Opinion ID: 1926434
Heading Depth: 1
Heading Rank: 1

Heading: dismissal of individual defendant

Text: As we have indicated above, although Counts III and XI of appellant's complaint were dismissed, the appeal from the dismissal of those counts has been quashed. Therefore, our consideration of the dismissal of the individual defendant Carr from all counts of the Complaint will not include any consideration of his dismissal from those two counts. The remaining counts in which Carr was included as an individual are Counts I and II (breach of contract and of express and implied warranties), Counts V and VI (negligence and misrepresentation), Count VII (conversion), Count VIII (promoter's liability), Count IX (breach of fiduciary duty), Count X (RICO), [1] and Count XII (piercing corporate veil). Preliminarily we note that preliminary objections in the nature of a demurrer must be sustained only where it appears with certainty that upon the facts pleaded in the complaint the law will not permit recovery by the plaintiff. Harley Davidson Motor Co., Inc. v. Hartman, 296 Pa.Super. 37, 41, 442 A.2d 284, 285-86 (1982) (quoting Schott v. Westinghouse Electric Corp., 436 Pa. 279, 282, 259 A.2d 443, 445 (1969)). We must also bear in mind that preliminary objections to a complaint in the nature of a demurrer admit every well pleaded material fact, plus all reasonable inferences therefrom. International Union of Operating Engineers, Local No. 66 v. Linesville Const. Co., 457 Pa. 220, 322 A.2d 353 (1974). The trial court dismissed Carr from all counts for two central reasons. First, the court reiterated the long standing principle that one of the central reasons for conducting business in corporate form is the avoidance of personal liability by those holding equity in the corporation and the limitation of the risk of those persons to the value of their equity. The trial court further stated that because of this goal, our Business Corporations Law permits liability for corporate debt to be assessed against shareholders, officers and directors in only the most limited of circumstances. Trial Court Opinion at p. 12. (citing Pa.Stat.Ann. tit. 15 §§ 1609, 3136 (Purdon 1967)). Lastly, the trial court concluded that it should be particularly loath to pierce the corporate veil where the complaint is, in the trial court's view, premised on numerous written documents, all attached as exhibits to the complaint, which set forth the rights and liabilities of the parties and which do not at any point indicate a personal undertaking by Carr as shareholder, officer or director. Although the trial court acknowledged that the complaint alleges that Carr himself made representations outside of the documents, the court saw these as clearly having been made by Carr as agent for the corporate entities and not as binding on Carr individually. Thus, the trial court held: We hold that where the relationship between parties to litigation is premised on written documents clearly giving notice of a party's corporate status, an action for breach of those agreements cannot impose individual liability on an officer, director, or shareholder of such corporate party. Trial Court Opinion at 14. We have carefully reviewed the limited record developed thus far in this case and agree with the trial court that the action is to some degree premised on numerous documents setting forth the development plan for the Village at Camelback. We also agree that nowhere in these documents does there appear any representation, warranty or undertaking by Carr individually. However, this factual conclusion does not lead us to the legal conclusion that Carr cannot be found individually liable under any of the theories pleaded in the complaint. Rather than taking the more sweeping approach of the trial court in analyzing Carr's potential liability, we will analyze each theory pleaded in the complaint against Carr separately, in that the legal principles applicable to assessing Carr's potential liability differ depending on the legal theory of relief underlying each count. We note at the outset that the manner in which this 44 page complaint is drafted makes an organized analysis exceedingly difficult. Appellant chose to make 81 factual allegations in an introductory section of its complaint and to follow this with 12 separate counts incorporating by reference all of the foregoing paragraphs, seemingly without regard to which of the prior factual allegations are relevant to each particular count. Moreover, the last count does not in fact plead a separate cause of action or theory of relief at all, but rather seeks generally to pierce the corporate veil of the various corporate defendants to assess liability against Carr individually for the allegedly wrongful acts of those corporate defendants pled in the preceding counts. Although all of the appellees in each count did file preliminary objections seeking a more specific pleading and in the nature of a demurrer, the trial court denied these objections and appellees have not appealed that portion of the trial court's order. Thus, we have no alternative but to accept for purposes of this appeal that the facts and legal theories so inartfully pleaded are sufficient to state a claim in each count (except the RICO count, see footnote 1 supra ) as against all appellees except Carr. Having woven our way through this maze of fact and law, we construe the complaint as follows. The counts that include Carr can be divided into four groups. In Counts I and II, appellant pleads contractual theories of relief. In Counts V through VII, appellant pleads tort theories of relief. In Counts VIII and IX, appellant pleads breaches of fiduciary duty. Lastly, in Count X, appellant pleads violations of RICO [2] . However, underlying these theories of relief are three other theories supporting Carr's liability for actions taken as either an individual or as a shareholder, officer and/or director of the various corporate defendants. First, we perceive appellant's complaint as seeking to assess liability against Carr as an individual, completely apart from his positions as shareholder, officer or director. Thus, appellant seeks to hold Carr responsible for personal undertakings and representations and for wrongful acts Carr allegedly performed completely apart from his position as agent for a corporation. Appellant also apparently seeks to impose liability on Carr as an officer of the corporate defendants for tortious actions of the corporate defendants under the participation theory. Finally, appellant seeks to impose personal liability on Carr for all of the alleged acts of the corporate defendants through piercing the corporate veil of those defendants in order to hold Carr as shareholder liable. Piercing the corporate veil is a means of assessing liability for the acts of a corporation against an equity holder in the corporation. The general standard for piercing the corporate veil is as follows: The legal fiction that a corporation is a legal entity separate and distinct from its shareholders was designed to serve convenience and justice, . . . and will be disregarded whenever justice or public policy require and where rights of innocent parties are not prejudiced nor the theory of the corporate entity rendered useless. . . . We have said that whenever 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 corporate identity may properly be disregarded. Ashley v. Ashley, 482 Pa. 228, 237, 393 A.2d 637, 641 (1978); Barium Steel Corp. v. Wiley, 379 Pa. 38, 108 A.2d 336 (1954) (plurality). In deciding whether to pierce the corporate veil, courts are basically concerned with determining if equity requires that the shareholders' traditional insulation from personal liability be disregarded and with ascertaining if the corporate form is a sham, constituting a facade for the operations of the dominant shareholder. Carpenter's Health and Welfare Fund v. Ambrose, 727 F.2d 279 (3d Cir. 1983). Thus, we inquire, inter alia, whether corporate formalities have been observed and corporate records kept, whether officers and directors other than the dominant shareholder himself actually function, and whether the dominant shareholder has used the assets of the corporation as if they were his own. Id. at 284; Ashley, 482 Pa. at 237, 393 A.2d at 641. Contrary to the assertion of appellees in this case, there is no overriding restriction on piercing the corporate veil to situations where such is necessary to prevent a fraud. Piercing the corporate veil is admittedly an extraordinary remedy preserved for cases involving exceptional circumstances. As some courts have phrased it, liability for the acts of a corporation may be assessed against the owners thereof wherever equity requires that such be done either to prevent fraud, illegality or injustice or when recognition of the corporate entity would defeat public policy or shield someone from public liability for crime. Zubik v. Zubik, 384 F.2d 267 (3d Cir. 1967), cert. denied, 390 U.S. 988, 88 S.Ct. 1183, 19 L.Ed.2d 1291 (1968). Nevertheless, the corporate existence can be disregarded without a specific showing of fraud. As we recently stated in Rinck v. Rinck, 363 Pa.Super. 593, 526 A.2d 1221 (1987): Appellant argues that the corporate veil cannot be pierced unless the court makes a specific finding that he used his professional corporation to commit fraud, illegality or wrongdoing. This is a statement frequently made in the decided cases. Appellant's reliance on this general language, however, fails to acknowledge the scope of the rule which permits the separate corporate entity to be disregarded whenever it is necessary to avoid injustice. Id., 363 Pa.Superior Ct. at 597, 526 A.2d at 1223. In Wicks v. Milzoco Builders, Inc., 503 Pa. 614, 470 A.2d 86 (1983), the Supreme Court both clarified the fundamental theory of piercing the corporate veil and distinguished that theory from the participation theory, i.e. an attempt to assess direct liability in tort against a person acting as an officer or director of a corporation: There is a distinction between liability for individual participation in a wrongful act and an individual's responsibility for any liability-creating act performed behind the veil of a sham corporation. Where the court pierces the corporate veil, the owner is liable because the corporation is not a bona fide independent entity; therefore, its acts are truly his. Under the participation theory, the court imposes liability on the individual as an actor rather than as an owner. Such liability is not predicated on a finding that the corporation is a sham and a mere alter ego of the individual corporate officer. Instead, liability attaches where the record establishes the individual's participation in the tortious activity. See Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3d Cir. 1978). Id., 503 Pa. at 621, 470 A.2d at 89-90. The Wilks Court also confirmed that Pennsylvania law recognizes the participation theory as a basis of liability, noting, however, that a corporate officer could be held liable under that theory only for misfeasance, not for mere nonfeasance. Id., 503 Pa. at 621-22, 470 A.2d at 90; Bank of Landisburg v. Burruss, 362 Pa.Super. 