A trial is scheduled for March 27 in U.S. District Court in a civil lawsuit alleging Samanta Roy Institute of Science and Technology, Inc. attempted to avoid a debt by transferring the ownership of a property from one corporation to a newly created one.
"The claim is they transferred their racetrack property from one of their subordinates to another subordinate to keep creditors from being able to get at the racetrack property," said T. Wickham Schmidt, an attorney representing MMG Financial Corp. of Ontario Canada.
SIST attorney Alan Eisenberg called the claim "a bunch of nonsense." Eisenberg said the transfer of an asset doesn’t make it unreachable.
"They know where it is," he said. "That’s a bunch of nonsense."
MMG won a $190,000 judgment against SIST subsidiary Midwest Amusement Park, LLC last September, but the case is on appeal and the judgment has yet to be paid.
MMG argued the parties had entered into a contract in July 2005 under which MMG agreed to finance the racetrack’s purchase of go-karts, along with certain parts for the go-karts. With interest, the amount due - originally $75,000 - was placed at $190,000.
SIST attorney Alan Eisenberg called the judgment "grossly erroneous" in an interview after the jury trial last year.
Eisenberg took issue with some of the court’s rulings in his closing argument to the jury, noting there were some documents the jury was not permitted to see.
SIST and another of its subsidiaries - U.S. Acquisitions and Oil, Inc. - were initially included in the original civil suit alleging breach of contract and unjust enrichment against Midwest Amusement Park, but were dismissed from the case pending the separate fraudulent transfer claim.
U.S. Acquisitions and Oil, Inc. is a Delaware corporation formed in January 2006, according to information from the state of Delaware’s Division of Corporations. The racetrack property was transferred to the new corporation in April 2006, according to a document filed with the Shawano County Register of Deeds office.
Schmitt said the fraudulent transfer claim is accompanied by an attempt to pierce the corporate veil.
"Pierce the corporate veil means the parent company has to pay for the subsidiary’s debts." Schmidt said.
SIST and six of its other subsidiaries last month terminated their corporate status in Wisconsin as part of a conversion to corporations in Delaware, according to records filed with the Wisconsin Department of Financial Institutions.
Eisenberg said the terminations listed with the state are not part of any legal strategy to avoid any debts.
"I don’t see how that would even be permissible," he said.
According to state statutes, any business entity that converts its status continues to have all liabilities of the original business entity. Also, according to state statutes, "any civil, criminal, administrative, or investigatory proceeding that is pending by or against a business entity that is converted may be continued by or against the business entity after the effective date of conversion."
Schmidt said companies routinely incorporate in Delaware partly to take advantage of extensive corporate case law on the books there.
"Delaware has a special court that’s sort of dedicated to business matter and they have a very well developed body of case law regarding corporate governance issues, so a lot of companies will incorporate in Delaware just to be able to take advantage of that," he said. "There’s no huge significance to it, though, normally."
