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. e du/thir dc ir c uit_1999/248Filed September 3, 1999

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUI T

No. 98-1972

IN RE: ERIC J. BLATSTEIN; MAIN, INC.,

Debtors 718 ARCH STREET ASSOCIATES, LTD.

v.

LORI J. BLATSTEIN; MORRIS LIFT; DELAWARECO, INC. (D .C. No. 97-cv-07063)

IN RE: MAIN, INC.,

Debtor 718 ARCH STREET ASSOCIATES, LTD.; MITCHELL M . MILLER, ET AL.

v.

ERIC J. BLATSTEIN; MAIN, INC.; LORI J. BLATSTEIN, E T AL; MORRIS LIFT, CPA; DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REED CO, INC.; WATERFRONT MANAGEMENT CORPORATION; COLUMBUSCO, INC.; AIRBEV, I NC.; PIER 53 NORTH,

INC. (D.C. No. 97-cv-07064)

IN RE: MAIN, INC.,

Debtor 718 ARCH STREET ASSOCIATES, LTD.; MITCHELL M . MILLER

v.

ERIC J. BLATSTEIN; LORI J. BLATSTEIN; MAIN, INC.; D ELAWARECO, INC.; ENGINE
46 STEAK HOUSE, INC.; REEDCO, INC.; WATERFRONT MANAGEM ENT CORPORATION; COLUMBUSCO, INC.; AIRBEV, INC.; PIER 43 NORTH, INC. ; MORRIS LIFT, CPA; MAIN, INC. (D.C. No. 97-cv-07066)

IN RE: MAIN INC.;

Debtor 718 ARCH STREET ASSOCIATES, LTD.; MITCHELL M . MILLER

v.

ERIC J. BLATSTEIN; MAIN, INC.; LORI J. BLATSTEIN; M ORRIS LIFT, CPA; DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC.; WA TERFRONT MANAGEMENT CORPORATION; COLUMBSCO, INC.; AIRBEV, INC.; PIER 53 NORTH, INC. (D.C. No. 97-cv-07069)

IN RE: ERIC J. BLATSTEIN; MAIN, INC.,

Debtors 718 ARCH STREET ASSOCIATES, LTD.v.

ERIC J. BLATSTEIN; MAIN, INC.; LORI J. BLATSTEIN; M ORRIS LIFT, CPA; DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC., t/ a MARGARITA CAFE; WATERFRONT MANAGEMENT CORPORATION; COLUMBUSCO, INC. ; AIRBEV, INC.; PIER 53 NORTH, INC. (D.C. No. 97-cv-07070)

718 Arch Street Associates, Ltd., Mitchell W. Mille r, Esq., Trustee for the Main, Inc. bankruptcy estate and Michael H. Kaliner, Esq., Trustee for the Blats tein bankruptcy estate,

Appellants On Appeal from the United States Distric t Court for the Eastern District of Pennsylvania (D.C. Civ. Nos. 97-07063/64/66/69/70) District Judge: Hon orable Bruce W.
Kauffman

Argued July 12, 1999

BEFORE: GREENBERG, ALITO, and ROSENN, Circuit Judge s

(Filed: September 3, 1999)

Steven M. Coren (argued) David Dormont Kaufman, Cor en, Ress & Weidman 1525
Locust Street 17th Floor Philadelphia, PA 19102

Attorneys for Appellants Eric L. Frank Miller, Fran k & Miller 21 South 12th Street 640 PSFS Building Philadelphia, PA 19107

Attorneys for Appellant Mitchell W. Miller Trustee for the Main, Inc. Bankruptcy Estate Edward J.
DiDonato DiDonato & Winterhalter 1818 Market Street , Suite 3520 Philadelphia, PA 19103-3629

Attorneys for Appellee Eric J. Blatstein Kevin J. C arey (argued) Mesirov

Gelman Jaffee Cramer & Jamieson 1735 Market Street, Suite 3800 Philadelphi a, PA 19103-7598

Attorneys for Appellee Lori Blatstein

B. Christopher Lee (argued) Jocoby Donner, P.C. 151 5 Market Street, Suite 2000 Philadelphia, PA
19102

Attorneys for Non Debtor Corporate Appellees Delawa reco, Inc., Engine 46 Steak House, Inc., Reedco, Inc., Waterfront Management Corporation, Columbusco , Inc., Airbev, Inc., Pier 53 North, Inc.

OPINION OF THE COURTGREENBERG, Circuit Judge.

I. INTRODUCTION

This case concerns the bankruptcy proceedings of Er ic J. Blatstein ("Blatstein") and the attempt by one of his creditors joined by bankruptcy trustees to brin g assets into his bankruptcy estate. The creditor, 718 Arch Street Associates, Ltd. ("Arch Street"), brought th ese adversary proceedings in the bankruptcy court accusing Blatstein of fraudulently transferring his income and his shares in a number of corporations in the
restaurant and bar businesses he controlled to his wife, Lori J.
Blatstein. Arch Street also asked the bankruptcy court to reverse pierce the veils of the corporations so as to bring their assets into the bankruptcy estates. The trustees of the Blatstein b ankruptcy estate and of the bankruptcy estate of Main, Inc. ("Main"), one of the Blatsteins' jointly-held corporations, have intervened as plaintiffs in this action. Arch Street predicated its piercing the veil argument on the contention that the corporations were Blatstein's"alter egos." As we shall explain, a court in a successful reverse piercing case disregards the corporate existence so that the corporation's assets become available t o a controlling party's creditors to satisfy his debts. Thus, a reverse piercing case differs from a classical pi ercing case as in the latter the controlling party is responsible for the corporation's debts. The bankru ptcy court and the district court on appeal rejected these fraudulent transfer and reverse piercing claims ins ofar as the claims are

now before us. Arch Street and the trustees then appealed to this court. We will rever se in part, as we find that Eric Blatstein fraudulently
transferred his income to his wife in an effort to keep the money from his creditors. We, however, will affirm in part, as we conclude that the bankruptcy and dis trict courts correctly

found that there had not been a fraudulent transfer of corporate shares and correct ly refused to pierce the corporate veils.

II. STATEMENT OF THE CASE

This case grew out of Main's September 20, 1996 vol untary Chapter 11 petition. See In re Main, Inc., 213 B.R. 67, 72 (Bankr. E.D. Pa. 1997) ("Main II"), rev 'd in part and aff'd in part sub nom., In re Blatstein, 226 B.R. 140 (E.D. Pa. 1998).1 Main converted its case from a Chapter 11 to a Chapter 7 proceeding after a December 18, 1996 hearing in the bankruptcy court o n a motion to dismiss its petition. Blatstein then filed a personal Chapter 7 proceeding on December 19, 1996.Arch Street subsequently brought these adversary pr oceedings in both the

Blatstein and Main bankruptcy cases against Eric and Lori Blatstein, Morris Lift, who was the Blatsteins' accountant and Main's president, and the Blatsteins' various jointly-held corporatio ns.2 For

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1. We are using the numerical designation of the Ma in bankruptcy cases as the parties and the bankruptcy court have used them even though we do not refer to all the Main cases.

2. These corporations are Delawareco, Inc., Engine 46 Steak House Inc., Reedco, Inc., Waterfront Management Corporation, Columbusco, Inc., simplicit y's sake, however, we will refer to the appellees collectively as "Blatstein" or "the Blatsteins," as appropriate in the context. Michael H. Kaliner, trustee of the Blatstein bankruptcy estate, and Mitchell Miller, t rustee of the Main bankruptcy estate, intervened as plaintiffs in the proceedings and are appellants he re. Nevertheless, we will refer to the appellants collectively

as "Arch Street."

Before filing these proceedings, 718 Arch Street As sociates, Ltd. obtained a judgment by confession in state court against Blatstein individually on November 12 , 1992, for $2,774,803

on account of a breach of a commercial lease. Subsequently, in connection with garnishment proceedings to enforce the judgment, the state court entered the judgment against Main.

