Business owners are attracted to the notion of incorporation. That’s because corporations have a unique trait. Generally, owners and staff are not personally on the hook if the business is sued. But that isn’t always the case.
A recent Fifth Circuit decision involving a shipyard and construction company demonstrate how this basic premise could change when a corporation is dissolved. In 4 H Construction v. Superior Boat Works Inc., Superior Boat performed repairs on two deck barges owned by 4 H. The parties had a dispute about the agreed upon scope of work. Ultimately, the shipyard refused to release the barges without payment for the repairs. 4 H filed a lawsuit against the shipyard and its president alleging conversion, which is the act of doing something inconsistent with the ownership rights of another. Basically, “I want my barges back.”
The shipyard filed counterclaims for breach of contract, misrepresentation, in addition to a maritime lien as security for the damages. It also brought an alternative claim for quantum meruit and unjust enrichment. Quantum meruit roughly means, “The deal’s off? Okay, then pay me for the work I’ve done up until now.
The lower court dismissed the shipyard’s counterclaims because it had been dissolved. The court found the shipyard and its president liable for conversion and entered judgment against them for $17,875. They appealed the decision. Soon after, the shipyard filed for bankruptcy. The bankruptcy matter was ultimately resolved, and the shipyard was reinstated as a corporation.
In the end, the appeals court agreed with the lower court, pointing out that under Mississippi law a corporation that has been dissolved may not maintain a legal action until it is reinstated. Also, the owner of a corporation is personally on the hook for the liabilities of the company after its dissolution if he played an active role in the corporation. When a corporation is dissolved, it is granted certain authority to wind up and liquidate its affairs. But in this case, the lower court felt the shipyard had not wound up its business affairs.
