J-A24043-19
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
RYAN FELL MORTIMER : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
MICHAEL ANDREW MCCOOL, :
RAYMOND CHRISTIAN MCCOOL, :
ESTATE OF RAYMOND R. MCCOOL, : No. 3583 EDA 2018
AND MCCOOL PROPERTIES, LLC :
:
:
APPEAL OF: RYAN FELL-MORTIMER :
Appeal from the Judgment Entered November 30, 2018
In the Court of Common Pleas of Chester County Civil Division at No(s):
No. 2012-10523-MJ
RYAN FELL MORTIMER : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
340 ASSOCIATES, LLC AND MCCOOL :
PROPERTIES, LLC :
: No. 3585 EDA 2018
:
APPEAL OF: RYAN FELL-MORTIMER :
Appeal from the Judgment Entered November 30, 2018
In the Court of Common Pleas of Chester County Civil Division at No(s):
No. 2012-02481-IR
BEFORE: BENDER, P.J.E., DUBOW, J., and COLINS, J.*
MEMORANDUM BY COLINS, J.: FILED DECEMBER 12, 2019
____________________________________________
* Retired Senior Judge assigned to the Superior Court.
J-A24043-19
Appellant, Ryan Fell Mortimer, appeals from the judgment entered on
November 30, 2018, in favor of Appellees, Michael Andrew McCool (“Andy”),
Raymond Christian McCool (“Chris”) (collectively, “the Brothers”), the Estate
of Raymond R. McCool (“the Estate”), McCool Properties, LLC (“McCool
Properties”), and 340 Associates, LLC (“340 Associates”). We affirm.
The trial court found1 that 340 Associates is a limited liability company
formed in 2001 to purchase and hold a liquor license (“License”); it purchased
the License on March 25, 2002, with the approval of the Pennsylvania Liquor
Control Board (“PLCB”). Trial Court Opinion (“TCO”), filed February 25, 2019,
at 3-5. The trial court also found that, at the time of the formation of 340
Associates, its members were Charles O’Neill and the Brothers, but O’Neill
departed in 2002, leaving the Brothers as the only members and managers of
operations of 340 Associates. According to the trial court: “On January 1,
2003, Chris and Andy signed a new operating agreement for 340 Associates.
The operating agreement identified Chris and Andy as each having a 50%
membership and as the managers.” Id. at 5. The trial court further found
that the Brothers’ father, Raymond R. McCool (“Ray”), was never a member
of 340 Associates. Id. at 6.
In 2001, the Brothers and O’Neill also formed TA Properties as a
Pennsylvania limited liability company. Id. at 3.
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1 As discussed in greater detail below, the findings of the trial court about the
formation, members, and assets of 340 Associates are disputed by Appellant.
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McCool Properties, is a limited liability company formed on March 17,
2004. Id. at 5. “The operating agreement signed June 1, 2004 identified
McCool Properties’ members as Ray, Chris and Andy.” Id. Based on this
operating agreement, the trial court found that “McCool Properties is not a
member of 340 Associates” but “a separate entity.” Id. at 6. “On or about
July 7, 2004, all of TA Properties’ assets . . . were transferred to McCool
Properties.” Id. at 5. These assets included a six-story building located at
336-340 East Lincoln Highway, Coatesville, Pennsylvania, with a restaurant,
bar, and convenience store on the first floor (“the Property”). Id. at 2-3.
Appellant is a judgment creditor of 340 Associates, “as the result of
being seriously and permanently injured when a drunk driver crashed into her
vehicle on March 15, 2007.” Id. at 1. The “intoxicated driver . . . had been
served alcohol by employees of the Famous Mexican Restaurant (‘Famous
Restaurant’), located in part of the [Property]. Nazario Tapia and Rosa Tapia
leased space from McCool Properties . . . for the restaurant . . . paying $3,600
per month [for] rent.” Id. at 2, 20. “Mr. Tapia had a management agreement
with 340 Associates for the use of [the License (‘the Management
Agreement’).2] As the holder of the License, 340 Associates was the licensee.”
Id. at 2; see also Exhibit P-21.
[In November 2007, Appellant] sued for the damages she
sustained in the motor vehicle [collision] in a civil action known as
Fell v. Villava-Martinez, [Chester County Court of Common
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2 On December 17, 2004, the PLCB had “approved Mr. Tapia as manager of
the License.” TCO at 5.
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Pleas] No. 2007-10827 [(“the dram shop action”)]. Following
trial, the jury awarded [Appellant] damages in the sum of
$6.8 million . . . against ten defendants, including 340 Associates.
No other defendant in the within matter was a defendant in the
dram shop action. The liquor licensing laws impose joint and
several liability, making 340 Associates liable for the full amount
of damages award.
TCO at 2-3; see also Fell v. 340 Associates, LLC, 125 A.3d 75, 77 (Pa.
Super. 2015).
Ray died on October 4, 2009, and his interest in McCool Properties
passed to the Estate. TCO at 6.
After obtaining a judgment against [340] Associates in the dram
shop action, [Appellant] was unable to execute against the License
because [340] Associates had transferred the [L]icense to a third-
party, 334 Kayla, Inc. (“Kayla”). [Appellant] successfully
prosecuted a civil action under the Pennsylvania Uniform
Fraudulent Transfers Act, 12 Pa.C.S.A. §[§] 5101-5110
(“PUFTA”), against 340 Associates and Kayla. [Chester County
Court of Common Pleas Docket Number 2011-10055 (“the PUFTA
Action”).] The fraudulent transaction involved 340 Associates
transferring License to Kayla for $75,000 [in February 2010]. 340
Associates took back a note for the full purchase price. At the
same time, Kayla entered into a lease with McCool Properties for
the commercial space at the Property. At the lease’s expiration,
Kayla was required to transfer the License to McCool Properties or
the assignee for market value. In addition, the License served as
security for the Lease. Kayla was restricted and could not sell,
transfer, pledge or assign the License during the term of the
Lease. Upon review, the Superior Court determined 340
Associates had distributed its only asset, leaving it incapable of
discharging its debts, which conduct violated [PUFTA].
[Appellant] was awarded and then sold the License for $415,000,
which sum was applied to the judgment.
Id. at 2-3; see also Fell v. 340 Associates, 125 A.3d at 76–78.3
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3 Appellant “executed on the License during the second-half of 2016[.]”
Decision, 4/20/2018, “Findings of Fact” ¶ 35.
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On March 8, 2012, Appellant commenced an action against 340
Associates and McCool Properties at Chester County Court of Common Pleas
Docket Number 2012-02481. The complaint sought to pierce the corporate
veil of 340 Associates in order to hold McCool Properties liable for the
remainder of the judgment owed to Appellant by 340 Associates from the
dram shop action.
On October 3, 2012, Appellant commenced a second action against the
Brothers, the Estate, and McCool Properties at Chester County Court of
Common Pleas Docket Number 2012-10523. The second complaint is nearly
identical to the first complaint and likewise sought to pierce 340 Associates’
corporate veil in order to hold the Brothers, the Estate, and McCool Properties
liable for the remainder of the judgment owed to Appellant by 340 Associates.
On May 28, 2014, the two actions were consolidated.
“A five-day bench trial commenced March 19, 2018 and ended
March 26, 2018.” TCO at 1.
During the trial, Appellant’s real estate expert testified that the
maximum monthly rent that McCool Properties should have been charging the
Tapias was $2,000.00. N.T. at 45. Appellant’s accounting expert testified:
There was deposition testimony by the McCools that said that in
the bar, there was a safe. That the safe contained the cash
payments that were received by the managers of the apartment
building and some of that cash was used to pay bonuses.
In my mind, there was a question as to whether all of that cash
had been reported.
Id. at 103.