In its complaints in the bankruptcy court, Arch Str eet alleged, inter alia, that Lori Blatstein was not truly a co- owner of the corporations, Blatstein fraudulent ly transferred all of his income from the corporations to her to avoid paying his creditors, Blatstein fraudu lently transferred
Main's assets to Lift and other corporations he controlled, and the Blatsteins' cor porations were Blatstein's alter egos and should be held responsible for his debts.

The bankruptcy court held that Blatstein fraudulent ly conveyed his assets
in Main to Lift and other corporations Blatstein controlled in a ruling which is not before us for review. Accordingly, pursuant to 11 U.S.C. SS 727(a)(2)(A) and (a)(7) the bankruptcy co urt refused to discharge him. Main II, 213 B.R. at 85. The court, however, rejected Arch Street's argument s that the corporate defendants were the alter egos
either of Blatstein or of each other and that Blats tein fraudulently
transferred his assets to his wife. Id. at 87-95. The bankruptcy court on further proceedings, which included Arch
Street's motion forreconsideration of the order in Main II, calculated Arch Street's claim

for rents due as $582,443.65. In re Main, Inc., 1997 WL 626544, at

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Airbev, Inc., and Pier 53 North, Inc. The bankruptc y court found that all the corporate defendants were Pennsylvania corporations jointly owned by Eric and Lori Blatstein as tenants by the entireties. See Main II, 213 B.R. at 74. *12 (Bankr. E.D. Pa. Oct. 7, 1997) ("Main III"). The court partially granted the motion for reconsideration with respect to the procedural impl ementation of the order
in Main II but did not disturb the substantive dispositions we have described.

On appeal, the district court affirmed the bankrupt cy court's rejection
both of Arch Street's claims that the Blatsteins' corporations were Blatstein's alter ego s and that he had fraudulently transferred his corporate shares and income to his wife, but reversed and rem anded for further proceedings in the bankruptcy court that court's ruling that Blatstein fraudulently tra nsferred Main's assets. In re Blatstein, 226 B.R. 140, 148 (E.D. Pa. 1998). 3 Arch Street now appeals the dist rict court's order affirming the bankruptcy court's ruling against its alter ego and fraudulent transfer claim s. As we have indicated, we will reverse in part and affirm in part.

III. DISCUSSION

Arch Street contends that the district court erred in rejecting the
fraudulent transfer claims because the court failed to take into account (1) Blatstein's insolve ncy at the time of the transfers, (2) the Blatsteins' fraudulent intention in effectuating the transfers, and (3) Lo ri Blatstein's failure to prove that she gave reasonably equivalent value for the transfers. Arch Street con tends that because of these legal errors, the district court erroneously failed to recognize that Arch Street ha d proven that the
transfers were fraudulent as a matter of
law.

Arch Street also contends, on the theory that the B latsteins' corporations were his alter egos, that the district court erred in affirming the bankruptcy court's ref usal to pierce the corporate veils. Arch Street argues that the court did not account properly for its contenti ons that (1) the corporations operated as facades for Blatstein, (2) Blatstein

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3. On remand, the bankruptcy court reconsidered its opinion, yet once again concluded that the transfer ofMain's assets was fraudulent. In re Main, 1998 WL 7 78017, at *14-*16

(Bankr. E.D. Pa. Nov. 4, 1998) ("Main V"). used the corporations to hinder, delay, and defraud his creditors, and (3) Blatstein commingled corporate funds with his personal funds.

Blatstein initially argues, however, that we should not reach the merits of the appeal as we lack jurisdiction to do so. Because this jurisdictional argument would r equire us to dismiss the appeal without considering the case on the merits, we will deal with it first. Alt ernatively, Blatstein urges that we affirm the district court's

order.

A. Standard of Review

We exercise plenary review over the question of whe ther we have jurisdiction to entertain this appeal. See In re Meyertech Corp., 831 F.2d 410, 413-14 (3d Cir . 1987). Likewise, we have plenary review over the district court's application of legal precepts. See In re Brown , 951 F.2d 564, 567 (3d Cir. 1991). On the other hand, we review the bankruptcy court's factua l findings for clear
error. See id. See also In re Forcroft Square Co., 184 B.R. 671, 675 (E.D. Pa. 1995) ("[T] he determination of
whether there is . . . intent to defraud [under Pennsylvania law] is a finding of fa ct which should not be set aside on appellate review unless that finding was clearly erroneous.") (citing Unite d States v. Tabor Ct. Realty Corp., 803 F.2d 1288, 1304 (3d Cir. 1986); In re Adeeb, 787 F.2d 1339, 1342 (9 th Cir. 1986)).

B. Whether our jurisdiction is properly invoked

As we have indicated, before reaching the merits of this dispute we first
must determine whether we have jurisdiction. This jurisdictional issue is implicat ed because the district court's order in part remanded the case for further proceedings in the bankruptcy court. Mo reover, there will be additional proceedings involving numerous issues with respect to the bankruptcy esta tes in both the district and bankruptcy courts.

In bankruptcy cases, we have jurisdiction pursuant to 28 U.S.C. § 158(d) over appeals from "final decisions, judgments, orders, and decrees entered," as here, by a district court in its appellate capacity under 28 U.S.C. § 158(a). Yet, we have recognized t hat in a bankruptcy context we consider the question of whether an order or judgment is final "in a more pragmatic and less
technical sense than in other matters. . . ." Meyertech Corp., 831 F.2d at 414. Determining whether an appellant has invoked our jurisdictionproperly entails "balancing a general reluctance to expand traditional

interpretations regarding finality and a desire to effectuate a practical termination of the matter before us." Id. The relevant factors consist of (1) the impact of our consideration of the merits of the ap peal upon the assets of the bankrupt estate, (2) the necessity for further fact-finding on remand, (3) t he preclusive effect of
a decision on the merits on further litigation, and (4) whether the interest of judicia l economy would be furthered by the exercise of jurisdiction. Id. We have held that the impact upon the assets of the estate is the "most important" factor in this balancing scheme. See In re Market Square Inn, Inc., 978 F.2d 116, 120 (3d Cir. 1992).

Applying these factors here, we conclude that we ha ve jurisdiction to consider Arch Street's appeal, as all four factors weigh in favor of our exercise of juri sdiction. First and foremost, this appeal concerns identifying assets of Blatstein's estate. Plainly, a reversal o f the district court's
order and a determination that Blatstein fraudulently conveyed his assets to his wife or tha t the Blatsteins' corporations are his alter egos, would result in the inclusion in his bankruptcy estate of substantial assets which then would be available to satisfy, at least in part, his creditors' claims. On the other hand, if we were to affirm the district court's order, the assets in the estate effectively would be determined.

Second, contrary to Blatstein's assertion in his br ief, we find no need for additional fact-finding on remand. This appeal concerns three overarching matters, two involving fraudulent transfers and one involving piercing corporate veils, none of which will be duplicated i n further proceedings in the district or bankruptcy courts, and none of which depends upon any facts still at i ssue or which will be determined during subsequent proceedings. Third, there can be no question but th at our decision will be preclusive. Finally, we serve judicial economy by consideration of these claims. Thus, we conclude that we have jurisdiction and will consider this appeal on the merits. See In re Simps on, 36 F.3d 450, 452 (5th Cir. 1994) (per curiam) (exercising jurisdiction over a trustee's appeal of a district court's order reversing the bankruptcy court's finding of a fraudulent transfer of an asset).

