Florence Cement Co. v. Vittraino

• Citation: 807 N.W.2d 917,292 Mich.App. 461
• Decision Date: 03 May 2011
• Docket Number: Docket No. 295090.
• Parties: FLORENCE CEMENT COMPANY v. VITTRAINO.
• Court: Court of Appeal of Michigan (US)

292 Mich.App. 461

807 N.W.2d 917

FLORENCE CEMENT COMPANY

v.VITTRAINO.

Docket No. 295090.

Court of Appeals of Michigan.

Submitted Feb. 3, 2011, at Detroit.Decided May 3, 2011, at 9:00 a.m.

Ruggirello, Velardo, Novara & Ver Beek, P.C., Mount Clemens (by Armand Velardo and Michael Oblizajek), for Florence Cement Company.

Williams, Williams, Rattner & Plunkett, P.C., Birmingham (by Wayne Walker), for Antonio Vittraino, Ernest J. Essad, Jr., and A.V. Investment Corporation.

Before: WHITBECK, P.J., and O'CONNELL and WILDER, JJ.

PER CURIAM.

I. OVERVIEW

Plaintiff, Florence Cement Company, appeals as of right the trial court's judgment of no cause of action in favor of defendants Antonio Vittraino and A.V. Investment Corporation. Florence also appeals the trial court's award to Florence of $19,000 each from defendants Ernest J. Essad, Jr., and Dante Bencivenga. Essad cross-appeals the money judgment against him. We reverse and remand.

II. FACTS

A. THE UNDERLYING EVENTS

This case arises out of a construction contract between Florence and Shelby Property Investors, L.L.C. Shelby is a limited-liability company formed to own, develop, and sell vacant lots for residential construction. Shelby's founding members were Essad, Bencivenga, and Vittraino. However, A.V. Investment later replaced Vittraino as a member. In July 2006, Florence contracted with Shelby to perform concrete and asphalt work on Shelby's development. Ultimately, the project was not successful. Nevertheless, Shelby was able to pay all the contractors and subcontractors on the job, except one—Florence.

In establishing the subject project, Shelby obtained a cost estimate for the development, and, on the basis of the cost estimate, Shelby determined that it would need to borrow money in order to finance the project. Accordingly, around September 2003, Shelby obtained a loan from the private banking department of Comerica Bank for $700,000. Shelby's members provided unlimited personal guarantees that this loan would be repaid.

In October 2003, Essad and Bencivenga personally borrowed $300,000 from Comerica, which Essad and Bencivenga then “loaned” to Shelby to invest in the project. There was no promissory note by Shelby to Essad and Bencivenga. When asked whether Shelby paid the interest on the $300,000, Essad testified that Shelby “reimbursed” him and Bencivenga. According to Essad, “The checks went to the bank as a reimbursement to us for the interest on the note [to Comerica].” In other words, “[i]nstead of writing two checks, [they] wrote one check to the bank directly.” “The money was lent through me [Essad] into Shelby.... Shelby ... paid the interest. And we had [Shelby] pay it directly instead of paying it to us and then us paying it ... to the bank.”

In January 2005, Shelby obtained another loan from Comerica in the amount of $2,134,000. The proceeds of this loan were used, in part, to pay off the original $700,000 loan. Essad, Bencivenga, and Vittraino personally guaranteed this additional loan.

In February 2005, Shelby made certain payments to Essad and Bencivenga. Shelby paid $20,000 to Bencivenga, and testimony indicated that this payment was to reimburse Bencivenga for earnest money that he had paid on the purchase of some of the property. Shelby also paid Bencivenga approximately $104,000, which defendants contend was to compensate Bencivenga for two parcels that he had acquired for the development project, as reimbursement for preconstruction carrying costs. Similarly, Shelby reimbursed Essad $97,350 for expenses that he had paid as preconstruction carrying costs.

In November 2005, Shelby's members concluded that it was short $226,000 in capital. So Shelby's members obtained yet another loan from Comerica in that amount. The proceeds of this loan were invested in the development project.

In November 2006, when seeking a final draw from Comerica, Essad signed a sworn statement to Comerica, stating the amounts of money that various contractors were owed. This sworn statement indicated that of the total amount requested in the final draw Shelby owed Florence $142,000 of that amount. However, the actual amount owed on Florence's contract was $256,557.27. Essad testified about why the lower figure was used, instead of the contract price:

When we got all the final bills in, when I looked at what money was left in the draws on the $2,000,000.00 mortgage and the cash we had ... that was the most that I could pay them out of the bank funds, and out of the funds that we had on hand, so I talked to somebody at the bank ... [and] told her what was going on, and told her I wanted to ... make a final draw in effect out of the loan and pay as much money as I could pay out, in particular, to Florence, so I drew down 142,000 for them and paid it to them.

