Case Title: Dana v. 313 Freemason

Citation: 

Docket Number: 030450

State: virginia

Court: Virginia Supreme Court

Date: 2003-10-31T00:00:00Z

Document:
Present:  All the Justices 
 
THOMAS W. DANA, ET AL. 
 
OPINION BY 
v.  Record No. 030450 
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
October 31, 2003 
313 FREEMASON, A CONDOMINIUM 
 ASSOCIATION, INC. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK 
John C. Morrison, Jr., Judge 
 
In this appeal, we consider whether the trial court erred 
in piercing the corporate veil of a close corporation to assess 
liability for a judgment against the corporation upon its 
stockholders. 
BACKGROUND 
This case originated with a motion for judgment filed in 
the Circuit Court of the City of Norfolk (the trial court) on 
June 14, 2000, by 313 Freemason, a Condominium Association, Inc. 
(the Association) and the owners of four individual units of the 
condominium against Freemason Associates, Inc. (Freemason), and 
Thomas W. Dana and Conley J. Hall, the corporation’s sole 
stockholders.  The motion for judgment alleged that the roof, 
chimneys, fireplaces, and flues of the condominium building were 
defective when the building was sold by Freemason to the 
individual unit owners or their grantors.  Asserting theories of 
actual fraud, fraudulent misrepresentation, constructive fraud, 
false advertising under Code § 59.1-68.3, breach of contract, 
and breach of the statutory warranty provided by Code § 55-79.79 
of the Condominium Act, the Association and the individual unit 
owners sought compensatory damages of “no less than $200,000” in 
addition to punitive damages, costs, and attorney’s fees. 
By an order dated April 18, 2001, the trial court severed 
the claims of the Association and the individual unit owners and 
directed that each action thereafter proceed independently, 
except for purposes of conducting discovery.1  On June 2, 2001, 
the Association filed an amended motion for judgment asserting 
as its separate claims only the claim for breach of the 
statutory warranty provided by Code § 55-79.79 and a new claim 
for a violation of Code § 55-79.90, relating to the failure of a 
public offering statement to “disclose fully and accurately the 
characteristics of the condominium.”  The amount of compensatory 
damages sought was $380,000 along with punitive damages, costs, 
and attorney’s fees. 
Subsequently, the trial court limited the issues to be 
resolved by the impending jury trial on the Association’s 
claims.  The trial court ruled that the Association would not be 
permitted to assert a claim for the alleged defects in the 
                     
1 Appeals of two of the individual unit owners are also 
today decided.  Our resolution of those appeals, however, has no 
direct bearing upon our resolution of this appeal.  See Klaiber 
v. Freemason Associates, Inc., 266 Va. ___, ___ S.E.2d ___, 
(2003). 
 
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chimneys, fireplaces, and flues.  These claims were reserved to 
the individual unit owners upon the court’s conclusion that 
these structures were not common elements of the condominium.  
The court further ruled that Dana and Hall could not be held 
directly liable for a breach of the Condominium Act by Freemason 
in its corporate capacity because only that corporation was the 
declarant for the registration of the condominium.  However, the 
court also ruled that the Association would be permitted to 
present evidence in support of its assertion that, in the event 
it obtained a judgment against Freemason, the corporate veil of 
Freemason should be pierced in order to impose personal 
liability upon Dana and Hall. 
On September 9, 2002, immediately prior to the commencement 
of the jury trial, the trial court entered an order in accord 
with its prior rulings.  The court also dismissed the 
Association’s claim for punitive damages.  Accordingly, the 
trial proceeded only on the issue of Freemason’s liability for 
the alleged defective roof of the condominium.  At the 
conclusion of that trial, the jury returned a verdict in favor 
of the Association in the amount of $37,054.75, without 
designating the count or counts in the motion for judgment upon 
which the verdict was founded. 
After the jury returned its verdict, the Association filed 
a motion to pierce the corporate veil of Freemason and for an 
 
