1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-3-1999

In Re: Blatstein

Precedential or Non-Precedential:

Docket 98-1972, 97-CV-07066, 97-CV-07063, 97-CV-07069, 97-CV-07064, 97-CV-07070

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Recommended Citation

"In Re: Blatstein" (1999). 1999 Decisions. Paper 248.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/248
Filed September 3, 1999 

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT 

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, ET AL; MORRIS LIFT, CPA; 

DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC.; WATERFRONT 

MANAGEMENT CORPORATION; COLUMBUSCO, INC.; AIRBEV, INC.; 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.; DELAWARECO, INC.; ENGINE 

46 

STEAK HOUSE, INC.; REEDCO, INC.; WATERFRONT MANAGEMENT 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; MORRIS LIFT, CPA; 

DELAWARECO, 

INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC.; WATERFRONT 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; MORRIS 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. Miller, Esq., Trustee for 

the Main, Inc. bankruptcy estate 

and Michael H. Kaliner, Esq., Trustee for the Blatstein bankruptcy estate, 

Appellants On Appeal from the United States District Court for the Eastern 

District of Pennsylvania (D.C. 

Civ. Nos. 97-07063/64/66/69/70) District Judge: Honorable Bruce W. 

Kauffman 

Argued July 12, 1999 

BEFORE: GREENBERG, ALITO, and ROSENN, Circuit Judges 

(Filed: September 3, 1999) 

Steven M. Coren (argued) David Dormont Kaufman, Coren, Ress & Weidman 1525 

Locust Street 17th 

Floor Philadelphia, PA 19102 

Attorneys for Appellants Eric L. Frank Miller, Frank & 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. Carey (argued) Mesirov 

Gelman Jaffee Cramer & 

Jamieson 1735 Market Street, Suite 3800 Philadelphia, PA 19103-7598 

Attorneys for Appellee Lori Blatstein 

B. Christopher Lee (argued) Jocoby Donner, P.C. 1515 Market Street, Suite 

2000 Philadelphia, PA 

19102 

Attorneys for Non Debtor Corporate Appellees Delawareco, Inc., Engine 46 

Steak House, Inc., Reedco, 

Inc., Waterfront Management Corporation, Columbusco, Inc., Airbev, Inc., 

Pier 53 North, Inc. 

OPINION OF THE COURT 
GREENBERG, Circuit Judge. 

I. INTRODUCTION 

This case concerns the bankruptcy proceedings of Eric J. Blatstein 

("Blatstein") and the attempt by one of 

his creditors joined by bankruptcy trustees to bring assets into his 

bankruptcy estate. The creditor, 718 Arch 

Street Associates, Ltd. ("Arch Street"), brought these 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 bankruptcy 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 to a controlling party's 

creditors to satisfy his debts. Thus, 

a reverse piercing case differs from a classical piercing case as in the 

latter the controlling party is 

responsible for the corporation's debts. The bankruptcy court and the 

district court on appeal rejected these 

fraudulent transfer and reverse piercing claims insofar as the claims are 

now before us. Arch Street and the 

trustees then appealed to this court. We will reverse 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 district courts correctly 

found that there had not been a 

fraudulent transfer of corporate shares and correctly refused to pierce 

the corporate veils. 

II. STATEMENT OF THE CASE 

This case grew out of Main's September 20, 1996 voluntary 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 on a motion to dismiss 

its petition. Blatstein then filed a 

personal Chapter 7 proceeding on December 19, 1996. 
Arch Street subsequently brought these adversary proceedings 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 corporations.2 For 

_________________________________________________________________ 

1. We are using the numerical designation of the Main 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., simplicity'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, trustee of the Main 

bankruptcy estate, intervened as 

plaintiffs in the proceedings and are appellants here. Nevertheless, we 

will refer to the appellants collectively 

as "Arch Street." 

