Tuesday, March 21, 2023

Tiger King, Private Inurement, and Piercing the Nonprofit Corporate Veil



I wonder what historians will say about our time.  Historians from another planet.  "There's a wacky bunch, those humans," they'll say.  Reality TV, Trump and DeSantis, QAnon Shamans storming the capital, COVID and COVID deniers, cancel culture, anti-woke politicians, and let's not forget the golden age of quality TV.  The Bachelor and the Bachelorette, and even Tiger King.  One of the main characters in Tiger King's Season 2 is getting his comeuppance, thanks to PETA and the Indiana Attorney General.  Heck, even President Biden got into the act, signing into law the Big Cat Public Safety Act late last year in part because of the cruelty, neglect, and exploitation of animals that goes on in these usually tax exempt "sanctuaries." 

And then there are wars still, like 1941 all over again in Ukraine, mass shootings at elementary schools, police killings right in front of our eyes, right there on camera, and a prominent South Carolina attorney whose brain was so fried on opioids that he stole millions from his clients and partners, then murdered his wife and son, all after murdering his housekeeper probably because he needed money to buy his opioids.  Opioids legally manufactured and then sold from Pez candy dispensers.  Yep.  We are a wacky bunch, we are.  At least the historians will know that our tax exemption jurisprudence held the hope that human intellect is capable of higher levels of reasoning and behavior, right? Keep hope alive.

So recent litigation against Tim Stark, one of the main characters on Tiger King, is exposing some teachable moments.  Here is something you  don't see everyday.  The Indiana Court of Appeals pierced the corporate veil between Starks and Wildlife in Need (WIN), a 501(c)(3) that, at its peak was pulling in over a million bucks a year operating a wildlife sanctuary and being featured on the Tiger King Netflix show that ran for three seasons.   I am not sure why, because there was no antecedent liability against WIN, itself, for which a shareholder might rightly be held liable based on the equities of it all.  It was Tim Starks using the organization for private inurement and excess benefit, along with various violations of the nonprofit business judgment rule codified in Indiana law.  Tim's liability was direct, no veil piercing was necessary. Curious. 

A photo of WIN owner Tim Stark.

Tim Stark is now bankrupt and banned by the USDA from ever owning big game animals again.  Plus, he should expect an excess benefit tax bill if he hasn't already received it.  He also owes PETA nearly a million bucks just in legal fees.  

Nevertheless, the Court pierced the corporate veil for all the reasons that prove Tim engaged in private inurement, excess benefit and violations of his state law nonprofit fiduciary duties:

WIN was a nonprofit corporation located in Charlestown, Indiana, which was incorporated in 1999, with the purpose of rescuing and rehabilitating wildlife. Stark was the president, and Lane, Stark’s then-wife, was the secretary and treasurer of WIN.1Stark had an animal exhibitor license through the United States Department of Agriculture (“USDA”), but WIN did not have a license. The WIN Board of Directors rarely held formal meetings, did not take minutes of meetings, and did not prepare or review budgets or financial statements.

Stark and Lane owned the property where WIN was located, and their personal residence was also located on the property. WIN did not have an agreement to  lease the property from Stark and Lane, and WIN paid for improvements to Stark and Lane’s property to house the animals. Stark had a line of credit that was secured by improvements to the property, including the improvements constructed by WIN. WIN also paid for property taxes and utility bills for the entire property, including the property taxes and utility bills for Stark’s personal residence. WIN also routinely paid Stark’s personal credit card bills.

Until 2014, WIN had annual revenue of less than $50,000. In late 2013, however, WIN started advertising a “Tiger Baby Playtime” program, which allowed paying participants to interact with tiger cubs. The events were advertised as fundraising for WIN, and WIN’s annual revenue increased substantially. In 2016 and 2017, WIN reported more than $1,000,000 in annual revenue. WIN used a portion of the funds to purchase additional animals. In 2014, WIN had forty-three animals, but after Tiger Baby Playtime events began, WIN eventually acquired 293 animals. Although Stark claims that he owns all of the animals at WIN, almost all of the animals were purchased with WIN funds.

Here are the trial court's findings, all of which were upheld on appeal:

  1. Stark breached his fiduciary duties as a member of WIN’s Board of Directors and as WIN’s President. Stark routinely failed to act in WIN’s best interest, including but not limited to taking assets belonging to WIN to be used in a private venture in Oklahoma, causing the death of numerous WIN animals in transport to Oklahoma, conduct resulting in the finding of multiple violations of the Animal Welfare Act by the USDA, leaving at least one piece of heavy equipment in Oklahoma, routinely using WIN’s funds for his personal sustenance without any corporate oversight or record keeping of the activity, using WIN funds to make improvements to real property not owned by WIN and using that property to secure a line of personal credit, using WIN funds to pay for utilities utilized solely for his benefit, and using WIN funds to pay thousands of dollars of personal credit card debt. Stark diverted WIN assets to be used for personal gain to an outrageous extent. The Court finds that Stark’s misconduct involving WIN assets breached fiduciary duties owed to WIN and was not only reckless but rises to the level of willful behavior as he intended to act solely in his own interests and not those of WIN.
  1. Stark breached his fiduciary duties by allowing WIN to make distributions of WIN assets to himself. INCA provides that a nonprofit “corporation may not make distributions,” Ind. Code § 23-17-21-1, where a “distribution” is “a direct or an indirect transfer of money or other property or incurrence or transfer of indebtedness by a corporation to or for the benefit of a person.” Ind. Code § 23-17-2-10(a). A director who assents to a distribution is personally liable to the corporation for the amount of the distribution that is illegal. Code § 23-17-13-4(a).
  1. Stark further breached his fiduciary duties by failing to inform the Board of Directors of his intent to transfer all of WIN’s assets to a new business in Oklahoma. . . .
  1. The Court concludes that Stark’s plans to transfer all or substantially all of WIN’s assets to a new business in Oklahoma triggered the requirement that a meeting be held at which the Board of Directors vote to approve the transfer and triggered the requirement that the Board of Directors be given notice prior to the meeting that a vote is to be held. The Court concludes that Stark’s planning and, in fact, undertaking to transfer WIN’s assets without first notifying the Board of those plans and obtaining approval through a vote of the Board constitutes a breach of Stark’s fiduciary duty to act in the best interest of WIN. Further, this breach was willful as Stark intended to keep the Board uninformed about his planned transfer of all of WIN’s assets to another business he planned to organize.
  2.  . . .  .
  3. Piercing the corporate veil and holding Stark personally liable is appropriate. WIN, through Stark, solicited donations purportedly for its stated corporate purpose, but Stark ultimately had no intention of reasonably, adequately fulfilling that purpose and fraudulently used the donations for personal gain. WIN paid Stark’s personal obligations. WIN’s Board of Directors failed meaningfully to engage in any corporate formalities. Finally, Stark commingled WIN and his assets and affairs, for example by Stark’s utilizing WIN equipment and animals in attempting to start a private zoo in Oklahoma.

Stark, appearing pro se, even used the tried and true argument so many times rejected:  "I didn't take anything more from the exempt organization than what I would have been paid anyway."  Nope.  This is classic "incorporated pocketbook" private inurement, clear as day.


darryll jones


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