## Facts

- Pro-Mark, Inc. (PMI) was formed to market golf products, including “Double Eagle” products made by an Ajay Sports, Inc. (ASI) subsidiary, and “MacGregor” branded goods.
- PMI raised about $700,000 from a private stock offering.
- PMI paid $300,000 and transferred one million shares of PMI stock to Ajay Leisure Products, Inc. (ASI’s subsidiary) in connection with acquiring rights related to the “Double Eagle” brand and inventory.
- Because the Double Eagle trademark had been pledged as collateral and could not be transferred, the parties replaced the transaction with a marketing agreement granting PMI an exclusive license; the agreement referenced the $300,000 payment but did not mention the one million shares.
- PMI operated unsuccessfully for nearly two years, incurred marketing and related charges for services performed by Ajay/ASI, and did not pay those obligations; PMI ceased operations by the end of 1992.
- Casazza, a PMI director and a director/officer of Sports Acquisition Corporation (MacGregor), negotiated a settlement in which MacGregor provided PMI 150,000 shares of MacGregor stock in exchange for a release of PMI claims after MacGregor failed to permit trademark use.
- PMI distributed the MacGregor shares (and additional unrelated stock options) to its private-offering investors; ASI received no distribution while remaining unpaid.
- ASI sued Casazza for wrongful distribution of corporate assets while PMI was insolvent, seeking compensatory and exemplary damages; other directors settled, and a jury found Casazza liable and awarded both types of damages.

## Issues

1. Whether ASI had standing to sue as a creditor for wrongful distribution of PMI assets and whether a real-party-in-interest objection barred the action.
2. Whether sufficient evidence supported a finding that PMI was insolvent when the MacGregor stock and other assets were distributed.
3. Whether the jury instructions, including on insolvency and the business-judgment rule, were erroneous or misleading.
4. Whether exemplary damages were supported by evidence of willful and wanton conduct and were legally permissible.

## Decision

- The Colorado Court of Appeals affirmed the judgment for ASI.
- ASI had standing to proceed as a creditor based on unpaid obligations for services, and Casazza’s real-party-in-interest objection was waived as untimely.
- Evidence, including expert testimony grounded in PMI financial records and PMI’s failure to pay debts, was sufficient for the jury to find insolvency at the time of the distributions.
- The instructions, viewed as a whole, adequately stated the governing law; denial of a late amendment to the pleadings was within the trial court’s discretion.
- The exemplary damages award was supported by evidence permitting a finding that Casazza willfully and wantonly favored shareholders over creditors while PMI was insolvent.

## Legal Principles

- A plaintiff alleging it is owed money for services rendered to a corporation has standing as a creditor to challenge distributions made while the corporation is insolvent.
- Directors may be personally liable for distributions to shareholders made when the corporation is insolvent (or rendered insolvent), particularly when unpaid creditor claims remain.
- The business-judgment rule does not protect directors from liability for authorizing distributions that violate statutory solvency limits.
- A real-party-in-interest objection must be raised with reasonable promptness; late objections may be treated as waived, and late amendments may be denied to avoid undue delay or prejudice.
- Exemplary damages may be upheld where evidence supports that a director’s asset distributions during insolvency reflect willful and wanton disregard of creditor rights.

## Conclusion

The court upheld a jury verdict imposing personal liability and exemplary damages on a corporate director who caused assets to be distributed to investors while the corporation was insolvent and an unpaid creditor remained, rejecting untimely procedural objections and finding the evidence and instructions sufficient.


Ajay Sports, Inc. v. Casazza, 1 P.3d 267 (Colo. App. 2000)