## Facts

- David Burleigh owned and controlled Window Treatment & Carpet, Inc. (Window Treatment).
- Midland Interiors, Inc. (Midland) contracted with Window Treatment for multiple carpet installation jobs.
- Window Treatment failed to pay Midland for several installations.
- Burleigh entered into some of the contracts with Midland in Window Treatment’s name after he knew the State had declared the corporation inoperative and void.
- Burleigh handled Window Treatment with little separation between himself and the entity, with minimal use of corporate formalities.
- Midland obtained a judgment against Window Treatment for \$7,180.37 plus costs and post-judgment interest, and later transferred that judgment to the Delaware Superior Court.
- Midland then sued in the Delaware Court of Chancery to enforce the judgment against Burleigh personally and sought equitable relief connected to funds Burleigh received through Window Treatment.
- During the Chancery litigation, Midland repeatedly noticed Burleigh’s deposition and alleged that Burleigh repeatedly failed to appear, leading Midland to seek a default judgment against him as a discovery sanction under Court of Chancery Rule 37.

## Issues

1. Whether a controlling owner who knowingly continues to contract in the name of a corporation whose charter has been declared void may be held personally liable for the resulting corporate obligations.
2. Whether Burleigh’s discovery noncompliance justified entry of a default judgment against him under Court of Chancery Rule 37(b)(2)(C).

## Decision

- The Court of Chancery held Burleigh personally liable for Midland’s claim arising from contracts entered while Window Treatment’s charter was void and Burleigh knowingly continued operations in the corporate name.
- The court declined to grant Midland’s requested default judgment as a Rule 37 discovery sanction.

## Legal Principles

- Delaware limited liability depends on the existence and continued legal status of the corporate entity; when an owner knowingly conducts business in the name of a corporation whose charter is void, the owner may face personal liability for obligations incurred during that void period.
- Disregard of corporate formalities and operation of the entity as the owner’s alter ego supports equitable disregard of the corporate form when necessary to prevent unfair results.
- A default judgment under Court of Chancery Rule 37(b)(2)(C) is a severe remedy and is not granted unless the record shows discovery misconduct serious enough that lesser measures are not adequate.

## Conclusion

Midland Interiors recognized that Burleigh could not use the corporate form as a shield for obligations incurred after he knowingly continued contracting through a corporation the State had already declared void, and the Court of Chancery therefore permitted personal liability on that basis, while refusing to impose the separate, case-ending remedy of a default judgment as a discovery sanction.


Midland Interiors, Inc. v. Burleigh, 2006 WL 3783476 (2006)