C. The fraudulent transfer claims

1. An overview

The bankruptcy court rejected Arch Street's claims that Blatstein fraudulently transferred his stock in thejointly owned corporations and his income derived f rom the businesses to

Lori Blatstein. In this regard it
reasoned that all of the stock certificates indicat ed that the Blatsteins owned the corporations as tenants by
the entireties and had so owned them since their in ception. Moreover, it accepted Lori Blatstein's testimony that the couple had opened her personal bank accoun t and deposited
Blatstein's income into it because of his bad reputation with banks and to avoid a federa l tax lien on Blatstein's assets. Main II, 213 B.R. at 93-95. The bankruptcy court's decision rested, then , upon its belief that (1) Blatstein did not transfer assets to Lori Blatstein, and (2) if there were any transf ers from Blatstein to Lori Blatstein, then in making the transfers Blatstein did not possess an actual inten t to defraud his creditors under Pennsylvania law which the parties agree is applicable.

On reconsideration, the bankruptcy court again reje cted Arch Street's fraudulent transfer claims. Main III, 1997 WL 626544, at *4-*6. This time the court rejec ted a "constructive fraud" theory of intent by pointing out that Blatstein's income came from the corporati ons the Blatsteins coowned, and thus "were not the same as paychecks from a third-party employer," but instead "could be
viewed as distributions of dividends or equity from the corporations. . . ." Id. at *6. Therefore, the court implicitly found that Blatstein did not transfer any earned income to Lori when he deposite d his income into her personal accounts. Moreover, inasmuch as Lori used these deposits to satisfy the Blatsteins' joint obligations and the debts of the various corporations, the court found it "impossible, on th is record, to find that `reasonably equivalent value' was not given to Blatstein and the corporations in exchange for their deposits
into these accounts." Id. The district court affirmed the bankruptcy court's findings on t hese issues. Blatstein,
226 B.R. at 159-60.

On this appeal, Arch Street contends that the bankr uptcy court's factual findings should have led that court to conclude that Blatstein possessed an actual inte nt to defraud his
creditors when he issued stock in Lori's name and when he made deposits into Lori's personal accounts. Arch Street also argues that even if we were tofind that Blatstein did not actually intend to defraud his creditors, we should hold that his transfers were fraudulent because they fail Pennsylvania's "c onstructive fraud" analysis applicable in fraudulent transfer cases. Arch Street contends that the bankruptcy and district courts erred by incorrectly placing the burden of proof on it, instead of shifting the burden to L ori to establish by clear and convincing evidence either thatBlatstein was solvent at the time of the transfers or that she gave him

fair consideration for the conveyances. We will affirm the district court's order affirming the bankruptcy court's finding that Blatstein did not fraudulently transfer corporate shares to his wife, but will reverse the district court's order affirming the bankruptcy court's finding concerning his income tr ansfers to her personal
bank account.

Initially on these fraudulent transfer issues we se t forth the germane state law. The Pennsylvania Uniform Fraudulent Transfer Act ("PUFTA") provides that a " transfer made or obligation incurred by a debtor is fraudulent as to a creditor, . . . if the debtor ma de the transfer or incurred the obligation: (1) with actual intent to hinder, delay or defraud any creditor of the deb tor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor" was insolvent
at the time of the transfer or became
insolvent as a result of it. 12 Pa. Cons. Stat. Ann . § 5104 (West 1999). The first provision provides for liability under an "actual intent" theory of fraud, while the second is a "constructive fraud" provision. 2. The

stock "transfers"

The bankruptcy and district courts rested their hol dings on their belief that the Blatsteins did not transfer any stock between them because they owned all the corpo rate stock at all times from their inception as tenants by the entireties. We agree. Pennsylvania defines a n"asset" for PUFTA purposes as the "property of a debtor" but not including "an interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against on ly one tenant." 12 Pa. Cons. Stat. Ann. §5101(b). Thus, if the Blatsteins always owned their corporations as t enants by the entireties, Arch Street's allegation that
Blatstein transferred them to Lori Blatstein to def raud his creditors must
fail.

We reach this conclusion even in the face of eviden ce that Blatstein alone provided or arranged for the
assets to establish the businesses and that Lori Bl atstein did not know that she was a joint owner of the corporations. 4 As the bankruptcy court noted, Penn sylvania law presumes that property titled to a husband and wife is owned by them as tenants by the entiret ies even if only one spouse paid for the property or even if one spouse was unaware of her ownership of the p roperty. Main II, 213 B.R. at 93 (relying upon In re Estate of Holmes, 200 A.2d 745, 747 (Pa. 1964)). Be cause the Blatsteins always had held their corporate shares as tenants by the entireties, Blatstein neve r "transferred" any shares to his wife, and thus could nothave fraudulently transferred the shares to her. Ac cordingly, we will

affirm the district and bankruptcy courts on this point.

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4. We do not deal with a situation in which it is c laimed that there was a

fraudulent transfer of assets to a jointly owned corporation and that that transfer sh ould be set aside. Arch Street repeatedly sets forth that it was the titling of the stock that was the fraudulen t transfer. Thus, it
states the issue as follows: "Whether the bankruptcy court (and district court) erred in ruli ng that Blatstein's titling of the stock of his corporation in the names of Blatstein and Lori Blatstein as tenants by the entireties, while Blatstein was insolvent, were not
fraudulent transfers." Br. at 2. See also br. at 26 , 29-30, 47. 3.
Blatstein's income "transfers"

We reject, however, the bankruptcy court's conclusi ons with respect to
Blatstein's income transfers to Lori's personal bank accounts. Unquestionably, Lori would have been entitled to dividends from the corporations. So we would uphold transfers of that nature. But th e bankruptcy court held
that Eric's income checks
constituted income of that character because the ch ecks "were not the same as paychecks from a third-party employer," but instead "could be viewed as distribu tions of dividends or equity from the corporations. . . ." Main III, 1997 WL 626544, at *6 (emphasis added).

We reject this conclusion. First, the payments were made by the corporations only to Blatstein and not to Lori Blatstein. Furthermore, the form of payments r eflected reality as Blatstein undoubtedly operated the businesses. In fact, as Arch Street pointed out in its brief and again at oral argument, Blatstein treated his paychecks as wages or Schedule C sole-proprietorshi p income on his tax
returns and not as dividends or
distributions to a shareholder. Br. at 45. Likewise , the corporations treated the payments as wages or
commissions and not as distributions to a sharehold er.

While the bankruptcy court viewed the determination of the character of the income as a factual matter, even reviewing for clear error, see Brown, 951 F.2d at 5 67, we are "left with
the definite and firm conviction that
a mistake has been committed." United States v. Uni ted States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542 (1948). Consequently, we hold that the cou rt's finding that
Blatstein did not transfer his income to Lori Blatstein was clearly erroneous. In sum, we se e no reason why income
that in form and fact was earned
for services should be reclassified as dividends or equity distributions.Our conclusion that Blatstein's income was earned i ncome leads us to

consider the bankruptcy court'sfinding that he deposited his income into Lori's accounts b ecause his credit and reputation with banks was poor, and because he "was trying to keep the funds from b eing seized or frozen by the IRS or other taxing authorities, pursuant to a tax lien, in light of th e personal income taxes which he owed to the IRS." Main II, 213 B.R. at 94. The bankruptcy court further noted that "taxes were paid from[a brokerage] Account, and therefore no fraud on the IRS or other taxing autho rities appears to have been effected." Id. These findings are significant because, notwithstanding the bankru ptcy court's contrary conclusion, they clearly demonstrate that despite the payment of some taxes, Blatstein i ntended to defraud the Internal Revenue Service, one of
his creditors.

PUFTA does not require proof to set aside a transfe r that the debtor intended to defraud the specific creditor bringing the fraudulent transfer claim. PU FTA deems a transfer
fraudulent if the debtor had the "actual intent to hinder, delay or defraud any cred itor. . . ." 12 Pa. Cons. Stat. Ann. § 5104 (emphasis added). Similarly, the courts apply the bankruptcy code's denial of discharge provision, 11 U.S.C. § 727(a)(2)(A), to "require[ ] only that the debtor m ake the transfer with intent to hinder, delay, or defraud`a creditor.' There is no requirement that the debtor intend to hinder all of his creditors." Adeeb, 787 F.2d at
1343.

