Present: All the Justices
JEROME GREENBERG
v. Record No. 971472 OPINION BY JUSTICE CYNTHIA D. KINSER
April 17, 1998
COMMONWEALTH OF VIRGINIA, EX REL.
ATTORNEY GENERAL OF VIRGINIA
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Theodore J. Markow, Judge
In this case, the Commonwealth of Virginia seeks
restitution from Jerome Greenberg, chairman of the board
and majority shareholder of Allstate Express Check Cashing,
Inc. (Allstate), of all amounts Allstate received from
borrowers in connection with its cash advancement loan
program in violation of the Consumer Finance Act (CFA).
The Commonwealth proceeded on two theories under which to
hold Greenberg personally liable: (1) actively
participating in the commission of the illegal conduct; and
(2) piercing the corporate veil. The trial court refused
to pierce the corporate veil but held Greenberg personally
liable by applying an active participation theory. Because
we find that Code § 6.1-308(B) precludes imposition of
restitution on any entity or individual other than the
lender, we will reverse the trial court’s judgment imposing
liability on Greenberg. However, we find, as a matter of
law, that the evidence is insufficient to pierce the
corporate veil and will affirm the trial court’s judgment
on that issue.
We will discuss each theory relied upon by the
Commonwealth and the relevant facts seriatim.
I. ACTIVE PARTICIPATION
A. Facts
From February 10, 1992, until approximately February
1, 1993, Allstate, a Virginia corporation doing business as
Allstate Express Checking, operated a check cashing/cash
advance business from four different locations in Hampton,
Norfolk, and Virginia Beach. Allstate provided two basic
services to its customers. One service involved cashing
government, payroll, travelers, insurance, and personal
checks for individuals without checking accounts.
Allstate’s fees for this service started at 2% and varied
depending on the type of check. Only a small percentage of
Allstate’s customers utilized this service.
The second service that Allstate offered was for
customers with a checking account and involved advancing
cash against present-dated checks at a discount from the
face amount of the checks and holding the checks for a
specified period of time before cashing them. The fee
Allstate charged for this service was a fixed percentage of
the amount advanced, such as 25% or 30%, depending on the
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amount of the advancement. The majority of Allstate’s
customers used this service.
The three major principals in Allstate were Greenberg,
Loran S. Martin, and Joseph P. Lynch. They comprised
Allstate’s board of directors, with Greenberg serving as
the chairman. Martin was Allstate’s president and chief
operations officer, and Lynch was Allstate’s secretary and
treasurer. All three were also shareholders of Allstate,
with Greenberg being the majority shareholder.
In early 1993, the Commonwealth brought suit against
Allstate alleging that it had violated the CFA by making
loans in amounts and at interest rates prohibited under
Code § 6.1-249. 1 In that suit, the Circuit Court of the
City of Richmond determined that Allstate’s cash advance
services constituted “loans” within the meaning of the CFA
________________
1
The version of Code § 6.1-249 in effect in 1993
provided in pertinent part:
No person shall engage in the business of lending
in amounts of the then established size of loan
ceiling or less, and charge, contract for, or receive,
directly or indirectly, on or in connection with any
loan, any interest, charges, compensation,
consideration or expense which in the aggregate are
greater than the rate otherwise permitted by law
except as provided in and authorized by this chapter
and without first having obtained a license from the
Commission.
The General Assembly amended this section in 1995.
3
and that Allstate’s fees for these services exceeded the
CFA’s statutory limits. Accordingly, the trial court
enjoined Allstate from violating the CFA and entered
judgment for the Commonwealth, “as trustee for the use and
benefit of affected borrowers,” against Allstate “for
restitution of all amounts it received from borrowers in
connection with its check advancement loan program.”
On January 5, 1994, the Commonwealth filed a bill of
complaint against Greenberg and alleged, inter alia, that
Greenberg actively participated in the illegal acts
perpetrated by Allstate. 2 The Commonwealth sought to hold
Greenberg individually liable for restitution to borrowers
under Code § 6.1-308(B).
The trial court found that Greenberg did actively
participate in Allstate’s illegal conduct and that the
Commonwealth could, therefore, obtain restitution from
Greenberg for the benefit of Allstate’s borrowers. In
doing so, the court rejected Greenberg’s argument that Code
§ 6.1-308(B) allows for restitution only from the “lender”
for violations of the CFA. Rather, in a letter opinion,
the court reasoned:
________________
2
The Commonwealth also included Martin and Lynch in
its suit. However, the claims against them were resolved
and are not before this Court.
4
The liability has been imposed against the
corporation, according to the statute, as a result of
the illegal acts of the corporation. Because it was
actually individuals who committed the illegal acts,
the individuals can be held responsible. Mr.
Greenberg is to be held personally liable, not because
he was the “lender”, but because he was a responsible
actor within the corporation which was the “lender.”
