Dieter Engineering v. Parkland Development
Annotate this Case
September 1996 Term
___________
No. 23330
___________
DIETER ENGINEERING SERVICES, INC.,
A FLORIDA CORPORATION,
Plaintiff Below, Appellee
v.
PARKLAND DEVELOPMENT, INC.,
WILLIAM ABRUZZINO, REBECCA ABRUZZINO,
CENTER DESIGNS, INC., AND
PLAZA MANAGEMENT, INC.,
Defendants Below, Appellants
___________________________________________________
Appeal from the Circuit Court of Randolph County
Honorable John L. Henning, Judge
Civil Action No. 91-C-382
AFFIRMED
___________________________________________________
Submitted: September 25, 1996
Filed: December 16, 1996
Gary E. Pullin
Cleek, Pullin, Knopf & Fowler
Charleston, West Virginia
Attorney for the Appellants
Peter G. Zurbuch
Busch & Talbott, L.C.
Elkins, West Virginia
Attorney for the Appellee
CHIEF JUSTICE McHUGH delivered the Opinion of the Court.
JUDGE RECHT sitting by temporary assignment.
SYLLABUS BY THE COURT
1. "Where the issue on an appeal from the circuit court is clearly a question
of law or involving an interpretation of a statute, we apply a de novo standard of review."
Syl. pt. 1, Chrystal R.M. v. Charlie A.L., 194 W. Va. 138, 459 S.E.2d 415 (1995).
2. "'"'The primary object in construing a statute is to ascertain and give effect
to the intent of the legislature.' Syl. Pt. 1, Smith v. State Workmen's Compensation Comm.,
159 W. Va. 108, 219 S.E.2d 361 (1975)." Syl. Pt. 2, State ex rel. Fetters v. Hott, 173 W. Va.
502, 318 S.E.2d 446 (1984).' Syllabus point 2, Lee v. West Virginia Teachers Retirement
Board, 186 W. Va. 441, 413 S.E.2d 96 (1991)." Syl. pt. 2, Francis O. Day Co., Inc. v.
Director, Division of Environmental Protection, 191 W. Va. 134, 443 S.E.2d 602 (1994).
3. Pursuant to W. Va. Code, 31-1-66 [1974] which states, in relevant part, that
"[n]o foreign corporation which is conducting affairs or doing or transacting business in this
State without a certificate of authority shall be permitted to maintain any action or
proceeding in any court of this State until such corporation shall have obtained a certificate
of authority[,]" such corporation may maintain an action or proceeding in any court in this
State when the corporation obtains a certificate of authority even though the corporation did
not have the certificate at the time it instituted the action or proceeding.
4. "A circuit court's entry of summary judgment is reviewed de novo." Syl.
pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
5. "'"A motion for summary judgment should be granted only when it is clear
that there is no genuine issue of fact to be tried and inquiry concerning the facts is not
desirable to clarify the application of the law." Syllabus Point 3, Aetna Casualty & Surety
Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963).'
Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247
(1992)." Syl. pt. 2, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
6. "Where a party has a contractual obligation, he, as the obligor, may not
escape performance when the other party, the assignor, has assigned the contract right to a
third party, the assignee, by pointing to some defect in the assignment, unless such defect
renders the assignment void." Syl. pt. 4, Randolph v. The Koury Corp., 173 W. Va. 96, 312 S.E.2d 759 (1984).
7. "The appellate standard of review for the granting of a motion for a directed
verdict pursuant to Rule 50 of the West Virginia Rules of Civil Procedure is de novo. On
appeal, this court, after considering the evidence in the light most favorable to nonmovant
party, will sustain the granting of directed verdict when only one reasonable conclusion as
to the verdict can be reached. But if reasonable minds could differ as to the importance and
sufficiency of the evidence, a circuit court's ruling granting a directed verdict will be
reversed." Syl. pt. 3, Brannon v. Riffle, ___ W. Va. ___, 475 S.E.2d 97 (1996).
8. "The corporate entity may be disregarded in those situations where the
corporate form is being used to perpetrate injustice, defeat public convenience, or justify wrongful or inequitable conduct." Syl. pt. 3, Mills v. USA Mobile Communications, Inc.,
190 W. Va. 209, 438 S.E.2d 1 (1993).
9. "In a case involving an alleged breach of contract, to 'pierce the corporate
veil' in order to hold the shareholder(s) actively participating in the operation of the business
personally liable for such breach to the party who entered into the contract with the
corporation, there is normally a two-prong test: (1) there must be such unity of interest and
ownership that the separate personalities of the corporation and of the individual
shareholder(s) no longer exist (a disregard of formalities requirement) and (2) an inequitable
result would occur if the acts are treated as those of the corporation alone (a fairness
requirement)." Syl. pt. 3, Laya v. Erin Homes, Inc., 177 W. Va. 343, 352 S.E.2d 93 (1986).
10. "Where objections were not shown to have been made in the trial court,
and the matters concerned were not jurisdictional in character, such objections will not be
considered on appeal." Syl. pt. 1, State Road Commission v. Ferguson, 148 W. Va. 742, 137 S.E.2d 206 (1964).
McHugh, Chief Justice:
The appellants, Parkland Development, Inc., William Abruzzino, Rebecca
Abruzzino, Center Designs, Inc., and Plaza Management, Inc. appeal the July 24, 1995 order
of the Circuit Court of Randolph County which denied their motion for entry of judgment
notwithstanding the verdict, or in the alternative, motion for a new trial. The appellants filed
these motions after the jury returned a verdict in favor of the appellee, Dieter Engineering
Services, Inc. (hereinafter "Dieter Engineering"), in the amount of $94,367.27. The case
before us originated when Dieter Engineering, as a successor in interest, filed a breach of
contract action against the appellants in which it alleged that the appellants had entered into
a contract with Choctaw Engineering, Inc. d/b/a JAS-Orlando (hereinafter "Choctaw
Engineering") for engineering services to be performed in conjunction with the construction
of a shopping center in Elkins, West Virginia and then failed to pay for the engineering
services performed. For reasons explained below, weSee footnote 1 affirm the July 24, 1995 order of the
circuit court.
