In re Lupo
| Decision Date | 31 October 2006 |
| Docket Number | Adversary No. 05-1738.,Bankruptcy No. 05-22285. |
| Citation | 353 B.R. 534 |
| Parties | In re Robert J. LUPO, Debtor. South Atlanta Neurology and Pain Clinic, P.C., Plaintiff, v. Robert J. Lupo, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Stephen D. Hobt, Cleveland, OH, for Debtor.
Alan P. Digirolamo, Cleveland, OH, for Plaintiff.
This matter before the Court is South Atlanta Neurology and Pain Clinic, P.C.'s ("South Atlanta") complaint to determine dischargeability of debt against Robert J. Lupo ("Debtor" or "Lupo"). The Court acquires core matter jurisdiction over this proceeding under 28 U.S.C. 157(a) and (b)(2)(A), (I) and (0) and General Order No. 84 of this District. Upon an examination of the parties' respective briefs and supporting documentation, and after conducting a trial on the matter, the following findings of fact and conclusions of law are hereby rendered:
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Infinite View, Inc. (hereinafter, "Infinite View"), an Ohio corporation owned by the Debtor, previously engaged in the business of brokering and remanufacturing MRI equipment, entered into a written purchase proposal (the "Proposal") and sales agreement ("Sale Agreement") with South Atlanta wherein Infinite View would sell a 1999 Hitachi Aris II Open MRI System (the "MRI System") to South Atlanta for the total purchase price of $385,000.00. Plaintiff's Exhibits 11 and 12. South Atlanta tendered $77,000.00 (the "Deposit") to Infinite View, representing the deposit due for the purchase of the MRI System. Id. Pursuant to the Agreement, Infinite View was to ship the MRI System to South Atlanta no later than June 1, 2005. Id. The delivery date was amended to June 20, 2005 by an addendum executed by the parties ("Addendum"). Plaintiff's Exhibit 26.
Prior the execution of the Proposal and the Agreement, Infinite View executed a Purchase Proposal to acquire a 1999 Hitachi Aris II Open MRI System from a third party known as Medical Arts Commack, for $300,000. Plaintiff's Exhibit 49. Subsequently Infinite View tendered to Medical Arts Commack a deposit of $10,000 for the purchase of 1999 Hitachi Aris II Open MRI System. Plaintiff's Exhibit 50.
Prior to the execution of the Proposal and Agreement with South Atlanta, Infinite View was a defendant in a civil action captioned River Radiology, PLLC v. Infinite View, Inc., which was filed in the Lake County, Ohio Court of Common Pleas. River Radiology, the plaintiff therein, obtained an agreed judgment against Infinite View in the amount of $95,000.00, plus interest. Plaintiff's Exhibit 3. Subsequently, on two separate occasions, River Radiology caused the Lake County Sheriff to perform a levy of execution upon the assets of Infinite View at its business address in Willoughby, Ohio. Plaintiff's Exhibit 4 and 6. Thereafter, River Radiology and Infinite View entered into a consent entry in the state court action, whereby River Radiology was permitted to sell the levied property towards the satisfaction of its judgment. Plaintiff's Exhibit 13.
Prepetition, South Atlanta filed a lawsuit against Infinite View and Lupo in Henry County, Georgia asserting claims of breach of contract, fraud and conversion. Therein, in the matter of South Atlanta Neurology & Pain Clinic, PC v. Infinite View, Inc. et al., the court entered an order granting default judgment in favor of South Atlanta against Infinite View, which included compensatory and punitive damages in the sum total of $541,000.00 plus interest (the "Georgia Judgment"). Plaintiff's Exhibits 37 and 46. The action, as it pertained to Lupo, was stayed due to his pending Chapter 7 case. Plaintiff's Exhibit 46.
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On August 16, 2005, Lupo filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Lupo's Schedule F ("Creditors Holding Unsecured Nonpriority Claims") includes the claim of South Atlanta in the amount of $77,000.00, and notes that the claim was a corporate obligation only — listed for precaution.
South Atlanta commenced the above captioned adversary proceeding, seeking to determine the dischargeability of its debt pursuant to 11 U.S.C. §§ 523(a)(2)(A), (a)(4) and (a)(6) (the "Complaint"). South Atlanta alleges in the Complaint that Infinite View did not operate as a corporation and was the alter ego of Lupo, and that Lupo should be held personally liable for the acts of Infinite View and its representatives. South Atlanta also alleges that Lupo owes debts to South Atlanta that are nondischargeable because: (1) the debts were obtained by false pretenses, false representations and/or actual fraud by Lupo, (2) the debts arise from Lupo's acts of larceny and fraudulent actions while acting in a fiduciary capacity; and (3) the debts arise from a willful and malicious injury resulting from a scheme of misconduct by Lupo.
