustee in the Complaint relate to the bankruptcy court’s equitable powers.2 On
appeal, the Trustee states that the case was not grounded on a reverse veil piercing
theory, but he does not specify on what legal theory it was grounded. If it was based
solely on the bankruptcy court’s equitable powers, then the validity of the judgment
is particularly dubious because the Eighth Circuit has expressly said that the question
of whether to pierce a corporate veil is governed by state law,3 and that a bankruptcy
court may not exercise its equitable powers to create substantive rights which do not
exist under state law.4 Consequently, the majority reasonably presumes, as do I, that
the finding of alter ego must have been based on Minnesota law.
2
11 U.S.C. § 105 and Pepper v. Litton, 308 U.S. 295, 304-05 (1939).
3
Stoebner v. Lingenfelter, 115 F.3d 576, 579 (8th Cir. 1997) (“Whether to
pierce the corporate veil is a legal determination that, in our circuit, is governed by
state law.”).
4
Johnson v. First Nat’l Bank of Montevideo, 719 F.2d 270, 274 (8th Cir.
1983).
11
That being said, as the majority states, while BFLP and RHFP may not
challenge the sufficiency of the evidence that the bankruptcy court used in entering
default judgment against them, they are permitted to contest the sufficiency of the
Trustee’s Complaint and its allegations to support the judgment.5 “[F]acts which are
not established by the pleadings of the prevailing party, or claims that are not well-
pleaded, are not binding and cannot support the judgment.”6 In my view, the
Trustee’s Complaint did not sufficiently support the bankruptcy court’s conclusions
that BFLP and RHFP are Burwell’s alter egos under Minnesota law.
The majority correctly outlines the analysis used by Minnesota courts in
determining whether an entity is the alter ego of an individual, which “focus[es] on
factors such as the failure to observe corporate formalities, siphoning of funds by the
individual, absence of corporate records, and the existence of the corporation as
merely a facade for the individual.”7 Other factors include insufficient capitalization
for purposes of corporate undertaking, nonpayment of dividends, and nonfunctioning
of other officers and directors.8 The Trustee’s Complaint alleges almost nothing about
whether BFLP and RHLP observed corporate (partnership) formalities, other than to
state generally that Burwell “controlled” them. There are no specific allegations as
5
Miller v. Kasden, 209 B.R. 236, 238-39 (B.A.P. 8th Cir. 1997) (also stating
that “a defaulted defendant may always challenge the legal sufficiency of the
complaint allegations”).
6
Id. at 238.
7
United States v. Scherping, 187 F.3d 796, 802 (8th Cir. 1999). See also
Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509, 512-13 (Minn.
1979) (setting out factors considered to be significant). “Alter ego” is often used
synonymously with the term “reverse veil piercing.” See e.g., Miller & Schroeder,
Inc. v. A.T. Gearman, 413 N.W.2d 194 (Minn. Ct. App. 1987) (treating the two
terms synonymously and applying a similar standard as that used in Scherping).
8
Victoria Elevator, 283 N.W.2d at 512.
12
to Kelly’s or anyone else’s role in any of the partnerships’ decision-making processes.
Nor does the Complaint mention capitalization or say anything about whether the
partnerships had their own records. In addition, the Complaint does not spell out what
assets each of the partnerships had or specifically state how the partnership assets
were managed. As one example, the Complaint alleged that BFLP owned three
parcels of real estate, but contained no allegations as to when or how those properties
were acquired or how they were treated by the parties, such as whether Burwell or his
ex-wife paid BFLP rent for the houses they lived in or how income and expenses
relating to the investment property were handled. In fact, the Complaint alleged that
“BFLP funds, directed by [Burwell], were used to maintain and enhance all three
properties.” If BFLP was using its own funds to manage its own assets as alleged,
even if Burwell directed such use, that would weigh against a finding that it was
Burwell’s alter ego. And, although the Complaint alleged that Burwell ran his
personal funds through the partnership accounts to protect those funds from creditors
and vaguely alleged that he used some other unspecified BFLP funds for his personal
affairs, the Complaint does not expressly allege that Burwell siphoned partnership
funds or assets out of the partnerships.9 In sum, both the Complaint and the findings
tracking that Complaint ignore many of the factors to be considered by Minnesota
courts in determining whether any entity is the alter ego of an individual.
9
I disagree with the majority’s conclusion that the Complaint describes in
detail how Burwell controlled the bank accounts of the two entities. For example,
the Complaint alleges that, in the year prior to the filing of the bankruptcy petition,
“it appears that more than $225,000 was deposited into and out of the RHFP
Account” (Amended Complaint ¶ 23), but it says nothing about where that money
came from or where it went, other than the $64,600 from the tobacco rights, and
the five cash withdrawals. In any event, if Burwell transferred his own assets to
either partnership, those transfers may be recoverable by the Trustee from those
partnerships under specific provisions of the Bankruptcy Code (§§ 547 or 548) or
state fraudulent conveyance statutes (as made applicable by § 544).