Before filing these proceedings, 718 Arch Street Associates, 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 Street alleged, inter 

alia, that Lori Blatstein was not truly a 

co- owner of the corporations, Blatstein fraudulently transferred all of 

his income from the corporations to 

her to avoid paying his creditors, Blatstein fraudulently transferred 

Main's assets to Lift and other 

corporations he controlled, and the Blatsteins' corporations were 

Blatstein's alter egos and should be held 

responsible for his debts. 

The bankruptcy court held that Blatstein fraudulently 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 court refused to 

discharge him. Main II, 213 B.R. at 85. 

The court, however, rejected Arch Street's arguments that the corporate 

defendants were the alter egos 

either of Blatstein or of each other and that Blatstein fraudulently 

transferred his assets to his wife. Id. at 

87-95. The bankruptcy court on further proceedings, which included Arch 

Street's motion for 
reconsideration 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 

_________________________________________________________________ 

Airbev, Inc., and Pier 53 North, Inc. The bankruptcy 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 implementation of the order 

in Main II but did not disturb the 

substantive dispositions we have described. 

On appeal, the district court affirmed the bankruptcy court's rejection 

both of Arch Street's claims that the 

Blatsteins' corporations were Blatstein's alter egos and that he had 

fraudulently transferred his corporate 

shares and income to his wife, but reversed and remanded for further 

proceedings in the bankruptcy court 

that court's ruling that Blatstein fraudulently transferred Main's assets. 

In re Blatstein, 226 B.R. 140, 148 

(E.D. Pa. 1998). 3 Arch Street now appeals the district court's order 

affirming the bankruptcy court's ruling 

against its alter ego and fraudulent transfer claims. 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 insolvency at the time of the 

transfers, (2) the Blatsteins' fraudulent 

intention in effectuating the transfers, and (3) Lori Blatstein's failure 

to prove that she gave reasonably 

equivalent value for the transfers. Arch Street contends that because of 

these legal errors, the district court 

erroneously failed to recognize that Arch Street had proven that the 

transfers were fraudulent as a matter of 

law. 

Arch Street also contends, on the theory that the Blatsteins' corporations 

were his alter egos, that the district 

court erred in affirming the bankruptcy court's refusal to pierce the 

corporate veils. Arch Street argues that 

the court did not account properly for its contentions that (1) the 

corporations operated as facades for 

Blatstein, (2) Blatstein 

_________________________________________________________________ 

3. On remand, the bankruptcy court reconsidered its opinion, yet once 

again concluded that the transfer of 
Main's assets was fraudulent. In re Main, 1998 WL 778017, 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 require us to dismiss 

the appeal without considering the 

case on the merits, we will deal with it first. Alternatively, Blatstein 

urges that we affirm the district court's 

order. 

A. Standard of Review 

We exercise plenary review over the question of whether 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 factual 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 fact which should not be 

set aside on appellate review unless 

that finding was clearly erroneous.") (citing United States v. Tabor Ct. 

Realty Corp., 803 F.2d 1288, 1304 

(3d Cir. 1986); In re Adeeb, 787 F.2d 1339, 1342 (9th 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 implicated because the district 

court's order in part remanded the case 

for further proceedings in the bankruptcy court. Moreover, there will be 

additional proceedings involving 

numerous issues with respect to the bankruptcy estates 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 that 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 jurisdiction 
properly 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 appeal upon the assets of 

the bankrupt estate, (2) the 

necessity for further fact-finding on remand, (3) the preclusive effect of 

a decision on the merits on further 

litigation, and (4) whether the interest of judicial 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 have jurisdiction to 

consider Arch Street's appeal, as all 

four factors weigh in favor of our exercise of jurisdiction. First and 

foremost, this appeal concerns identifying 

assets of Blatstein's estate. Plainly, a reversal of the district court's 

order and a determination that Blatstein 

fraudulently conveyed his assets to his wife or that 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 brief, 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 in further proceedings 

in the district or bankruptcy courts, 

and none of which depends upon any facts still at issue or which will be 

determined during subsequent 

proceedings. Third, there can be no question but that 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 Simpson, 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 the 
jointly owned corporations and his income derived from the businesses to 