317, 524 A.2d 896 (1987). Applying these two distinct theories to the complaint before us, we conclude that the trial court mistakenly construed appellants' complaint as seeking to assess direct liability only against the various corporate entities allegedly owned or controlled by Carr and as seeking to assess liability against Carr himself only by piercing the veil of these entities to reach Carr as shareholder. In other words, the trial court placed overriding emphasis on Count XII of the complaint (in which appellant pleads its piercing the corporate veil theory) and incorrectly found that Count deficient. Moreover, the court apparently ignored the fact that appellant has also pled certain facts against Carr as an individual, alleging that he undertook personal obligations in connection with the Village, committed torts in his capacity as an officer of the various corporate defendants, and breached a personal fiduciary duty. We, on the other hand, find that appellant has pled sufficient ultimate facts to support relief against Carr as an individual and as a corporate officer in addition to pleading facts that might support piercing the corporate veil of the various corporate defendants in order to assess liability against Carr for the acts of the corporate entities. We will discuss the various counts seriatim. Under counts I and II, appellant seeks recovery for breach of certain express and implied warranties. Appellee Carr contends that the only warranties made to the appellant Association are those found in the documents attached to the complaint which constitute the Development Plan. Carr argues that he cannot be individually liable for breach of any such warranty since none of these documents contain any personal undertaking by Carr and he is not a signatory to any of them. Appellant counters that the Development Plan actually consists of both the documents attached to the complaint and numerous representations and warranties made by Carr and/or Camelback orally either in person or on the telephone. Complaint at paragraphs 35-39. [3] Thus, in Counts I and II appellant alleges that Carr personally extended oral warranties, to which he is personally bound, in addition to those found in the documents. Moreover, in Count XII, appellant seeks to pierce the corporate veil and hold Carr liable for the actions of Camelback that are allegedly in breach of the express and implied warranties in the documents themselves. We find that appellant has, in the most general terms, set forth a claim against Carr individually for breach of warranties personally extended by Carr. Read as a whole, the complaint alleges that legally binding promises and representations were made by Carr in his individual capacity, that those promises and representations were not fulfilled or were untrue, and that the members of the association relied upon those promises and representations to their detriment. We find these allegations, which we must at this juncture accept as being true, minimally sufficient to state a claim against Carr individually. We recognize of course that it is possible, perhaps even likely, that it will later become apparent that Carr assumed no enforceable personal undertakings and is entitled to judgment on the pleadings or summary judgment. Nevertheless, at this point in time, bearing in mind the standards for sustaining a demurrer, we cannot say that Carr should have been dismissed outright from these counts. See Wilks v. Milzoco, 503 Pa. at 623, 470 A.2d at 90-91 (complaint which, when read as a whole, states enough ultimate facts to support liability, even if only in the most general terms, survives demurrer). We further find, once again reading the complaint as a whole, that appellant has sufficiently pleaded the ultimate facts necessary to pierce the corporate veil and assess liability against Carr for the actions of Camelback in allegedly breaching the warranties and representations in the documents attached to the complaint. The specific averments as to this issue are in Count XII, which incorporates all prior paragraphs of the complaint. Count XII alleges that it would be inequitable for the corporate facades of the corporate defendants to shield Carr from individual liability. Count XII then proceeds to allege that the corporate defendants are the alter egos of Carr because: (a) the corporations were insufficiently capitalized at the outset; (b) there was an intermingling of funds between and among the corporations as well as with personal assets of Defendant Carr; (c) other