We recognize that the bankruptcy court indicated th at Blatstein intended to shield the income to pay some of his debts, including reducing some of his tax liabi lity as the court noted that "taxes were paid from [a brokerage] Account, and therefore no fraud on the I RS or other taxing authorities appears to have been effected." Main II, 213 B.R. at 94. Nevertheless, a s the Adeeb court stated: "Our inquiry under [11 U.S.C. § ] 727(a)(2)(A) is whether [debtor] intended to hi nder or delay a creditor. If he did, he had the intent penalized by the statute notwithstanding any other motivation he may have
had for the transfer." 787 F.2d at 1343. We will apply the same principle under PUFTA. See also In re Greene, 202 B.R. 68, 73 (Bankr. D. Md. 1996) (holding that debtor's attempt to avoid o ne creditor's
collection efforts in an effort to allow him to pay other creditors "does not change the fact that Debtor transferred . .
. assets with the actual intent to hinder" a creditor); In re Cooper, 150 B.R. 462, 46 7 (D. Colo. 1993) (holding transfers to wife were fraudulent even though wife was one of debtor's cre ditors); United States v. Purcell , 798 F. Supp. 1102,1113 (E.D. Pa. 1991), aff 'd, 972 F.2d 1334 (3d Cir . 1992) (table)

(finding a conveyance fraudulent under PUFTA's predecessor when defendant attempted to avo id federal tax lien by conveying his property to his wife as a tenant by the entireties). Thus, we concl ude that the bankruptcy
court's determination that Blatstein
did not have the actual intent to defraud his credi tors was erroneous.5

Furthermore, although not necessary for our result, we note that the bankruptcy court erred in its "constructive fraud" analysis by incorrectly placin g on Arch Street the burden of proving that reasonably equivalent value was not given for the transfer: "[ W]e believe that lack of `reasonably equivalent value' for the transfer is not proven. . . ." Main III, 1997 W L 626544, at *6. In fact, if the grantor is in debt at the time of a transfer PUFTA places on the grantee the burde n of proving by clear and convincing evidence either that the grantor was solvent at the time of the tra nsfer or that the grantee had given reasonably equivalent value for the conveyance. See Elliott v. Kiesewette r, 98 F.3d 47, 56- 57 (3d Cir. 1996).6 Inasmuch, as the bankruptcy court found that, "the record supports B latstein's insolvency at the time of his transfers to Lori," Main III, 1997 WL 626544, at *6, Lori could have de feated a constructive fraud claim solely by proving that she gave adequate consideration for the transf ers.

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5. The bankruptcy court also ignored (without expla nation) an admission by Lori Blatstein in a pre-trial deposition that"the Arch judgment was a factor" in the Blatsteins' decision to put Blatstein's income into her personal accounts. Main II, 213 B.R. at 93-94. This testimony demonstrates that, in addition to avoiding the IRS's tax lien, Blatstein also intended to hinder A rch Street's attempts to collect its judgment, and provides another basis for our conclusion that he possessed the actual intent to
defraud his creditors under PUFTA.

6. Moreover, according to a long-standing district court case, this burden may be heavier on a grantor's wife when she is the grantee: "the burden is on the wife to show by clear and satisfactory evidence, beyond that required of other creditors, that at the time of th e transfer he was solvent or that she paid full consideration." Winter v. Welker, 174 F. Supp. 836, 843 (E.D. Pa. 1 959). The bankruptcy
court found Blatstein's testimony on this issue to be credible and relied u pon it to hold that Lori had given reasonably equivalent value for the deposit of his income into her accoun ts. Specifically, the
court reasoned that Lori received income from Blatstein that ultimately could be view ed as a dividend on her half-ownership of thecorporations, and used this income to pay off certa in of the Blatsteins'

joint debts as well as debts owed by the corporations. Id.

Yet, by failing to place the burden on Lori to prov e that she gave reasonable consideration, the court did not adopt the more plausible interpretation of the fact s: that Blatstein retained control over the funds despite transferring them to his wife. Lori Blatstein used the funds both for her
benefit and that of her husband for such purposes as paying their joint debts and putti ng aside money for their children's college educations. These payments suggest that Blatstein's conveyances were in title only, and that instead of giving her husband consideration in the form of payment of his debts, Lori merely was using the money where Blatstein
directed her to use it.

In this regard we note that the bankruptcy court, w hich had an opportunity to observe the Blatsteins testify, described Lori's role "as a faithful spouse, homema ker, and occasional business partner." Without shifting the burden of proof to Lori on the consideration is sue, the bankruptcy court could not make a proper ruling on the point. Nevertheless, in light of our holding that Blatstein possessed an actual intent to defraud his creditors, it is not necessary for us to remand for consideration of the
income transfers under the constructive fraud provisions of PUFTA.

D. The alter ego claims

Arch Street's final argument on appeal is that the bankruptcy and district courts erred in failing to reverse pierce the veils of the Blatsteins' corporations to satisfy Blatstein's

debts. Arch Street contends that the bankruptcy court made the necessary factual finding s yet erred in applying the law to these findings, resulting
in its erroneous conclusion that the Blatsteins' co rporations were not Blatstein's alter egos and that they were not the alter egos of each other.7

The bankruptcy court held that the Blatsteins' corp orations were not Blatstein's alter egos despite the presence of some factors that weighed in favor of p iercing the corporate veils. For example, the court found that the corporations paid numerous personal expens es of the Blatsteins
and made interest-free loans to them. Main II, 213 B.R. at 89-90. Nevertheless, the court declined to pierce the corporate veils, primarily by relying on Arch Street's expert's testimony on c ross-examination. The expert recognized that the Blatsteins declared these amounts on their joint in come tax returns as income, and that the corporations tookdeductions on their tax returns for these amounts. Id. at 91. Moreover,

while he recognized that as a result of the interaction between Blatstein and Main, Main did not owe Blatstein money (which would indicate that Blatstein had invested heavily in Main to hide his assets in the corporation), he noted that Blatstein owed Main $402,000. Id. Further, he noted that while the corporations paid $269,000 of the Blatsteins' personal expenses, the Blatsteins paid $360,000 of the corpo rations' expenses. Id.

The court also recounted that Blatstein's expert's testimony supported upholding the corporate form. The expert testified that the corporate transactions we re not made to hinder Blatstein's creditors, and that "since there were no transfers to the corporations from Bl atstein, he could not have technically engaged in any fraudulent conveyance." Id. Moreover, the expert in dicated that the transfers to Blatstein actually benefitted his creditors, and that closely-held corporations o ften grant interestfree loans to their officers and pay their officers' expenses as long as these amounts are ref lected on their books as compensation. Id. In fact, he
testified that it would be

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7. Arch Street does not press vigorously before us its claim that the corporations were each others' alter egos which is weaker than its claim that they were Blatstein's alter egos. For this reason, and in light of our rejection of Arch Street's stronger alter ego claim , we will affirm the district court's rejection of it without discussion. unusual for a corporation to charge int erest in such a
situation. Id. at 92.

Thus, the court concluded, that while some factors weighed in favor of piercing the corporate veils, the lack of evidence of other factors was dispositive. First , the court found "no proof that the various corporations . .. were in existence only to benefit [Blatstein's] pri vate concerns." Id. at 91. In fact, it appeared that all of the corporations other than Main were financially stabl e and successful businesses. Id. Second, the court found no proof in the record to support a conclusion that the Blatsteins abused the corporate form for illegitimate purposes. Id. Third, the court found that each corp oration adhered to corporate formalities by keeping its own financial records and bank accounts and by reco rding each loan granted to the Blatsteins. Id. Finally, the court concluded that except for the fraudulent transfers regarding Main, none of the corporations committed any fraudulent acts, nor was there eviden ce that Blatstein siphoned funds either in or out of them. Id. at 92. Thus, except for the fraudulent transfer s of Main, neither Blatstein nor the other corporationsworked injustice upon the creditors, and hence equi ty did not require

piercing the corporate veils. Id.