Lori Blatstein. In this regard it 

reasoned that all of the stock certificates indicated that the Blatsteins 

owned the corporations as tenants by 

the entireties and had so owned them since their inception. Moreover, it 

accepted Lori Blatstein's testimony 

that the couple had opened her personal bank account and deposited 

Blatstein's income into it because of 

his bad reputation with banks and to avoid a federal 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 transfers from Blatstein to 

Lori Blatstein, then in making the 

transfers Blatstein did not possess an actual intent to defraud his 

creditors under Pennsylvania law which the 

parties agree is applicable. 

On reconsideration, the bankruptcy court again rejected Arch Street's 

fraudulent transfer claims. Main III, 

1997 WL 626544, at *4-*6. This time the court rejected a "constructive 

fraud" theory of intent by pointing 

out that Blatstein's income came from the corporations 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 deposited 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 this 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 these issues. Blatstein, 

226 B.R. at 159-60. 

On this appeal, Arch Street contends that the bankruptcy court's factual 

findings should have led that court 

to conclude that Blatstein possessed an actual intent 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 "constructive 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 Lori to establish by 

clear and convincing evidence either that 
Blatstein 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 transfers to her personal 

bank account. 

Initially on these fraudulent transfer issues we set 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 made the transfer or 

incurred the obligation: (1) with actual intent 

to hinder, delay or defraud any creditor of the debtor; 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 holdings on their belief 

that the Blatsteins did not transfer any 

stock between them because they owned all the corporate stock at all times 

from their inception as tenants 

by the entireties. We agree. Pennsylvania defines an"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 only one tenant." 12 Pa. 

Cons. Stat. Ann. §5101(b). Thus, if 

the Blatsteins always owned their corporations as tenants by the 

entireties, Arch Street's allegation that 

Blatstein transferred them to Lori Blatstein to defraud his creditors must 

fail. 

We reach this conclusion even in the face of evidence that Blatstein alone 

provided or arranged for the 

assets to establish the businesses and that Lori Blatstein did not know 

that she was a joint owner of the 

corporations. 4 As the bankruptcy court noted, Pennsylvania law presumes 

that property titled to a husband 

and wife is owned by them as tenants by the entireties even if only one 

spouse paid for the property or even 

if one spouse was unaware of her ownership of the property. Main II, 213 

B.R. at 93 (relying upon In re 

Estate of Holmes, 200 A.2d 745, 747 (Pa. 1964)). Because the Blatsteins 

always had held their corporate 

shares as tenants by the entireties, Blatstein never "transferred" any 

shares to his wife, and thus could not 
have fraudulently transferred the shares to her. Accordingly, we will 

affirm the district and bankruptcy courts 

on this point. 

_________________________________________________________________ 

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

fraudulent transfer of assets to a 

jointly owned corporation and that that transfer should be set aside. Arch 

Street repeatedly sets forth that it 

was the titling of the stock that was the fraudulent transfer. Thus, it 

states the issue as follows: "Whether the 

bankruptcy court (and district court) erred in ruling 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 conclusions 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 the bankruptcy court held 

that Eric's income checks 

constituted income of that character because the checks "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. . . ." 

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 reflected 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-proprietorship 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 shareholder. 

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 567, we are "left with 

the definite and firm conviction that 

a mistake has been committed." United States v. United States Gypsum Co., 

333 U.S. 364, 395, 68 S.Ct. 

525, 542 (1948). Consequently, we hold that the court's finding that 

Blatstein did not transfer his income to 

Lori Blatstein was clearly erroneous. In sum, we see 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 income leads us to 

consider the bankruptcy court'sfinding 

that he deposited his income into Lori's accounts because his credit and 

reputation with banks was poor, 

and because he "was trying to keep the funds from being seized or frozen 

by the IRS or other taxing 

authorities, pursuant to a tax lien, in light of the 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 authorities appears to have 

been effected." Id. These findings 

are significant because, notwithstanding the bankruptcy court's contrary 

conclusion, they clearly demonstrate 

that despite the payment of some taxes, Blatstein intended to defraud the 

Internal Revenue Service, one of 

his creditors. 