I
Sometime in the late winter or spring of 1989 the appellant, Parkland
Development, Inc. (hereinafter "Parkland") entered into a contract for civil engineering
services with Choctaw Engineering to be performed in conjunction with the construction of
the Valley Pointe Shopping Center in Elkins, West Virginia. At that time J. Stephen Dieter
worked for and owned a partial interest in Choctaw Engineering. Moreover, he was the chief
engineer who prepared the civil engineering plans for the Valley Pointe Shopping Center
from Choctaw Engineering's offices in Orlando, Florida.
On June 30, 1990, Choctaw Engineering and J. Stephen Dieter entered into a
transfer agreement whereby Dieter relinquished his interest in Choctaw Engineering. In
return, Dieter received certain property and accounts, including the accounts receivable on
the Valley Pointe Shopping Center project. Thereafter, J. Stephen Dieter continued working
on the Valley Pointe Shopping Center project as Dieter Engineering.
On September 13, 1991, Dieter Engineering ceased working on the project
because Parkland failed to make payment on outstanding invoices totaling $94,367.77. Dieter
did not file a mechanic's lien because William Abruzzino, the chief executive officer
(hereinafter "CEO") of Parkland, represented to him that the amount due would be paid
when Abruzzino obtained additional financing. On December 26, 1991, after the limitations
period expired in which the mechanic's lien must be filed and after Parkland failed to make
payment on the outstanding invoices, Dieter Engineering filed an action for breach of
contract in the Circuit Court of Randolph County.
Prior to trial the appellants filed a motion to dismiss the action pursuant to W.
Va. Code, 31-1-66 [1974] on the basis that Dieter Engineering did not possess a certificate
of authority issued by the secretary of state's office authorizing it to conduct business in
West Virginia as is required by W. Va. Code, 31-1-49 [1979].See footnote 2 Neither Dieter Engineering
nor Choctaw Engineering possessed a certificate of authority when performing the
engineering services at the Valley Pointe Shopping Center. However, on the day of the
hearing on appellants' motion to dismiss, a certificate of authority was faxed to Dieter
Engineering. Based on the receipt of the certificate of authority, the circuit court denied the
appellants' motion to dismiss.
At trial Dieter Engineering sought to prove that William and Rebecca
Abruzzino, as shareholders of Parkland, Center Designs, Inc. and Plaza Management, Inc.,
were liable for Parkland's debts. Dieter Engineering also sought to prove that the successor
corporations of Parkland, Center Designs, Inc. and Plaza Management, Inc., were liable for
Parkland's debts. The circuit court at the close of the trial found that the corporate veils
should be pierced and thus directed a verdict on the issue of shareholder liability and
successor corporation liability in favor of Dieter Engineering.
On June 1, 1995, the jury returned a verdict for Dieter Engineering in the
amount of $94,367.27. As noted above, the appellants appeal the circuit court's denial of
their motion for entry of judgment notwithstanding the verdict, or in the alternative, motion
for a new trial.
II
The appellants maintain that the circuit court erred by refusing to dismiss the
complaint pursuant to W. Va. Code, 31-1-66 [1974] on the basis that Dieter Engineering had
not obtained a certificate of authority when the complaint was filed. W. Va. Code, 31-1-66
[1974] states, in relevant part:
No foreign corporation which is conducting affairs or
doing or transacting business in this State without a certificate
of authority shall be permitted to maintain any action or
proceeding in any court of this State until such corporation shall
have obtained a certificate of authority. Nor shall any action or
proceeding be maintained in any court of this State by any
successor or assignee of such corporation on any right, claim or
demand arising out of the conducting of affairs or the doing or
transacting of business by such corporation in this State, until a
certificate of authority shall have been obtained by such
corporation or by a corporation which has acquired all or
substantially all of its assets.
(emphasis added). Conversely, Dieter Engineering asserts that although it did not have a
certificate of authority when the action was initially filed, it may maintain the action because
it obtained such certificate during the pendency of the action.
The primary issue to be resolved on this appeal is whether a foreign
corporation must obtain a certificate of authority before instituting an action or whether the provisions of W. Va. Code, 33-1-66 [1974] authorize the foreign corporation to obtain the
certificate after the institution of the action. The contention of the appellants and Dieter
Engineering parallel the split of authority that exists among the jurisdictions which have
interpreted statutes that prohibit foreign corporations from "maintaining" an action in their
state courts "until" they have obtained a certificate of authority. See generally Annon.,
Application of Statute Denying Access to Courts or Invalidating Contracts Where
Corporation Fails to Comply with Regulatory Statute as Affected by Compliance after
Commencement of Action, 23 ALR5th 744 at 765 § 2 (1994).
We are mindful that "[w]here the issue on an appeal from the circuit court is
clearly a question of law or involving an interpretation of a statute, we apply a de novo
standard of review." Syl. pt. 1, Chrystal R.M. v. Charlie A.L., 194 W. Va. 138, 459 S.E.2d 415 (1995). See also syl. pt. 1, In re the Petition of the City of Beckley to Annex, by Minor
Boundary Adjustment, W. Va. Route 3 Right-of-Way Beginning at the Present Corporate
Limits, 194 W. Va. 423, 460 S.E.2d 669 (1995). Furthermore, if a statute is ambiguous, then
this Court must resort to settled rules for construing a statute. See Doran & Associates, Inc.
v. Paige, 195 W. Va. 115, 117, 464 S.E.2d 757, 759 (1995). In doing so, we must remember
that
'"'[t]he primary object in construing a statute is to
ascertain and give effect to the intent of the legislature.' Syl. Pt.
1, Smith v. State Workmen's Compensation Comm., 159 W. Va.