13
The Complaint also alleged that the purpose of either BFLP or RHLP, “other
than to protect Burwell’s personal assets, is unclear.”10 Given the fact that veil
piercing should be effected “only under limited circumstances,”11 an allegation that
the partnerships have an “unclear” purpose does not support a finding that they were
merely Burwell’s facade.
In addition, “[d]isregard of the corporate entity requires not only that a number
of these factors be present, but also that there be an element of injustice or
fundamental unfairness.”12 Other than pointing out Burwell’s misdeeds in funneling
personal funds through the partnership accounts and alleged misstatements on his
schedules, the Complaint states no facts to support a finding of injustice or
fundamental unfairness to other parties, particularly as to whether any other owner or
creditor of either of the two partnerships would be adversely affected by the finding
of alter ego.13
Finally, as mentioned above, the Trustee states in his appeal brief that this is not
a reverse veil piercing case, and his Complaint cited only the bankruptcy court’s
equitable powers – and not veil piercing – as the basis for the determination that the
partnership’s assets were Burwell’s assets. That may be because, although no one has
10
Amended Complaint ¶ 10 (emphasis added).
11
Groves v. Dakota Printing Servs., Inc., 371 N.W.2d 59, 62 (Minn. App.
1985); Halverson v. Schuster, 132 B.R. 604, 608 (Bankr. D. Minn. 1991).
12
United States v. Scherping, 187 F.3d at 802 (quoting Victoria Elevator,
283 N.W.2d at 512).
13
See Stoebner v. Lingenfelter, 115 F.3d 576, 579 n.4 (8th Cir. 1997)
(holding that a court can disregard the corporate entity when the shareholder
“owned all, or substantially all, of the stock, treated the property as his own, and,
most importantly, [when] no shareholder or creditor would be adversely
affected.”) (emphasis added).
14
yet raised the issue, the Trustee’s standing to bring an action to pierce the veil may be
questionable since the Complaint does not allege that the debtor (Burwell) had any
ownership interest in either of the two partnerships.14 In any event, the fact that the
Complaint never mentions these theories bolsters the conclusion that the elements are
not adequately set forth (i.e. they are not well-pleaded)15 in the Complaint.
I recognize that, as a general rule, failing to respond to a pleading precludes a
party from raising issues on appeal. The BAP recently reiterated that general principle
in Walton v. Sosne.16 However, as that case pointed out, there are exceptions to that
general rule, such as “where the obvious result of following the rule would be a plain
miscarriage of justice or would be inconsistent with substantial justice.”17 In my view,
a default judgment for equitable relief such as that sought by the Trustee here, based
on a factually insufficient pleading, would be such an injustice. Hence, while courts
should not be hesitant to enter default judgments, a defaulting party should not be
prohibited from arguing on appeal that the complaint on which the judgment was
based was factually insufficient. This comports with the rule enunciated in Kasden.
In addition, I would also mention that this is not a case in which the defendants totally
ignored the response deadline, since Burwell and Kelly both responded to the
Complaint, albeit in their personal capacities. Since Burwell, acting pro se, filed an
appeal of the judgment rather than a Rule 59 or 60 motion, the bankruptcy court never
had the opportunity to consider his contentions as to why the partnerships initially
failed to respond.
14
See Halverson v. Schuster, 132 B.R. 604 (Bankr. D. Minn. 1991).
15
Kasden, 209 B.R. at 238-39 (“facts which are not established by the
pleadings of the prevailing party, or claims that are not well-pleaded, are not
binding and cannot support the judgment”).
16
Walton v. Sosne, No. 08-6012 (B.A.P. 8th Cir. Aug. 4, 2008).
17
Seniority Research Group v. Chrysler Motor Corp., 976 F.2d 1185, 1187
th
(8 Cir. 1992).
15
In sum, the allegations that Burwell funneled his personal funds through
partnership accounts to protect those funds from his creditors and used a signature
stamp to do so, without more, do not support a finding that the partnerships – in which
he is not alleged to own any interest – are his alter ego. That is not to say that the
Trustee would be unable to allege and prove that they are. Rather, as in Kasden, it is
my view that the Complaint simply lacks sufficient factual allegations to support such
a finding. Under the circumstances, and given the drastic relief ordered in declaring
the partnerships to be Burwell’s alter ego, I conclude that not requiring the Trustee to
allege and prove the elements required by Minnesota law would be inconsistent with
substantial justice. Consequently, I would remand the case to the bankruptcy court for
such further proceedings as are appropriate.
16