933 F.2d 131 (2nd Cir. 1991), 526, Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc.

Docket Nº:526, 536, Dockets 90-7558, 90-7598.
Citation:933 F.2d 131
Party Name:WM. PASSALACQUA BUILDERS, INC., and Safeco Insurance Company of America and General Insurance Company of America, Plaintiffs-Appellants, Cross-Appellees, v. RESNICK DEVELOPERS SOUTH, INC., Jack Resnick, Burton Resnick, 90079, Inc., Jack Resnick & Sons, Inc., Sunrise Builders, Inc., Jack Resnick & Sons of Florida, Inc., Resnick of Boca, Inc., JFAM I
Case Date:May 14, 1991
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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933 F.2d 131 (2nd Cir. 1991)

WM. PASSALACQUA BUILDERS, INC., and Safeco Insurance Company

of America and General Insurance Company of

America, Plaintiffs-Appellants, Cross-Appellees,

v.

RESNICK DEVELOPERS SOUTH, INC., Jack Resnick, Burton

Resnick, 90079, Inc., Jack Resnick & Sons, Inc., Sunrise

Builders, Inc., Jack Resnick & Sons of Florida, Inc.,

Resnick of Boca, Inc., JFAM Investments, Inc., Resnick

Development Corporation, Pearl Resnick, Judith Resnick, Ira

Resnick, Marilyn Katz, Stanley Katz, Susan Abrams, John Doe,

John Does, Inc., Defendants-Appellees, Cross-Appellants.

Nos. 526, 536, Dockets 90-7558, 90-7598.

United States Court of Appeals, Second Circuit

May 14, 1991

Argued Nov. 26, 1990.

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David J. Larson, Atlanta, Ga. (Peterson, Dillard, Young, Self & Asselin, Atlanta, Ga., of counsel), Frank J. Franzino, New York City (Bryan, Levitan, Franzino & Rosenberg, New York City, of counsel), for appellants Wm. Passalacqua Builders, Inc., et al.

Brian Gallagher, New York City (Kronish, Lieb, Weiner & Hellman, New York City, of counsel), for defendants-appellees and cross-appellants other than Resnick Developers South, Inc.

Before OAKES, Chief Judge, and CARDAMONE and McLAUGHLIN, Circuit Judges.

CARDAMONE, Circuit Judge:

Nearly 20 years ago plaintiffs entered into a contract to build a hotel in Florida for defendant, Resnick Developers South, Inc. (Developers). Since then the real estate deal has gone sour, demands for payments for labor and services remain outstanding, and a judgment brought to collect the money owed plaintiffs still is unsatisfied. In their suit before the district court plaintiffs attempted to prove defendant was a "shell" corporation, the alter ego of other family-owned corporations or its individual stockholders. The purpose of the suit was to pierce defendant's corporate veil and to reach the assets of the real contracting parties; in this objective, plaintiffs failed.

But because the district court misconstrued the case law on this subject--causing it to grant improperly directed verdicts as to a majority of the defendants and to instruct improperly the jury--we remand the matter with instructions to hold a new trial. In doing so, we also review certain of the district court's prior rulings made on the long and tortuous road this case has taken.

BACKGROUND

The facts are essentially undisputed and were the subject of extensive stipulations in the district court. Plaintiffs William Passalacqua Builders, Inc. (Passalacqua), Safeco Insurance Co. of America (Safeco), and General Insurance Co. of America (General Insurance) are respectively, a building contractor and the assignees of the rights under a contract, the breach of which is the genesis of the instant litigation. Defendants Developers, 90079, Inc., Jack Resnick and Sons, Inc., Sunrise Builders, Inc., Jack Resnick & Sons of Florida, Inc., Resnick of Boca, Inc., PJFAM Investments, Inc., and Resnick Development Corporation are corporate entities controlled entirely (with the exception of Boca) by members of the Resnick family or by other corporations controlled entirely by them, and defendants Jack Resnick, Burton Resnick, Pearl Resnick, Judith Resnick, Ira Resnick, Marilyn Katz, Stanley Katz, and Susan Abrams are members of that family by blood or marriage with extensive involvement in some or all of the family of Resnick corporations.

On October 23, 1972 plaintiff Passalacqua entered into a contract with defendant Resnick Developers South, Inc. to construct a project in Florida known as the Mayfair House. Disputes arose during construction and attempts to negotiate a price for the extra work needed to complete the contract were unable to be resolved. Passalacqua sought arbitration in 1974 and obtained an award upon which a final judgment was entered in Florida in 1981 in the amount of $1,721,171 for damages caused

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by Developers' breach of contract. Prior to entry of judgment, Passalacqua assigned its right to enforce the judgment to Safeco. Only $769,989.10 of the judgment was recovered by Safeco (under a mechanics lien replaced by a bond guaranteed by Jack and Burton Resnick) leaving a balance of $951,181.90 unpaid.