108, 219 S.E.2d 361 (1975)." Syl. Pt. 2, State ex rel. Fetters v.
Hott, 173 W. Va. 502, 318 S.E.2d 446 (1984).' Syllabus point
2, Lee v. West Virginia Teachers Retirement Board, 186 W. Va.
441, 413 S.E.2d 96 (1991).
Syl. pt. 2, Francis O. Day Co., Inc. v. Director, Division of Environmental Protection, 191
W. Va. 134, 443 S.E.2d 602 (1994).
One rule of construction which is helpful in ascertaining the legislature's intent
is that
'[g]enerally the words of a statute are to be given their ordinary
and familiar significance and meaning, and regard is to be had
for their general and proper use.' Syl. pt. 4, State v. General
Daniel Morgan Post No. 548, Veterans of Foreign Wars of the
United States, a Corporation, 144 W. Va. 137, 107 S.E.2d 353
(1959).
Syl. pt. 5, State ex rel. Goff v. Merrifield, 191 W. Va. 473, 446 S.E.2d 695 (1994). See also
Amick v. C & T Development Co., Inc., 187 W. Va. 115, 118, 416 S.E.2d 73, 76 (1992);
Pennsylvania and W. Va. Supply Corp. v. Rose, 179 W. Va. 317, 319, 368 S.E.2d 101, 103
(1988). Our focus is on what the words "maintain" and "until" mean in W. Va. Code, 33-1-
66 [1974]'s mandate that no foreign corporation which is conducting affairs or doing or
transacting business in this State shall be permitted to "maintain" an action in our state courts
"until" the corporation obtains a certificate of authority.
Webster's Third New International Dictionary 1362 (1970) defines "maintain"
as "to persevere in: carry on: keep up: continue[.]" This definition supports Dieter
Engineering's argument that the word "maintain" means that a foreign corporation which is
conducting affairs or doing or transacting business in this State may "continue" an action
once the certificate of authority is obtained. However, the following definition of "maintain"
in Black's Law Dictionary 953 (6th ed. 1990) supports the appellants' argument that a foreign corporation which is doing or transacting business in this State may not "commence"
or begin an action in our state courts until obtaining a certificate of authority: " Maintain.
The term is variously defined as . . . carry on; commence; continue; furnish means for
subsistence or existence of; . . . keep in existence or continuance; . . . preserve from lapse[.]"
(emphasis added). Although the word "maintain" may be construed to support either Dieter
Engineering's or appellants' argument, we find it significant that both dictionaries use the
word "continue" to define "maintain."
The word "until" is defined as "up to the time that: till such time as[.]"
Websters Third New International Dictionary 2513 (1970). See also Black's Law Dictionary
1540 (6th ed. 1990) ("Up to time of."). The meaning of "until" provides an inference that
a proceeding may be continued once a foreign corporation obtains a certificate of authority.
Moreover, the following language found in W. Va. Code, 33-1-66 [1974]
indicates that the legislature primarily sought to compel foreign corporations which are
conducting affairs or doing or transacting business in this State to pay all fees and taxes
imposed by this State when it mandated that such corporation may not "maintain" an action
in our state courts "until" it obtains a certificate of authority:
The failure of a foreign corporation to obtain a certificate
of authority to conduct affairs or do or transact business in this
State shall not impair the validity of any contract or act of such
corporation, and shall not prevent such corporation from
defending any action or proceeding in any court of this State.
A foreign corporation which conducts affairs or does or
transacts business in this State without a certificate of authority
shall be liable to this State, for the years or parts thereof during which it conducted affairs or did or transacted business in this
State without a certificate of authority, in an amount equal to all
fees and taxes which would have been imposed by this article,
or by any other provisions of this Code, upon such corporation
had it duly applied for and received a certificate of authority to
conduct affairs or do or transact business in this State as
required by this article and thereafter filed all reports, statements
or returns required by this article or by any other provisions of
this Code, plus all penalties imposed for failure to pay any such
fees and taxes.
W. Va. Code, 31-1-66 [1974], in relevant part. Once the foreign corporation obtains a
certificate of authority, thereby agreeing to pay all fees and taxes which would have been
imposed upon the corporation had it duly obtained a certificate of authority as required by
W. Va. Code, 31-1-49 [1979], see n. 2, supra, it would serve no purpose to prevent the
foreign corporation from continuing an action already commenced in our state courts. Thus,
based on all of the above, we conclude that the legislature intended W. Va. Code, 31-1-66
[1974] to permit a foreign corporation which is conducting affairs or doing or transacting
business in this State to continue an action in our state courts once it obtains a certificate of
authority even if the corporation did not possess such certificate when initiating the action.
Our interpretation of W. Va. Code, 31-1-66 [1974] is in accord with the
majority of jurisdictions which have construed statutes which prohibit foreign corporations
from "maintaining" an action in their state courts "until" the corporation obtains a certificate
of authority. For instance, in Hudson Farms, Inc. v. McGrellis, 620 A.2d 215 (Del. 1993),
the Supreme Court of Delaware was confronted with construing the meaning of Del. Code
Ann. tit. 8, § 383 (1991), which states, in pertinent part:
A foreign corporation . . . which has done business in this
State without authority shall not maintain any action or special
proceeding in this State unless and until such corporation has
been authorized to do business in this State and has paid to the
State all fees, penalties and franchise taxes for the years or parts
thereof during which it did business in this State without
authority.