officers and directors, if any, of the corporations were not functioning; (d) the corporations failed to observe corporate formalities; (e) the corporations did not pay dividends in the regular and ordinary course of their business; and (f) in conducting the business affairs of the corporations Defendant Carr consistently held himself out as individually conducting such affairs without use of the corporate names and without identifying that his actions were taken as an officer or employee of the corporation. Complaint at paragraph 142. Thus, appellant has pled that the precise factors that have compelled numerous other courts to pierce the corporate veil are present in this case. Although such generalized pleading is not favored in that it does not provide in detail the material facts supporting the pleaded ultimate facts, this is not a deficiency that warrants the extreme sanction of dismissal on demurrer. In a similar context, the Commonwealth Court ruled that allegations in support of piercing the corporate veil that were very similar to those found in the instant complaint were sufficient to withstand a demurrer. Commonwealth, Department of Environmental Resources v. Peggs Run Coal Co., 55 Pa.Commw. 312, 319, 423 A.2d 765, 768-69 (1980). [4] In Peggs Run, plaintiff had also pleaded such factors as undercapitalization, intermingling of corporate and personal affairs and failure to adhere to corporate formalities. Commonwealth Court concluded that these factors may constitute adequate legal basis for imposing personal liability on the shareholders of a corporate defendant. Id. We are in accord with the Commonwealth Court's resolution of this issue. We cannot say with certainty that this complaint is facially devoid of merit with regard to piercing the corporate veil and, therefore, cannot sustain Carr's demurrer on this ground. Counts V through VII plead various tort theories of relief. As to these, our analysis is straightforward. These counts allege that Carr personally committed negligence, misrepresentation and conversion. Additionally, under Count XII, appellant seeks to assess liability against Carr personally for the same tortious actions of Camelback and Frank Enterprises, two of the corporate defendants. Insofar as appellant here attempts to hold Carr personally liable for the torts of the corporation under the theory of piercing the corporate veil, the analysis of the sufficiency of Count XII set forth above is equally applicable. Appellant has pleaded enough to survive a demurrer on this ground. Insofar as appellant attempts to hold Carr individually liable for the commission of the three named torts, we perceive appellant as pleading that Carr personally participated in the tortious acts of the corporations and that he is, therefore, liable under the participation theory. Once again, we conclude that appellant has pleaded sufficient ultimate facts to survive a demurrer. In this regard, appellant has alleged that Carr, presumably acting in his capacity as an officer of the corporate defendants, personally participated in negligent acts, misrepresentations and conversion. Indeed, reading the complaint as a whole, it appears clear that appellant asserts that Carr was the sole moving force behind all of the corporate defendants and was directly involved in all of their actions pertinent to this dispute. The trial court's grant of Carr's demurrer to Counts V through VII was improper. Lastly, we consider appellant's allegations of breach of fiduciary duty and promoter's liability found in Counts VIII and IX. Count VIII alleges that as promoters, Carr individually and Camelback breached a duty to appellant of good faith and fair dealing in marketing the Village at Camelback development. We must conclude that to the extent this count pleads a cause of action against the corporate defendant, as the trial court concluded that it did, it also flows from the foregoing analysis that it equally pleads a cause of action against Carr. All of the allegations in the count are made against both Carr and Camelback. Thus, whether we analyze the count to plead individual liability or liability for the acts of Camelback through piercing the corporate veil, Carr must nevertheless remain as a defendant. Finally, we consider Count IX, which seeks to assess liability for breaches of duty by Carr as an individual director of the appellant corporation. The complaint specifically alleges that Carr as an individual was a director of the appellant corporation until at least 1980 and in that capacity breached his fiduciary duty to the corporation. See Complaint at paragraphs 47 and 124. It is hornbook law that a corporation has a cause of action against its officers and directors for breach of fiduciary duty. Fitzpatrick v. Shay, 314 Pa.Super. 450, 461 A.2d 243 (1983). Here there is no issue of participation in the acts of a corporation or piercing the corporate veil. The complaint simply alleges breaches of fiduciary duty by an individual director. The demurrer as to Count IX cannot be sustained. The trial court's grant of the demurrer of the individual defendant Carr as to all counts is reversed and the case is remanded to the trial court for further proceedings consistent with this opinion.