PUFTA does not require proof to set aside a transfer that the debtor 

intended to defraud the specific 

creditor bringing the fraudulent transfer claim. PUFTA deems a transfer 

fraudulent if the debtor had the 

"actual intent to hinder, delay or defraud any creditor. . . ." 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 make 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 that Blatstein intended 

to shield the income to pay some of 

his debts, including reducing some of his tax liability as the court noted 

that "taxes were paid from [a 

brokerage] Account, and therefore no fraud on the IRS or other taxing 

authorities appears to have been 

effected." Main II, 213 B.R. at 94. Nevertheless, as the Adeeb court 

stated: "Our inquiry under [11 U.S.C. 

§ ] 727(a)(2)(A) is whether [debtor] intended to hinder 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 one 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, 467 (D. Colo. 1993) 

(holding transfers to wife were 

fraudulent even though wife was one of debtor's creditors); 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 avoid federal tax lien by 

conveying his property to his 

wife as a tenant by the entireties). Thus, we conclude that the bankruptcy 

court's determination that Blatstein 

did not have the actual intent to defraud his creditors was erroneous.5 

Furthermore, although not necessary for our result, we note that the 

bankruptcy court erred in its 

"constructive fraud" analysis by incorrectly placing 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 WL 626544, at *6. In 

fact, if the grantor is in debt at the time 

of a transfer PUFTA places on the grantee the burden of proving by clear 

and convincing evidence either 

that the grantor was solvent at the time of the transfer or that the 

grantee had given reasonably equivalent 

value for the conveyance. See Elliott v. Kiesewetter, 98 F.3d 47, 56- 57 

(3d Cir. 1996).6 Inasmuch, as the 

bankruptcy court found that, "the record supports Blatstein's insolvency 

at the time of his transfers to Lori," 

Main III, 1997 WL 626544, at *6, Lori could have defeated a constructive 

fraud claim solely by proving 

that she gave adequate consideration for the transfers. 

_________________________________________________________________ 

5. The bankruptcy court also ignored (without explanation) 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 Arch 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 the transfer he was 

solvent or that she paid full consideration." 

Winter v. Welker, 174 F. Supp. 836, 843 (E.D. Pa. 1959). The bankruptcy 

court found Blatstein's 

testimony on this issue to be credible and relied upon it to hold that 

Lori had given reasonably equivalent 

value for the deposit of his income into her accounts. Specifically, the 

court reasoned that Lori received 

income from Blatstein that ultimately could be viewed as a dividend on her 

half-ownership of the 
corporations, and used this income to pay off certain of the Blatsteins' 

joint debts as well as debts owed by 

the corporations. Id. 

Yet, by failing to place the burden on Lori to prove that she gave 

reasonable consideration, the court did not 

adopt the more plausible interpretation of the facts: 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 putting 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, which had an opportunity 

to observe the Blatsteins testify, 

described Lori's role "as a faithful spouse, homemaker, and occasional 

business partner." Without shifting 

the burden of proof to Lori on the consideration issue, 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 findings yet erred in applying 

the law to these findings, resulting 

in its erroneous conclusion that the Blatsteins' corporations 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' corporations were not 

Blatstein's alter egos despite the 

presence of some factors that weighed in favor of piercing the corporate 

veils. For example, the court found 

that the corporations paid numerous personal expenses 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 cross-examination. The 

expert recognized that the 

Blatsteins declared these amounts on their joint income tax returns as 

income, and that the corporations took 
deductions 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 corporations' expenses. Id. 

