Rivera v. Paul C. Larsen, P.A. (In re Paul C. Larsen, P.A.)

• Decision Date: 20 November 2019
• Docket Number: Adv. Pro. No. 9:18-ap-069-FMD,Case No. 9:17-bk-08133-FMD
• Citation: 610 B.R. 684
• Parties: IN RE: PAUL C. LARSEN, P.A., Debtor. Luis E. Rivera, II, as Trustee, Plaintiff, v. Paul C. Larsen, P.A., and Paul C. Larsen, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Florida

610 B.R. 684

IN RE: PAUL C. LARSEN, P.A., Debtor.Luis E. Rivera, II, as Trustee, Plaintiff,

v.Paul C. Larsen, P.A., and Paul C. Larsen, Defendants.

Case No. 9:17-bk-08133-FMD

Adv. Pro. No. 9:18-ap-069-FMD

United States Bankruptcy Court, M.D. Florida, Fort Myers Division.

Signed November 20, 2019

Riley W. Cirulnick, Rice Pugatch Robinson Storfer & Cohen, Ft. Lauderdale, FL, for Plaintiff.

Anthony L. Leffert, Robinson Waters O'Dorisio, P.C., Denver, CO, for Plaintiff/Defendant.

Paul C. Larsen, P.A., pro se.

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND MEMORANDUM OPINION

Caryl E. Delano, Chief United States Bankruptcy Judge

THIS PROCEEDING came before the Court for trial on June 24, 2019, on the Amended Complaint filed by Plaintiff, Luis E. Rivera II, as Trustee of the bankruptcy estate of Paul C. Larsen, P.A. ("Debtor")¹ Generally, Plaintiff seeks a determination that Paul C. Larsen ("Larsen") is individually liable for the debts of Debtor because Larsen used Debtor as his alter ego for improper purposes and for his own personal benefit.

At the conclusion of the June 24, 2019 trial, the Court directed the parties to file closing briefs and permitted Larsen to file written objections to Plaintiff's Exhibits 17, 20, 23, and 24 described below. Thereafter, the Court considered the record in the proceeding, including its order that limited Plaintiff's discovery of records in Larsen's possession to the four-year period prior to the filing of Debtor's bankruptcy case.² The Court set a status conference for August 5, 2019.³ At that status conference, the Court related its concern to Larsen and Plaintiff's counsel that Larsen, in reliance on the Court's order limiting discovery, was not prepared at trial to address or rebut Plaintiff's Exhibits 17, 20, 23, and 24, each of which predated or related to the four years prior to Debtor's bankruptcy filing. After discussion with the parties and with their agreement, the Court entered an order that permitted Larsen to supplement the record with his objections to those exhibits, and if he desired, with a supplemental affidavit. The Court set the proceeding for further status conference on September 9, 2019, to determine whether it was appropriate to reset trial.⁴

Thereafter, Larsen filed his objections to Plaintiff's Exhibits 17, 20 and 23, together with additional documents for the Court's consideration.⁵ Plaintiff filed responses to Larsen's objections,⁶ to which Larsen replied.⁷ The September 9, 2019 status conference was continued to September 23, 2019, at which time, with the agreement of the parties and Plaintiff's counsel's representation that he did not need to further examine Larsen, the record was deemed complete. Plaintiff's counsel stated he would rely on his previously filed written closing brief,⁸ and Larsen was directed to file his closing argument.⁹ The briefing is now complete.¹⁰

After careful consideration of the complete record in this proceeding and the parties' written closing arguments, the Court finds that Plaintiff has not satisfied his burden of proving a claim for alter ego liability or for piercing Debtor's corporate veil.

A. Background

Debtor, a Florida corporation, was formed by Larsen in 1989 and remained an active Florida corporation until 2017. Debtor's officers and directors were Larsen and Larsen's wife.¹¹ During its years of operation, Debtor collected brokerage commissions and consulting fees earned by Larsen for his work as a real estate broker and consultant, and Larsen received distributions from Debtor in varying amounts.

In 2014, James D. Milliken and Conrad Capital Group, LLC (together, "Judgment

Creditors") obtained a judgment against Breakwater Capital Group V, LLC, ("Breakwater") in the amount of $551,267.22 in a case pending in the United States District Court for the District of Colorado, Milliken, James, et al. vs. Larsen, Paul, et al. , Case No. 2011CV292 (the "Colorado Action"). The Colorado Action apparently stemmed from a failed land purchase.¹² Although Larsen was affiliated with Breakwater and was named as a defendant in the Colorado Action, judgment was not entered against him.