After setting forth the appropriate legal precepts, the district court agreed with the bankruptcy court's assessment. Blatstein, 226 B.R. at 158-59. The cour t emphasized that while the corporations paid the Blatsteins' personal expenses and provided them wit h interest-free loans,
these amounts were recorded in the corporate ledgers and were reported to the IRS as income. Id. at 159. The court also emphasized the fact that "rather than using the corporate entities to shelter funds otherwise available to his creditors, Blatstein was a net debtor to his corporations, owing Main in excess of $400,000." Id. Therefore, the district court affirmed the bankruptcy court's refusal to pierce t he corporate veils. Id.
We will affirm the district court on this point. Pennsylvania law, applicable here, reco gnizes a strong presumption against piercing the corporate veil. See Lumax Indus., Inc. v. Aultman, 669 A.2d 8 93, 895 (Pa. 1995). The "classical" piercing of the corporate veil is an equitable remedy whereby a cou rt disregards "the existence of the corporation to make the corporation's individual principals and their p ersonal assets liable for the debts of the corporation." In re Schuster, 132 B.R. 604, 607 (Bankr. D. Minn. 1991). In those instances, we

have stated that the factors weighing in favor of piercing the veil include:

failure to observe corporate formalities, non-payme nt of dividends, insolvency of the debtor corporation at the time, siphoning of funds of the corporation by the dominant shareholder, non-functioning of other officers or directors, absence of corporate records, and the fact that the corporation is merely a facade for the operations of the dominant stockholder or stockhold ers.

Kaplan v. First Options of Chicago, Inc., 19 F.3d 1 503, 1521 (3d Cir. 1994) (internal quotation marks omitted), aff'd, 514 U.S. 938, 115 S.Ct. 1920 (1995 ). We also recognized in Kaplan that courts sometimes consider undercapitalization a relevant factor, and that

[n]ot every disregard of corporate formalities or f ailure to maintain corporate records justifies piercing the corporate veil. That remedy is available only if it is also shown that a corporation's affairs and personnel were manipulated to such an extent that it became n othing more than a sham used to disguise the alter ego's
use of its assets for his own benefit in fraud of i ts creditors. In short,
the evidence must show that the corporation's owners abused the legal separation of a corporation from its owners and used the corporation for illegitimate purposes.Id.

While a classical piercing renders a shareholder re sponsible for the actions of the corporation, in a " `reverse' piercing, assets of the corporate entity are used to satisfy the debts of a corporate insider so that the corporate entity and the individual will be con sidered one and the same." In re Mass, 178 B.R. 626, 627 (M.D. Pa. 1995). See also In re Schuster, 132 B.R. at 607. It is not surprising that it has been recognized that only "exceptional circumstances" warrant grant ing this "unusual" remedy. In re Mass, 178 B.R. at 627. Consequently, a court should use its equitable powe rs to disregard the corporate form only if reverse piercing of the veil "will prevent fraud, illegalit y, injustice, [or] a contravention of public policy. . . ." In re Mass, 178 B.R. at 629 (internal quotation marks omi tted).

The district court in Mass did uphold the bankruptc y court's decision to reverse pierce the corporate veil of Mountain Cleaners, the debtors' corporation in that case. 178 B.R. at 631. Borrowing the analysis of Schuster, 132 B.R. 604, the court analyzed the "bal ance between debtor's
and creditor's remedies which the bankruptcy system is intended to serve." Mass, 178 B.R. at 629. The law imposes this balance whereby the "debtor receives the equitable remedy of discha rge and the creditor the remedy of receiving a pro rata share of the value which the [Bankruptcy] Code dict ates must be available
to creditors after the debtor's `fresh start.' " Id. at 629-30.

After applying this balancing test, the Mass court decided that the facts warranted a reverse piercing:

In this case, there was a total failure to observe any corporate formalities by the debtors; there were no directors' or shareholders' meetings and no dividen ds were paid; there are no corporate records; no corporate tax records were maintained; the business premises were not leased to the corporation; and at no time was the dry cleaning business conducted as a c orporate entity. At all
times the debtors used the proceeds of the business as if they were the assets of the individual

debtors themselves.

Id. at 630. In contrast the bankruptcy court in thi s case simply did not find equivalent factors present.

Furthermore, the Mass court found significant the f act that the debtors had changed a personal business account into a corporate account yet continued usin g the account for personal expenses after filing theChapter 11 proceeding. Id. at 628. Indeed, "the deb tors maintained no

other bank accounts, personal or business, during the bankruptcy case." Id. In fact, the only corporate
actions the debtors had taken were the transfer of their checking account into the corpora tion's name and the execution of an equipment lease with a telephone company that lay at the crux of the suit. Id.8 Accordingly, the
court held that "the account at issue served as the exclusive `debtor-in- possession' acc ount" and that " `it was estate funds, not `corporate' funds, that were placed in the account.' " Id. at 6 31.

The situation here is different. Although the Blats teins did not run their corporations as strictly separate entities, they did uphold the corporate form suffic iently by having the corporations keep separate records and bank accounts, and entering on the books all lo ans the corporations

made to each other and to the
shareholders.

Moreover, this case lacks an equitable justificatio n for reverse piercing the corporate veils. Arch Street contends that the limited commingling of funds and payment of personal expenses by the corporations was part of an elaborate plan by which Blatstein was at tempting to frustrate
his creditors' collection efforts. Although such an assertion, if true, might provide the equitable justification otherwise absent here, the bankruptcy court found the opposite to be true. The bankruptcy court found that Blatstein did not hide any of his personal assets in the corporations, nor did he commingle his assets with the corporations' assets so that separation would be impossible. We find no bas is in the record to justify a conclusion that the court's finding was clearly erroneous. Hence, unlike in Mas s, the assets that in this case are corporate assets in form are, in fact, corporate assets and are not part of Blatstein's bankruptcy estate. Consequently, we uphold the district court's order affirming the bankruptcy cou rt's decision to deny Arch Street the remedy of reverse piercing.

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8. Basically, Bell Atlantic had leased the corporat ion some telephone equipment, and was attempting to receive full payment of the lease after the corpora tion breached its

contract. The debtors and the trustee of the bankruptcy estate brought the action to pierce the corporate veil of the cleaning business to bring the corporation's assets into the bankruptcy estate and thus force Bell Atlantic to advance its claim through the

estate.

IV. CONCLUSIONFor the foregoing reasons, we will reverse the port ion of the district

court's order affirming the bankruptcy court's order holding that Blatstein did not fraudu lently transfer his income to Lori Blatstein's personal bank accounts, and will affirm the portions of the distr ict court's order affirming the bankruptcy court's determinations concerning the alleged fraudulent tr ansfers of corporate shares and refusal to reverse pierce the corporate veils of the Blatsteins' corporations . We will remand the
case to the district court for further proceedings consistent with this opinion. The parti es will bear their own costs on this appeal. ROSENN, Circuit Judge, concurring and dissenting:

I concur and join with the majority except with res pect to the alter ego issue and the question relating to Blatstein's transfer of stock to his wife, Lori. I do not reach this latter issue in light of my position on alter ego. As to the former issue, I believe that this re cord establishes that
at all times Eric Blatstein1 used the non-debtor corporations as his personal pawns. He m anipulated them at will
to hinder and avoid his personal creditors by unrestrictedly drawing checks on each of them to meet personal expenses, purchases, and other obligations. He ignored the corporate for m and the separate personalities of the corporations. I, therefore, respectfully dissent on the alter ego cl aims.

As president and chief executive officer, Blatstein controlled and dominated the corporations' finances, policies, and business practices. Except for obtain ing the articles of incorporation, only minimum corporate formalities were observed. Although the Blatsteins claimed they owned the corporate stock by the entireties, Lori Blatstein, his wife, did not know she owned an y corporate stock, possessed no certificate, and she made no payment for any.