The court also recounted that Blatstein's expert's testimony supported 

upholding the corporate form. The 

expert testified that the corporate transactions were not made to hinder 

Blatstein's creditors, and that "since 

there were no transfers to the corporations from Blatstein, he could not 

have technically engaged in any 

fraudulent conveyance." Id. Moreover, the expert indicated that the 

transfers to Blatstein actually benefitted 

his creditors, and that closely-held corporations often grant interestfree loans to their officers and pay their 

officers' expenses as long as these amounts are reflected on their books 

as compensation. Id. In fact, he 

testified that it would be 

_________________________________________________________________ 

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 interest 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] private concerns." Id. at 

91. In fact, it appeared that all of the 

corporations other than Main were financially stable 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 corporation adhered to 

corporate formalities by keeping its 

own financial records and bank accounts and by recording 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 evidence that Blatstein 

siphoned funds either in or out of them. 

Id. at 92. Thus, except for the fraudulent transfers of Main, neither 

Blatstein nor the other corporations 
worked injustice upon the creditors, and hence equity 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 court emphasized that while 

the corporations paid the 

Blatsteins' personal expenses and provided them with 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 the corporate veils. Id. 

We will affirm the district court on 

this point. Pennsylvania law, applicable here, recognizes a strong 

presumption against piercing the corporate 

veil. See Lumax Indus., Inc. v. Aultman, 669 A.2d 893, 895 (Pa. 1995). The 

"classical" piercing of the 

corporate veil is an equitable remedy whereby a court disregards "the 

existence of the corporation to make 

the corporation's individual principals and their personal 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-payment 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 stockholders. 

Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 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 failure 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 nothing more than a sham 

used to disguise the alter ego's 

use of its assets for his own benefit in fraud of its 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 responsible 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 considered 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 granting this "unusual" 

remedy. In re Mass, 178 B.R. at 627. 

Consequently, a court should use its equitable powers to disregard the 

corporate form only if reverse 

piercing of the veil "will prevent fraud, illegality, injustice, [or] a 

contravention of public policy. . . ." In re 

Mass, 178 B.R. at 629 (internal quotation marks omitted). 

The district court in Mass did uphold the bankruptcy 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 "balance 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 discharge and the creditor 

the remedy of receiving a pro rata 

share of the value which the [Bankruptcy] Code dictates 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 dividends 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 corporate 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 this case simply did not 

find equivalent factors present. 

Furthermore, the Mass court found significant the fact that the debtors 

had changed a personal business 

account into a corporate account yet continued using the account for 

personal expenses after filing the 
Chapter 11 proceeding. Id. at 628. Indeed, "the debtors 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 corporation'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' account" and that " `it 

was estate funds, not `corporate' 

funds, that were placed in the account.' " Id. at 631. 

The situation here is different. Although the Blatsteins did not run their 

corporations as strictly separate 

entities, they did uphold the corporate form sufficiently by having the 

corporations keep separate records 

and bank accounts, and entering on the books all loans the corporations 

made to each other and to the 

shareholders. 

Moreover, this case lacks an equitable justification 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 attempting 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 basis in the record to 

justify a conclusion that the court's 

finding was clearly erroneous. Hence, unlike in Mass, 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 court's decision to deny 

Arch Street the remedy of reverse 

piercing. 

_________________________________________________________________ 

8. Basically, Bell Atlantic had leased the corporation some telephone 

equipment, and was attempting to 

receive full payment of the lease after the corporation 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. CONCLUSION 
For the foregoing reasons, we will reverse the portion of the district 

court's order affirming the bankruptcy 

court's order holding that Blatstein did not fraudulently transfer his 

income to Lori Blatstein's personal bank 

accounts, and will affirm the portions of the district court's order 

affirming the bankruptcy court's 

determinations concerning the alleged fraudulent transfers 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 parties will bear their own 

costs on this appeal. ROSENN, 

Circuit Judge, concurring and dissenting: 

I concur and join with the majority except with respect 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 record establishes that 

at all times Eric Blatstein1 used the 

non-debtor corporations as his personal pawns. He manipulated 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 form and the separate 

personalities of the corporations. I, 

therefore, respectfully dissent on the alter ego claims. 