The Supreme Court of Delaware held that "[b]ecause we perceive a clear legislative intent
to encourage the payment of taxes attributable to previous unauthorized activities we are
inclined to an interpretation of the states which permit a period of compliance after
commencement of litigation." Hudson Farms, Inc, 620 A.2d at 221. Before arriving at its
conclusion the Supreme Court of Delaware noted that "[t]he great majority of courts which
have construed such statutes have concluded that a court may stay a suit commenced by a
non-qualified foreign corporation until the foreign corporation obtains the requisite
authority." Id. at 218. See also Cost of Wisconsin, Inc. v. Shaw, 357 S.E.2d 20 (S.C. 1987);
Video Engineering Co., Inc. v. Foto-Video Electronics, Inc., 154 S.E.2d 7 (Va. 1967);
Annon., Application of Statute Denying Access to Courts or Invalidating Contracts Where
Corporation Fails to Comply with Regulatory Statute as Affected by Compliance after
Commencement of Action, 23 ALR5th 744 at 765 § 2 (1994); 19 Am. Jur. 2d Corporations
§ 2171 (1986); 36 Am. Jur. 2d Foreign Corporations § 302 (1968). But see P.K. Springfield,
Inc. v. Hogan, 621 N.E.2d 1253 (Oh. Ct. App. 1993) (The Court of Appeals of Ohio held
that a foreign corporation that fails to obtain a license prior to filing a suit may not cure the
violation by later obtaining the license--the license must be filed prior to the initiation of the
suit); League to Save Lake Tahoe v. Tahoe Regional Planning Agency, 563 P.2d 582 (Nev. 1977) (The wording of Nevada's statute is different than West Virginia's in that NRS 80.210
provides that a foreign corporation "shall not be allowed to commence, maintain, or defend
any action or proceeding in any court of this state until . . ." it obtains a certificate of
authority (emphasis added)).See footnote 3
Accordingly, we hold that pursuant to W. Va. Code, 31-1-66 [1974] which
states, in relevant part, that "[n]o foreign corporation which is conducting affairs or doing
or transacting business in this State without a certificate of authority shall be permitted to
maintain any action or proceeding in any court of this State until such corporation shall have
obtained a certificate of authority[,]" such corporation may maintain an action or proceeding
in any court in this State when the corporation obtains a certificate of authority even though
the corporation did not have the certificate at the time it instituted the action or proceeding.
In the case before us, the circuit court did not err by refusing to dismiss the complaint
pursuant to W. Va. Code, 31-1-66 [1974] because Dieter Engineering obtained a certificate
of authority during the pendency of the proceeding.
III
The appellants also assign as error the circuit court's ruling which prevented
appellants from arguing before the jury that the assignment from Choctaw Engineering to Dieter Engineering of the Parkland accounts receivable was not effective. The circuit court
granted Dieter Engineering's motion for a partial summary judgment in a January 19, 1994
order by holding that the assignment effectively transferred to Dieter Engineering the
accounts receivable owed to Choctaw Engineering by Parkland. We note that "[a] circuit
court's entry of summary judgment is reviewed de novo." Syl. pt. 1, Painter v. Peavy, 192
W. Va. 189, 451 S.E.2d 755 (1994). See also syl. pt. 1, Hose v. Berkeley County Planning
Com'n, 194 W. Va. 515, 460 S.E.2d 761 (1995).See footnote 4 We are mindful that
'"[a] motion for summary judgment should be granted
only when it is clear that there is no genuine issue of fact to be
tried and inquiry concerning the facts is not desirable to clarify
the application of the law." Syllabus Point 3, Aetna Casualty &
Surety Co. v. Federal Insurance Co. of New York, 148 W. Va.
160, 133 S.E.2d 770 (1963).' Syllabus Point 1, Andrick v. Town
of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).
Syl. pt. 2, Painter, supra. See also syl. pt. 2, Hose, supra; W. Va. R. Civ. P. 56.
We held in syllabus point 4 of Randolph v. The Koury Corp., 173 W. Va. 96, 312 S.E.2d 759 (1984) that "[w]here a party has a contractual obligation, he, as the obligor, may
not escape performance when the other party, the assignor, has assigned the contract right to a third party, the assignee, by pointing to some defect in the assignment, unless such
defect renders the assignment void."See footnote 5 As explained in 6 Am.Jur.2d Assignment § 102 (1963), "the obligor may not defend on any ground which renders the assignment voidable
only, such as fraud or undue influence, nor can he interpose the defense of lack of
consideration or that the assignee occupied a fiduciary relationship to the assignor."
(footnote omitted). See also Randolph, 173 W. Va. at 100, 312 S.E.2d at 764. The purpose
of allowing the obligor to raise as a defense that the assignment is void is to insure that he
or she will not have to pay the same claim twice. See Randolph, supra. With this in mind,
we now examine the parties' arguments.
In their brief the appellants argue that two facts make the assignment of the
Parkland accounts receivable from Choctaw Engineering to Dieter Engineering void. First,
the appellants contend that the transfer agreementSee footnote 6 does not include the Parkland accounts
receivable; thus, there could be no assignment of the Parkland accounts receivable to Dieter
Engineering. Secondly, the appellants argue that because Dieter Engineering was not in
existence until August 23, 1990, it would have been impossible for Dieter Engineering to
take assignment of the Parkland accounts receivable because it was not in existence when
the transfer agreement was signed on June 30, 1990.
Conversely, Dieter Engineering notes that the agreement specifically provided
that Choctaw Engineering would transfer to Dieter Engineering "Accounts Receivable of
Choctaw's Orlando office, whether due or past due and work-in-process not yet billed to clients." The Valley Pointe Shopping Center project was an account of Choctaw-JAS-
Orlando's offices. Furthermore, Dieter Engineering maintains that although it was not in
existence until August 23, 1990, the transfer agreement clearly stated that it would be
receiving the accounts receivable of Choctaw-JAS-Orlando's offices: "Choctaw will cause
Newco to be organized as a Florida corporation having articles of incorporation, bylaws and
organizational minutes in a form approved by counsel for Dieter. The corporate name of
Newco shall be Dieter Engineering Services, Inc., or such name as shall be approved by
Dieter." Therefore, Dieter Engineering concludes that the appellants have brought forth no
evidence which indicates that the assignment between Choctaw Engineering and Dieter
Engineering was void.