In his Answer, Lupo admits that he was the sole shareholder and president of Infinite View. Notwithstanding, he asserts that it was one Kyle Lulow, on behalf of Infinite View, who entered into the Proposal, Agreement and Addendum with South Atlanta for the sale and delivery of the MRI System. Lupo asserts that it was Infinite View, as opposed to himself, which accepted the Deposit and promised delivery of the MRI System. Lupo denies South Atlanta's allegations and asserts that he is not personally liable for the debts of Infinite View. Additionally, he asserts that the debt allegedly owed by him to South Atlanta is fully dischargeable.
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The contentions of the parties reveal two dispositive issues. First, should the Debtor be held personally liable for the actions of Infinite View and its representatives. Second, has South Atlanta sufficiently met its burden, which would warrant a determination that its debts are nondischargeable pursuant to §§ 523(a)(2)(A), (a)(4) and/or (a)(6).
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"A corporation is a separate legal entity from its shareholders, even where there is but one shareholder." LeRoux's Billyle Supper Club v. Ma, 77 Ohio App.3d 417, 602 N.E.2d 685, 687 (6th Dist.1991). However, under Ohio law, circumstances may exist where courts will disregard the corporate form and hold an individual shareholder liable for corporate misdeeds. This is often referred to as "piercing the corporate veil." The corporate entity and the individual shareholder are then treated as a single entity and the corporate liabilities become the liabilities of the individual shareholder. In order to pierce the corporate veil, a plaintiff must prove by a preponderance of the evidence that:
(1) control' over the corporation by those to be held liable was so complete that the corporation has no separate mind, will, or existence of its own, (2) control over the corporation by those to be held liable was exercised in such a manner to commit fraud or an illegal act against the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted from such control and wrong.
Belvedere Condominium Unit Owners' Ass'n v. R.E. Roark Cos., 67 Ohio St.3d 274, 617 N.E.2d 1075, 1086 (1993); Zimmerman v. Eagle Mortgage Corp., 110 Ohio App.3d 762, 772, 675 N.E.2d 480, 486 (1996); see also Ferguson v. Strader, 94 Ohio App.3d 622, 628, 641 N.E.2d 728, 731 (1994). The three-part Belvedere test is a conjunctive test, therefore requiring a plaintiff to satisfy all three prongs to pierce the corporate veil of a corporation.
The first prong of the piercing the corporate veil test is a restatement of the alter-ego doctrine, which requires a plaintiff "show that the individual and the corporation are fundamentally indistinguishable." Id. In deciding whether the company is an alter ego of the individual, Ohio courts consider such factors as:
(1) grossly inadequate capitalization, (2) failure to observe the corporate formalities, (3) insolvency of the debtor corporation at the time the debt is incurred, (4) shareholders holding themselves as personally liable for certain corporate obligations, (5) diversion of funds or other property of the company property for personal use, (6) absence of corporate records, and (7) the fact that the corporate was a mere facade for the operations of the dominant shareholder(s).
LeRoux's Billyle Supper Club, 602 N.E.2d at 689 (citation omitted). Notwithstanding the aforementioned factors, "because of the equitable nature of the veil-piercing doctrine, no list of factors can be exclusive or exhaustive." Carter-Jones Lumber Co. v. LTV Steel Co., 237 F.3d 745, 749 (6th Cir.2001) (applying Ohio law).
A corporation having one shareholder and officer does not, per se, signify that an individual shareholder exercised control and domination over a corporation. "A corporation is a separate legal entity from its shareholder even where there is only one shareholder in the corporation." Zimmerman v. Eagle Mtge. Corp., 110 Ohio App.3d 762, 675 N.E.2d 480, 485 (2nd Dist.1996). Some courts have held that this fact, alone, is sufficient to meet the first prong of the Belvedere test. See, e.g. Zimmerman, at 485 (); Stypula v. Chandler, No.2002-G-2468, 2003 WL 22844296, at *2 (Ohio App. 11 Dist. Nov.26, 2003) (sole shareholder and director held personally liable); Intergy, Inc. v. Carrigan, No. 62210, 1993 WL 127089, at *2 (Ohio App. 8 Dist. Apr.22, 1993). Notwithstanding the aforementioned holdings, the mere fact that all or almost all of the corporate stock is owned by one individual or a few individuals will not afford sufficient grounds for disregarding corporateness. See Belvedere Condominium Unit Owners' Ass'n, 67 Ohio St.3d 274, 617 N.E.2d 1075.
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