As president and chief executive officer, Blatstein controlled and 

dominated the corporations' finances, 

policies, and business practices. Except for obtaining 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 any corporate stock, 

possessed no certificate, and she 

made no payment for any. 

Extensive corporate loans were obtained and extended without corporate 

resolutions, either formal or 

informal, and there were no meetings of the board of directors or 

stockholders. When Blatstein deemed it 

desirable, the corporations engaged in fraudulent transfers, 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 from 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 separate and apart from 

the shareholders composing it is a 

legal _________________________________________________________________ 

1. References in this dissent to "Blatstein" are to Eric Blatstein only. 

fiction designed to serve convenience 

and justice. It will be disregarded whenever justice or public policy 

demands. "[W]henever one in control of 

a corporation uses that control, or uses the corporate assets, to further 

his or her own personal interests, the 

fiction of the separate entity may properly be disregarded." 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 persons 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 plaintiffs, 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 liable to a creditor of the 

corporation where relevant factors 

as set forth in DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 

540 F.2d 681 (4th Cir. 1976), 

showed that piercing the corporate veil was appropriate. 

Factors to be considered in whether to pierce a corporate veil are gross 

undercapitalization and 

failure to observe corporate formalities, non-payment 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 stockholders. 

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

In Pisani, this court also found relevant additional factors favoring 

piercing the corporate veil, such as 

operating the corporation with large sums loaned by the stockholder to the 

corporation and repayment with 
corporate 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, relying 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 moral and legal standards 

"may have jaded his 

perceptions." Main II, 213 B.R. at 82. He also thought that Miller was 

"occasionally over-aggressive in 

defending himself from what he claimed were distortions of the facts 

introduced by Plaintiffs' counsel." Id. at 

77. Miller apparently impressed the bankruptcy court 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 some instances, Miller's 

testimony has the ring of judge 

and jury, as well as expert. 

As the majority observes, the bankruptcy court found no proof that the 

various corporations were in 

existence only to benefit Blatstein's private concerns, 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 court found that each 

corporation adhered to corporate 

formalities by keeping its own financial records and bank accounts, and by 

recording each loan granted to 

the Blatsteins. I disagree with the court's conclusions, some of which are 

couched as findings, for reasons 

that follow, and I do not believe that keeping financial records by each 

corporation is sufficient to determine 

whether they adhered to corporate formalities in light of the evidence to 

the contrary.2 The bankruptcy court 

ignored significant factors that justify piercing the corporate veil. 

_________________________________________________________________ 

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. See Interface GroupNevada, Inc. v. Trans World Airlines, 

Inc. (In re Trans World Airlines, Inc.), 145 F.3d 124, 130-31 (3d Cir. 

1998). This court has plenary review 

of the district court's order. Id. I believe an analysis 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 corporations is Eric 

Blatstein, now bankrupt and insolvent 
since 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 business partner." Main 

II, 213 B.R. at 77. Also playing 

an important role is Morris Lift, Blatstein's accountant andfinancier. 

Lift made loans to Blatstein or on 

Blatstein's behalf to the corporations through various unwritten 

arrangements. Actively participating in the 

"sham foreclosure" of Main and the fraudulent transfer of some of its 

assets to some of the non-debtor 

corporations, he assisted Blatstein in his persistent efforts to defeat 

the claims of his creditors. According to 

the bankruptcy court: 

Prior to July 1996, Blatstein was the chief executive 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 the sole individual with 

check writing authority for all of the 

corporations in issue, including Main, the latter of which all of the 

defense witnesses agree Lift allowed him 

to continue to "run" after the "foreclosure" by Lift. 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 his note against Main of 

its assets was a sham transaction, and 

that"the transfer of most or all of Main's assets to 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 innocence 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 times Blatstein had been 

"in control of the corporate 

defendants' management and operations." The court was also persuaded that 

when Blatstein testified that he 

directed Shoop, the controller for each of the corporations, to deposit 

all funds of Main after its bank 
accounts 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 one year of Blatstein's 

bankruptcy. Main II, 213 B.R. at 

83. 