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The Brothers testified as if on cross-examination during Appellant’s
case-in-chief. TCO at 16; N.T. at 213-366. “Both testified that Ray and
subsequently [the] Estate had never been a member of 340 Associates.” TCO
at 16.
During Chris’s testimony, Appellant admitted the Petition for Probate
and Grant of Letters for the Estate to the Register of Wills of Chester County
(“Petition for Probate”). Exhibit P-11A.4 Attached to the Petition for Probate
was Form REV-1500, the Inheritance Tax Return form filed pursuant to Ray’s
death. Exhibit P-11A at 13. Attached thereto was an undated, unsigned, one-
page document stating, in its entirety:
There are no Operating Agreements available for:
RCM Associates
MAC Real Estate, LLC
340 Associates, LLC
Id. at 88.
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4 One page attached to the Petition for Probate, entitled “Assignment,” in
which Ray stated that he was transferring his ownership interest in 340
Associates to the Raymond R. McCool Revocable Agreement of Trust No. 1,
Exhibit P-11A at 62, was excluded by the trial court from the admitted exhibit
on the basis of hearsay, since the “Assignment” was prepared by Ray himself,
who was deceased and could not authenticate nor explain it. N.T. at 323,
370.
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Additionally, 340 Associates’ “operating agreement was entered into
evidence in [Appellant]’s case.” TCO at 16; see also Exhibit P-77;5 N.T. at
326 (operating agreement marked as Exhibit P-77), 376 (admitted). Exhibit
P-77 is entitled the “Limited Liability Company Operating Agreement for 340
Associates, LLC”. Paragraph 1.8 of the operating agreement states, in its
entirety: “THE MEMBERS. The name and place of residence of each member
are contained in [Attachment6] 2 attached to this Agreement.” Exhibit P-77,
Operating Agreement ¶ 1.8. Attachment 2 to the operating agreement is
dated January 1, 2003, and is entitled “Listing of Members”, identifying
“Andrew McCool” and “Christian McCool” as 50% members, with no other
names recorded. Id. at Attachment 2. The Certificate of Formation attached
to the end of the operating agreement is also dated January 1, 2003, and is
signed only by “Andrew McCool” and “R. Christian McCool.” Id. at Certificate
of Formation. Additionally, Paragraph 1.9 of the operating agreement states:
“no additional members may be admitted to the Company through Issuance
by the company of a new interest in the Company, without the prior
unanimous written consent of the Members.” Id., Operating Agreement ¶
____________________________________________
5In the certified record, part of the label on this exhibit is missing, reading
only “iff’s bit 7”. However, as it appears in the record between Exhibit P-75
and Exhibit P-78, with no indication in the record that an Exhibit P-76 was
ever admitted, we accept that this document is Exhibit P-77.
6 The text actually reads “Exhibit 2”; however, to avoid confusion with the
labelling of the trial exhibits, we have chosen to substitute “Attachment 2” for
“Exhibit 2”.
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1.9. Ray is not named anywhere in the operating agreement. See generally
id.
The Brothers also testified that every tax return filed for 340 Associates
between 2003 and 2007 that identified Ray as a member of 340 Associates
“was erroneous and reflected a mistake.” TCO at 16.
Chris explained that Ray had provided information about his
membership in 340 Associates to the accountants and was simply
wrong[ and that these r]eturns were amended when the mistake
was discovered. Additionally, Chris testified that he was mistaken
in 2011 when he said Ray was a member for 340 Associates in a
deposition.
Id.
At the conclusion of Appellant’s case-in-chief, the Estate moved for
nonsuit, arguing that 340 Associates’ operating agreement from 2003
demonstrated that Ray was not a member of 340 Associates. N.T. at 377,
384-85. Appellant was given the opportunity to argue against nonsuit but
never asserted that the operating agreement was backdated or otherwise
falsified. Id. at 386-87. The trial court “grant[ed] the motion for compulsory
nonsuit with respect to the [E]state[.]” Id. at 388; see also TCO at 1.
The remaining defendants then presented the expert testimony of real
estate appraiser Daniel Knezevich, attorney Patrick Stapleton, and forensic
accountant Gregory Cowhey. N.T. at 542, 590, 761. Knezevich had
performed a fair market rental study of the rents paid for commercial space
at the Property and testified that the $3,600.00 per month that the Tapias
were paying to McCool Properties in rent for commercial space at the Property
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was a fair market rate and that the License was immaterial to his calculation
of the fair market rate for rent since the License was not part of the real estate.
Id. at 545, 550; TCO at 20.
Stapleton . . . testif[ied] as an expert on liquor law and business
structures used in the liquor industry in Pennsylvania.
Mr. Stapleton served on the [PLCB] for fourteen years, five as
chair, and had returned to private legal practice approximately
five years earlier. Mr. Stapleton devotes nearly half of his practice
[to] liquor law, including counseling clients regarding business
structures. Mr. Stapleton testified that 340 Associates could have
required Mr. Tapia, as manager, to pay a fee for use of the
License. The PLCB regulations do not address such a fee, so a
licensee and manager are free to negotiate mutually acceptable
terms. Mr. Stapleton testified that not all of his clients who are
licensees charge for use of their licenses and that it was not
uncommon for clients who had purchased a license for investment
only to enter into a similar, no payment arrangement with a
manager.
TCO at 20; see also N.T. at 590, 613.
Cowhey testified about the “capital adequacy” of 340 Associates:
There is no significant cash flow obligations because under the
[M]anagement [A]greement, the manager is responsible for the
purchase and sale of the liquor, and then what flows through to
340 Associates is the obligation to collect from the manager and
then to remit to the State the sales tax on the food sales.
N.T. at 786-87.
A decision was entered in favor of remaining [Appellees] on
April 19, 2018. [Appellant] filed two motions for post-trial relief.
The first, filed April 3, 2018, requested removal of the non-suit
[and argued, for the first time, that 340 Associates’ operating
agreement was backdated]. The second, filed April 30, 2018,
sought relief from the decision. On November 6, 2018, all post-
trial relief was denied. [Appellant] timely filed an appeal and
subsequently filed a statement of errors complained of on
appeal[.]
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TCO at 1-2; see also id. at 16.
Appellant now presents the following issues for our review:
1. Whether the trial court erred as a matter of law when it
refused to pierce the corporate veils of 340 Associates and McCool
Properties, and hold these alter ego companies and their individual
owners, [the Brothers and Ray] liable for [Appellant]’s judgment
against 340 Associates, because the trial court’s findings were
unsupported by competent evidence or premised on an error of
law that:
a) 340 Associates and McCool Properties had different
owners and the trial court is collaterally estopped from
finding that Ray[] owned 340 Associates;
[b)] 340 Associates was not undercapitalized for its
acceptable purpose of being a “shell” company that owns a
dangerous bar and its liquor license without providing any
oversight of the bar operations and without earning any
money off the bar business, but instead delegates all
responsibility and profit to its bar “manager,” who, in turn,
pays McCool Properties flat inflated monthly rent;
[c)] the McCools did not further their personal interests
through their misuse of corporate forms and may shield
themselves from liability pursuant to the advantages of the
corporate form they selected[;]
[d)] the frauds proven do not demonstrate the
individual McCools used their corporate forms to perpetrate
a fraud or other illegality, therefore the McCools are entitled
to shield themselves from liability for [Appellant]’s
judgment; [and]
[e)] McCool Properties did not fund or otherwise pay for
340 Associates’ liquor license or its expenses[.]
2. Whether the trial court’s findings are unsupported by
competent evidence and whether it misapplied the law in
concluding that, even if the court were to apply the “enterprise”
or “single entity” theory factors to these actions, McCool
Properties may not be held liable for [Appellant]’s judgment
against 340 Associates?