We agree with Dieter Engineering. Accordingly, we hold that the circuit court
did not err by granting partial summary judgment in favor of Dieter Engineering.See footnote 7
IV
The appellants argue that the circuit court erred by directing a verdict in favor
of piercing the corporate veil of Parkland, Plaza Management and Center Designs and
holding the individual shareholders, William and Rebecca Abruzzino, personally liable for
the debt owed Dieter Engineering. At the outset, we note that syllabus point 3 of Brannon
v. Riffle, ___ W. Va. ___, 475 S.E.2d 97 (1996) sets forth the standard by which this Court
reviews a circuit court's granting of a motion for a directed verdict:
The appellate standard of review for the granting of a
motion for a directed verdict pursuant to Rule 50 of the West
Virginia Rules of Civil Procedure is de novo. On appeal, this
court, after considering the evidence in the light most favorable
to nonmovant party, will sustain the granting of directed verdict
when only one reasonable conclusion as to the verdict can be
reached. But if reasonable minds could differ as to the
importance and sufficiency of the evidence, a circuit court's
ruling granting a directed verdict will be reversed.
The relationship between Parkland, Plaza Management, Center Designs, and
William and Rebecca Abruzzino is important. The record reveals that Parkland was
specifically set up to develop the Valley Point Shopping Center project. The shareholders
and board of directors for Parkland were William and Rebecca Abruzzino. An unnamed
attorney was also on Parkland's board of directors. William Abruzzino was the CEO and his wife, Rebecca, was the secretary of the corporation. Parkland did not have any
employees nor did it pay any salaries.
Center Designs, which is owned by Rebecca Abruzzino, also develops
shopping centers. William Abruzzino is the CEO of Center Designs. Rebecca is the
corporate secretary of Center Designs. At some point Parkland deeded the property on
which the Valley Pointe Shopping Center is located to Center Designs. Moreover, when
Parkland could not service its debt, Center Designs assumed responsibility for Parkland's
loans.
Plaza Management manages, but does not own the various shopping centers
owned by William and Rebecca Abruzzino and some of their other corporations. William
Abruzzino is the CEO of Plaza Management. Rebecca Abruzzino is the corporate secretary
and owns Plaza Management. Plaza Management made interest payments for Parkland when
Parkland could not service its debt until Center Designs assumed Parkland's loans. Parkland,
Center Designs, and Plaza Management were all operated out of Rebecca Abruzzino's home
in Atlanta, Georgia.See footnote 8
Generally, individual stockholders are not responsible for the debts of a
corporation because a corporation is an entity separate and distinct from the people who own it. See W. Va. Code, 31-1-89 [1974].See footnote 9 See also Laya v. Erin Homes, Inc., 177 W. Va. 343,
346, 352 S.E.2d 93, 97 (1986). However, this concept is a fiction of law which "should be
disregarded when it is urged with an intent not within its reason and purpose, and in such a
way that its retention would produce injustices or inequitable consequences." Syl. pt. 10,
in part, Sanders v. Roselawn Memorial Gardens, 152 W. Va. 91, 159 S.E.2d 784 (1968). See
also Laya, 177 W. Va. at 347, 352 S.E.2d at 97-98. This Court more recently held that "[t]he
corporate entity may be disregarded in those situations where the corporate form is being
used to perpetrate injustice, defeat public convenience, or justify wrongful or inequitable
conduct." Syl. pt. 3, Mills v. USA Mobile Communications, Inc., 190 W. Va. 209, 438 S.E.2d 1 (1993).
In Laya this Court made clear that the "propriety of piercing the corporate veil
usually involves numerous questions of fact for the trier of the facts to determine upon all of the evidence." Laya, 177 W. Va. at 351, 352 S.E.2d at 102. Normally, there is a two-
prong test which must be applied when determining whether the corporate veil should be
pierced in cases involving an alleged breach of contract:
In a case involving an alleged breach of contract, to
'pierce the corporate veil' in order to hold the shareholder(s)
actively participating in the operation of the business personally
liable for such breach to the party who entered into the contract
with the corporation, there is normally a two-prong test: (1)
there must be such unity of interest and ownership that the
separate personalities of the corporation and of the individual
shareholder(s) no longer exist (a disregard of formalities
requirement) and (2) an inequitable result would occur if the
acts are treated as those of the corporation alone (a fairness
requirement).
Syl. pt. 3, Laya, supra. When applying the two-prong test, there are numerous factors which
should be considered when deciding whether to pierce the corporate veil. Laya, 177 W. Va.
at 347-48, 352 S.E.2d at 98-99, identifies nineteen such factors.See footnote 10
Our review of the record in the case before us indicates that the circuit court
utilized the two-prong test set forth in syllabus point 3 of Laya, supra, by applying the
nineteen factors listed in Laya to the evidence presented at trial.See footnote 11 Thus, this Court in
reviewing the circuit court's decision to direct a verdict will examine the evidence presented
at trial in the light most favorable to the appellants in order to determine whether the only
reasonable conclusion as to the verdict is that the corporate veil should be pierced. See syl.
pt. 1, Brannon, supra.
The record reveals that there was very little evidence indicating that the
appellants failed to maintain corporate formalities, factor 3 of Laya, supra, or failed to maintain corporate minutes or adequate records, factor 5 of Laya. Thus, the evidence does
not support construing factors 3 and 5 in favor of piercing the corporate veil. Furthermore,
the evidence reveals that factor 16, the use of a corporate entity as a conduit to procure labor,
services or merchandise to another person or entity, should not be construed in favor of
piercing the corporate veil because there was no evidence that Parkland was used as a
conduit to procure labor services or merchandise for another person or entity. Thus, an
examination of the evidence in the light most favorable to the appellants reveals that three
of the nineteen factors listed in Laya, supra, do not support piercing the corporate veil.