The statute imposes the liability on the corporation
as lender and the doctrine of active participation
extends that liability to the individuals involved.
Subsequently, in an order dated April 15, 1997, the trial
court entered a permanent injunction against Greenberg and
final judgment in favor of the Commonwealth in the amount
of $237,154, as restitution in trust and for the benefit of
Allstate’s borrowers, and $30,000 as attorney’s fees.
Greenberg appeals.
B. Analysis
Code § 6.1-303(A)(2) of the CFA provides that “[t]he
Attorney General may seek and the circuit court may order
or decree such other relief allowed by law, including
restitution to the extent available to borrowers under
subsection B of § 6.1-308.” Code § 6.1-308 sets forth the
penalties for CFA violations and provides as follows:
A. Any person and the several members, officers,
directors, agents, and employees thereof, who violate
or participate in the violation of any provision of
§ 6.1-249 shall be guilty of a Class 2 misdemeanor.
B. Any contract of loan in the making or
collection of which any act has been done which
violates § 6.1-249 shall be void and the lender shall
not collect, receive, or retain any principal,
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interest, or charges whatsoever, and any amount paid
on account of principal or interest on any such loan
shall be recoverable by the person by or for whom
payment was made.
This Court has stated that “[a] corporation can act
alone through its officers and agents, and where the
business itself involves a violation of the law, the
correct rule is that all who participate in it are liable.”
Crall and Ostrander v. Commonwealth, 103 Va. 855, 859, 49
S.E. 638, 640 (1905). See also Bourgeois v. Commonwealth,
217 Va. 268, 274, 227 S.E.2d 714, 718 (1976). Relying on
these cases, the Commonwealth argues that Greenberg is
personally liable for Allstate’s violations of the CFA.
Greenberg, however, contends that the trial court erred in
using the active participation theory to hold him
personally liable because Code § 6.1-308(B) precludes the
imposition of restitution on any individual or entity other
than the lender.
A resolution of this issue necessarily requires us to
examine Code § 6.1-308(B). At the outset, we note that the
CFA is a remedial statute. Valley Acceptance Corp. v.
Glasby, 230 Va. 422, 428, 337 S.E.2d 291, 295 (1985).
Consequently, we construe it liberally so as “to avoid the
mischief at which it is directed and to advance the remedy
for which it was promulgated.” Id. In doing so, we
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cannot, however, deviate from the language of Code § 6.1-
308, which we find to be plain and unambiguous.
Our duty is “to construe the law as it is written.”
Hampton Roads Sanitation Dist. Comm’n v. Chesapeake, 218
Va. 696, 702, 240 S.E.2d 819, 823 (1978). We assume that
“the legislature chose, with care, the words it used when
it enacted the relevant statute, and we are bound by those
words . . . .” Barr v. Town & Country Properties, Inc.,
240 Va. 292, 295, 396 S.E.2d 672, 674 (1990). “To depart
from the meaning expressed by the words is to alter the
statute, to legislate and not to interpret.” Faulkner v.
Town of South Boston, 141 Va. 517, 524, 127 S.E. 380, 382
(1925).
We agree with Greenberg that Code § 6.1-308(B) permits
a recovery of restitution only from the lender. In Code
§ 6.1-308(A), the General Assembly prescribed misdemeanor
criminal liability for “[a]ny person and the several
members, officers, directors, agents, and employees
thereof.” The CFA defines “person” to include
“individuals, copartnerships, associations, trusts,
corporations, and all other legal and commercial entities.”
Code § 6.1-245. Thus, “individuals, . . . corporations,
and all other legal . . . entities” and their “members,
officers, directors, agents, and employees” are subject to
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misdemeanor penalties for violating the CFA. The General
Assembly explicitly created a broad category of individuals
and entities subject to Code § 6.1-308(A).
In contrast to subsection (A), Code § 6.1-308(B),
provides that only the “lender shall not collect, receive,
or retain any principal, interest, or charges whatsoever,
and any amount paid on account of principal or interest on
any such loan shall be recoverable by the person by or for
whom payment was made.” (Emphasis added). Absent from
subsection (B) is the broad category of entities found in
subsection (A). In other words, subsection (B) does not
include any individual, officer, director, or entity other
than the lender.
“When the General Assembly uses two different terms in
the same act, it is presumed to mean two different things.”
Forst v. Rockingham Poultry Mktg. Coop. Inc., 222 Va. 270,
278, 279 S.E.2d 400, 404 (1981). As evident in subsection
(A), the General Assembly knew how to broaden the range of
liability, and the absence of any such provisions in
subsection (B) indicates the General Assembly’s intent to
limit those from whom borrowers may obtain restitution. To
determine otherwise would be to rewrite the statute and to
contradict the General Assembly’s express intent. Thus, we
hold that the trial court erred in using the active
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participation theory to allow the Commonwealth to recover
restitution from Greenberg for Allstate’s violations of the
CFA.