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Appellant’s Brief at 2-4 (emphasis in original) (issues re-ordered to facilitate
disposition) (trial court’s answers omitted).
Preliminarily, we note: “Pennsylvania carries a strong presumption
against piercing the corporate veil. The corporate entity should be upheld
unless specific, unusual circumstances call for an exception.” Mark Hershey
Farms, Inc. v. Robinson, 171 A.3d 810, 816 (Pa. Super. 2017) (citation
omitted).
In the current action, Appellant contends that the trial court erred by
refusing to pierce the corporate veil of 340 Associates in order to reach the
assets of the Estate, the Brothers, and McCool Properties. Appellant’s Brief at
29. We will consider her arguments relating to each in turn.
The Estate
Standard of Review
The Estate was dismissed from this action pursuant to a nonsuit. N.T.
at 388; TCO at 1. Our standard of review for a nonsuit is as follows:
A nonsuit is proper only if the [fact-finder], viewing the evidence
and all reasonable inferences arising from it in the light most
favorable to the plaintiffs, could not reasonably conclude that the
elements of the cause of action had been established. . . . We will
reverse only if the trial court abused its discretion or made an
error of law.
Kovacevich v. Regional Produce Cooperative Corp., 172 A.3d 80, 85 (Pa.
Super. 2017) (citation omitted) (some formatting).
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What Assets are Reached by Piercing the Corporate Veil?
In Pennsylvania, unlike in some other jurisdictions,7 the corporate veil
is only allowed to be pierced to access the assets of the corporation’s
shareholders or, as here, the limited liability company’s members; 8 this
concept is known as the “alter ego theory” of piercing the corporate veil.9
Lomas v. Kravitz, 130 A.3d 107, 126 (Pa. Super. 2015) (en banc) (“Piercing
the corporate veil provides a means of assessing liability for the acts of a
corporation against an equity holder in the corporation.” (emphasis added)
(citation and internal quotation marks omitted)), aff’d, 170 A.3d 380 (Pa.
2017); Mark Hershey Farms, 171 A.3d at 816 (“when it is appropriate to
pierce the corporate veil, it is the shareholder, and not some other entity,
____________________________________________
7E.g., California (Toho-Towa Co. v. Morgan Creek Productions, Inc., 159
Cal. Rptr. 3d 469 (Cal. Ct. App. 2013)); Indiana (Reed v. Reid, 980 N.E.2d
277, 302 (Ind. 2012); Smith v. McLeod Distributing, Inc., 744 N.E.2d 459,
463 (Ind. Ct. App. 2000)); Illinois (Main Bank of Chicago v. Baker, 427
N.E.2d 94, 102 (Ill. 1981); Gillespie Community Unit School District
No. 7, Macoupin County v. Union Pacific Railroad Co., 43 N.E.3d 1155,
1180 (Ill. Ct. App. 2015)); and Louisiana (Ames v. Ohle, 219 So. 3d 396 (La.
Ct. App. 2017); Southern Capitol Enterprises, Inc. v. Coneco Services,
LLC, 476 F. Supp. 2d 589, 595-96 (M.D. La. 2007) (citing Green v.
Champion Insurance Co., 577 So. 2d 249, 257–58 (La. Ct. App.), writ
denied, 580 So. 2d 668 (La. 1991))).
8 “Any business that may be conducted in a corporate form may also be
conducted as a partnership or a limited liability company[,]” 15 Pa.C.S.
§ 8102(a)(1), and “in the appropriate case the doctrine of piercing the
corporate veil will be applied to a limited liability company.” Advanced
Telephone Systems, Inc. v. Com-Net Professional Mobile Radio, LLC,
846 A.2d 1264, 1281 n.11 (Pa. Super. 2004).
9The trial court applied the alter ego theory when rendering its decision. TCO
at 6.
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who is held liable” (emphasis added) (citation omitted)); Allegheny
Energy Supply Co. v. Wolf Run Mining Co., 53 A.3d 53, 58 n.7 (Pa. Super.
2012) (“the alter ego theory which requires proof (1) that the party
exercised domination and control over corporation; and (2) that
injustice will result if corporate fiction is maintained despite unity of interests
between corporation and its principal” (emphasis added) (citation omitted));
Advanced Telephone Systems, Inc. v. Com-Net Professional Mobile
Radio, LLC, 846 A.2d 1264, 1278 (Pa. Super. 2004) (“[t]he alter ego theory
. . . is applicable when the individual or corporate owner controls the
corporation to be pierced and the controlling owner is to be held liable”;
“[t]he alter ego theory is available whenever one party seeks to hold the
corporation owner liable for any claim or debt” (emphasis added) (citation
and internal brackets and quotation marks omitted)). In other words, the
assets available when a corporate veil is pierced are only those of the
individuals or businesses that have an ownership interest in the company to
be pierced.
Accordingly, whether the assets of the Estate are available to Appellant
if the corporate veil of 340 Associates were pierced depends upon whether
Ray (and, in turn, the Estate) was a member of 340 Associates at the time of
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the collision.10 The trial court found that Ray was never a member of 340
Associates. TCO at 15-17. Appellant disagrees. Appellant’s Brief at 36.
Brief Overview of the Law of Limited Liability Companies
In order to determine who is a member of a limited liability company,
we must first provide a brief overview of limited liability company law in our
Commonwealth. Pennsylvania law concerning limited liability companies is
governed by the Uniform Limited Liability Company Act of 2016. 15 Pa.C.S.
§§ 8811-8898. Although enacted in 2016, the Act governs all limited liability
companies as of April 1, 2017, irrespective of when the company was
established, id. § 8811(c), and thus controls 340 Associates, which was
formed in 2001. TCO at 3.
A limited liability company’s “operating agreement governs relations
among the members as members and between the members and the limited
liability company[.]” 15 Pa.C.S. § 8815(a). “A limited liability company is as
much a creature of contract as of statute.” Committee Comment to 15 Pa.C.S.
§ 8815.
“If a limited liability company is initially to have more than one member,
those persons become members as agreed by those persons and the organizer
before the formation of the company.” 15 Pa.C.S. § 8841(b).
____________________________________________
10 It is undisputed that the Brothers were members of 340 Associates, and,
consequently, we will not need to engage in any analysis of whether their
personal assets would be available to Appellant if the evidence supports
piercing 340 Associates’ corporate veil.
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After formation of a limited liability company, a person becomes a
member:
(1) by action of the organizer if the company does not have
any members;
(2) as provided in the operating agreement;
(3) as the result of a transaction effective under Chapter 3
(relating to entity transactions);
(4) with the affirmative vote or consent of all the
members; or
(5) as provided in section 8871(a)(3) (relating to events
causing dissolution).
Id. § 8841(d) (emphasis added). Again, a “limited liability company is in part
a creature of contract[.]” Committee Comment to 15 Pa.C.S. § 8841(d).
What Evidence May be Considered
Initially, we note that, in support of its claim that Ray was a member of
340 Associates, Appellant has relied upon evidence introduced by Appellees.
Appellant’s Brief at 37-40 (citing N.T. at 408, 417-18, 426, 431, 523, 526,
529-30). However, the Estate was dismissed from this action pursuant to a
nonsuit, N.T. at 388; TCO at 1, and, in deciding a nonsuit, “the court must
consider only plaintiff’s evidence as if no evidence had been introduced by the
defendant.” Comment to Pa.R.C.P. 230.1 (quoting Harnish v. School
District of Philadelphia, 732 A.2d 596, 599 (Pa. 1999)). Accordingly, we
cannot consider any of the evidence cited by Appellant that was introduced at
trial by Appellees.