Following their inability to recover fully on the judgment against Developers, Safeco and General Insurance instituted the instant action in the United States District Court for the Southern District of New York in a complaint containing four counts: two for equitable relief seeking to pierce the corporate veil (counts I and II), one for fraud (count III), and one alleging an oral guarantee by one of the defendants to pay the sum owed (count IV). A number of the district court rulings prior to trial are raised as issues on this appeal. By order of February 8, 1984 the district court (Edelstein, J.) dismissed count IV on statute of limitations grounds, the alleged oral promise having been made more than six years previously, and also dismissed certain defendants under count III. This ruling was not appealed. By order of May 16, 1985 the same district court dismissed the fraud count III in its entirety based on its conclusion that Passalacqua was a non-diverse plaintiff, in that it was an inactive corporation that had its principal place of business in Florida--where it last transacted business--as opposed to Ohio, its state of incorporation. Because Passalacqua was an indispensable party to count III, its absence from the action compelled dismissal of the fraud count. William Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 608 F.Supp. 1261, 1263-64 (S.D.N.Y.1985).

The district court ordered counts I and II--alleging that the defendants were liable under the equitable instrumentality or an alter ego theory of piercing the corporate veil--consolidated into a new amended complaint upon which the trial was held. Id. at 1265. It also ruled that it had jurisdiction over the alleged "alter ego" defendants, and declined to dismiss them on statute of limitations or jurisdictional grounds. Id. at 1264.

By order of July 12, 1985 the district court denied a motion to reargue this latter point, declined to certify the jurisdictional question for appellate review, and ordered sanctions against defendants under Rule 11 for filing what the court termed an "unnecessary motion" to dismiss the fourth amended complaint. William Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 611 F.Supp. 281, 285 (S.D.N.Y.1985). Finally, by order of April 25, 1988 it denied defendants' motion to strike the plaintiff's jury demand.

The case was then tried to a jury before Senior District Court Judge Pollack in the Southern District from May 1-3, 1990. At the close of plaintiff's case, the district court granted defendants' motion to dismiss all individual and corporate defendants except Developers and Jack Resnick and Sons, Inc. At the close of all the evidence, the trial court again reserved decision on the motion to dismiss as to Jack Resnick and Sons, and charged the jury. In a special verdict--using a form with questions supplied by the court--the jury found that Jack Resnick & Sons, Inc. was not the alter ego of Developers, and that Developers had conducted its own business for its own account. Judge Pollack then dismissed the remaining claims against all defendants, other than Developers, rendering the balance due on the 1981 judgment uncollectible. From the district court's judgment entered on May 3, 1990, plaintiffs appeal. Defendants cross-appeal from Judge Edelstein's grant of sanctions against them and contend he ruled incorrectly on several other issues, which we later discuss.

DISCUSSION

I History of Jury Trial Right

In deciding to try this case to a jury, the district court followed language from our opinion in American Protein Corp. v. AB Volvo, 844 F.2d 56, 59 (2d Cir.), cert. denied, 488 U.S. 852, 109 S.Ct. 136, 102 L.Ed.2d 109 (1988), in which we held "the issue of corporate disregard is generally submitted to the jury." Id. Because we

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have never addressed whether a right to a jury trial exists in a case where a judgment-creditor seeks to pierce the corporate veil and enforce a judgment--obtained against a subsidiary--against the parent corporation or individual shareholders alleged to have controlled the subsidiary, we revisit this area.

The Seventh Amendment provides that "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." U.S. Const. amend. VII. The jury trial right includes more than the common-law forms of action recognized in 1791; the phrase "Suits at common law" refers to "suits in which legal rights [are] to be ascertained and determined, in contradistinction to those where equitable rights alone [are] recognised [sic], and equitable remedies were administered." Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 447, 7 L.Ed. 732 (1830) (Story, J.).

It is irrelevant whether the action actually existed in England in 1791 "for that Amendment requires trial by jury in actions unheard of at common law, provided that the action involves rights and remedies of the sort traditionally enforced in an action at law, rather than in an action in equity or admiralty." Pernell v. Southall Realty, 416 U.S. 363, 375, 94 S.Ct. 1723, 1729, 40 L.Ed.2d 198 (1974); Curtis v. Loether, 415 U.S. 189, 195, 94 S.Ct. 1005, 1008, 39 L.Ed.2d 260 (1974). In determining whether a particular action is one at law or in equity, it is necessary to examine "both the nature of the issues involved and the remedy sought." Chauffeurs, Teamsters and Helpers, Local No. 391 v. Terry, 494 U.S. 558, 110 S.Ct. 1339, 1345, 108 L.Ed.2d 519 (1990). "First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we...

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