Complete Transportation - Veil Piercing of LLC in Conn Fails

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Complete Transportation - Veil Piercing of LLC in Conn Fails

Postby JDA » Wed Mar 27, 2013 8:39 pm

Complete Transportation, LLC v. CPM Colchester, LLC, 2013 WL 951342 (Conn.Sup., Unpublished, Feb. 15, 2013). http://goo.gl/XrN0R

UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING.

Superior Court of Connecticut, Judicial District of New London.

COMPLETE TRANSPORTATION, LLC

v.

CPM COLCHESTER, LLC et al.

No. CV125014477.

Feb. 15, 2013.

Attorneys and Law Firms

Hassett & George PC, Simsbury, CT, for Complete Transportation, LLC.

Shapiro Law Offices LLC, Middletown, CT, for CPM Colchester, LLC, et al.

Opinion

DEVINE, J.

*1 The plaintiff, Complete Transportation, LLC (hereinafter "Complete") has filed an application seeking prejudgment remedies against the defendant, CPM Colchester, LLC (hereinafter "CPM") and Bruce Hayn (hereinafter "Hayn") in his individual capacity. A short calendar hearing was held on December 17, 2012, where the court heard the parties with post-hearing briefs submitted by the order of the court.

This court finds that Complete has sustained the burden of proving probable cause for the prejudgment remedy against CPM in that there is no dispute that CPM owes over $87,000 to Complete based upon an oral contract between the parties. The court must now determine whether Hayn is liable to Complete on the legal claims set out in its proposed writ, summons and complaint (# 100.32) requiring a piercing of the corporate veil.

Prejudgment Remedy

"A prejudgment remedy is available upon a finding by the court that there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount of the prejudgment remedy sought, taking into account any defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff ... General Statutes sec. 52–278d(a)(1) ... proof of probable cause as a condition of obtaining a prejudgment remedy is not as demanding as proof by a fair preponderance of the evidence ... The legal idea of probable cause is a bona fide belief in the existence of the facts essential under the law for the action and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances, in entertaining it ... Probable cause is a flexible common sense standard. It does not demand that a belief be correct or more likely true than false ... Under this standard, the trial court's function is to determine whether there is probable cause to believe that a judgment will be rendered in favor of the plaintiff in a trial on the merits ..." Kosiorek v. Smigelski, 112 Conn.App. 315, 319, 962 A.2d 880 (2009).

To prevail against Hayn, the plaintiff has to establish probable cause that a judgment will be rendered against him taking into account any defenses, counterclaims or set-offs. In the present controversy, in order to establish probable cause, there must be sufficient evidence to pierce the corporate veil under either the "instrumentality" or "identity" rule. The central allegation in all its claims against Hayn, Complete alleges that he "exercised control of CPM Colchester in such a way as to commit a wrong; namely, that he continued to order transportation services and collect money from the goods he was having moved while the debt for services provided by the plaintiff remained unpaid" (# 100.32, Count V, para. 6, unjust enrichment, Count VI, para. 5, promissory estoppel, Count VII, para. 9, negligent misrepresentation and Count VIII, para. 12, fraudulent misrepresentation).

Piercing the Corporate Veil

Connecticut General Statutes sec. 34–133(a) provides that "a person who is a member or manager of a limited liability company is not liable, solely by reason of being a member or manager, under a judgment, decree or order of a court, or any other manner, for a debt, obligation or liability of the limited liability company, whether arising in contract, tort or otherwise or for the acts or omissions of any other member, manager, agent or employee of the limited liability company." "[O]ne of the principal reasons to use an LLC is that the owners and managers, if owners so elect, have limited liability from contract and tort claims of third parties." See Litchfield Asset Management v. Howell, Superior Court, judicial district of Litchfield, Docket No. 076827, 2000 Conn.Super. LEXIS 2991, *4 (Nov. 14, 2000), aff'd in part, rev'd in part 70 Conn.App. 133, 799 A.2d 298 (2002).

*2 "Courts will ... disregard the fiction of a separate legal entity to pierce the shield of immunity afforded by the corporate structure in a situation in which the corporate entity has been so controlled and dominated that justice requires liability to be imposed on the real actor." Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 552, 447 A.2d 406 (1992). "A court may pierce the corporate veil and impose individual liability only in the most exceptional circumstances, for example, where the corporation is a mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetrate fraud or promote injustice." Coppolecchia v. Built Right N.E., LLC, Superior Court, judicial district of Middlesex, Docket No. MMXCV 12 5008148, 2012 Conn.Super. LEXIS 2963, *8–9 (December 6, 2012), citing United Electrical Contractors v. Progress Builders, Inc., 26 Conn.App. 749, 755, 603 A.2d 1190 (1992); see also Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. at 557, 447 A.2d 406 (finding that the corporate veil should only be pierced in extraordinary circumstances).