Without this evidence, Appellant’s remaining argument in her brief is
that 340 Associates’ operating agreement was backdated and did not exist as
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of the time of the collision in 2007. Appellant’s Brief at 39. However,
Appellant never alleged that the operating agreement was backdated during
oral argument on the Estate’s motion for nonsuit. N.T. at 386-87. Appellant
suggested this backdating for the first time in her post-trial motion. TCO at
16. “A party may not, at the post-trial motion stage, raise a new theory which
was not raised during trial.” E.S. Management v. Yingkai Gao, 176 A.3d
859, 864 (Pa. Super. 2017). Any claim that the operating agreement was
backdated to support a contention that the nonsuit against the Estate was
improper is therefore waived.
Assuming it were not waived, the evidence of this alleged backdating
that Appellant relies upon in her brief consists of a letter from 340 Associates’
attorney in the dram shop action dated June 23, 2009 and a single-page
attachment to the Pennsylvania inheritance tax return filed pursuant to Ray’s
death, Exhibit P-11A at 88. Appellant’s Brief at 39.
The letter, allegedly from 340 Associates’ dram shop action counsel,
does not appear amongst the exhibits included in the certified record.11
Although Appellant has included the letter in her reproduced record,
[a]n appellate court may consider only the facts which have been
duly certified in the record on appeal. Commonwealth v.
Young, 456 Pa. 102, 115, 317 A.2d 258, 264 (1974). All involved
in the appellate process have a duty to take steps necessary to
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11 This Court’s Prothonotary contacted the Chester County Office of the
Prothonotary and the chambers of the Honorable Edward Griffith, and neither
the Chester County Prothonotary nor the trial judge’s chambers were able to
provide a copy of the June 2009 letter.
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assure that the appellate court has a complete record on appeal,
so that the appellate court has the materials necessary to review
the issues raised on appeal. Ultimate responsibility for a complete
record rests with the party raising an issue that requires appellate
court access to record materials. See, e.g., Commonwealth v.
Williams, 552 Pa. 451, 460, 715 A.2d 1101, 1106 (1998)
(addressing obligation of appellant to purchase transcript and
ensure its transmission to the appellate court).
Note to Pa.R.A.P. 1921. Ultimate responsibility for the letter appearing in the
certified record thus rested with Appellant as the party raising the issue that
required this Court access to that letter. Id. As we may consider only the
facts from the duly certified record, id., we cannot consider the letter, and,
hence, assuming arguendo that Appellant’s assertion that the operating
agreement did not exist in 2007 were not waived, the only evidence of record
supporting Appellant’s contention is an undated, unsigned, single page with a
word count of 16 words, which was part of an attachment to an attachment
to an exhibit. Exhibit P-11A at 88.
Evidence of Record was Sufficient for the Trial Court to Conclude that Ray
was Never a Member of 340 Associates
Appellees presented sufficient evidence of record to establish that the
Brothers were the only members of 340 Associates at the time of and after
the 2007 collision and that Ray was never a member of 340 Associates.
Membership in a limited liability company is determined by the members
themselves. At the formation of the company, “persons become members as
agreed by those persons[.]” 15 Pa.C.S. § 8841(b). With the exception of a
few limited circumstances that are not relevant to the current facts, after the
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formation of the company, members can only be added “as provided in the
operating agreement” and/or “with the affirmative vote of all the members[.]”
Id. § 8841(d)(2), (4). In the current appeal, the Brothers -- the two
undisputed members of 340 Associates – “testified that Ray and subsequently
[the] Estate had never been a member of 340 Associates. The operating
agreement requires written consent of its members to admit a new member.”
TCO at 16; see also Exhibit P-77, Operating Agreement at ¶ 1.9. Since
membership in a limited liability company is determined by the members
themselves, where, as here, there is no evidence that, at the time of
formation, any agreement existed amongst the undisputed members that Ray
would be a member of 340 Associates, 15 Pa.C.S. § 8841(b), and no evidence
that Ray was subsequently added as a member by the existing members’ vote
or written consent as provided by 340 Associates’ operating agreement, id.
§ 8841(d)(2), (4), Appellant has failed to provide any evidence that Ray was
a member of 340 Associates. See Exhibit P-77, Operating Agreement at
¶¶ 1.8-1.9, Attachment 2 & Certificate of Formation; see generally Exhibit
P-77.
As the trial court emphasized: “Whether a person is a member or not
of a limited liability company is a contractual matter pursuant to the operating
agreement.” TCO at 16. This statement aligns with the Committee Comments
in Uniform Limited Liability Company Act of 2016. See Committee Comment
to 15 Pa.C.S. § 8815 (“A limited liability company is as much a creature of
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contract as of statute.”); Committee Comment to 15 Pa.C.S. § 8841(d) (a
“limited liability company is in part a creature of contract”). No matter what
other evidence Appellant may have introduced or attempted to introduce,
“[t]he operating agreement is conclusive evidence of the identity of the
membership of 340 Associates.” TCO at 16; see also Exhibit P-77, Operating
Agreement ¶ 1.8, Attachment 2 & Certificate of Formation. See 15 Pa.C.S.
§ 8815(a)(1) (“the operating agreement governs relations among the
members as members and between the members and the limited liability
company”).
To the extent that the trial court considered any other evidence about
the members of 340 Associates beyond the operating agreement itself and
the Brothers’ testimony about 340 Associates’ members, the trial court, as
fact-finder, was unpersuaded that it should be given any significant weight—
and certainly not more weight than the terms of the operating agreement or
the Brothers’ testimony about 340 Associates’ membership:
[Although] Ray was identified on 340 Associates’ tax returns for
2003-2007 as a one-third member [and] on the inheritance tax
return . . . documents filed [for the] Estate as a one-third member
of 340 Associates [and] Chris or Andy signed the tax returns on
which Ray is designated a one-third member of 340 Associates[,]
Chris and Andy testified that every return was erroneous and
reflected a mistake. Chris explained that Ray had provided
information about his membership in 340 Associates to the
accountants and was simply wrong. Returns were amended when
the mistake was discovered. Additionally, Chris testified that he
was mistaken in 2011 when he said Ray was a member of 340
Associates in a deposition. Having considered the totality of this
evidence, [the trial court] concluded that certain mistakes were
made due to a lack of oversight, inattentiveness or overconfidence
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that Ray was performing correctly; however, [the trial court]
found the operating agreement to be conclusive on the issue of
membership of 340 Associates.
TCO at 16.
Moreover, Appellant has provided us with no law that tax returns and
inheritance documents may be considered at all when determining that the
members of a limited liability company, let alone that they deserve greater
weight than the company’s operating agreement or the testimony of the
undisputed members about the company’s membership. See Appellant’s Brief
at 36-45.
Whether the Trial Court was Collaterally Estopped from Finding that
Ray Owned 340 Associates is Irrelevant
Finally, Appellant represents that “the trial court was not collaterally
estopped from finding that Ray[] owned 340 Associates” by “its prior factual
finding in the PUFTA [A]ction[.]” Appellant’s Brief at 43.12
Yet, even if all of the findings from the PUFTA Action about the
membership of 340 Associates are ignored, for the reasons given above,
Appellees still presented sufficient evidence at the trial in the current case to
establish that the Brothers were the only members of 340 Associates at the
time of and after the 2007 collision and that Ray was never a member of 340
____________________________________________
12“The phrase ‘collateral estoppel,’ also known as ‘issue preclusion,’ means
that when an issue of law, evidentiary fact, or ultimate fact has been
determined by a valid and final judgment, that issue cannot be litigated again
between the same parties in any future lawsuit.” Commonwealth v. States,
891 A.2d 737, 742 (Pa. Super. 2005), aff’d, 938 A.2d 1016 (Pa. 2007).
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Associates. Thus, whether the trial court was collaterally estopped from
finding Ray owned 340 Associates is of no moment.
