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Estate of Raleigh v. Mitchell

May 8, 2008

ESTATE OF LEONARD RALEIGH, APPELLANT,
v.
LAWRENCER. MITCHELL, ET AL., APPELLEES.
LAWRENCE MITCHELL, ET AL., APPELLANTS,
v.
ESTATE OF LEONARD RALEIGH, ET AL., APPELLEES.



Appeals from the Superior Court of the District of Columbia. (CA 4400-98) (Hon. Michael L. Rankin, Trial Judge).

The opinion of the court was delivered by: Wagner, Senior Judge

Argued November 3, 2004

Before REID, Associate Judge, and WAGNER*fn1 and FERREN, Senior Judges.

In appeal number 03-CV-221, appellant, the Estate of Leonard Raleigh, appeals from an order of the trial court granting summary judgment for appellees, Lawrence Mitchell, Aida Bastida, E&G Investment Services, Inc. and Edgar E. Gramajo, on the ground that the estate is not the legal owner of the real property that is the subject of this action and has no standing to sue on causes of action related to the ownership of the property. The estate argues that the trial court erred in failing to allow it to substitute the real party in interest and in awarding attorney's fees and costs to appellees. In appeal number 03-CV-396, Mitchell and Bastida appeal from an order of the trial court refusing to grant it judgment on the estate's personal representative's surety bond. We affirm the decision of the trial court granting summary judgment and denying judgment on the surety bond. We reverse the trial court's order awarding attorney's fees.

I.

The Raleigh Estate argues that the trial court erred in granting the appellees' motion for summary judgment. Specifically, it contends that the trial court erred (1) in concluding that the Raleigh Estate had no standing to sue in its own right for real property titled in the name of the Atlanta Corporation and (2) in denying the estate the opportunity to substitute the corporation, which the court considered to be the real party in interest, as a party plaintiff. Appellees respond that the trial court properly granted them summary judgment because, even assuming that the Raleigh Estate could prove that the decedent owned all of the shares of the Atlanta Corporation at the time of his death, it would have no legal entitlement to any corporate asset. They contend that "piercing the corporate veil," the sole legal theory advanced by the Raleigh Estate in support of its claims, is not available to shareholders as a means of assuming individual rights to corporate assets.*fn2

A. Background/Standing Issue

In its fourth amended complaint, the Raleigh Estate sued the Atlanta Corporation, the appellees, and others to quiet title to certain real property in the District of Columbia, which it contended that the decedent owned at the time of his death, but had recorded in the name of the Atlanta Corporation.*fn3 The complaint stated that the properties were subject to deeds of trust held by appellees, Ana Mitchell and Aida Bastida, and that the trustees on one or more of the deeds of trust were Lawrence Mitchell, Richard Bruce Mitchell and C. Barry Mitchell. The estate alleged that foreclosure sales related to the properties were defective or improper and should be set aside. It also asserted that the Atlanta Corporation's corporate charter had been revoked and that its registered agent was deceased. Appellees filed a motion for summary judgment in which they acknowledged as undisputed that the subject real property was titled in the name of Atlanta Corporation, noted that the estate did not claim to be subrogated to the corporation's position, and argued that the estate had no claim to the properties or any cause of action pertaining to them. They also filed the supporting affidavit of Lawrence Mitchell, a professional title examiner, in which he averred that: he had handled several real property transactions for Atlanta Corporation in which Leonard Raleigh acted as agent or officer of the corporation in the 1980s and 1990s; that Raleigh provided him with a copy of Atlanta's Articles of Incorporation, which Mitchell verified were on file through the District's public records; that payment on the loans secured by Atlanta's real property were in default by November 1996; and, that the public records reflected that the corporation was in good standing during the years that the transactions occurred and in early 1997.*fn4 The trial court rejected as inapplicable the estate's "alter ego" theory by which it sought on behalf of the decedent as a corporate shareholder to pierce the corporate veil. Therefore, it determined that the estate had no standing to sue on behalf of the corporation and that the Atlanta Corporation would be the proper party plaintiff in the action.*fn5