Our decision is not inconsistent with other cases in
which we used the active participation theory to impose
individual liability on corporate officers or directors.
The distinction between such cases and the present one lies
in the language of the relevant statutes. For example, in
Bourgeois, a corporate officer was found guilty of grand
larceny by obtaining money by false pretenses. The statute
at issue provided that “[i]f any person obtain, by any
false pretense or token, from any person, with intent to
defraud, money or other property which may be the subject
of larceny, he shall be deemed guilty of larceny thereof;
. . . .” Bourgeois, 217 Va. at 269 n.1, 227 S.E.2d at 715
n.1. (Emphasis added). Likewise, in Crall, the
corporation’s vice-president was criminally liable under a
statute which provided “[a]ny peddler who shall peddle for
sale, or sell or barter, without a license, shall pay a
fine . . . .” Crall, 103 Va. at 858, 49 S.E. at 639. The
statute defined “peddler” as “[a]ny person who shall carry
from place to place any goods, wares or merchandise, and
offer to sell or barter the same, or actually sells or
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barters the same . . . .” Id. at 857, 49 S.E. at 639.
(Emphasis added).
In contrast to the above two statutes, Code § 6.1-
308(B) permits a recovery of restitution solely from the
“lender” and does not impose liability on “any person.”
Therefore, to allow the Commonwealth to obtain restitution
from Greenberg would be to invade the province of the
legislature and to expand the scope of liability in Code
§ 6.1-308(B). 3
II. PIERCING THE CORPORATE VEIL
A. Facts
Greenberg first became involved in Allstate prior to
its incorporation 4 when Martin and Lynch gave Greenberg a
business prospectus and asked him to provide the initial
capitalization for Allstate. 5 After consulting about the
proposed business venture with his attorney, who did not
________________
3
The Commonwealth summarily argued in its brief that,
under Code § 6.1-303(A)(1), the Attorney General may sue
“any person” who has violated the CFA for monetary relief.
However, the Commonwealth did not bring this suit under
Code § 6.1-303(A)(1). Rather, it asked to be trustee for
the benefit of the borrowers under Code § 6.1-303(A)(2).
Therefore, we will not address this argument.
4
Allstate was incorporated on January 22, 1992.
5
Lynch, a CPA, had prepared the prospectus. Martin
had experience working in another check cashing/cash
advance company.
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advise Greenberg of any potential legal problems,
Greenberg agreed to loan $60,000 to Allstate interest-free
with the understanding that Allstate would repay Greenberg
in full within six months. 6
Martin, Lynch, and Greenberg each had different
responsibilities in regard to Allstate’s business.
Martin’s responsibilities included developing Allstate’s
fee schedules, managing personnel, screening customers, and
advertising. Lynch handled all the bookkeeping,
accounting, and record-keeping functions. Greenberg was
Allstate’s financial consultant for which he received $500
a week as compensation. As the financial consultant,
Greenberg addressed start-up and expansion problems and
kept “tabs on what [Martin and Lynch] were doing to protect
his investment.”
However, unlike Martin and Lynch, Greenberg, according
to Martin, did not participate in the daily operations of
Allstate in any substantial way. Greenberg occasionally
visited the four stores, and an Allstate employee testified
________________
6
During the course of Allstate’s business, Greenberg
actually loaned more than $60,000 to Allstate. When it
became apparent that Allstate could not repay Greenberg
during the first six months of its operation, Allstate
began paying interest to him at a rate of 4% per month,
which was later increased to 5% after other individuals
made similar investments in Allstate and received the
higher interest rate.
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that during one such visit, Greenberg instructed her not to
use the terms “loan,” “interest,” and “advance” when
speaking to customers. 7 At times, Greenberg would also make
bank deposits for Allstate and transfer cash between
offices. However, these activities were not part of his
regular responsibilities and were considered a “rare
event.” Greenberg did attend meetings of the directors
and, occasionally, those of the managers. However, his
participation at the meetings with the managers was
minimal, and he was considered a “spectator.”
In late November or early December 1992, Greenberg
learned that the Commonwealth had filed suits alleging
violations of the CFA by other companies similar to
Allstate. After discovering that other “cash-advance”
companies had, in response to the suits, initiated a “gift
certificate catalogue business,” Greenberg, Martin, and
Lynch concluded that Allstate should do the same. 8 At this
________________
7
Martin testified that Greenberg’s attorney had
advised against using these terms to avoid the implication
that Allstate was a licensed lending institution.
8
Prior to making this change, Greenberg consulted with
his attorney to ascertain if the gift certificate program
posed any legal problems or issues. Greenberg’s attorney
assured him that the program was “perfectly fine.”
However, a former Allstate employee did testify that Martin
referred to the gift certificates as a “front.”