* * *
Accordingly, Ray was never a member of and had no ownership interest
in 340 Associates, and, therefore, the Estate’s assets would not be available
to Appellant even if other evidence establishes that the corporate veil of 340
Associates should be pierced. See Mark Hershey Farms, 171 A.3d at 816;
Allegheny Energy Supply, 53 A.3d at 58 n.7; Advanced Telephone
Systems, 846 A.2d at 1278. The trial court thus did not abuse its discretion
nor make an error of law in granting nonsuit in favor of the Estate. See
Kovacevich, 172 A.3d at 85.
The Brothers
Standard of Review
The trial court entered a verdict in favor of the Brothers. TCO at 1. Our
standard for reviewing non-jury verdicts is as follows:
Our appellate role in cases arising from non-jury trial verdicts is
to determine whether the findings of the trial court are supported
by competent evidence and whether the trial court committed
error in any application of the law. The findings of fact of the trial
judge must be given the same weight and effect on appeal as the
verdict of a jury. We consider the evidence in a light most
favorable to the verdict winner. We will reverse the trial court
only if its findings of fact are not supported by competent evidence
in the record or if its findings are premised on an error of law.
However, where the issue concerns a question of law, our scope
of review is plenary.
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Ferraro v. Temple University, 185 A.3d 396, 401 (Pa. Super. 2018)
(citation omitted), reargument denied (June 27, 2018).
Factors to Consider When Deciding Whether to Pierce the Corporate Veil
Unlike Ray, there is no dispute that the Brothers are members of 340
Associates and that their personal assets would be available to Appellant if it
is determined that piercing 340 Associates’ corporate veil were appropriate.
Exhibit P-77, Operating Agreement ¶ 1.8, Attachment 2 & Certificate of
Formation; TCO at 3-6, 16.
Unfortunately, “there appears to be no clear test or well settled rule in
Pennsylvania ... as to exactly when the corporate veil can be pierced and when
it may not be pierced.” Fletcher-Harlee Corporation v. Szymanski, 936
A.2d 87, 95 (Pa. Super. 2007) (citations and internal quotation marks
omitted).13 The Supreme Court of Pennsylvania’s latest decision on piercing
the corporate veil stated: “The corporate veil will be pierced and the corporate
form disregarded whenever justice or public policy demand, such as when the
corporate form has been used to defeat public convenience, justify wrong,
protect fraud, or defend crime.” Commonwealth by Shapiro v. Golden
Gate National Senior Care LLC, 194 A.3d 1010, 1035 (Pa. 2018). Most
recently, this Court has stated:
____________________________________________
13 The Pennsylvania Association for Justice has filed an amicus curiae brief
arguing, in part, that “there should be a clear test and a well settled rule.”
Amicus Curiae Brief at 16.
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In deciding whether to pierce the corporate veil, courts are
basically concerned with determining if equity requires that the
shareholders’ traditional insulation from personal liability be
disregarded and with ascertaining if the corporate form is a sham,
constituting a facade for the operations of the dominant
shareholder. Thus, we inquire . . . whether corporate formalities
have been observed and corporate records kept, whether officers
and directors other than the dominant shareholder himself
actually function, and whether the dominant shareholder has used
the assets of the corporation as if they were his own.
Mark Hershey Farms, 171 A.3d at 816 (emphasis omitted) (citations
omitted). This Court’s latest en banc panel to address what factors a court
should consider when deciding whether to pierce the corporate veil asserted:
“We consider the following factors when determining whether to pierce the
corporate veil: (1) undercapitalization; (2) failure to adhere to corporate
formalities; (3) substantial intermingling of corporate and personal affairs,
and (4) use of the corporate form to perpetrate a fraud.” Lomas, 130 A.3d
at 126 (citing Lumax Industries, Inc. v. Aultman, 669 A.2d 893, 895 (Pa.
1995)).
Undercapitalization
We first consider whether 340 Associates is undercapitalized. See id.
Appellant argues that 340 Associates “was undercapitalized and insolvent in
part because of its contingent liabilities.” Appellant’s Brief at 54. After a
thorough review of the record, the briefs of the parties, the applicable law,
and the well-reasoned analysis of the Honorable Edward Griffith, we find
Appellant’s argument to be unpersuasive. The trial court opinion
comprehensively discusses and properly disposes of this consideration:
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340 Associates was formed to hold the License. Once the PLCB
approved the transfer of the License . . . to 340 Associates, the
License was contributed to 340 Associates by its members. A
capital contribution is an accepted method of capitalizing a limited
liability company.[14] The [M]anagement [A]greement provided
for the manager of the License[, Mr. Tapia,] to pay all expenses
associated with maintaining the License. The food sales tax was
a pass-through, paid by the manager to 340 Associates and then
paid by 340 Associates to the taxing authority. [N.T. at 787.] The
remainder of the expenses, such as licensing fees, [other] taxes,
and liquor costs, were required to be paid by the manager. If
funds were advanced to pay an expense, the manager was
obligated to make reimbursement. A limited liability company
need be capitalized adequately only for the purposes of its
operation and is not required to have excess capital for all possible
contingencies. Miller v. Brass Rail Tavern, Inc., 702 A.2d
1072, 1076 (Pa. Super. Ct. 1997)(failure of corporation to have
sufficient assets to pay dram shop action judgment does not
mandate a finding that the business was undercapitalized). 340
Associates always held a valuable asset, the License, which could
have been sold at any time and was, in fact, transferred to
[Appellant] to partially satisfy the judgment she holds. The
evidence supports the conclusion that 340 Associates was
adequately capitalized for the purposes of its operation from the
time of its formation.
TCO at 18.15
____________________________________________
14 See 15 Pa.C.S. § 8842:
A contribution may consist of:
(1) property transferred to, services performed for or another
benefit provided to the limited liability company;
(2) an agreement to transfer property to, perform services for or
provide another benefit to the company; or
(3) any combination of items listed in paragraphs (1) and (2).
15Within Appellant’s argument about 340 Associates’ undercapitalization, she
refers to “the fact that The Famous [Restaurant] did not have liquor liability
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Corporate Formalities
Appellant does not contend that the Brothers failed to observe corporate
formalities.16 See Appellant’s Brief at 45-71; see also Lomas, 130 A.3d at
____________________________________________
insurance” and “the McCools intentionally providing no oversight to the bar
operations[.]” Appellant’s Brief at 54, 61. Although we do not wish to excuse
poor oversight and inadequate insurance by any holder of a liquor license,
there is no obvious connection between this behavior and the company’s
alleged undercapitalization.
16 In any event, a failure to adhere to corporate formalities is of less
significance when determining whether to pierce the veil of a limited liability
company, like 340 Associates, than that of a corporation. According to 15
Pa.C.S. § 8106:
The failure of a . . . limited liability company to observe formalities
relating to the exercise of its powers or management of its
activities and affairs is not a ground for imposing liability on a
partner, member or manager of the entity for a debt, obligation
or other liability of the entity.
The Committee Comment to 15 Pa.C.S. § 8106 further explains:
This section pertains to the equitable doctrine of “piercing the
veil”-i.e., conflating an entity and its owners to hold one liable for
the obligations of the other. The doctrine of “piercing the
corporate veil” is well-established, and courts regularly (and
sometimes almost reflexively) apply that doctrine to limited
liability companies and other unincorporated entities. In the
corporate realm, “disregard of corporate formalities” is a key
factor in the piercing analysis. In the realm of limited liability
companies, that factor is inappropriate, because informality of
organization and operation is both common and desired. See e.g.