In their efforts to collect the judgment against Breakwater, Judgment Creditors obtained two garnishment judgments: (1) in 2015, a Final Default Judgment of Garnishment against Gulfwinds Income Ventures, LLC ("Gulfwinds Income") as an entity that may have been indebted to or held property of Breakwater, and (2) in 2016, a Final Default Judgment of Garnishment against Debtor as an entity that may have been indebted to or held property of Gulfwinds Income.¹³

On September 22, 2017, Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code. In its bankruptcy schedules, Debtor listed a checking account containing $152.00 as its only asset. Debtor listed Larsen as having a claim in the amount of $40,900.00, Judgment Creditors with a claim of $551,267.22, Gulfwinds Capital Group, LLC, ("Gulfwinds Capital") with a claim of $68,652.49, and Gulfwinds Income with a claim of $240,134.00. Gulfwinds Capital and Gulfwinds Income (together, "Gulfwinds") are listed on the schedules at the same mailing address as Debtor.¹⁴

On February 13, 2018, Judgment Creditors filed a complaint against Larsen and Debtor in Debtor's bankruptcy case.¹⁵ The Chapter 7 Trustee was later substituted for Judgment Creditors as Plaintiff in the proceeding and filed an amended complaint on August 30, 2018 (the "Amended Complaint").¹⁶ In the Amended Complaint, Plaintiff alleges that Larsen wrongfully obtained money from investors in the ten years before Debtor's bankruptcy petition was filed, that Larsen had transferred the money to Debtor, and that Larsen then funneled the money from Debtor to himself for his own personal benefit.¹⁷

The Amended Complaint contains four counts. Count I is an action to pierce Debtor's corporate veil; Count II is an action against Larsen for alter ego liability; Count III is an action to subordinate the scheduled claims of Larsen and Gulfwinds to the claims of Judgment Creditors; and Count IV is an action for a declaratory judgment determining that Larsen is individually liable for the debts of Debtor.

B. Discussion

"Under Florida law, an alter ego claim is an action to impose liability on a corporation's principals or related entities where a corporation was organized or used to mislead creditors or to perpetrate a fraud upon them."¹⁸ Generally, "courts are reluctant to pierce the corporate veil and will do so only in exceptional cases where there has been extreme abuse of the corporate form."¹⁹

To pierce the corporate veil, a plaintiff must show by a preponderance of the evidence that (1) a shareholder dominated and controlled the corporation to such an extent that the corporation was nonexistent and the shareholder was the alter ego of the corporation, (2) the corporate form was used fraudulently or for an improper purpose, and (3) the fraudulent or improper use of the corporate form caused injury to the claimant.²⁰ The party seeking to pierce the corporate veil and impose alter ego liability on the principals bears the burden of proof.²¹

The Court has considered the entirety of the evidence presented at trial and finds that Plaintiff has not met his burden of proving a claim to pierce the corporate veil or to impose alter ego liability on Larsen for Debtor's debts.

1. Shareholder control

Clearly, Larsen controlled Debtor. According to Debtor's statement of financial affairs filed in the bankruptcy case, Larsen was Debtor's President, Vice President, Treasurer, and one of its directors.²² Larsen does not dispute that he managed Debtor's operations and finances. But the question is not whether Larsen controlled Debtor, but whether Larsen dominated Debtor to such an extent that Debtor was in fact nonexistent because of the control.

The evidence demonstrates that Debtor was incorporated under Florida law in 1989, that Debtor was an active profit corporation until it filed bankruptcy in 2017, that Debtor filed annual reports with the Florida Secretary of State,²³ and that Debtor maintained a bank account at Bank of America in its sole name.²⁴ Although Plaintiff asserts that Debtor did not maintain other corporate records, such as stock books or minutes of shareholder meetings,²⁵ "[e]ven if Debtor[ ] did not follow corporate formalities, this alone is not enough to pierce the corporate veil."²⁶ The evidence does not show that Debtor's corporate identity was nonexistent.

2. Fraudulent or improper purpose

"Florida's high regard for corporate ownership requires a showing that the corporation was specifically organized or used to mislead creditors or to perpetrate fraud before a party can pierce a corporation's veil."²⁷ A moving party has a heavy burden to show improper conduct before he may pierce an entity's corporate veil.²⁸ Plaintiff did not meet the burden in this case.

The essence of Plaintiff's argument is that Larsen used Debtor "as a conduit to funnel fraudulently obtained investments from his other entities to take cash out for his personal benefit and to pay for personal living expenses."²⁹ For example, Plaintiff asserts in his Closing Argument that Larsen solicited funds for fictitious investments such as an agricultural development in Mozambique and a water development project in Colorado.³⁰ No evidence was introduced regarding any development in Mozambique; with respect to activities in Colorado, Larsen submitted the transcript of the court's June 2014 ruling in the Colorado Action.³¹

The Colorado Action apparently arose from a dispute between Judgment Creditors, Larsen, and other parties involving the purchase of property known as the Camenisch Land. In his ruling with respect to Larsen, the District Judge found:

So, at the time Mr. Larsen approached Mr. Milliken, I'm finding that Mr. Larsen was upfront and that he did not breach any fiduciary duty. He explained the contract price. That's what Conrad Capital paid for it.... And I'm specifically

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