I turn now to an analysis of the corporate ownership. 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 stock in the 

corporations, and, after an effort to evade 

answering questions pertaining to her stock interest, testified that no 

stock certificate was ever issued to her. 

She also admitted that she never paid anything to purchase stock in the 

companies.3 When 

_________________________________________________________________ 

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 tax returns prepared by 

Lift and returns filed with the 

Commonwealth of Pennsylvania, Blatstein admitted that each of them 

reported, under Blatstein's oath, that 

he was the sole owner of the corporations. 

The plaintiffs assert that Blatstein treated the corporations as a single 

entity. I agree. The Waterfront 

Management Corporation was organized for the purpose of managing all of 

the corporations and Shoop 

served as controller, as well as controller for each of the non-debtor 

corporations. Blatstein instructed 

Shoop that if one of his corporations lacked sufficient funds to pay its 

bills to use the funds of another 

corporation. For example, in 1996 the aggregate expenses paid by one 

corporation on behalf of another 

amounted to $554,749, a not insignificant sum. These frequent intercompany 

payments do not show 

"financially stable and successful businesses." A corporation 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 these 
intercompany 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 

_________________________________________________________________ 

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 evident 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 expenses, 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 purchases, personal taxes or 

old debts, he drew checks on the 

corporations. He had no personal bank account. In August 1996, Columbusco 

paid $39,000 for his 

personal expenses. The 1995 tax return for Delawareco alone showed 

outstanding loans to shareholders of 

$283,570. In 1996, the corporation paid $269,117 for Blatstein's personal 

expenses. The corporations 
made a large down payment for his Bucks County estate 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 follows: 

At trial, Shoop testified that numerous personal expenses of the 

Blatsteins were paid by the various 

corporations, including expenses for a horse trainer 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 IRS"). This testimony was 

confirmed by Blatstein and Lift 

during their trial testimony as well, and by numerous financial documents 

introduced into evidence. 

Main II, 213 B.R. at 89. The bankruptcy court further found: Loans from 

the corporate defendants to the 

Blatsteins include the $140,000 down payment that Pier 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 payments on Blatstein's 

personal federal income tax 

liability. The Beratans were being repaid with $1,000 per week payments 

from Main and its successor 

entities, e.g., Reedco, [Chicken Fingers], and Columbusco. 

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 gross 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 extensive payment of his 

personal obligations by the corporations 

and the non- observance of the corporate forms or ordinary 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. That 
depends, however, upon whether the payments are occasional, the amount, 

and the financial status of the 

dominant shareholder, whether he is a person of worth or insolvent and 

without assets, and whether the 

corporations are financially stable or severely undercapitalized. 

The Pennsylvania Superior Court in Hanrahan v. Audubon Builders, Inc. held 

that where corporate funds 

were utilized, in the form of direct payments, as is 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, piercing the corporate 

veil was appropriate. 614 A.2d at 

753. The salient considerations here demonstrate that the personal 

expenses and other substantial personal 

obligations were paid and the large withdrawals permitted because 

Blatstein made the decision, he drew the 

checks, and corporate formalities were ignored. 

I believe that Miller, who the judge acknowledged might have had "jaded 

perceptions" because of his prior 

experiences with debtors of dubious practices, misled the court. Miller 

applied his own personal "measuring 

stick" to reach for his conclusion that the corporate defendants were not 

Blatstein's alter ego. Id. at 92. 