Rest. of Hattiesburg, LLC v. Hotel & Rest. Supply, Inc., 84
So. 3d 32, 42 (Miss. Ct. App. 2012) (recognizing that “an LLC
imposes much less formalities on its members than a corporation”
and stating that “[t]he traditional lack of formalities--failure to
conduct regular meetings, failure to appoint officers and directors,
etc.--does not necessarily signal LLC abuse”). . . . The formalities
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126; Mark Hershey Farms, 171 A.3d at 816. Assuming Appellant had
addressed this factor, pursuant to our review of the record, we would agree
with the trial court that: “340 Associates was attentive to the formalities of a
limited liability company in that the company had a certificate of organization
and an operating agreement, filed federal income tax returns, kept
bookkeeping records, and maintained a separate bank account.” TCO at 19.
Intermingling of Assets and Affairs
The subsequent consideration is whether the Brothers have “used the
assets of the corporation as if they were [their] own” or “substantial[ly]
intermingle[ed] corporate and personal affairs[.]” See Lomas, 130 A.3d at
126; Mark Hershey Farms, 171 A.3d at 816.
Appellant argues that the Brothers “improperly furthered their personal
interests through the use of their company forms.” Appellant’s Brief at 66;
see also id. at 71 (contending that the Brothers “present . . . a compelling
example of how corporate forms can be abused to further their own personal
interest”). Appellant’s argument is a bit muddled, but she appears to maintain
that the Brothers were receiving unreported income by concealing a fee for
leasing the License -- that should have gone to 340 Associates directly --
within inflated rent payments from the Tapias to McCool Properties. Id. at
____________________________________________
at issue are the process formalities of governance-both those few
created by this title and however few or many might be created
by the organic rules.
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66, 68-70. As evidence, Appellant points to “uncertainty around the amount
of cash rent that was reported as received on McCool Properties[’] tax
return[.]” Id. at 71 (citing N.T. at 103-04). She also believes that the trial
court should have given greater weight to the evidence of her real estate
expert. Id. at 68.
However, Knezevich testified that no such fee for use of the License
could have been concealed in the Tapias’ rent payments, because the rent
charged by McCool Properties was appropriate and consistent with the fair
market rental rates for commercial property in that location. N.T. at 550; TCO
at 20. Although Appellant’s expert disagreed with Knezevich’s assessment
that $3,600.00 per month was a reasonable amount of rent for the Tapias to
be paying to lease the space for the Famous Restaurant, N.T. at 45, the trial
court, as fact-finder, found Knezevich’s assessment more credible “based on
his familiarity with the Property, his comparables and the scope of his
analysis.” TCO at 20 n.11. Appellant is asking this Court to discount the trial
court’s credibility determination, which we cannot and will not do. Lomas,
130 A.3d at 128 (“a fact-finder’s credibility determinations may not be
overturned by a reviewing court as long as there is sufficient evidence in the
record to support those determinations”). Additionally, Stapleton’s expert
testimony established that there would have been no need to conceal a fee
paid by the Tapias for leasing the License, because requiring remuneration for
the use of a liquor license is perfectly legal. N.T. at 613; TCO at 20.
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As for Appellant’s allegation that the Brothers may be underreporting
rent paid with cash, Appellant’s Brief at 71, what her own expert stated was,
“In my mind, there was a question as to whether all of that cash had been
reported.” N.T. at 103. Although Appellant’s expert may have had “a
question[,]” neither he nor any other witness presented evidence that McCool
Properties’ records were incomplete and, more importantly, that 340
Associates’ corporate records were deficient.
Thus, we agree with the trial court that the evidence established “the
Tapias were charged market rent for the Property and that there was no
excess attributable to a usage fee for the License.” TCO at 20.
In addition to refuting Appellant’s above arguments, we further wish to
note that there is no evidence that any funds or other assets of 340 Associates
were used for the Brothers’ personal expenses. Although the Brothers may
have used their own personal funds to buoy 340 Associates, there is no
evidence of the members using 340 Associates’ assets to pay for personal
expenses – i.e., no evidence of members “us[ing] the assets of the [company]
as if they were [their] own.” Mark Hershey Farms, 171 A.3d at 816. In
Miller v. Brass Rail Tavern, Inc., 702 A.2d 1072, 1076 (Pa. Super. 1997),
this Court also observed that the fact that certain obligations of the corporate
entity, such as mortgage payments and payments to employees, were made
from non-corporate sources is not enough to prove substantial intermingling
of corporate and personal affairs. As the trial court observed, “[t]o the extent
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such payments were made here, [Appellant] failed to establish a substantial
intermingling of corporate and personal funds.” TCO at 21.
Use of the Corporate Form to Justify Wrong or to Perpetrate/Protect Fraud17
The final factor is whether the Brothers used 340 Associates’ corporate
form to justify wrong or to perpetrate or to protect fraud. See
Commonwealth by Shapiro, 194 A.3d at 1035; Lomas, 130 A.3d at 126;
see also Mark Hershey Farms, 171 A.3d at 816 (courts must ascertain “if
the corporate form is a sham”).
Appellant contends that the Brothers “transferred [the License] to
McCool Properties[’] tenant while [Appellant]’s dram shop action was pending
to avoid losing the [L]icense after the upcoming verdict” and “used their
corporate forms to perpetrate frauds,” reminding this Court that it “already
determined that 340 Associates committed fraud once, as a matter of law.”
Appellant’s Brief at 33, 45 (italics in original) (citing Fell v. 340 Associates,
125 A.3d 75).
Although Appellant is correct that this Court previously found that 340
Associates had committed fraud, Fell v. 340 Associates, 125 A.3d at 84,
____________________________________________
17 Although our case law is clear that “[t]he corporate existence can be
disregarded without a specific showing of fraud[,]” Hanrahan v. Audubon
Builders, Inc., 614 A.2d 748, 753 (Pa. Super. 1992), it is less inexplicit as
to whether the corporate veil can be pierced based only on fraud, without any
other factors being established; thus, even though we have found so far that
Appellant has failed to establish any other consideration used to determine if
a corporate veil should be pierced, we will still address this final factor in an
abundance of caution.
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“[t]he fraud in the PUFTA [A]ction was the distribution of 340 Associates’ only
asset, the License, leaving it incapable of discharging its debt.” TCO at 23.
Nothing in this Court’s decision explicitly held that the corporate form was
used to perpetrate the fraud. See Fell v. 340 Associates, 125 A.3d at 84.
While there is no case law explicitly defining “use of the corporate form,”
courts have considered the phrase to mean use of the corporate form’s
protections. See Lumax Industries, 669 A.2d at 895 (“unjustly seeking
corporate protection”); Sams v. Redevelopment Authority of the City of
New Kensington, 244 A.2d 779, 781 (Pa. 1968) (“it must be determined
that the corporate fiction is being used by the corporation itself to defeat public
convenience, justify wrong either to third parties dealing with the corporation,
or internally between shareholders’ (derivative suits), perpetrate fraud or
other similar reprehensible conduct”); Newcrete Products v. City of
Wilkes-Barre, 37 A.3d 7, 12 (Pa. Cmwlth. 2012) (“the use of the corporate
form’s protection”); Accurso v. Infra-Red Services, Inc., 23 F. Supp. 3d
494, 510 (E.D. Pa. 2014) (“the evidence must show that the corporation’s
owners abused the legal separation of a corporation from its owners” (citations
omitted)).18
____________________________________________
18 “Although we are not bound by decisions from the Commonwealth Court or
from courts in other jurisdictions, we may use them for guidance to the degree
we find them useful, persuasive, and (for other jurisdictions) not incompatible
with Pennsylvania law.” Ferraro, 185 A.3d at 404 (citing Newell v. Montana
West, Inc., 154 A.3d 819, 823 & n.6 (Pa. Super. 2017)).