Essad admitted at trial that the other contractors were paid in full with this final draw. Essad contended at trial that the contractors were paid by Shelby in the order in which they finished their work, or in the order in which he received their bills. It is undisputed that Comerica provided the remaining $142,000 requested for Florence, and that this amount, but only this amount, was paid to Florence, leaving a shortfall of $114,557.27.

B. PROCEDURAL HISTORY

Florence commenced this action in April 2008 against Vittraino, Bencivenga, A.V. Investment, Essad, Shelby, and others. Florence's complaint alleged claims based on theories of alter ego, breach of contract, account stated, fraudulent conveyances, fraud in the inducement, violation of the building contract fund act, MCL 570.151 et seq. , and unjust enrichment/quantum meruit and sought exemplary damages in the form of attorney fees and other further relief and foreclosure of construction liens. The trial court entered a consent judgment for $114,000 in Florence's favor and against Shelby. Therefore, the remaining relevant defendants at trial were Vittraino, Bencivenga, A.V. Investment, and Essad (hereafter defendants).

At trial, Florence argued that Shelby had made improper distributions to its members while insolvent. Florence sought to have the corporate veil pierced in order to require that all the distributions made by Shelby, while insolvent, be refunded to Shelby, so that Shelby's obligation to Florence (under the consent judgment) could be satisfied. At trial, Florence's expert witness, Michael Locricchio, an attorney and CPA, opined that, on the basis of his review of financial documents from Shelby and its members, Shelby was insolvent in 2004 through 2006.

At the close of Florence's proofs, defendants moved for a directed verdict. Essad contended that there was a lack of evidence of ill will or fraudulent intent and that there was no evidence to prove alter ego or undercapitalization. The trial court concluded that, “as you go through the inventory of the records that have been provided[,] this project was not underfunded,” and there was no fraudulent act. However, the trial court also concluded that a change by Essad and Bencivenga in the characterization of $20,000 capital investments to loans was a distribution that was contrary to the limited liability act, although the trial court did not find that it was fraudulent. The trial court therefore concluded that there was a question of fact about whether the recharacterizations amounted to improper distributions. Accordingly, the trial court granted a directed verdict to Vittraino and A.V. Investment and dismissed “all the other matters ... with the exception of” the alleged distributions to Essad and Bencivenga.

Following the conclusion of trial, the trial court held that there was a distribution that caused Shelby's total liabilities to be greater than the sum of its total assets. The trial court entered a judgment of no cause of action against Vittraino and A.V. Investment, and judgments in the amount of $19,000 against Essad and $19,000 against Bencivenga. Florence requested that Essad and Bencivenga be held jointly and severally by liable, but the trial court rejected that request, reasoning that “[e]ach took a distribution.” Florence now appeals and Essad cross-appeals.

III. PIERCING THE CORPORATE VEIL

A. STANDARD OF REVIEW

Florence argues that the trial court erred by failing to pierce Shelby's corporate veil. Following a bench trial, this Court reviews findings of fact for clear error and conclusions of law de novo.¹ This Court also reviews de novo a trial court's decision on whether to pierce a corporate veil because piercing a corporate veil is an equitable remedy.²

B. LEGAL STANDARDS

The rules regarding piercing a corporate veil are applicable in determining whether to pierce the corporate veil of a limited-liability company.³ While “[t]here is no single rule delineating when the corporate entity may be disregarded[,] ... [t]he entire spectrum of relevant fact forms the background for such an inquiry, and the facts are to be assessed in light of the corporation's economic justification to determine if the corporate form has been abused.” ⁴ In order for a court to order a corporate veil to be pierced, the corporate entity (1) must be a mere instrumentality of another individual or entity, (2) must have been used to commit a wrong or fraud, and (3) there must have been an unjust injury or loss to the plaintiff.⁵

C. MERE INSTRUMENTALITY

The facts in this case show that defendants used Shelby as a mere instrumentality for themselves as individuals.⁶ Defendants clearly did not treat Shelby as an entity separate from themselves. Bencivenga acquired parcels of property, which he turned over to Shelby without a formal transfer. Essad and Bencivenga incurred expenses for developmental costs, and then simply had Shelby reimburse them directly. And Shelby made payments at the behest of defendants, but these payments were not beneficial to the company. In fact, through his role as financial manager of Shelby, Essad wrote the distribution checks personally. Moreover, whenever...