Under the gift certificate program, Allstate gave its
customers a gift certificate in the amount of Allstate’s
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point, however, Greenberg decided that he “want[ed] to get
out of the business” and asked for a return of his money. 9
Allstate then began “winding down” its business and paid
its trade debts and withholding taxes.
After considering the testimony and exhibits, the
trial court concluded that the evidence was insufficient to
pierce the corporate veil. In its letter opinion, the
court stated that the evidence failed to show “that
Greenberg incorporated [Allstate] for the purpose of
disguising his wrongful actions and evading liability.”
B. Analysis
In its assignment of cross-error, the Commonwealth
argues that sufficient evidence exists to justify piercing
the corporate veil to impose personal liability on
Greenberg. The Commonwealth contends, and we agree, that
the trial court’s analysis focused only on Greenberg’s
intent in incorporating Allstate and failed to address his
subsequent use of the corporation. Nevertheless, based
upon our review of the record, we conclude that, as a
____________
fee. The customers could then use the certificates to
offset the price of furniture that they bought at a
furniture retail store owned by Greenberg.
9
Allstate’s bank records show that Greenberg received
a total of $183,163.04 from Allstate. Of that amount,
$126,462.01 was paid between November 25, 1992 and February
19, 1993.
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matter of law, the evidence is insufficient to disregard
the corporate structure and impose personal liability on
Greenberg.
We have recognized that “no single rule or criterion
. . . can be applied to determine whether piercing the
corporate veil is justified.” O’Hazza v. Executive Credit
Corp., 246 Va. 111, 115, 431 S.E.2d 318, 320 (1993).
Disregarding the corporate entity is usually warranted if:
[T]he shareholder sought to be held personally liable
has controlled or used the corporation to evade a
personal obligation, to perpetrate fraud or a crime,
to commit an injustice, or to gain an unfair
advantage. . . . Piercing the corporate veil is
justified when the unity of interest and ownership is
such that the separate personalities of the
corporation and the individual no longer exist and to
adhere to that separateness would work an injustice.
Id., 431 S.E.2d at 320-21. Ultimately, a decision whether
to disregard the corporate structure to impose personal
liability is a fact-specific determination, and each case
requires a close examination of the factual circumstances
surrounding the corporation and the questioned acts. Id.,
431 S.E.2d at 321.
Only “an extraordinary exception” will justify
disregarding the corporate entity, and no such exception is
present here. Cheatle v. Rudd’s Swimming Pool Supply Co.,
Inc., 234 Va. 207, 212, 360 S.E.2d 828, 831 (1987) (quoting
Beale v. Kappa Alpha Order and Kappa Alpha Alumni Found.,
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192 Va. 382, 397, 64 S.E.2d 789, 797 (1951)). The evidence
showed that Greenberg did not develop Allstate’s policy or
procedure; rather, Martin and Lynch approached Greenberg
with a business plan detailing Allstate’s operation.
Further, Greenberg, before becoming Allstate’s majority
shareholder, sought advice from his counsel regarding the
legality of the proposed business. Thus, the trial court
correctly concluded that Greenberg did not incorporate
Allstate for the purpose of disguising wrongful actions or
concealing a crime.
Nor did Greenberg use the company to “evade a personal
obligation, to perpetrate fraud or a crime, to commit an
injustice, or to gain an unfair advantage.” O’Hazza, 246
Va. at 115, 431 S.E.2d at 320. He did not determine the
amount of or collect Allstate’s fees, solicit customers, or
handle employment matters. At most, as Allstate’s
financial consultant, he addressed start-up and expansion
issues. When Greenberg instructed an employee not to use
the words “loan” or “interest,” he did so because of advice
he had received from his attorney. He also sought legal
advice before Allstate implemented the gift certificate
program. Finally, in recouping his loan to Allstate,
Greenberg received interest only after Allstate could not
abide by its initial agreement to repay the loan in six
15
months and increased the amount of the interest only after
other investors started receiving the higher rate. Thus,
the evidence, as a matter of law, establishes that
Greenberg, like any other shareholder, used the corporate
structure to limit his liability to his initial investment
and not to perpetrate or disguise illegal activities. 10 In
other words, Greenberg did not use the corporate structure
“to mask wrongs” or to facilitate the commission of illegal
acts. Bogese, Inc. v. State Highway and Transp. Comm’r,
250 Va. 226, 231, 462 S.E.2d 345, 348 (1995).
Therefore, for the reasons stated, we will affirm in
part and reverse in part the circuit court’s judgment, and
enter final judgment in favor of Greenberg.
Affirmed in part,
reversed in part,
and final judgment.
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10
The Commonwealth also claims that the trial court
erred by failing to consider whether Allstate was the alter
ego of Greenberg. Because we have determined, as a matter
of law, that the evidence is insufficient to pierce the
corporate veil, we do not address this argument.
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