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award of attorney’s fees under Code § 55-79.53.2  After receiving 
briefs from the parties, the trial court, sitting without the 
jury, held an evidentiary hearing on November 6, 2002 on this 
motion.  In an opinion letter dated November 22, 2002, the court 
first concluded that an award of attorney’s fees against 
Freemason in the amount of $61,213.17 was appropriate under the 
statute.  The court then concluded that the evidence from the 
trial and the evidentiary hearing was sufficient to permit 
piercing the corporate veil of Freemason and to hold Dana and 
Hall liable for the judgment and award of attorney’s fees 
against Freemason. 
For reasons that will become apparent, we need not recount 
in detail the evidence or other incidents of the trial relevant 
to all the assignments of error in this case.  For purposes of 
the resolution of this appeal, our focus is on the post-verdict 
determination by the trial court to pierce the corporate veil of 
Freemason.  Accordingly, we will recite only the evidence from 
the trial and the post-verdict hearing relevant to that 
determination. 
                     
2 During trial, it was argued that because the award of 
attorney’s fees was a matter of statute, the Association should 
have been required to present evidence on that issue during its 
case-in-chief.  The trial court ruled that as an award of 
attorney’s fees would not be appropriate in the absence of a 
finding of liability, the issue would be resolved by the trial 
court in the event of a verdict in favor of the Association. 
 
4
During trial, it was shown that in April 1997 Dana acquired 
the property located at 313 Freemason Street, a lot and an 
abandoned residential structure that had last been used as an 
apartment building, with the intent to renovate the building as 
a four-unit condominium.  Dana encumbered the property with a 
deed of trust securing a $316,880 personal line of credit.  
Although he had no direct ownership in the property, Hall 
testified that “Dana handled the financing and [Hall] handled 
the renovation” of the building by hiring contractors and 
overseeing their work.  Dana and Hall had previously worked 
together on similar renovation projects and had several other 
ongoing projects during the time the 313 Freemason building was 
being renovated. 
Hall, indicating that he was the “manager,” filed an 
application for registration of the condominium.  The declarant 
on the application was listed as Freemason Associates, L.L.C. 
The application stated that Hall owned approximately fifty 
percent of the declarant.  The application further stated that 
Freemason Associates, L.L.C. had no assets other than the 313 
Freemason property. 
In February 1998, Hall contacted the roofing contractor who 
had installed and subsequently made repairs to the roof of the 
condominium.  Hall advised the contractor that the roof 
continued to leak and requested that it be replaced.  The 
 
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following month, although they did not advise him of the ongoing 
problem with the roof, Dana and Hall sought the advice of an 
attorney who advised them that “they would have decreased 
liability if they formed a corporation.”  Shortly thereafter, 
Dana and Hall incorporated Freemason.  On May 12, 1998, Hall 
filed a revised application for registration of the condominium 
substituting Freemason as the declarant in place of Freemason 
Associates, L.L.C.  In April 2000, an attorney representing Dana 
and Hall, wrote to the same roofing contractor requesting that 
the roof be repaired because it “continues to leak since its 
installation” and “the roof contains major structural defects 
which have caused extensive damage.” 
In the November 22, 2002 opinion letter, the trial court 
summarized its findings of the pertinent facts established by 
the evidence introduced during the post-verdict hearing.  Giving 
due deference to the trial court’s findings of fact, it was 
established that Freemason had maintained all the proper indicia 
and records for a corporation:  articles of incorporation, by-
laws, minutes of shareholder meetings, annual reports, and tax 
returns.  However, the business of the corporation was actually 
conducted by Dana and Hall “entirely outside the corporation.”  
When Freemason acquired the 313 Freemason property from Dana, 
allegedly in exchange for assuming his personal debt on the 
property, the corporation never actually assumed the debt.  
 