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Generally, PUFTA permits a creditor to void a transfer or obligation
upon direct or indirect proof of fraud. See 12 Pa.C.S. §§ 5101–
5110. Because direct proof of fraud is rarely available, Section
5104 identifies factors—“badges of fraud”—that a court may
consider in ascertaining whether the debtor executed a voidable
transfer[.]
Fell v. 340 Associates, 125 A.3d at 81. In the PUFTA Action, the trial court,
as fact-finder, held that Appellant had “established the existence of the
elements of fraud at 12 Pa.C.S. § 5104(b)(4), (5), (9), and (10).” Id. at 79.
The factors listed in those subsections are:
(4) before the transfer was made or obligation was incurred, the
debtor had been sued or threatened with suit;
(5) the transfer was of substantially all the debtor’s assets; . . .
(9) the debtor was insolvent or became insolvent shortly after the
transfer was made or the obligation was incurred;
(10) the transfer occurred shortly before or shortly after a
substantial debt was incurred
12 Pa.C.S. § 5104(b)(4), (5), (9), (10). None of these “badges of fraud” have
anything to do with use of the corporate form’s protection, i.e., the insulation
of the company’s owners -- in this case, the Brothers – from the company’s
liability. See Lumax Industries, 669 A.2d at 895; Sams, 244 A.2d at 781;
Newcrete Products, 37 A.3d at 12; Accurso, 23 F. Supp. 3d at 510. The
Brothers had never directly owned the License; e.g., it is not as if the Brothers
had transferred their personal asset to a corporation or limited liability
company with the hope of using the protection of the corporate form to
conceal the asset from their personal creditor. As the trial court aptly
summarized, “it was not the misuse of the corporate form that formed the
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basis of the violation of PUFTA, but rather the distribution of the asset to Kayla,
which left 340 Associates unable to pay [Appellant]’s judgment” from the dram
shop action. TCO at 23. Accordingly, the fact that this Court “already
determined that 340 Associates committed fraud once, as a matter of law[,]”
Appellant’s Brief at 45 (citing Fell v. 340 Associates, 125 A.3d 75), is not
determinative of whether the corporate form was used to justify wrong or to
perpetrate or to protect fraud. See Commonwealth by Shapiro, 194 A.3d
at 1035; Lomas, 130 A.3d at 126.
Appellant additionally contends that, contrary to the Brothers’ claim,
340 Associates was not formed with the single purpose of holding and
protecting a single asset (the License), because it also owned the bar business,
as shown by the fact that 340 Associates paid food sales tax, which Appellant
in turn argues is proof that 340 Associates committed fraud. Appellant’s Brief
at 47-49.19 To the extent that any of these assertions are true, including that
340 Associates held more assets than just the License, these claims should be
resolved as part of the execution of the judgment in the dram shop action,
not as part of this separate action to pierce 340 Associates’ corporate veil,
____________________________________________
19 As for Appellant’s disagreement with the trial court’s finding that the
Brothers had hoped the License would appreciate in value over time,
Appellant’s Brief at 51-53 (citing TCO at 22), we fail to see how, even if proven
true, this detail would establish that the Brothers used 340 Associates’
corporate form to commit or to protect fraud or other wrong.
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because none of these allegations demonstrate that the Brothers used 340
Associates’ corporate form to commit fraud or another wrong.20
In general, Appellant has failed to establish that the corporate form was
a sham or otherwise constituted a facade for the operations of its members.
See Mark Hershey Farms, 171 A.3d at 816. For example, as discussed
above, Appellant has presented no evidence that the members ignored the
____________________________________________
20 Moreover, this argument seems to contradict to Appellant’s narrative
elsewhere in her appellate brief, where she refers to 340 Associates as “a
‘shell’ limited liability company [formed] to shield [the McCools], and their
property holding company, from any potential liability arising from The
Famous” Restaurant. Appellant’s Brief at 30; see also id. at 33 (“corporate
‘shell’ scheme”), 54 (referring to 340 Associates as “a shell corporation”), 57
(referring to 340 Associates as “an admitted ‘shell’ company”). See In re
Estate of Hall, 535 A.2d 47, 50 (Pa. 1987) (equating a “shell corporation”
with “a dummy corporation without assets”); but see 17 CFR §§ 230.12b-2
& 230.405 (both sections definitions of “shell company” include a company
with “nominal assets” – not just no assets – but neither section defines
“nominal”).
We further observe that shell companies are not inherently malevolent, and
can “have legitimate uses”:
Th[e] entity structure [of a shell company] is often used to
facilitate corporate mergers, whereby two merging companies
structure the transaction so that they are consolidated under a
third, neutral shell company. Similarly, this entity structure is
used in joint ventures, whereby a shell company is incorporated
in a neutral jurisdiction to ensure neither party to the transaction
receives favoritism. Shell companies are also used to organize
partnership payments and profit-sharing agreements involving
parties from different jurisdictions, potentially to allow for the pre-
tax division of revenues and income between shareholders.
Idelys Martinez, “The Shell Game: An Easy Hide-and-Go-Seek Game for
Criminals Around the World,” 29 St. Thomas L. Rev. 185, 210 & n.13 (2017)
(citation omitted).
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requisite separation of 340 Associates’ corporate funds from the members’
personal assets, except where the members used their own personal assets
to support 340 Associates – but never using 340 Associates’ assets to pay for
their personal expenses – i.e., “as if they were [their] own.” Id. Additionally,
Appellant also failed to present any evidence that 340 Associates was
established for nefarious purposes, given that 340 Associates was created
more than five years prior to Appellant’s traffic collision. TCO at 2-3.
Most significantly, “340 Associates always held a valuable asset, the
License, which was unencumbered by debt, and had income adequate for its
limited needs.” Id. at 22. A single-asset entity, such as 340 Associates, is
not presumptively fraudulent, as the trial court thoroughly discussed:
The use of a separate business entity to hold a liquor license is an
accepted practice. The overall structure that Chris and Andy
employed to hold real estate in one entity and the License in a
separate entity is an accepted practice. Even a casual observer
would understand that such an arrangement is to protect one set
of assets, the real estate, from any liability that might result from
the License. There is no law that prohibits this business
arrangement. There is no law that prohibits the use of a separate
business entity to hold a liquor license. McCrery v. Scioli, 336
Pa.Super. 455, 465, 485 A.2d 1170, 1175 (1984) (“A bonafide
Pennsylvania corporation is a distinct legal entity; this includes a
corporation that is a licensee under the Pennsylvania [Liquor
Code].”) A business structure that is permitted under the law
does not defeat public convenience, justify wrong or result in
fraud. Similarly, there is no law that requires a Licensee to
maintain liquor liability insurance. The failure to maintain
insurance when none is required under the law does not defeat
public convenience, justify wrong or result in fraud. 340
Associates held an asset, the License, which was transferred to
[Appellant] to partially satisfy the judgment she holds.
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Even when a corporation is owned by one person or family,
the corporate form shields the individual members of the
corporation from personal liability and will be disregarded
only when it is abused to permit perpetration of a fraud or
other illegality.
Kellytown Co.[ v. Williams], [426 A.2d 663, 668 (Pa. Super.
1981)]. The evidence [Appellant] marshaled does not
demonstrate that the corporate form was used to perpetrate a
fraud or other illegality. The limited liability company business
form is available to shield its members from personal liability.
Because there was no prohibition on the use of the business form
as employed by the Brothers, they are entitled to the advantages
of the form they selected. To say otherwise would render the
entire theory of the corporate entity useless. . . .
The fact that 340 Associates could not pay the judgment
[Appellant] received does not render the business a . . . sham.
Not every business entity can pay its debts, but that does not
mean there is a fraud.
Id. at 21-22.