However, our review of the record indicates that fifteen of the nineteen factors
listed in Laya, supra, should be construed in favor of piercing the corporate veil. For
instance, the circuit court held that factors 1 and 2, the co-mingling of funds of the
corporation with those of the individual shareholders and the diversion of the corporation's
funds or assets to noncorporate uses, were to be construed in favor of piercing the corporate
veil because the appellants would not produce Rebecca Abruzzino's personal tax returns and
financial statements. Because the circuit court gave the appellants the opportunity to produce
these documents, we find the circuit court's determination that factors 1 and 2 would be
construed as piercing the corporate veil if the documents were not produced by the appellants
to be a sound ruling. See W. Va. R. Civ. P. 37(b)(2)(A) and 37(d) (If a party fails to answer
a discovery question after being ordered to do so by the circuit court, the circuit court may
rule "that the matters regarding which the order was made or any other designated facts shall
be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order. . ."). Likewise, the evidence presented on factor
4, that is, an individual shareholder represents he is personally liable for debts of the
corporation, supports piercing the corporate veil. William Abruzzino testified that he and
his wife, Rebecca, personally guaranteed over one million dollars in loans for the Valley
Pointe Shopping Center project. In fact, Rebecca Abruzzino used her home in Atlanta,
Georgia as collateral to secure one of the loans made to Parkland.
The evidence regarding factors 6, 7, and 11 (identical equitable ownership in
two entities, identity of directors and officers of two entities are the same, and sole
ownership of all the stock by one individual or members of a single family, respectively)
support piercing the corporate veil. The testimony of William Abruzzino revealed that
Rebecca Abruzzino is the sole owner of Parkland, Plaza Management, and Center Designs.
Moreover, William Abruzzino stated that he and his wife, Rebecca, are on the Board of
Directors of all of the above corporations.
The evidence at trial further revealed that the $1000.00 capitalization of
Parkland was clearly inadequate given that the Valley Point Shopping Center project cost
approximately $1,212,000.00 and that loans were obtained for the project in the amount of
approximately $1,220,000.00. Thus, there is evidence of factor 8, the failure to adequately
capitalize a corporation for the reasonable risks of the corporate undertaking, which supports
piercing the corporate veil. In Laya we made clear that this was one of the most significant
factors of all of the nineteen factors in determining whether the corporate veil should be
pierced. Laya, 177 W. Va. at 350, 352 S.E.2d at 101.
Factor 10 is the use of a corporation as a mere shell to operate a single venture
of another corporation. William Abruzzino testified that the sole purpose for creating
Parkland was to develop the Valley Pointe Shopping Center and that the sole purpose of
Plaza Management was to manage the shopping center once it was built. William
Abruzzino's testimony indicates that Parkland was a mere shell for carrying out the venture
of Plaza Management. Thus, the evidence on factor 10 should be construed in favor of
piercing the corporate veil.
Factors 12 and 13 are the use of the same office or business location by the
corporation and its individual shareholders and the employment of the same employees or
attorney by the corporation and its shareholders, respectively. As previously stated, William
Abruzzino indicated that all of the corporations, Parkland, Center Designs and Plaza
Management, were operated out of Rebecca Abruzzino's home in Atlanta, Georgia.
Moreover, the law firm of Jory & Smith represented all appellants at the trial of the
underlying actions. On appeal, Gary E. Pullin represents all of the appellants. Additionally,
William Abruzzino was the CEO of all of the corporations and Rebecca Abruzzino was the
corporate secretary of all of the corporations. Thus, the evidence on factors 12 and 13
support piercing the corporate veil.
Factors 14, 15, 17, 18, and 19 are, respectively, the concealment of identity
of ownership or financial interests of the corporation or concealment of personal business
activities of the shareholders, the disregard of legal formalities and the failure to maintain
proper arm's length relationship among related entities, the diversion of corporate assets from the corporation to another entity to the detriment of the creditors, the contracting by the
corporation with another person with intent to avoid the risk of nonperformance by use of
the corporate entity, and the formation and the use of the corporation to assume the existing
liabilities of another person or entity. As we have previously noted, the appellants refused
to produce Rebecca Abruzzino's personal tax returns or financial statements giving the
appearance of concealing the ownership or financial interests of Rebecca Abruzzino in the
corporations. Furthermore, the evidence at trial revealed that Plaza Management paid the
debt service on the loans for the Valley Pointe Shopping Center for Parkland in order to
protect Rebecca Abruzzino's Georgia home which secured a loan of $330,000.00 made to
Parkland. Rebecca had personally taken out this $330,000.00 loan in order to help finance
the Valley Pointe Shopping Center project. Center Designs later assumed the responsibility
of paying the loans. Dieter Engineering asserts that because neither Plaza Management nor
Center Designs would pay Dieter Engineering, it is clear that the Abruzzinos deliberately
intended to divert corporate assets and income for the benefit of their other closely held
corporations. We find that the evidence on factors 14, 15, 17, 18, and 19 support piercing
the corporate veil.
Thus, after "[e]xamination of the numerous relevant factors in a 'totality of the
circumstances' test" we find that after examining the evidence in the light most favorable to
the appellants, that the only reasonable conclusion as to the verdict is that the corporate veil
should be pierced. Quoting Laya, 177 W. Va. at 348, 352 S.E.2d at 99. Accordingly, the circuit court did not err when granting a directed verdict on the issue of shareholder liability
in favor of Dieter Engineering.See footnote 12
V
The appellants raise as an assignment of error that the circuit court erred in
awarding pre-judgment interest after the jury returned its verdict. The appellants base their
argument on W. Va. Code, 56-6-27 [1923] which states:
The jury, in any action founded on contract, may allow
interest on the principal due, or any part thereof, and in all cases
they shall find the aggregate of principal and interest due at the
time of the trial, after allowing all proper credits, payments and
set-offs; and judgment shall be entered for such aggregate with
interest from the date of the verdict.