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Although the property was encumbered by the lien of a deed of 
trust to secure the payment of Dana’s indebtedness, the deed 
conveying the property from Dana to Freemason did not recite the 
existence of that indebtedness nor was Freemason ever 
contractually liable for the payment of it. 
Dana maintained a personal checking account designated by 
him as the “Rehab” account, which served as the deposit and 
payment account for the 313 Freemason property as well as 
several other properties Dana and Hall were renovating.3  None of 
these other renovation projects were owned by corporations, but 
were directly controlled by Dana.  Dana maintained separate 
check registers for each project for which funds were deposited 
and disbursed from his personal account, but made no other 
effort to segregate the funds within the account.  Freemason had 
no bank account of its own, and all funds received from the sale 
of its individual condominium units were deposited into Dana’s 
“Rehab” account.  As a result, Freemason never had any liquid 
                     
3 During oral argument of this appeal, counsel for Dana and 
Hall attempted to characterize this account as being a personal 
account in name only, contending that because it was used only 
for Dana’s business interests, it was somehow distinct from a 
personal checking account.  There is not the slightest 
suggestion that Dana used the funds deposited into this account 
for improper purposes.  However, the fact remains that this 
account was established solely in Dana’s name in his capacity as 
a private person, and the corporation had no access to or 
control over the deposits to that account. 
 
 
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assets, and a warranty reserve fund, which was to have been 
established following incorporation under the terms of the 
condominium declaration, was never funded. 
Based upon these facts and relying primarily upon O’Hazza 
v. Executive Credit Corp., 246 Va. 111, 431 S.E.2d 318 (1993), 
the trial court concluded that Freemason was “formed to evade 
any personal liability that Dana and Hall would have for the 
problems with the roof.”  The court further concluded that there 
was an identity of interest and ownership between Freemason and 
Dana and Hall and that “the unity of interest and ownership is 
such that the separate personalities of the corporation and the 
individuals no longer exists, and to adhere to that separateness 
would work an injustice.”  Accordingly, the trial court ruled 
that the corporate veil of Freemason would be pierced, and that 
Dana and Hall could be held personally liable for the amount of 
the jury verdict and the award of attorney’s fees and costs 
against the corporation. 
In a final order dated November 27, 2002, the trial court 
confirmed the jury verdict in favor of the Association and 
granted judgment against Freemason in the principal amount of 
$37,054.75, and under Code § 55-79.53 awarded attorney’s fees 
and costs to the Association in the amount of $61,213.17 against 
Freemason.  Additionally, the trial court pierced the corporate 
veil of Freemason and granted judgment in favor of the 
 
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Association against Dana and Hall, jointly and severally, in the 
principal amount of $37,054.75 in addition to attorney’s fees 
and costs of $61,213.17.  This appeal followed. 
DISCUSSION 
Initially, we note that the procedural posture of this 
appeal bars our consideration of a number of assignments of 
error asserted by Dana and Hall.  Dana and Hall filed their 
notice of appeal jointly.  Freemason did not join in that notice 
and did not file a separate notice of appeal.  In their petition 
for appeal, Dana and Hall assigned error challenging the trial 
court’s failure to strike the evidence as insufficient to 
support either claim in the Association’s motion for judgment, 
the trial court’s failure to grant an instruction regarding the 
reasonable opportunity to repair, and the trial court’s decision 
to disallow testimony during the trial regarding an award of 
attorney’s fees and costs and instead to decide that issue in a 
post-trial proceeding without a jury.  All the actions 
complained of in these assignments of error relate to the 
judgment and the award of attorney’s fees and costs against 
Freemason.  As to that corporation, however, both the judgment 
and the award are final and beyond appellate review. 
During oral argument of this appeal, Dana and Hall 
contended that because the trial court pierced the corporate 
veil of Freemason and imposed liability upon them, they have 
 