* * *
Appellant has thus failed to establish any of the factors that a court may
consider when deciding whether to pierce the corporate veil against the
Brothers and therefore has failed to overcome the strong presumption against
piercing the corporate veil in Pennsylvania. Lomas, 130 A.3d at 126;
Mark Hershey Farms, 171 A.3d at 816. We thereby agree with the trial
court that equity does not require that the members’ traditional insulation of
from personal liability be disregarded. See Mark Hershey Farms, 171 A.3d
at 816.
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McCool Properties
The trial court entered a verdict in favor of McCool Properties. TCO at 1.
Our standard of reviewing non-jury verdicts remains “whether the findings of
the trial court are supported by competent evidence and whether the trial
court committed error in any application of the law.” Ferraro, 185 A.3d at
401.
As Appellant has presented no evidence that McCool Properties was ever
a member of or had any ownership interest in 340 Associates, the trial court
properly found that McCool Properties’ assets cannot be accessed by piercing
340 Associates’ corporate veil and that, ergo, McCool Properties cannot be
held liable for 340 Associates’ debt. TCO at 6.
Appellant’s endeavor to argue otherwise is the result of her confusion
over the “alter ego theory.” She repeatedly refers to 340 Associates and
McCool Properties as “alter ego” companies due to 340 Associates’ financial
dependence on the resources of McCool Properties. See, e.g., Appellant’s
Brief at 2, 54, 63-64, 66.
However, the alter ego theory of piercing the corporate veil only applies
when the actions and finances of a company and its owner or owners – be the
owner(s) human or other business(es) -- are intertwined to the degree that
there is no delineation between the company and the owner(s), as this Court
explained in Miners, Inc. v. Alpine Equipment Corp., 722 A.2d 691 (Pa.
Super. 1998):
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The alter ego theory is applicable only where the individual or
corporate owner controls the corporation to be pierced and the
controlling owner is to be held liable. That is quite distinct from
the situation where two or more corporations share common
ownership and are, in reality, operating as a corporate combine.
This latter theory has been labeled the enterprise entity theory or
the single entity theory. . . . Under that theory, two or more
corporations are treated as one because of identity of ownership,
unified administrative control, similar or supplementary business
functions, involuntary creditors, and insolvency of the corporation
against which the claim lies.
Id. at 695 (emphasis in original) (citations omitted); see also Mark Hershey
Farms, 171 A.3d at 816; Allegheny Energy Supply, 53 A.3d at 58 n.7;
Advanced Telephone Systems, 846 A.2d at 1278. In other words, for the
purpose of piercing the corporate veil, a corporation or limited liability
company’s “alter ego” can never be someone who or something that is not
also a shareholder or member, respectively, no matter how much their
activities and financial resources might overlap or be entwined or if they are,
in reality, operating as a corporate combine. See Miners, 722 A.2d at 695.
Although Appellant misconstrues the alter ego theory of piercing the
corporate veil, she also argues that the trial court should have pierced the
corporate veil under the “enterprise entity” or “single entity” theory in order
to allow access to the corporate assets of McCool Properties. Appellant’s Brief
at 71-74.
While Appellant may present a meaningful case that 340 Associates and
McCool Properties should be treated as one entity, Pennsylvania has
repeatedly refused to adopt the “enterprise entity” or “single entity” theory of
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piercing the corporate veil. Advanced Telephone Systems, 846 A.2d at
1278 n.9 (“‘single entity’ theory has yet to be adopted in Pennsylvania”);
Miners, 722 A.2d at 695 (“the enterprise entity theory or the single entity
theory . . . , however, has yet to be adopted in Pennsylvania”). “It is not the
prerogative of an intermediate appellate court to enunciate new precepts of
law or to expand existing legal doctrines. Such is a province reserved to the
Supreme Court.” In re M.P., 204 A.3d 976, 986 (Pa. Super. 2019) (citation
omitted).21 For this reason, we cannot consider Appellant’s arguments for
piercing the corporate veil pursuant to the enterprise entity or single entity
theory.22
____________________________________________
21 In In re LMcD, LLC, 405 B.R. 555, 565 (Bankr. M.D. Pa. 2009), the United
States Bankruptcy Court for the Middle District of Pennsylvania, predicted that
“[t]he Pennsylvania Supreme Court would likely adopt the ‘single entity
theory’ for the same limited purpose it chose to adopt the ‘alter ego theory,’—
to prevent fraud or injustice.”
22 Ergo, Appellant’s arguments as to whether McCool Properties funded 340
Associates and whether McCool Properties benefited from the transfer of the
License from 340 Associates to Kayla are irrelevant, because we cannot
consider whether 340 Associates and McCool Properties can be treated as one
entity due to their overlapping ownership and management – as Ray was
deceased by the time of the fraudulent transfer, leaving only the Brothers in
control of both companies -- as a basis for piercing the corporate veil. See
Appellant’s Brief at 50, 62-66; Fell v. 340 Associates, 125 A.3d at 77-78;
Miners, 722 A.2d at 695; TCO at 6.
We note, however, that the record supports a finding that McCool Properties
received inflated rent from Kayla (but not the Tapias) as camouflaged
payment for the License – payment which otherwise would have been given
to 340 Associates. According to the lease agreement between Kayla and
McCool Properties, during the time period that Kayla used the License, McCool
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Accordingly, McCool Properties’ assets are not available for Appellant’s
claim against 340 Associates either under the alter ego theory or the
enterprise/single entity theory. Thus, we need not consider whether there is
justification to pierce 340 Associates’ corporate veil to reach McCool
____________________________________________
Properties received between $4,500.00 and $6,083.26 per month in rent, with
the amount escalating each year. Exhibit P-23, “Rent Rider.” These payments
were between $900.00 and $2,483.26 per month more than Appellant’s own
expert testified was a fair market rent for leasing commercial space at the
Property. Compare id. with N.T. at 550. McCool Properties thus not only
received a benefit as a result of the fraudulent transfer of the License, but this
cloaked payment was one that customarily would have been disbursed directly
to 340 Associates as compensation for the License, if not for the fraudulent
transfer. Therefore, if the “enterprise entity” or “single entity” theory of
piercing the corporate veil were available in Pennsylvania, some of McCool
Properties’ assets would be accessible to Appellant – specifically, the
difference between the fair market rent for commercial space at the Property
and the inflated rent paid to McCool Properties by Kayla as concealed
payments for the License.
We empathize with Appellant’s frustration over this result, but we find that no
other outcome is possible given the current state of Pennsylvania law on
piercing the corporate veil. See M.P., 204 A.3d at 981 n.2 (“It is well-settled
that the Superior Court is an error correcting court and we are obliged to apply
the decisional law as determined by the Supreme Court of Pennsylvania.”
(citation omitted)).
As for any additional argument that the Brothers still benefited from the
inflated rent payments in the form of “management fees that McCool
Properties paid the individuals” and the “monthly ‘expense’ payments” that
the Brothers withdrew from McCool Properties, Appellant’s Brief at 70 (citing
N.T. at 83-84, 87), the record relied upon by Appellant only shows these fees
and payments distributed when the Tapias were still renting the commercial
space in the Property, not when Kayla was the tenant. N.T. at 84, 86, 89
(citing Exhibit P-19E (McCool Properties’ checks dated from March to May
2005) & Exhibit P-19F (McCool Properties’ checks dated from January to June
2006)).
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Properties’ assets, because said assets would never be obtainable by this
method.
* * *
We therefore conclude that the findings of the trial court are supported
by competent evidence and that the trial court did not abuse its discretion nor
commit an error in the application of the law when it dismissed Appellant’s
action to pierce the corporate veil of 340 Associates. See Ferraro, 185 A.3d
at 401; Kovacevich, 172 A.3d at 85; Mark Hershey Farms, 171 A.3d at
814–16. For the reasons set forth above, none of Appellant’s claims on appeal
merit relief. Consequently, we affirm the judgment.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/12/19
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