Extensive corporate loans were obtained and extende d without corporate resolutions, either formal or informal, and there were no meetings of the board o f directors or
stockholders. When Blatstein deemed it desirable, the corporations engaged in fraudulent t ransfers, not only by Main, but with the participation of CFI and Columbusco. The corporate form was ignored whenever it suited
Blatstein's convenience. Blatstein also fraudulently transferred his income derived fr om the corporations to
Lori's bank account. For these reasons and more, as I discuss infra, I believe the corporate veil as to all corporate defendants should be pierced to avoid manifest injustice.

I.The doctrine that a corporation is a legal entity s eparate and apart from

the shareholders composing it is a legal _____________________________________________

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1. References in this dissent to "Blatstein" are to Eric Blatstein only. fiction designed to serve convenience and justice. It will be disregarded whenever justic e or public policy demands. "[W]henever one in control of a corporation uses that control, or uses the corpor ate assets, to further his or her own personal interests, the fiction of the separate entity may properly be disr egarded." Ragan v. TriCounty Excavating, Inc., 62 F.3d 501, 508 (3d Cir. 1995) (quoting Ashley v. Ashley, 393 A.2d 637, 641 (Pa. 1978)).

Although courts will not lightly pierce a corporate veil, nevertheless in an appropriate case and in furtherance of the ends of justice, a corporation and the perso ns who own its stock
and assets will be treated as identical. Cunningham v. Rendezvous, Inc., 699 F.2d 676, 680 (4th Cir. 1983); Hanrahan v. Audubon Builders, Inc., 614 A.2d 748, 753 (Pa. Super. 1992) . The effect of such a
decision in this case appropriately would sweep all of the assets of the non-debtor defendants into the Blatstein estate, an objective sought by the trustees and the other plai ntiffs, and one that is just. In United States v. Pisani, 646 F.2d 83, 88 (3d Cir. 1981), we fashioned a federal rule and held that the corporate entity could be disregarded and the principal stockholder held liab le to a creditor of the corporation where relevant factors as set forth in DeWitt Truck Brokers, Inc. v. W. Ra y Flemming Fruit Co., 540 F.2d 681 (4th Cir. 1976), showed that piercing the corporate veil was appropr iate.

Factors to be considered in whether to pierce a cor porate veil are gross undercapitalization and

failure to observe corporate formalities, non-payme nt of dividends, the insolvency of the debtor corporation at the time, siphoning of funds of the corporation by the dominant stockholder, non-functioning of other officers or directors, absence of corporate records , and the fact that the corporation is merely a facade for the operations of the dominant stockholder or stock holders.

Pisani, 646 F.2d at 88 (quoting DeWitt Truck Broker s, 540 F.2d at 686-87).

In Pisani, this court also found relevant additiona l factors favoring piercing the corporate veil, such as operating the corporation with large sums loaned by the stockholder to the corporation and repayment withcorporate funds while the corporation was failing, and keeping the

corporation undercapitalized by lending it money instead of investing equity. Id.

As the majority observes, the bankruptcy court, rel ying heavily on testimony of defendants' expert witness, Miller, declined to pierce the corporate veil. The bankruptcy judge relied on Miller, although he realized that Miller's experience with debtors of questionable mo ral and legal standards "may have jaded his perceptions." Main II, 213 B.R. at 82. He also thou ght that Miller was "occasionally over-aggressive in defending himself from what he claimed were distort ions of the facts introduced by Plaintiffs' counsel." Id. at 77. Miller apparently impressed the bankruptcy cour t with his general thesis that in his experience, "he had observed all or most of the practices at issue and found them acceptable business practices." Id. Two or more wrongs, however, do not make a right and, in s ome instances, Miller's testimony has the ring of judge and jury, as well as expert.

As the majority observes, the bankruptcy court foun d no proof that the various corporations were in existence only to benefit Blatstein's private conce rns, or for illegitimate purposes. It also appeared to the court that all of the corporations other than Main were financially stable
and successful businesses. As I discuss below, they were not. In addition, the cour t found that each corporation adhered to corporate formalities by keeping its own financial records an d bank accounts, and by recording each loan granted to the Blatsteins. I disagree with the court's conclus ions, some of which are couched as findings, for reasons that follow, and I do not believe that keeping fina ncial records by each corporation is sufficient to determine whether they adhered to corporate formalities in li ght of the evidence to the contrary.2 The bankruptcy court ignored significant factors that justify piercing t he corporate veil.

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2. This court reviews the bankruptcy court's legal conclusions de novo, factual findings for clear error, and
exercises of discretion for abuse of discretion. Se e Interface GroupNevada, Inc. v. Trans World Airlines, Inc. (In re Trans World Airlines, Inc.), 145 F.3d 1 24, 130-31 (3d Cir. 1998). This court has plenary review
of the district court's order. Id. I believe an ana lysis of the alter ego issue must begin with an understanding of the role and character of the principal players in the activities of the corporations.

The architect in the formation of the non-debtor co rporations is Eric Blatstein, now bankrupt and insolventsince 1980 when the IRS filed a lien against all of his property. His

wife, Lori, collaborated with him, serving "as a faithful spouse, homemaker, and occasional bu siness partner." Main II, 213 B.R. at 77. Also playing an important role is Morris Lift, Blatstein's accou ntant andfinancier.
Lift made loans to Blatstein or on Blatstein's behalf to the corporations through vari ous unwritten arrangements. Actively participating in the
"sham foreclosure" of Main and the fraudulent trans fer of some of its

assets to some of the non-debtor corporations, he assisted Blatstein in his persiste nt efforts to defeat the claims of his creditors. According to the bankruptcy court:

Prior to July 1996, Blatstein was the chief executi ve officer ("CEO") and president of all of the corporate Defendants. He remains as president and CEO of all of the corporate defendants except Main, of which Lift became president as of July 1996 after "foreclosing " on the assets and stock of Main on July 25, 1996. Blatstein has final decision-making power and is th e sole individual with check writing authority for all of the corporations in issue, including Main, the latter o f which all of the defense witnesses agree Lift allowed him to continue to "run" after the "foreclosure" by Lif t. The employees of all of these corporations act under
Blatstein's direction.

Id. at 74.

The bankruptcy court also found that Lift had been an "insider" of some of
the debtors in the critical months prior to their filing; that Lift's foreclosure on h is note against Main of its assets was a sham transaction, and
that"the transfer of most or all of Main's assets t o a series of other Blatstein-controlled entities within the year prior to the bankruptcy filings constituted `actual ' fraudulent conveyances which must be set aside." Id. at 67. The collusive foreclosure sale was arranged to prevent Arch from executing on its judgment against
Main's assets. The court found Lift's claims of inn ocence not credible, id. at 81, and found him to be "a willing accomplice to a fraudulent conveyance." Id. at 81-82. The court found the credibility of Lift and Blatstein highly questionable as to numerous issues throughout the trial.
Id. at 13.

The bankruptcy court was convinced that at all time s Blatstein had been "in control of the corporate defendants' management and operations." The court w as also persuaded that
when Blatstein testified that he directed Shoop, the controller for each of the corp orations, to deposit
all funds of Main after its bankaccounts were garnished, and all of Main's accounts receivable, into

Reedco's accounts and later into CFI's accounts, this testimony constituted an admission " that his intentions were to hinder and/or delay Arch from executing on its judgment against Main." Id. at 83. The court also rejected Miller's attempts to trivialize this wrongdoing as a standard business practice. Id. The court found that the transfers orchestrated by Blatstein rendered Main "an insolvent, worthless shell," and constituted an actual fraudulent conveyance of Main assets to Reedco, CFI, Lift and Columbusco within o ne year of Blatstein's bankruptcy. Main II, 213 B.R. at
83.

