Heflin v. Koszela

• Decision Date: 11 June 2001
• Docket Number: No. 99-475-Appeal.,99-475-Appeal.
• Citation: 774 A.2d 25
• Parties: David R. HEFLIN v. John KOSZELA, Jr., et al.
• Court: Rhode Island Supreme Court

774 A.2d 25

David R. HEFLIN v. John KOSZELA, Jr., et al.

No. 99-475-Appeal.

Supreme Court of Rhode Island.

June 11, 2001.

Present WILLIAMS, C.J., LEDERBERG, BOURCIER, FLANDERS, and GOLDBERG, JJ.

William G. Savistano, Edward J. Mulligan, Eli A. Mulligan, For Plaintiff.

Jeffrey Richardson, Harold Kessler, Providence, Jeffrey F. Richardson, Warwick, For Defendant.

OPINION

BOURCIER, Justice.

The plaintiff, David R. Heflin (Heflin), appeals from two Superior Court summary judgments entered in favor of two of the five named defendants in his civil action for negligence and damages. Orders were entered permitting entry of final judgment concerning the two defendants, John Koszela & Son, Inc., and the Estate of John Koszela, Sr. (Estate of Koszela), pursuant to Rule 54(b) of the Superior Court Rules of Civil Procedure.

I Case Facts/Travel

On October 25, 1993, Heflin rented and lived in a house at 45 Barbs Hill Road in Coventry, Rhode Island. The property was owned by a trust, the sole trustee of which was one of the defendants, Bradford Gorham. One of the three trust beneficiaries was John Koszela, Jr. (John Jr.), the president and director of John Koszela & Son, Inc. (Koszela & Son), a Rhode Island corporation that also was a defendant. Koszela & Son owned and operated a lumberyard, hardware and automotive sportsequipment business at 1284 Victory Highway in the town of Coventry. Summit Gas Company (Summit), a sole proprietorship owned and operated by John Koszela, Sr. (John Sr.), was another defendant. Summit was a propane gas sales business that operated from the same address and office space as Koszela & Son. Besides being John Jr.'s father, John Sr. also was the father-in-law of Summit's only employee, defendant Leonard J. Finnerty (Finnerty). At times, Finnerty also worked for the corporate defendant, John Koszela & Son. To that intermix of family, business location and employee, we need only add that when Heflin called Summit about his malfunctioning propane gas heater, Summit dispatched Finnerty to make the repair and this lawsuit began to take shape.

Finnerty was not individually licensed to repair propane heaters. However, John Jr., in addition to being the president of Koszela & Son and Finnerty's brother-in-law, also was a licensed plumber. John Jr. authorized Summit and Finnerty to use, and work under, his license. Armed with John Jr.'s plumbing license, off went Finnerty, Summit's employee, to Heflin's place at 45 Barbs Hill Road to repair Heflin's propane gas heater. Repair it he did, and so well that, when he ignited the burner's pilot light, it exploded. Heflin claims he was severely injured, that Finnerty was negligent, and that all those at 1284 Victory Highway who had any business with Finnerty were responsible for Finnerty's negligence.

Some eighteen months after Finnerty's misadventure as a propane heater repairman, Heflin appears to have become serious about his claim against Finnerty and all those who touched Finnerty. However, by that time, John Sr., the sole proprietor of Summit, unfortunately had died, on April 13, 1995, and his estate already was pending in the Coventry Probate Court. Unfazed by John Sr.'s absence as a potential defendant, Heflin's attorney, on October 5, 1995, filed a rather unusual document entitled "Amended Claim Against the Estate" with the recently qualified coexecutors of the Estate of Koszela. Heflin's claim, in the amount of $500,000, was for damages allegedly resulting fromthe injuries caused by the propane gas heater explosion. The coexecutors of the estate promptly denied the claim, on October 10, 1995. No stranger to the filing of unusual documents, over eight months later Heflin's attorney filed a combination probate appeal and civil negligence action in the Providence County Superior Court on June 27, 1995. In that action, Heflin named as defendants, John Koszela, Jr. and Harold Kessler, in their capacities as coexecutors of the Estate of John Koszela, Sr., John Koszela & Son, d/b/a Summit Gas Company, Leonard J. Finnerty, and Bradford Gorham who, as trustee, had leased the house to Heflin. In his complaint, he asserted that Koszela & Son was doing business as Summit, and that Finnerty was employed interchangeably by John Sr. and Koszela & Son d/b/a Summit. Consequently, he contended, both Koszela & Son and Summit were jointly and severally liable for Finnerty's negligent conduct. Subsequently, both Koszela & Son and the Estate of Koszela filed motions for summary judgment. Separate hearings were held on each motion. Both motions were granted by the respective hearing justices and separate Rule 54(b) final judgments were entered thereon. Heflin appeals from the two entries of summary judgment and his appeals therefrom were consolidated for hearing in this Court.