"The corporate shield should not be lightly disregarded to hold a stockholder liable, even where there is only one stockholder." Coppolecchia v. Built Right N.E., LLC, 2012 Conn.Super. LEXIS 2963, at *9, citing Falcone v. Night Watchman, Inc., 11 Conn.App. 218, 222, 526 A.2d 550 (1987). "The improper use of the corporate form is key to the inquiry, as [i]t is true that courts will disregard legal fictions, including that of a separate corporate entity, when they are used for fraudulent or illegal purposes. Unless something of the kind is proven, however, to do so is to act in opposition to public policy of the state as expressed in legislation concerning the formation and regulation of corporations." Naples v. Keystone Building & Development Corp., 295 Conn. 214, 233–34, 990 A.2d 326 (2010); see also Coppolecchia v. Built Right N.E., LLC, supra, 2012 Conn.Super. LEXIS at 2963, at *9 citing Saphir v. Neustadt, 177 Conn. 191, 212, 413 A.2d 843 (1979). Ordinarily, "a corporate veil is pierced by a creditor suing an individual who has used a corporation as an instrument of fraud." Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. at 555, 447 A.2d 406. Plaintiff bears the burden of proving the piercing of the corporate veil. Season–All Industries, Inc. v. R.J. Gross, Inc., 213 Conn., 486, 492, 569 A.2d 32 (1990). A party may pierce the corporate veil under the instrumentality rule or the identity rule. See, e.g., Toshiba America Medical Systems v. Mobile Medical Systems, 53 Conn.App. 484, 489, 730 A.2d 1219 (1999).

"Under the instrumentality rule, a shareholder, director, or officer of a corporate entity can be held personally liable for corporate actions that, in economic reality, are those of the individual ... We have consistently held that the instrumentality rule requires proof of three elements: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of." (Citation omitted; internal quotation marks omitted.) Utzler v. Braca, 115 Conn.App. 261, 274–75, 972 A.2d 743, cert. denied, 298 Conn. 928, 5 A.3d 488 (2010).

*3 Complete argues that the instrumentality rule applies because of Hayn's alleged complete domination over CPM and CPM's lack of any purported "brand identity." In support of this position, Complete argues that Hayn owns multiple entities, and that there is no brand identity due to his use of a personal e-mail address for communicating with Complete and lack of a website.1 The court finds that it is not enough to impose liability against Hayn under the instrumentality rule. Complete's argument fails to satisfy the second element of the instrumentality rule that the control must have been used by the defendant to commit fraud or wrong. The only wrong alleged under Complete's corporate veil arguments is that Hayn allegedly "continued to order transportation services and collect money from the goods he was having moved while the debt for the services provided by plaintiff remained unpaid." In support of these allegations, Complete's Manager and Member, Peter Gurrisi, testified that he continued to provide services because of Hayn's statements that CPM would pay its bill. (Exhibit A, PJR Hr'g Tr. at p. 11.)

The court finds the oral agreement was entered into by Complete and CPM as evidenced by the billing invoices and check payments by CPM throughout the entire transaction. CPM continually made regular payments to Complete throughout the course of their relationship. Mr. Gurrisi admitted that CPM continued to pay its bill throughout the time that Complete provided services and even after Complete stopped providing services to CPM. Mr. Gurrisi also acknowledged that he allowed the debt to build up on CPM's account because they "had a good relationship, and we were being paid regularly" (Id. at p. 3). Complete provided services to CPM because it was being continuously paid by CPM, not because of any statements by Hayn.

Furthermore, the court finds that during 2011 the outstanding balance CPM had with Complete continued to decrease. As late as April 2011, CPM's outstanding balance with Complete was $160,210. CPM, however, continued making regular payments to reduce the debt, which payments continued even after Complete stopped providing services. CPM only stopped making payments after its business suffered. (Id. at pp. 25–26.) Complete's debt for services were being paid and the amount of the debt was decreasing. Indeed, during the course of the relationship between CPM and Complete, CPM made payments to Complete totaling $227,725. Neither CPM nor Hayn engaged in any conduct to perpetuate a fraud, a wrong or promote injustice. Therefore, Complete failed to establish probable cause that Hayn ordered transportation services while the debt for services remained unpaid.

The only other "wrong" apparently and allegedly committed by Hayn was that he made statements, after services ceased, that CPM would continue making payments. (See, e.g. Plaintiff's PJR Exhibit 2.) The only written statement was a note Mr. Hayn issued to Mr. Gurrisi that was accompanied by a payment and issued after Complete stopped providing services. The fact that Hayn transmitted the e-mails through his personal e-mail account is of no importance. Even after he conferred with Mr. Gurrisi, payments were made by CPM with CPM checks made out by Hayn and accepted by Complete.

*4 While CPM's current financial situation is unfortunate, as argued by Hayn, it simply does not justify piercing the corporate veil as Complete failed to establish any wrong other than CPM's eventual inability to pay. To conclude otherwise would completely eviscerate the well-established law that the corporate shield should not be lightly disregarded to hold a member of an LLC personally liable, even where there is only one member, absent extraordinary circumstances. Coppolecchia v. Built Right N.E., LLC, (emphasis added), 2012 Conn.Super. LEXIS 2963, at *9, citing Falcone v. Night Watchman, Inc., 11 Conn.App. 218, 222, 526 A.2d 550 (1987). Those extraordinary circumstances are simply absent here. The court finds that probable cause has not been established that Hayn is personally liable under the instrumentality rule.