(emphasis added). The appellants maintain that the above statute clearly states that only the
jury may award pre-judgment interest.
In the case before us, the jury verdict form did not allow for the jury to award
pre-judgment interest. During deliberations, the jury submitted the following written
question to the circuit court: "Can we consider awarding interest on settlement?" Although
there is no record of this, Dieter Engineering represents in its brief that the circuit court upon
receiving the question from the jury conferred with the parties in chambers where it was
agreed by all to answer the jury's question in the negative and that the circuit court would award interest on any principal sum returned by the jury. The circuit court then made the
following written answer in response to the jury's question: "No, the court will award
interest based on your verdict."
The appellants do not disagree with Dieter Engineering's representation of the
above facts. Furthermore, not only did the appellants fail to object on the record to how the
circuit court chose to answer the question submitted by the jury during deliberations, but the
appellants agreed to the answer the circuit court provided to the jury. Thus, we find the
appellants waived any error by failing to object to the circuit court's response to the jury's
question: "Where objections were not shown to have been made in the trial court, and the
matters concerned were not jurisdictional in character, such objections will not be considered
on appeal." Syl. pt. 1, State Road Commission v. Ferguson, 148 W. Va. 742, 137 S.E.2d 206
(1964). See also O'Neal v. Peake Operating Co., 185 W. Va. 28, 404 S.E.2d 420 (1991).
Cf. syl. pt. 3, In the Interest of S.C., 168 W. Va. 366, 284 S.E.2d 867 (1981) ("'An order
to which no objection was made and which was actually approved by counsel, will not be
reviewed on appeal.' Syl. pt. 1, Loar v. Massey, [164 W. Va. 155], 261 S.E.2d 83 (1979).");
Tennant v. Marion Health Care Foundation, Inc. 194 W. Va. 97, 114, 459 S.E.2d 374, 391
(1995) ("[T]he party complaining on appeal of the admission of evidence bears sole
responsibility for adequately preserving the record for meaningful appellate review.").
Accordingly, we will not further address this assignment of error.
VI
In summary, this Court concludes that the circuit court correctly ruled pursuant
to W. Va. Code, 31-1-66 [1974] that the breach of contract action filed by Dieter
Engineering should not be dismissed because Dieter Engineering obtained a certificate of
authority during the pendency of the action. Additionally, in that the appellants provided no
evidence pointing to some defect in the assignment of rights between Choctaw Engineering
and Dieter Engineering which would render the assignment void, we find that the circuit
court correctly held that the assignment was effective. Lastly, we hold that the circuit court
properly directed a verdict on the issue of shareholder liability.
Accordingly, we affirm the July 24, 1995 order of the Circuit Court of
Randolph County.
Affirmed.
Footnote: 1
The Honorable Arthur M. Recht resigned as Justice of the West Virginia
Supreme Court of Appeals effective October 15, 1996. The Honorable Gaston Caperton,
Governor of the State of West Virginia, appointed him Judge of the First Judicial Circuit on
that same date. Pursuant to an administrative order entered by this Court on October 15,
1996, Judge Recht was assigned to sit as a member of the West Virginia Supreme Court of
Appeals commencing October 15, 1996 and continuing until further order of this Court.Footnote: 2
W. Va. Code, 31-1-49 [1979] states, in relevant part: "No foreign corporation
shall have the right to conduct affairs or do or transact business in this State until it shall
have procured a certificate of authority so to do [sic] from the secretary of state." As we will
explain more fully later in this opinion, W. Va. Code, 31-1-66 [1974] prohibits a foreign
corporation "which is conducting affairs or doing or transacting business in this State" from
maintaining an action in any court in this State until the corporation obtains a certificate of
authority.Footnote: 3
The appellants rely on Penberthy Electromelt Co. v. Star City Glass Co., 148
W. Va. 419, 135 S.E.2d 289 (1964) to support their argument. We find this reliance to be
misplaced. In Penberthy this Court held that pursuant to the code section which predated W.
Va. Code, 31-1-66 [1974] the plaintiff foreign corporation could not maintain a suit because
it had never qualified to do business in this State. Id. Thus, Penberthy did not address the
issue that is before us in the case at bar.Footnote: 4
The appellants framed the above issue in the following manner: "The trial
court erred in granting . . . [Dieter Engineering's] first motion in limine prohibiting
appellants from inquiring into and arguing about the lack of an effective assignment from
Choctaw Engineering, Inc., to . . . [Dieter Engineering] of the accounts payable of . . .
[Parkland]." The reason the circuit court granted Dieter Engineering's motion in limine is
because, as noted above, it had already held that the assignment was effective when it
entered partial summary judgment in favor of Dieter Engineering on January 19, 1994. Thus,
we find that the appellants real complaint is that the circuit court entered summary judgment
on this issue.Footnote: 5
We note that an unsettled account or debt is a chose in action which is
assignable. See W. Va. Code, 55-8-9 [1923] (States, in relevant part, that an assignee of any
note, account or chose in action arising out of contract may maintain in his or her own name
the chose of action the original owner of such chose of action might have brought). The
appellants assert that because Choctaw Engineering did not obtain a certificate of authority,
it would have been barred from bringing an action against Parkland for breach of contract
pursuant to W. Va. Code, 31-1-66 [1974]. Thus, the appellants conclude that Choctaw
Engineering could not assign the right to bring an action against Parkland because it did not
have the right to bring such an action in the first instance. We find that the clear language
of W. Va. Code, 31-1-66 [1974], in pertinent part, states otherwise:
No foreign corporation which is conducting affairs or
doing or transacting business in this State without a certificate
of authority shall be permitted to maintain any action or
proceeding in any court of this State until such corporation shall
have obtained a certificate of authority. Nor shall any action or
proceeding be maintained in any court of this State by any
successor or assignee of such corporation on any right, claim or
demand arising out of the conducting of affairs or the doing or
transacting of business by such corporation in this State, until a
certificate of authority shall have been obtained by such
corporation or by a corporation which has acquired all or
substantially all of its assets.