Additional facts will be supplied as needed.

II Standard of Review

"When reviewing a summary judgment, we do so on a de novo basis, applying the same legal criteria as the trial court." Kiley v. Patterson, 763 A.2d 583, 585 (R.I.2000). (Emphasis added.) "Only when a review of the evidence in the light most favorable to the nonmoving party reveals no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law, will this Court uphold the trial justice's order granting summary judgment." Id. (quoting J.R.P. Associates v. Bess Eaton Donut Flour Co., 685 A.2d 285, 286 (R.I.1996)). "Although the moving party bears the initial burden of establishing that no genuine issue of material fact exists for a finder of fact to resolve, * * * it can carry this burden successfully by submitting evidentiary materials, such as interrogatory answers, deposition testimony, admissions, or other specific documents, and/or pointing to the absence of such items in the evidence adduced by the parties." Doe v. Gelineau, 732 A.2d 43, 48 (R.I.1999). "If the moving party satisfies this burden, the nonmoving party then must identify any evidentiary materials already before the court and/or present its own competent evidence demonstrating that material facts remain in genuine dispute." Id. However, "the nonmoving party `cannot rely solely on mere allegations or on the denials contained in the pleadings to defeat the motion.'" Id. (quoting Avco Corp. v. Aetna Casualty & Surety Co., 679 A.2d 323, 327 (R.I.1996)).

III Koszela & Son

The first summary judgment hearing addressed Koszela & Son's motion for summary judgment and its contention that it was a separate entity from Summit and, therefore, not liable for Finnerty's alleged negligence. It submitted that both businesses delivered a different product: Koszela & Son, being a licensed corporation in the retail lumber, hardware and automotive sports equipment business, whereas Summit being a propane gas sales company. It also noted that Summit maintained its own books, accounts and tax records; maintained a separate truck, phone line, and route customers; and that John Sr. declared Summit's income on his individual tax returns. Heflin, in opposing summary judgment, countered that genuine issues of material fact existed. He asserted that Summit was the alter ego of Koszela & Son and that, through Summit, Finnertyactually was employed by Koszela & Son, thus imputing liability to Koszela & Son for Finnerty's alleged negligent acts.

After reviewing all the evidence before her, the hearing justice found that Heflin had failed to raise any genuine issue of material fact about whether Koszela & Son could be viewed as an alter ego of Summit. Instead, she found that Heflin's claim, if any, rested only against John Sr. doing business as Summit. We disagree.

Whether a person is an employee of a corporation is a question of fact. See Brimbeau v. Ausdale Equipment Rental Corp., 119 R.I. 14, 26, 376 A.2d 1058, 1064 (1977)

. "[T]o impose liability on a corporation for the acts of its employees, the facts of a particular case must `render it unjust and inequitable to consider the subject corporation a separate entity' such as `when the corporate entity "is used to defeat a public convenience, justify a wrong, protect fraud or defend crime * * *."'" McFarland v. Brier, 769 A.2d 605, 613 (R.I.2001) (quoting R & B Electric Co. v. Amco Construction Co., 471 A.2d 1351, 1354 (R.I.1994)). The alter ego doctrine permits creditors of a corporation to reach the assets of the individual or individuals that control the corporation. See McFarland, 769 A.2d at 613-14. The doctrine also "permit[s] creditors of an individual shareholder to reach the assets of the corporation when the requirements of the doctrine are satisfied." Transamerica Cash Reserve, Inc. v. Dixie Power and Water, Inc., 789 P.2d 24, 26 (Utah 1990). See also McFarland, 769 A.2d at 613-14.

To invoke the equitable alter ego doctrine,

"there must be a concurrence of two circumstances: (1) there must be such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, viz., the corporation is, in fact, the alter ego of one or a few individuals; and (2) the observance of the corporate form would sanction a fraud, promote injustice, or an inequitable result would follow." Transamerica, 789 P.2d at 26.

The second prong of the alter ego test "`is addressed to the conscience of the court, and the circumstances under which it will be met will vary with each case.' " Id. However, to satisfy the second prong, "it must be shown that the corporation itself played a role in the inequitable conduct at issue." Id.

Our review of the record reveals that: (1) John Sr. was the owner of Summit as well as the Secretary/Treasurer of Koszela & Son; (2) Summit's business operated under John Jr.'s plumbing license; (3) John Jr. was the president and director of Koszela & Son; (4) both businesses were located at the same business address and in the same office space; (5) Koszela & Son's president and director, John Jr., paid cash wages to Finnerty; ...