ADVANCED TELEPHONE v. COM-NET MOBILE RADIO

• Decision Date: 06 April 2004
• Citation: 846 A.2d 1264,2004 Pa. Super. 100
• Parties: ADVANCED TELEPHONE SYSTEMS, INC., t/d/b/a ATS Mobile Communications, Appellant v. COM-NET PROFESSIONAL MOBILE RADIO, LLC; W.E. Anderson Group Inc.; Com-Net Critical Communications, Inc.; Steven Savor, Jr.; Stephen Frobouck; and William E. Anderson, Appellees.
• Court: Pennsylvania Superior Court

846 A.2d 1264

2004 Pa. Super. 100

ADVANCED TELEPHONE SYSTEMS, INC., t/d/b/a ATS Mobile Communications, Appellant v. COM-NET PROFESSIONAL MOBILE RADIO, LLC; W.E. Anderson Group Inc.; Com-Net Critical Communications, Inc.; Steven Savor, Jr.; Stephen Frobouck; and William E. Anderson, Appellees.

Superior Court of Pennsylvania.

Argued August 27, 2003.

Filed April 6, 2004.

Joseph Decker, Pittsburgh, for appellant.

William M. Wycoff, Pittsburgh, for appellees.

Before: JOHNSON, HUDOCK and ORIE MELVIN, JJ.

HUDOCK, J.

¶ 1 Advanced Telephone Systems, Inc., t/d/b/a ATS Mobile Communications (ATS), appeals from the judgment entered against it by the trial court and in favor of all Appellees, save Com-Net Professional Mobile Radio, LLC (the LLC). Among the issues raised by ATS on appeal is whether there is a constitutional right to jury trial on the question of whether the "corporate veil" of a limited liability company should be pierced in this action for breach of contract. We determine that there is not such a right. Moreover, because we find no merit to the other claims raised by ATS, we affirm the judgment entered in favor of Appellees.

¶ 2 The procedural history of this case may be summarized as follows: In its second amended complaint, ATS raised a single breach of contract claim against the LLC, as well as "alter ego" allegations against W.E. Anderson Group, Inc. (the Anderson Group), Com-Net Critical Communications, Inc. (CCCI)¹ and three individuals, Steven Savor, Jr. (Savor), Stephen Frobouck (Frobouck), and William E. Anderson (Anderson). Prior to trial, Appellees filed a "Motion for Resolution of Alter Ego Claims by the Court Sitting in Equity." The trial court reserved decision on the motion, and a jury trial commenced on April 2, 2002. On April 3, 2002, the trial court granted Appellees' motion. At the conclusion of the evidence, the court directed a verdict on the issue of liability for breach of contract against the LLC. Thus, the issue of damages was submitted to the jury. The jury returned a verdict in favor of ATS and against the LLC in the amount of 2.5 million dollars plus attorney fees. This determination is not at issue on appeal.

¶ 3 Following the jury verdict, the trial court considered ATS's corporate piercing claim. ATS sought to pierce the LLC's corporate veil by contending that that company was misused by Appellees such that the LLC became their alter ego, rendering them undeserving of limited liability protection. ATS further attempted to prove that the LLC was never adequately capitalized and that the individual Appellees, especially Savor and Frobouck, induced ATS to enter the contract with the LLC by representing that it was backed by the financial strength of the Anderson Group. Following extensive oral argument and the submission of proposed findings of fact and conclusions of law, the trial court concluded that the corporate veil could not be pierced. Thus, in its decree nisi dated May 15, 2002, the court found that it could not impose liability for the LLC's breach upon any of Appellees.² ATS then filed post-trial motions, which were denied, and a final decree was filed. Judgment subsequently was entered, making the case ripe for appellate review.³

¶ 4 On appeal, ATS seeks to avoid the judgment entered against it and in favor of Appellees by raising the following issues on appeal:

I. WHETHER THE TRIAL COURT COMMITTED AN ERROR OF LAW WHEN IT REJECTED PRECEDENT AND HELD THAT THE JURY COULD NOT DECIDE THE ISSUE OF PIERCING THE CORPORATE VEIL, AND THAT THE PIERCING ISSUE HAD TO BE DECIDED BY THE COURT.

II. WHETHER ATS WAS ENTITLED TO A JUDGMENT [NOTWITHSTANDING] THE VERDICT BECAUSE THE COURT FOUND THAT [THE LLC] HAD NO ASSETS, THAT [APPELLEES] CO-MINGLED THEIR ACCOUNTS AND PAID ALL OF [THE LLC'S] DEBTS AND EXPENSES, THAT [APPELLEES] DID NOT FOLLOW FORMALITIES AND THAT [SAVOR] SIGNED THE AGREEMENT WITH ATS AS "LEVERAGE" TO COMPEL [EQUITABLE RESOURCES, INC. (ERI)] TO COMPLETE THE ERI-[LLC] TRANSACTION.

III. WHETHER ATS SHOULD HAVE BEEN GRANTED A NEW TRIAL WHERE THE COURT BASED ITS HOLDING THAT IT COULD NOT PIERCE THE VEIL OF [THE LLC] ON THE FINDING THAT [THE LLC] WAS NOT MISUSED, WHERE THIS FINDING WAS BASED ON THE ERRONEOUS LEGAL PRINCIPLE THAT [THE LLC] DID NOT HAVE TO BE CAPITALIZED WHEN IT SIGNED THE CONTRACT AND WHERE THE COURT FOUND THAT ATS'S CONTRACT WAS NOT CONTINGENT.