There is no dispute that all of the real property in which the estate claimed an interest was titled and recorded in the name of the Atlanta Corporation and remained so at the time of decedent's death. The estate's theory in the trial court was that the corporation was the alter ego of Leonard Raleigh, or at least, there was a genuine material issue in dispute concerning that fact. As factual support for this claim, the estate relied on evidence that Raleigh maintained a bank account in the name of "Leonard Raleigh d/b/a Atlanta Corporation and that Lawrence Mitchell, one of the trustees on one or more of the deeds of trust wrote the attorney for the estate a letter in which he stated that I have known the late Mr. Raleigh since the late 1980s and dealt with him through his corporation, the Atlanta Corporation. On at least one or more occasions I questioned him as to the stock of Atlanta Corporation and his response was that he was the sole owner and did not intend to have any partners in the said corporation.

Appellees argue that even assuming that this evidence was sufficient to establish that Raleigh owned all of Atlanta's corporate stock, the estate as his successor would not have a direct interest in the corporation's properties that were lost at foreclosure that would entitle it to sue as owner.

B. Applicable Legal Principles

"'The general rule is that a corporation is regarded as an entity separate and distinct from its shareholders.'" Lawlor v. District of Columbia,758 A.2d 964, 975 (D.C. 2000) (quoting Vuitch v. Furr, 482 A.2d 811, 815 (D.C. 1984)). "[I]t is well established that because of the separate legal existence of a corporation, the corporate property is vested in the corporation itself and not the stockholders. . . ." Office of People's Counsel v. Public Serv. Comm'n of the District of Columbia, 520 A.2d 677, 681-82 (D.C. 1987) (citation and internal quotation marks omitted). "Even if stock ownership is concentrated in the hands of one person, it does not alter the fact that title to the corporate property is vested in the corporation and not in the owner of its stock." Id. at 682 (citations omitted). Applying these principles in Office of People's Counsel, this court held that a corporation that owned all of the stock of its three wholly owned subsidiaries, which in turn owned numerous taxicabs, was not the legal owner of the vehicles. Id. at 682.*fn6 The reasons for the general rule precluding shareholders from suing individually to redress a corporate right are to avoid multiple suits, to prevent a bar to the corporation's right of action, and to ensure that any damages recovered will be available to the corporation's creditors and any other shareholders. 12B WILLIAM MEADE FLETCHER ET AL., FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 5910 (perm. ed., rev. vol. 2000) ("FLETCHER"); see Office of People's Counsel, 520 A.2d at 682 (noting that even if the corporation went bankrupt, the sole shareholder would have no legal right to the corporation's assets, but only a right to share in the proceeds of liquidation). It is the corporate directors, and not its shareholders, who have the authority to manage the corporation, including decisions to litigate on behalf of the corporation. Behradrezaee v. Dashtara, 910 A.2d 349, 354 (D.C. 2006) (citing Flocco v. State Farm Mut. Auto. Ins. Co., 752 A.2d 147, 151 (D.C. 2000) and D.C. Code § 29-101.04 (2) (2001) formerly D.C. Code § 29-304 (2) (1981) (providing that a corporation has the power "[t]o sue and be sued, complain and defend, in its corporate name. . . .")) (other citation omitted).*fn7

C. Analysis

It is undisputed that the title to the real property out of which the estate makes its claims was titled at the relevant time in the name of the Atlanta Corporation. Under the circumstances, the foregoing authorities support appellees' position that the estate would have no legal right to the individual assets owned by the corporation merely because its decedent was a shareholder or even the sole shareholder in Atlanta. See Office of People's Counsel, supra, 520 A.2d at 682. The corporation's property is vested in the corporation and not its individual shareholders. Id.at 681-82. The authority to sue to redress the alleged wrongs related to the foreclosures upon Atlanta's real property also belongs to the corporation, not to the individual shareholder. See Behradrezaee, supra, 910 A.2d at ...


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