9
standing to appeal the judgment and award against the 
corporation.  We disagree. 
“The proposition is elementary that a corporation is a 
legal entity separate and distinct from the stockholders or 
members who compose it.”  Cheatle v. Rudd’s Swimming Pool Supply 
Co., Inc., 234 Va. 207, 212, 360 S.E.2d 828, 831 (1987).  The 
whole corporate concept would be meaningless if such were not 
the case.  Thus, it is also axiomatic that when a corporation 
causes injury as a result of an unlawful action, it is the 
corporation that is directly liable for any judgment obtained 
against it by the injured party.  Although under appropriate 
circumstances, the injured party may seek to pierce the veil of 
the corporation to impose liability against its stockholders, 
such action is dependant upon first obtaining a judgment against 
the corporation.  And it follows from this that it is the 
corporation, and not the stockholders, which has standing to 
challenge the judgment against the corporation on appeal.  
Accordingly, only Freemason has standing to challenge the merits 
of the judgment and award of attorney’s fees and costs rendered 
against it in the present case.  For these reasons, we will not 
consider the assignments of error raised by Dana and Hall with 
respect to those issues despite the ultimate determination by 
the trial court to hold them liable for the corporation’s 
judgment debt under a piercing theory.  See Prospect Development 
 
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Co. v. Bershader, 258 Va. 75, 94, 515 S.E.2d 291, 302 (1999) 
(defendants held jointly and severally liable did not have 
standing to appeal issues that were relevant only to one 
defendant who did not join in the appeal).  In short, the 
validity of the judgment and award of attorney’s fees and costs 
against Freemason in favor of the Association is binding on Dana 
and Hall in this appeal. 
We now turn to the question whether the trial court 
properly pierced the corporate veil of Freemason and assessed 
liability on Dana and Hall personally.  Although the underlying 
judgment against Freemason arises from a jury verdict, the trial 
court’s judgment to pierce the veil of the corporation was made 
post-trial by the trial court.4  Whether to allow piercing the 
veil of a corporation is a mixed question of law and fact and, 
accordingly, we review the trial court’s application of the law 
de novo while giving deference to the trial court’s factual 
findings.  Caplan v. Bogard, 264 Va. 219, 225, 563 S.E.2d 719, 
722 (2002). 
Stockholder immunity “is a basic provision of statutory and 
common law and supports a vital economic policy underlying the 
whole corporate concept.”  Cheatle, 234 Va. at 212, 360 S.E.2d 
                     
4 The parties agreed that the issue of piercing the 
corporate veil would be decided by the trial court without a 
jury. 
 
11
at 831 (1987); accord Beale v. Kappa Alpha Order, 192 Va. 382, 
397, 64 S.E.2d 789, 797 (1951).  “The decision to ignore the 
separate existence of a corporate entity and impose personal 
liability upon shareholders for debts of the corporation is an 
extraordinary act to be taken only when necessary to promote 
justice.”  C.F. Trust, Inc. v. First Flight Limited Partnership, 
266 Va. 3, 10, 580 S.E.2d 806, 809 (2003); see also O’Hazza, 246 
Va. at 115, 431 S.E.2d at 320; Cheatle, 234 Va. at 212, 360 
S.E.2d at 831. 
We have recognized that “no single rule or criterion . . . 
can be applied to determine whether piercing the corporate veil 
is justified.”  O’Hazza, 246 Va. at 115, 431 S.E.2d at 320.  
Each case must be considered in the context of its own specific 
circumstances.  In the present case, the trial court properly 
recognized that disregarding the corporate entity is usually 
warranted only under the extraordinary circumstances where 
the shareholder[s] sought to be held personally liable 
[have] controlled or used the corporation to evade a 
personal obligation, to perpetrate fraud or a crime, 
to commit an injustice, or to gain an unfair 
advantage.  Piercing the corporate veil is justified 
when the unity of interest and ownership is such that 
the separate personalities of the corporation and the 
individual[s] no longer exist and to adhere to that 
separateness would work an injustice. 
 