I turn now to an analysis of the corporate ownershi p. Although the Blatsteins professed to hold the capital stock of each of the corporations by the entireties , this representation is suspect. Blatstein testified that his wife Lori did not pay for stock in the corporations and wrote no check in purchase of the stock. Lori also
admitted that she did not know whether she owned st ock in the corporations, and, after an effort to evade answering questions pertaining to her stock interes t, testified that no
stock certificate was ever issued to her. She also admitted that she never paid anything to p urchase stock in the companies.3 When

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3. Lori testified:

Q. That wasn't my question. The question was, isn't it true you have never been given a stock certificate that has your name on it. confronted with his federal ta x returns prepared by
Lift and returns filed with the Commonwealth of Pennsylvania, Blatstein admitted th at each of them reported, under Blatstein's oath, that he was the sole owner of the corporations.

The plaintiffs assert that Blatstein treated the co rporations as a single entity. I agree. The Waterfront Management Corporation was organized for the purpos e of managing all of the corporations and Shoop served as controller, as well as controller for eac h of the non-debtor corporations. Blatstein instructed Shoop that if one of his corporations lacked suffic ient funds to pay its
bills to use the funds of another corporation. For example, in 1996 the aggregate exp enses paid by one corporation on behalf of another amounted to $554,749, a not insignificant sum. Thes e frequent intercompany payments do not show "financially stable and successful businesses." A c orporation charged no interest on intercompany"loans" and there was no agreement as to when or how they were to be repaid. Id. at
92. The court found that theseintercompany transactions were numerous; the court noted that Airbev paid

$150,000 of Delawareco's taxes. Engine 46 paid the start up costs for Airbev , and Main did the same for Reedco. Id. The companies also made frequent

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A. Yes.

Q. And you have not paid cash to purchase stock in any of the companies that your husband runs, is that

correct?

A. Correct.

Q. And you don't think that you ever wrote a check to purchase stock in any of the companies that your husband runs, is that correct?

A. Not that I can recall.

Q. As a matter of fact, you can't tell if you ever paid anything to purchase stock in any of the companies that your husband runs, is that right?

* * *

A. Not that I can recall. payments on Blatstein's $ 500,000 personal tax liability to the Internal Revenue Service on his prior companies that failed. It is e vident that the corporations were grossly undercapitalized; they each borrowed money from each other for start up costs and for capital.

The various corporations paid personal expenses of Blatstein, which were

treated as loans. "No loan documents were ever executed," id., and there were no documents to show when they would be repaid. The records were unclear to the court regarding how much money Blatstein
owed Main on monies advanced in his behalf for payment of personal expe nses, although one
exhibit introduced at trial showed a sum in excess of $400,000. Id.

Essentially, Blatstein used his corporations as his personal bank. Whenever Blatstein paid his personal obligations, whether expenses, real estate purchase s, personal taxes or old debts, he drew checks on the corporations. He had no personal bank account. In A ugust 1996, Columbusco paid $39,000 for his personal expenses. The 1995 tax return for Delaware co alone showed outstanding loans to shareholders of $283,570. In 1996, the corporation paid $269,117 fo r Blatstein's personal expenses. The corporationsmade a large down payment for his Bucks County esta te and afterward

payments on the remaining debt, and wages for a horse trainer and stable hand. The bankruptcy court
summarized some of the evidence relating to Blatstein's personal expenses as follow s:

At trial, Shoop testified that numerous personal ex penses of the Blatsteins were paid by the various corporations, including expenses for a horse traine r hired by the Blatsteins, loan payments to Lift for money loaned to the Blatsteins for the purchase of their home, and payments of Blatstein's personal income tax debts owed to the Internal Revenue Service ("the IR S"). This testimony was confirmed by Blatstein and Lift during their trial testimony as well, and by numero us financial documents
introduced into evidence.

Main II, 213 B.R. at 89. The bankruptcy court furth er found: Loans from the corporate defendants to the Blatsteins include the $140,000 down payment that P ier 53 made on the Blatstein residence, which was purchased in 1994. The monthly mortgage payments on this loan are made by
Delawareco and Main. In addition, Delawareco and Columbusco made the paymen ts on Blatstein's personal federal income tax liability. The Beratans were being repaid with $1,0 00 per week payments
from Main and its successor entities, e.g., Reedco, [Chicken Fingers], and Colu mbusco.

Id. at 90.

In addition, Blatstein siphoned large sums of money as "loans" or "wages" from the corporations, notwithstanding their gross undercapitalization and their scurrying to borrow money from each other to stay afloat. For the year 1996, he drew $555,288 in gros s wages from Waterfront Management Corporation. These funds were deposited in Lori's bank accounts. His personal IRS return for 1995 showed gross wages of almost $500,000. These funds also went into his wife's account, which
this court now holds constituted

fraudulent transfers.

Despite the bankruptcy court's negative findings as to Blatstein's credibility and his fraudulent activity to avoid paying creditors, the continuous and extensiv e payment of his personal obligations by the corporations and the non- observance of the corporate forms or o rdinary business practices, the bankruptcy court, largely persuaded by Miller, refused to pierce the corporate veil. Miller, the defendants' expert, opined that there was nothing wrong with a corporation directly paying the expenses of
a dominant shareholder. Thatdepends, however, upon whether the payments are occ asional, the amount,

and the financial status of the dominant shareholder, whether he is a person of wor th or insolvent and without assets, and whether the corporations are financially stable or severely und ercapitalized.

The Pennsylvania Superior Court in Hanrahan v. Audu bon Builders, Inc. held that where corporate funds were utilized, in the form of direct payments, as i s the case here, from the corporations' accounts for the shareholders' personal expenses, including expenses at their home, for personal jewelry, personal mortgage payments, and their son's private school tuition, p iercing the corporate veil was appropriate. 614 A.2d at
753. The salient considerations here demonstrate th at the personal expenses and other substantial personal obligations were paid and the large withdrawals per mitted because Blatstein made the decision, he drew the checks, and corporate formalities were ignored.

I believe that Miller, who the judge acknowledged m ight have had "jaded perceptions" because of his prior experiences with debtors of dubious practices, misl ed the court. Miller applied his own personal "measuring stick" to reach for his conclusion that the corpora te defendants were not Blatstein's alter ego. Id. at 92. Miller and the bankruptcy judge compartmentalized B latstein's improprieties as isolated, discrete acts instead of viewing the totality of all the circumst ances surrounding Blatstein's wide range of activities with the corporations. Miller attempted to minimize the numb er and amounts of Blatstein's personal expenses paid by offering his own formula. He took 1996 total gross revenues of the corporate defendants and divided it by Blatstein's personal expenses to come up with 3.89% as representative of the total gross revenues paid for personal expenses. With this approach, he ignored t he net earnings of the corporations, treated the corporations as a single entity for this purpose, a nd gave no consideration to Blatstein's disregard of the corporate form and the separate personalities of th e corporations and the
individual. In DeWitt Truck Brokers, which we cited with approval in Pisani, th e court noted that"[t]he conclusion to disregard the corporate entity may not, however, rest on a single factor." 540 F.2d at
687.

Miller concluded that technically no fraudulent tra nsfers in the form of company loans occurred because the transfers were from solvent corporations. They were barely solvent, however, only if the loans to an
insolvent Blatstein are considered in the calculati on. Of greater relevance and importance than the solvencyof the corporations, however, in determining whethe r the corporate veil

should be pierced are the character, quantity, and frequency of the intercompany loans a nd the payment of Blatstein's expenses, all made solely at Blatstein's behest and accomplished in total dis regard of ordinary corporate business practices. These corporations not only made loans to each other but they directly issued their checks to creditors in payment of another corporation's bill and then booked the s ame as an inter-company
loan. As the court noted in DeWitt Truck Brokers, "undercapitalization, coupled with disregard of corporate formalities, lack of participation on the part of the other stockholders , and the failure to pay dividends while paying substantial sums, whether by way of salary or otherwise, to the dominant stockholder ... has been regarded fairly uniformly to constitute a basis for an imposition o f individual liability
under the doctrine." 540 F.2d at 687.