(emphasis added).
The above language expressly allows a successor or assignee of a corporation,
who has acquired substantially all of the corporation's assets, to maintain an action "on any
right, claim or demand arising out of the conducting of affairs or the doing or transacting of
business" of the corporation once the successor or assignee obtains a certificate of authority.
Dieter Engineering acquired substantially all of Choctaw Engineering's assets in the
Choctaw-JAS-Orlando's offices. Thus, once Dieter Engineering obtained a certificate of
authority it could maintain the proceeding against Parkland as a successor in interest pursuant
to the above language in W. Va. Code, 31-1-66 [1974]. Therefore, we find this contention
of the appellants to be without merit.Footnote: 6
The transfer agreement document is titled "Transfer of Orlando Division of
Choctaw Engineering, Inc. to J. Stephen Dieter Effective June 30, 1990." For purposes of
this opinion, we will simply refer to this document as "the transfer agreement."Footnote: 7
The appellants also assert that section 7(d) of the transfer agreement states that
only Choctaw Engineering could bring suit. Section 7(d) provides:
At the request of Newco or Dieter, Choctaw will
prosecute or otherwise enforce in its own name for the benefit
of Newco, and at Newco's expense, any and all claims or rights
in the name of Choctaw, which, or the benefits of which are
transferred to Newco pursuant to this Agreement and which are
required to be prosecuted or otherwise enforced in Choctaw's
name.
We agree with Dieter Engineering's assertion that the above language in section 7(d) does
not provide that suit may only be filed in Choctaw's name. Instead, the above language in
7(d) merely provides that if for some reason a suit is required to be prosecuted in Choctaw's
name, then Choctaw must prosecute the suit. Accordingly, we find this argument of the
appellants' to be without merit.
Footnote: 8
At some point during the pendency of this action, the Abruzzinos moved from
Atlanta, Georgia to Florida. Footnote: 9
This Court noted in Mills v. USA Mobile Communications, Inc., 190 W. Va.
209, 212, 438 S.E.2d 1, 4 (1993) that "[a]lthough stockholders were not immune from
liability for corporate obligations at common law, such insulation has been the cornerstone
of corporate law since the nineteenth century, and virtually every state now has a statute
limiting a stockholder's liability to the cost of the shares held." (citing 18A Am.Jur.2d
Corporations § 850 (1985 & Supp. 1993)). W. Va. Code, 31-1-89 [1974] is West Virginia's
statute limiting a shareholder's liability to the cost of the shares held: "A holder of or
subscriber to shares of a corporation shall be under no obligation to the corporation or its
creditors with respect to such shares other than the obligation to pay the corporation the full
consideration for which such shares were issued or to be issued." (in relevant part).
Additionally, article XI, § 2 of the Constitution of West Virginia provides:
"The stockholders of all corporations and joint stock companies, except banks and banking
institutions, created by laws of this State, shall be liable for the indebtedness of such
corporations to the amount of their stock subscribed and unpaid, and no more." Footnote: 10
The
nineteen factors set forth in Laya, 177 W. Va. at 347-48, 352 S.E.2d at 98-99,
are:
(1) commingling of funds and other assets of the corporation
with those of the individual shareholders;
(2) diversion of the corporation's funds or assets to
noncorporate uses (to the personal uses of the corporation's
shareholders);
(3) failure to maintain the corporate formalities necessary for
the issuance of or subscription to the corporation's stock, such as
formal approval of the stock issue by the board of directors;
(4) an individual shareholder representing to persons outside the
corporation that he or she is personally liable for the debts or other obligations
of the corporation;
(5) failure to maintain corporate minutes or adequate
corporate records;
(6) identical equitable ownership in two entities;
(7) identity of the directors and officers of two entities who are
responsible for supervision and management (a partnership or sole
proprietorship and a corporation owned and managed by the same
parties);
(8) failure to adequately capitalize a corporation for the
reasonable risks of the corporate undertaking;
(9) absence of separately held corporate assets;
(10) use of a corporation as a mere shell or conduit to operate
a single venture or some particular aspect of the business of an
individual or another corporation;
(11) sole ownership of all the stock by one individual or
members of single family;
(12) use of the same office or business location by the
corporation and its individual shareholder(s);
(13) employment of the same employees or attorney by the
corporation and its shareholder(s);
(14) concealment or misrepresentation of the identity of the
ownership, management or financial interests in the corporation, and
concealment of personal business activities of the shareholders (sole
shareholders do not reveal the association with a corporation, which
makes loans to them without adequate security);
(15) disregard of legal formalities and failure to maintain
proper arm's length relationships among related entities;
(16) use of a corporate entity as a conduit to procure labor,
services or merchandise for another person or entity;
(17) diversion of corporate assets from the corporation by or
to a stockholder or other person or entity to the detriment of
creditors, or the manipulation of assets and liabilities between entities
to concentrate the assets in one and the liabilities in another;
(18) contracting by the corporation with another person with
the intent to avoid the risk of nonperformance by use of the corporate
entity; or the use of a corporation as a subterfuge for illegal
transactions;
(19) the formation and use of the corporation to assume the
existing liabilities of another person or entity.
(footnote omitted). Footnote: 11 The circuit court, relying on syllabus point 3 of Davis v. Celotex Corp., 187 W. Va. 566, 420 S.E.2d 557 (1992), also directed a verdict on successor corporation liability. None of the parties argue that the circuit court improperly directed a verdict on this issue. Therefore, this Court will not address this issue on appeal.Footnote: 12 Dieter Engineering raises as a cross-assignment of error that the circuit court erred when it refused to grant its motion for summary judgment on the issue of piercing the corporate veil. However, because we upheld the circuit court's entry of a directed verdict in favor of Dieter Engineering on this issue, we will not address Dieter Engineering's cross- assignment of error.
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