Miller and the bankruptcy judge compartmentalized Blatstein's 

improprieties as isolated, discrete acts 

instead of viewing the totality of all the circumstances surrounding 

Blatstein's wide range of activities with the 

corporations. Miller attempted to minimize the number 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 the net earnings of the 

corporations, treated the 

corporations as a single entity for this purpose, and gave no 

consideration to Blatstein's disregard of the 

corporate form and the separate personalities of the corporations and the 

individual. In DeWitt Truck 

Brokers, which we cited with approval in Pisani, the 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 transfers 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 calculation. Of greater 

relevance and importance than the solvency 
of the corporations, however, in determining whether the corporate veil 

should be pierced are the character, 

quantity, and frequency of the intercompany loans and the payment of 

Blatstein's expenses, all made solely 

at Blatstein's behest and accomplished in total disregard 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 same 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 of individual liability 

under the doctrine." 540 F.2d at 687. 

Miller's opinion also addressed the legal factors reserved 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 bankruptcy court held that 

the plaintiffs failed to carry their 

burden. I disagree, for the record provides overwhelming 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 corporations as a single 

entity and his alter ego. A glaring 

example of Blatstein's disregard of the corporate entity 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 fifty cents for every 

dollar of credit purchased. A provision 

of the agreement Blatstein entered into with Transmedia 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 and thereafter closed its 

doors or could not honor the 

credits, the other restaurants operated by the corporations would make 

good to Transmedia members. He 

had a similar arrangement with the Jefferson Bank under which checks 

written by one corporation which has 

not sufficient funds will be paid by one of the other companies that has 

sufficient funds available. Blatstein, 

during the life of the corporations, has systematically 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 no 
bank 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. All family bank 

deposits, including his income, were in his 

wife's name. His personal purchases were made by one 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 undercapitalized and in 

financial straits. Blatstein even 

admitted that four of these corporations, Delawareco, Reedco, Engine 46, 

and Columbusco, continued to 

make payments to him or on his behalf after they had been garnished. This 

is probative evidence of 

fraudulent conduct and abuse of the corporate entity. 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 pay their mortgage; [and] 

to pay bills, predominantly tax 

liabilities, on behalf of the various corporate defendants." Main II, 213 

B.R. at 94 (emphasis added). As the 

president and dominant stockholder of each corporation, time after time he 

disregarded the corporate 

structure of his companies for personal purposes. 

In circumstances not as flagrant as we have here, this court in the past 

has pierced the corporate veil. There 

is such unity of interest, ownership and function between Blatstein and 

the non-debtor corporations that the 

separate personalities of the individual and the corporations no longer 

exist. This fusion of the corporate and 

individual personalities "may be satisfied by a showing of domination and 

control of the corporation, which 

occurs most often in the context of a parent-subsidiary 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.3d 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 corporations 
here 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 absence of fraud or 

wrongdoing." Cunningham, 699 F.2d 

at 680. 

The bankruptcy court was also influenced in its decision 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 corporation frequently paid 

bills for the other and checks 

shuttled back and forth in an effort to meet expenses 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 authorization of the loans, 

formal or informal, the court concluded 

that corporate formalities were observed because each corporation had its 

own bank account and kept its 

own financial records. However, separate bank accounts and records for 

each corporation are not alone 

sufficient proof that corporate formalities were observed and the 

corporate entity respected, particularly 

when the bank accounts were each subject to Blatstein'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 corporation 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 Blatstein'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 him 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 could not explain. 

Although the foregoing illustrates that the 

corporate records were not always accurate as to Blatstein 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 withdrawal 
of $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 Blatsteins did not run their 

corporations as strictly separate 

entities," it concludes that they did uphold the corporate 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 the 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 from Main to Reedco. 

When one views the total picture, illuminated by the 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 corporations were grossly 

undercapitalized. Second, corporate 

formalities were never observed, and officers and directors were nonfunctional. Although the corporations 

kept separate bank accounts and separate records, this 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, Blatstein 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 garnishment 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 majority'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