Miller's opinion also addressed the legal factors r eserved for courts under an alter ego analysis and exceeded the bounds of an accounting expert in his conclusion that piercing the corporate veil here was not justified. Relying on Miller's testimony, the bankr uptcy court held that the plaintiffs failed to carry their burden. I disagree, for the record provides overwhe lming evidence that Blatstein, as the president and sole stockholder of each corporation, the principal, if not the only stockholder, with sole check drawing power, ignored the corporate form, and treated the corpora tions as a single entity and his alter ego. A glaring example of Blatstein's disregard of the corporate e ntity is his agreement without appropriate corporate authorization with Transmedia Network, Inc. This is an organization which purchases food credit for its members and it pays the restaurant or night club fi fty cents for every dollar of credit purchased. A provision of the agreement Blatstein entered into with Transm edia is that if one of the Blatstein restaurants closes, food
credits can be used at all the other restaurants in which he has an interest. Thus, if the restaurant that was paid for the food credits received all the money an d thereafter closed its

doors or could not honor the credits, the other restaurants operated by the corp orations would make good to Transmedia members. He had a similar arrangement with the Jefferson Bank u nder which checks written by one corporation which has not sufficient funds will be paid by one of the oth er companies that has sufficient funds available. Blatstein, during the life of the corporations, has systematic ally schemed to avoid his creditors and has cleverly used the corporations and Lori's bank accounts to thwart their efforts. He avoided his creditors by keeping nobank accounts or property in his name to answer for his debts, but paid

expenses and whatever other obligations he chose to pay with corporate funds. A ll family bank deposits, including his income, were in his wife's name. His personal purchases were made by on e or more of the corporations, for he had no personal accounts of his own, including the purchase of his Bucks County estate. The corporations paid his personal income taxes, including personal withholding taxes owing for prior failed corporations. The corporations made large "loans" to him, although they were under capitalized and in
financial straits. Blatstein even admitted that four of these corporations, Delawarec o, Reedco, Engine 46, and Columbusco, continued to make payments to him or on his behalf after they ha d been garnished. This is probative evidence of fraudulent conduct and abuse of the corporate entit y. See Northern Tankers (Cyprus) Ltd. v. Backstrom, 967 F. Supp. 1391, 1413 (D. Conn. 1997).

Personal and corporate finances were intermingled. The bankruptcy court
found that funds in the Gruntal account, of which $480,000 was deposited on October 3, 1995, came from
Delawareco and was "used to purchase items for the Blatsteins' residence; to pa y their mortgage; [and] to pay bills, predominantly tax liabilities, on behalf of the various corporate def endants." Main II, 213 B.R. at 94 (emphasis added). As the president and dominant stockholder of each corporat ion, time after time he disregarded the corporate structure of his companies for personal purposes.

In circumstances not as flagrant as we have here, t his court in the past has pierced the corporate veil. There is such unity of interest, ownership and function b etween Blatstein and the non-debtor corporations that the separate personalities of the individual and the co rporations no longer exist. This fusion of the corporate and individual personalities "may be satisfied by a sho wing of domination and control of the corporation, which occurs most often in the context of a parent-subsid iary relationship or of a closely held corporation." Note, Piercing the Corporate Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv. L. Rev. 853, 854-55 (1982) (emphasis added).

In Kaplan v. First Options of Chicago, Inc., 19 F.3 d 1503, 1521 (3d Cir. 1994), aff 'd, 514 U.S. 938 (1995), this court held that the corporate veil may be pierced when a corporation's affairs and personnel were manipulated to such an extent that they became nothing more than a sham to disguise the alter ego's
use of their assets for his own benefit in fraud of creditors. The activities of the non- debtor corporationshere show that they played a major role in meeting Blatstein's personal

needs in assisting him in his struggle to hinder and avoid his creditors. Proof of fraud, however, is not necessary to justify piercing the corporate veil, although fraudulent elements are present here . Under DeWitt, it is clear that "the corporate veil may be pierced in appropriate circumstances even in the ab sence of fraud or wrongdoing." Cunningham, 699 F.2d
at 680.

The bankruptcy court was also influenced in its dec ision by the clearly
erroneous belief that the non-debtor corporations "are financially stable and successful businesses." Main II, 213 B.R. at 91. If relevant, which I doubt, the evidence is to the contrary. Each corpor ation frequently paid
bills for the other and checks shuttled back and forth in an effort to meet expens es and creditors, all of which reveals the fragile financial condition of the companies.

Despite the absence of any documents evidencing the "loans" to Blatstein, their terms as to repayment, interest, or collateral, or any corporate authoriza tion of the loans, formal or informal, the court concluded that corporate formalities were observed because ea ch corporation had its own bank account and kept its own financial records. However, separate bank accou nts and records for each corporation are not alone sufficient proof that corporate formalities were ob served and the corporate entity respected, particularly when the bank accounts were each subject to Blatste in's exclusive control and used for his personal purposes. The records kept by each corporation are ordinary business records without any distinctive corporate characteristics except that each corporat ion kept its own.

Shoop admitted that several weeks before his final deposition in this case, Lift told him to clean up his records, which resulted in the reduction of Blatste in's loan balances "because my records were inaccurate." Shoop also acknowledged that during his service as Controller from July 12, 1994 through 1996, he never issued a 1099 form to Lift showing the payment to h im of interest on his loans to the corporations. He explained these annual lapses as an "oversight." He also admitted issuing a check to Lift for $9,000 on September 18, 1996, at Lift's direction which he co uld not explain. Although the foregoing illustrates that the corporate records were not always accurate as to Bl atstein and Lift, they do show that in 1996, the corporations paid for Blatstein's personal expenses of $269,117.16 plus his wages for the year of $558,288. (256a). In undercapitalized corporations struggling to meet their current expenses, a withdrawalof $827,405 by Blatstein in one year constituted a "siphoning of funds of

the corporation by the dominant stockholder." Pisani, 646 F.2d at 88.

Although the majority acknowledges that "the Blatst eins did not run their corporations as strictly separate entities," it concludes that they did uphold the co rporate form sufficiently because the corporations kept separate records and bank accounts, and entered on the books all loans the corporations made to each other and to the shareholders. Maj. Op. at 21. I do not believe that under the law of this circuit, this one factor should defeat an equitable result and bar th e piercing of the corporate veil in light of the many factors present that demonstrate the unity of interest and ownership of Blatstein and his corporations that
commenced with the initial fraudulent transfers fro m Main to Reedco.

When one views the total picture, illuminated by th e relevant factors set forth in DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., which were adopted by this court in United States v. Pisani, justification for piercing the corporate veil is clear. First, the co rporations were grossly undercapitalized. Second, corporate formalities were never observed, and officers and d irectors were nonfunctional. Although the corporations kept separate bank accounts and separate records, t his one factor is not determinative. Third, Blatstein, the dominant and, in my opinion, the sole stockholder, flagrantly siphoned funds from the corporations. He commingled personal and corporate funds. Fourth, Bl atstein alone drew

checks on the bank accounts of each of the corporations and corporation funds were used extensively for all of his personal obligations and expenses. Fifth, Blatstein used the corporations to hinder and delay creditors, including the fraudulent transfer of some of Main's assets in the face of ga rnishment proceedings to Reedco and Columbusco, and the fraudulent transfer of funds siphoned from the corporations to his wife's bank accounts. Finally, the total picture of Blatstein's activities portray that his corporations were "a facade for the operations of the dominant stockholder." Pisani, 646 F.2d at 88.

Accordingly, I respectfully dissent from the majori ty's decision to affirm the district court's order affirming the bankruptcy court's determination not to pierce the corporate veil of Blatstein's corporations.

A True Copy: Teste:

Clerk of the United States Court of Appeals for the Third Circuit 36

FOOTNOTES