Duane and Shirley Bushman, husband and wife, formed FGP, LLC. FGP was formed to purchase eggs for hatching, coordinate delivery of hatched check to contracted growers, and then coordinate delivery of the grown birds to Custom Poultry Processing, LLC (CPP). CPP is a limited liability corporation owned by the Bushmans and others. The Bushmans own several other operations including Bushman Organic Poultry, Bushman Organic Grains, Inc., Bushman Organic Farms, Inc. and Organic Feed & Grains, LLC. After receiving the financials of the Bushman-related entities, FGP and Keith Smith Company, Inc. (Keith Smith) entered into a contract in 2010 under which Keith Smith would provide FGP hatching eggs on a weekly basis and FGP would pay invoices within 21 days of receiving the eggs. Shortly into the contract, FGP owed more than $248,000 on past due invoices even though other Bushman entities had made some payments on behalf of FGP. FGP ceased operations in January 2011 and CPP went into involuntary bankruptcy. Keith Smith filed a breach of contract action seeking to hold the Bushmans and Bushman-related entities jointly and severally liable for the FGP debt alleging that FGP was a shell corporation and the alter ego of the Bushmans and Bushman-related entities. At trial, one expert testified FGP was undercapitalized. Another expert testified Defendants had not violated any of the factors constituting abuse of corporate privilege, including undercapitalization. The district court found the Bushmans jointly and severally liable, but refused to hold the Bushman-related entities liable as well. Both parties appealed. The Iowa Court of Appeals found the district court’s ruling was supported by substantial evidence. It noted that its decision was not based solely on undercapitalization, but also on FGP’s lack of assets and employees, the moving of funds between related entities, the fact that the Bushmans provided no consideration in their ownership of FGP, and that they provided Keith Smith the financial statements of Bushman-related entities when Keith Smith requested financial information for FGP. The Court also affirmed the district court’s ruling in refusing to hold the other Bushman-related entities liable.
Keith Smith Company, Inc. v. Bushman et al., No. 15-0347 (Iowa Ct. App. Dec. 9, 2015)