Under the identity rule, the corporate veil may be pierced when the plaintiff shows "such a unity of interest and ownership that the independence of the corporation had in effect ceased or had never begun, [and that] an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise." (Citations omitted.) Falcone v. Night Watchman, Inc., supra, at 221, 526 A.2d 550. Generally, a successful attempt to pierce the corporate veil under the identity rule involves conduct by an individual that benefits him or herself at the expense of the corporation. See Coppolecchia v. Built Right N.E., LLC, supra, 2012 Conn.Super. LEXIS at 2963, at *12.

"[T]he separate corporate entities or personalities of affiliated corporations will be recognized, absent illegitimate purposes, unless: (a) the business transactions, property, employees, bank and other accounts and records are intermingled; (b) the formalities of separate corporate procedures for each corporation are not observed ... (c) the corporation is inadequately financed as a separate unit from the point of view of meeting its normal obligations ... (d) the respective enterprises are not held out to the public as separate enterprises; [or] (e) the policies of the corporation are not directed to its own interests primarily but rather to those of the other corporation." (Emphasis added.) SFA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 585 A.2d 666 (1991).

Complete argues that the identity rule applies because Hayn is the only member of CPM and that there is a pattem reflecting a unity of interest. As argued by Hayn, Complete has attempted to apply elements of the instrumentality rule to the identity rule. However, other than showing that Hayn was the sole member of CPM, Complete failed to provide any evidence to support a claim under the identity rule. While control is a factor, "[o]f paramount concern is how the control was used, not that it existed." Stone v. Frederick Hobby Associates, II, Judicial District of Stamford, Docket No. CV00018 1620S, 2001 Conn.Super. LEXIS 1853, *32 (July 10, 2001); see also Litchfield Asset Management v. Howell, 70 Conn.App. at 156, 799 A.2d 298 (in determining whether to pierce the corporate veil and hold an individual liable under the identity rule, courts have considered, most importantly, the manner in which the individual uses the corporation).

*5 Coppolecchia v. Built Right N.E., LLC, supra, 2012 Conn.Super. LEXIS at 2963, at *12 is instructive. In Coppolecchia, plaintiff sought a prejudgment remedy against a contractor and its sole owner relating to an alleged breach of contract. In finding that the plaintiff failed to prove that the sole owner was individually liable under the identity rule, the court noted that the plaintiff failed to prove that there was a unity of interest such that "the independence of the corporation had in effect ceased or had never begun." Id. The court also recognized that the company had its own bank account which was separate from the individual owners. Moreover, the court found that there was not a unity of interest even though the corporation paid a few of the individual owner's bills that he should have paid personally. Id.

The same finding is warranted here. Complete did not present any evidence that any action by Hayn benefited himself at the expense of CPM, that he treated the assets of CPM as his own personal assets or that CPM was inadequately financed. Complete also did not present any evidence that CPM was a sham, that if Hayn failed to follow corporate formalities, that Hayn commingled funds between his personal accounts and CPM or that Hayn utilized corporate funds to pay his personal bills. To the contrary, the evidence indicates that CPM always maintained its own bank account. Indeed, Complete issued all of its invoices to CPM and all payments received by Complete were from CPM—not Hayn. For these reasons alone, Complete failed to establish its claim under the identity rule, even under a probable cause standard.

The only wrong alleged under Complete's corporate veil theory is that Hayn allegedly "continued to order transportation services and collect money from the goods he was having moved while the debt for the services provided by Plaintiff remained unpaid." Again, CPM continued to make payments to Complete throughout the course of their relationship. Very simply, the debt for the services provided by Complete was decreasing—the debt did not remain unpaid. The court finds that CPM only stopped payments when its business took an unfortunate downward turn due to circumstances beyond its control. The court finds that Complete failed to establish probable cause that it can pierce the corporate veil under the identity rule, against remedy.

The court finds that Complete has not established probable cause sufficient to pierce the corporate veil, it also failed to establish probable cause sufficient to maintain other key elements of its claims. By failing to pierce the corporate veil for reasons stated above, Complete cannot and did not establish probable cause to prevail on its theories of unjust enrichment, promissory estoppel, negligent misrepresentation and/or fraudulent misrepresentation as argued in the defendant's brief (# 104.00) against Hayn personally.

ORDER

The plaintiff "Complete's" application for a prejudgment remedy against the defendant "CPM" is hereby granted in the amount of $90,000.00 and is hereby denied against the defendant "Hayn."

Footnotes

1

Mr. Gurrisi apparently utilizes his personal e-mail address in connection with his operation of Complete. See, e.g., Plaintiff's PJR Exhibits 3–5.

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