IV. WHETHER THE TRIAL COURT ABUSED ITS DISCRETION WHEN IT ADMITTED, ON TWO SEPARATE OCCASIONS AND OVER ATS'S OBJECTIONS, [SAVOR'S] UNFOUNDED TESTIMONY THAT ATS "KNEW" THAT [THE LLC] WOULD NOT MAKE PAYMENTS UNDER THE SERVICE AGREEMENT IF [THE LLC'S] SEPARATE DEAL WITH ERI DID NOT CLOSE, EVEN THOUGH THE COURT STATED IT DID NOT RELY ON THE TESTIMONY AND IT WAS NOT ADMITTED FOR ITS TRUTH.

ATS's Brief at 4.⁴

¶ 5 The trial court's factual findings may be summarized as follows: CCCI and Anderson Group were separate corporate entities and maintained their operations and corporate affairs separately from those of the LLC. They did not derive any profit from the LLC, as the LLC was never able to close the deal crucial to its purpose and therefore itself made no profit and had no assets other than the fourteen radio channels it was leasing from ATS. Savor, Frobouck and Anderson worked together in the same group of companies and other ventures, always through established corporate entities. They also had success elsewhere in the United States with businesses involving other communications systems and communication towers. On November 4, 1997, Anderson Group and Daniel Eldridge (not a party to this action) had formed Com-Net Development Group, LLC, to build, lease and sell communication towers for mobile radio and cellular communications.

¶ 6 In 1998, representatives of CCCI had approached Equitable Resources, Inc. (ERI), with a proposed alternative to ERI's existing internal communications system. Instead of ERI operating its own system and leasing the fourteen channels directly from ATS, on a month-to-month basis, the proposal envisioned an independent communications system, owned and maintained by an independent entity, of which ERI would be one customer. Because a necessary part of the proposed transaction with ERI would be the lease of the fourteen channels from ATS, negotiations were also conducted with ATS to secure the radio frequencies for the term of the proposed agreement with ERI.

¶ 7 On November 24, 1998, Savor, Frobouck and Richard Serdynski (Serdynski) met with Grier Adamson (Adamson), ATS's Treasurer and CEO, and Stephen Freund (Freund), ATS's General Manager, at Quicksilver Golf Club to discuss leasing ATS's radio frequencies. Savor, Frobouck and Serdynski gave ATS their business cards, which identified Com-Net Development Group, LLC, as the Com-Net entity they represented. Frobouck and Savor also gave Adamson and Freund business cards which identified them as executives in the "Anderson Group of Companies." Frobouck's business card identified him as President, and Savor's business card identified him as "Vice President of Corporate and Legal Affairs." Adjudication, 5/15/02, at 12; Findings of Fact at ¶ 37. Both Savor and Frobouck are attorneys.

¶ 8 Savor and Frobouck told ATS's Adamson and Freund at the meeting that they were negotiating with ERI for the sale and leaseback of ERI's two-way radio system assets to Com-Net Development Group, LLC. ERI was ATS's most important existing customer. ATS's channels were an integral and critical part of the ERI radio system, and ERI was paying ATS $2,000.00 per month per channel for twelve channels on an undocumented, month-to-month basis. Savor and Frobouck stated that ERI had told them to talk to ATS about leasing ATS's radio frequencies on a long term lease. Savor and Frobouck needed a long-term lease for ATS's channels to develop the proposed radio system in Western Pennsylvania, which was to include ERI as a principal user.

¶ 9 At the November 24, 1998, meeting, Savor and Frobouck told ATS that, in addition to contracting with ERI for the radio system, their business plan included putting other public and private entities, such as Allegheny County, Duquesne Light and People's Natural Gas, on their two-way radio system. Frobouck wanted to combine the thirty-seven specialized mobile radio entities in Western Pennsylvania that were operating such systems.

¶ 10 Adamson and Savor negotiated the contract directly. During the negotiations, ATS was represented by counsel, and Savor was a practicing attorney. ATS's counsel was a Washington, D.C. lawyer who specialized in communications law and who drafted the "800 MHz Subscriber Service Agreement" (Service Agreement) and implemented negotiated changes to it. Adjudication, 5/15/02, at 5; Findings of Fact at ¶¶ 1, 5. Initial drafts of the Service Agreement identify Com-Net Development Group, LLC, as the signatory of the Service Agreement. Two days before the Service Agreement was signed, Savor asked Adamson to substitute the LLC as the entity which would sign the contract with ATS. Adamson agreed to make this change and did so personally. Thus, before the Service Agreement was executed, Adamson directed ATS's counsel to change the signatory and the party to the Service Agreement from Com-Net Development Group, LLC, to the LLC.

¶ 11 The subject matter of the Service Agreement was the use of fourteen 800 MHz radio frequency channels for which ATS held licenses from the Federal Communications Commission (FCC). Pursuant to the Service Agreement, the LLC leased the fourteen channels from ATS for $2,000.00 per month and channel. The term of the Service Agreement was to be fifteen years.

¶ 12 Adamson knew that the early drafts of the Service Agreement were with Com-Net Development Group, LLC, and he knew that ATS would be entering into the Service Agreement with a limited liability company. Prior to the time the parties entered into the Service Agreement, Adamson knew what limited liability companies...