Id. at 115, 431 S.E.2d at 320-21 (citations omitted). 
The trial court determined as a matter of fact that the 
formation of Freemason as a corporate entity in 1998 was “to 
 
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evade any personal liability that Dana and Hall would have for 
the problems with the roof.”  The evidence in the record 
supports that finding.  Both parties were aware that the roof 
continually leaked from the time it was installed and that the 
roof contained “major structural defects” which had caused 
damage to the condominium.  Dana and Hall did not obtain their 
requested replacement or repair of the roof.  Rather, the 
evidence supports the conclusion that they simply determined to 
form Freemason and, ultimately, to use that corporation to evade 
personal liability while the condominium continued to be 
marketed with a known defective roof. 
Similarly, the evidence amply supports the trial court’s 
findings of fact that the unity of interest and ownership was 
such that the separate personalities of Freemason, Dana, and 
Hall did not exist.  The absolute control of Freemason by Dana 
and Hall is beyond question.  But for the corporate existence of 
Freemason, Dana and Hall treated and conducted the 313 Freemason 
renovation just as they did all of their other renovation 
projects.  There is no evidence in the record that Freemason 
ever conducted the business of a corporation independently from 
that of its shareholders.  The trial court correctly determined 
that under those circumstances “[Freemason] was the . . . 
stooge, or dummy” of Dana and Hall.  See Lewis Trucking Corp. v. 
Commonwealth, 207 Va. 23, 31, 147 S.E.2d 747, 753 (1966). 
 
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It then only remains to be resolved whether the trial court 
properly concluded that as a matter of law piercing the veil of 
the corporation was necessary to avoid an injustice.  One of the 
principal factors we look to in resolving the issue of piercing 
the veil of a corporation, and pertinent here, is whether the 
inability of the corporation to satisfy the judgment against it 
is the result of the deliberate undercapitalization by the 
incorporating stockholders.  “If, from its inception, a 
corporation is unable to pay its costs of doing business because 
of grossly inadequate capitalization, its legitimacy is suspect.  
Under such circumstances, stockholders may not be entitled to 
the corporate shield.”  O’Hazza, 246 Va. at 116, 431 S.E.2d at 
321. 
In O’Hazza, we held that an initial capitalization of 
$10,000 was not, as a matter of law, inadequate to capitalize 
the close corporation involved in that case.  Here, however, the 
record shows that Freemason was never capitalized even in a de 
minimis amount.  The apparent inability of Freemason to satisfy 
the judgment against it in this case was not the result of poor 
business decisions, mismanagement, or unexpected liabilities 
such that an expected profit never materialized.  Rather, 
because of the deliberate acts of the incorporating 
stockholders, Freemason suffered from nonexistent capitalization 
from its inception.  Despite an obligation to do so, Dana and 
 
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Hall never took any steps to establish the corporation’s 
warranty reserve.  Moreover, the corporation never had any 
liquid assets because it had no bank accounts and Dana deposited 
all funds that were properly the corporation’s into his personal 
checking account.  As a result, the corporation had no funds 
from which it could replace or repair the defective roof.  
Indeed, upon the conveyances to the various purchasers of 
individual units of the corporation’s only capital asset, the 
corporation ceased to have any function other than to serve as a 
shield for Dana and Hall against the civil suits which followed. 
This Court has been very reluctant to permit corporate veil 
piercing.  We have made it clear that only an extraordinary 
exception justifies disregarding the corporate entity in order 
to hold individual stockholders personally liable for a judgment 
against the corporation.  See, e.g., Greenberg v. Commonwealth, 
255 Va. 594, 604, 499 S.E.2d 266, 272 (1998).  The conduct of 
Dana and Hall in clearly calculating to use the corporate entity 
of Freemason for an unjust purpose is just such an extraordinary 
exception.  On this record, no other conclusion can be reached 
except that Dana and Hall formed a corporation not to operate a 
corporate business, but rather merely to avail themselves of a 
shield against their potential liability for the known defects 
in the roof.  Accordingly, we hold, as a matter of law, that the 
trial court did not err in piercing the corporate veil of 
 
15
Freemason and concluding that to permit Dana and Hall to assert 
the protection of the corporate shield of Freemason would work 
an injustice in this case. 
CONCLUSION 
For these reasons, the judgment of the circuit court will 
be affirmed. 
Affirmed. 
 
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