Court Opinion

ID: 9966388
Source: CourtListenerOpinion
Date Created: 2024-05-06 21:00:40.922078+00
Date Added: 2024-06-11T08:24:56.594938
License: Public Domain

USCA11 Case: 23-10922   Document: 31-1     Date Filed: 05/06/2024   Page: 1 of 11

                                                            [PUBLISH]
                                  In the
                 United States Court of Appeals
                        For the Eleventh Circuit

                         ____________________

                               No. 23-10922
                         ____________________

        W.P. PRODUCTIONS, INC.,
                                                               Plaintiﬀ,

        SYDNEY SILVERMAN
                                     Third Party Defendant-Appellant
        versus
        TRAMONTINA U.S.A., INC.,

                                                            Defendant,

        SAM’S WEST, INC.,
                                         Third Party Plaintiﬀ-Appellee.
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        2                         Opinion of the Court                      23-10922

                                ____________________

                    Appeal from the United States District Court
                        for the Southern District of Florida
                        D.C. Docket No. 0:18-cv-63162-JIC
                             ____________________

        Before WILSON, LUCK, and LAGOA, Circuit Judges.
        PER CURIAM:
               Sydney Silverman appeals the district court’s grant of sum-
        mary judgment in favor of Sam’s West, Inc. 1 The district court
        pierced the corporate veil and held Silverman personally liable for
        judgments entered in favor of Sam’s West against W.P. Produc-
        tions (WPP). WPP owed significant debt to Sam’s West but
        brought a tort lawsuit against Tramotina U.S.A., Inc.2 and Sam’s
        West. After the court entered a final judgment against WPP in that
        tort case, Sam’s West eventually brought this supplemental lawsuit
        to pierce WPP’s corporate veil and hold Silverman personally liable
        for WPP’s unpaid judgments. The district court granted summary
        judgment in favor of Sam’s West. On appeal, Silverman alleges

        1 “Sam’s West, Inc.” is a corporation that includes “Sam’s Club” stores. Often,

        including in the briefing, “Sam’s West” and “Sam’s Club” are used inter-
        changeably. In this opinion, “Sam’s Club” specifically refers to Sam’s Club
        stores.
        2 Tramotina, U.S.A., Inc. was involved in the underlying tort lawsuit brought

        by WPP. However, Tramotina has not been involved with the litigation
        Sam’s West brought to pierce WPP’s corporate veil.
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        23-10922                  Opinion of the Court                              3

        that the district court improperly pierced the corporate veil on
        summary judgment. After careful review and with the benefit of
        oral argument, we affirm the district court.
                    I.      Factual and Procedural Background
               Silverman was the sole shareholder of WPP, which was an
        S Corporation. 3 Silverman used a shared bank account for his per-
        sonal funds and WPP’s corporate funds. He allegedly used a
        “scorecard” system to distinguish personal from corporate funds.
        Between January 2015 and June 2022, Silverman spent $3,248,003
        from the shared account. These expenses can be broken up as
        (1) $2,415,803 on personal expenses 4 charged to WPP and personal
        credit cards, and (2) $832,200 transferred to himself, his relatives,
        or their trust funds.
               WPP had a license agreement allowing WPP to use Wolf-
        gang Puck’s name. WPP sold Wolfgang Puck-branded kitchen
        products to Sam’s Club for Sam’s Club to sell in its stores. In 2015,
        WPP and Sam’s Club entered an agreement whereby Sam’s Club
        would feature WPP products in two Instant Savings Booklets in
        exchange for a set payment from WPP for each unit sold during
        the two promotions. By April 2016, WPP failed to pay the $1.75
        million it owed Sam’s Club and entered a Claim Installment

        3 S corporations are corporations that elect to pass corporate income, losses,

        deductions, and credits through to their shareholders for federal income tax
        purposes. See Subchapter S of the Internal Revenue Code, 26 U.S.C. § 1361.
        4 Sam’s West had an expert witness analyze the receipts for these purchases.

        This expert could not discern a business purpose for the purchases.
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        4                     Opinion of the Court                23-10922

        Payment Agreement. In May 2016, WPP placed another product
        in an Instant Savings Booklet, adding $1.2 million to its debt. In
        September 2016, WPP made its last payment to Sam’s Club but left
        over $2 million of debt unpaid. In October 2017, Sam’s Club made
        a written demand to WPP for payment of money.
               Silverman shut down WPP in August 2018 while continuing
        to move money between himself, WPP, and affiliated companies.
        Later in 2018, in the Southern District of Florida, WPP sued Sam’s
        West alleging, among other things: (1) Sam’s West tortiously inter-
        fered with WPP’s potential relationship with Costco; (2) Sam’s
        West defamed WPP; and (3) Sam’s West committed civil conspir-
        acy against WPP. Sam’s West filed a counterclaim, which included
        counts related to WPP breaching a promissory note and contract.
        In June 2020, the district court entered a $2,672,977.86 judgment
        for Sam’s West against WPP and awarded Sam’s West $58,573.50
        in attorney’s fees in October. In September 2020, the Florida Sec-
        retary of State administratively dissolved WPP.
                When Sam’s West could not satisfy its judgments against
        WPP, it initiated these supplemental proceedings pursuant to Flor-
        ida Statute § 56.29. Sam’s West sought to pierce WPP’s corporate
        veil to add Silverman as a judgment debtor under collateral estop-
        pel and alter ego theories. In 2021, a magistrate judge issued a Re-
        port and Recommendation (R&R) determining that a California
        court decision established the first element of piercing the corpo-
        rate veil—shareholder as alter ego of a corporation—but not the
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        23-10922               Opinion of the Court                         5

        remaining elements of improper conduct or causing an injury. The
        district judge adopted this R&R.
                Both parties then moved for summary judgment regarding
        whether the second and third elements of piercing the corporate
        veil in Florida were present as a matter of law. In November 2022,
        the magistrate judge issued a second R&R stating that the undis-
        puted facts showed Sam’s West was entitled to judgment as a mat-
        ter of law on its veil piercing claim. The district court judge
        adopted this R&R over Silverman’s objections. Silverman timely
        appealed.
                              II.    Applicable Law
               “We review grants of summary judgment de novo.” King v.
        King, 69 F.4th 738, 742 (11th Cir. 2023) (per curiam). Summary
        judgment is appropriate where “there is no genuine dispute as to
        any material fact and the movant is entitled to judgment as a matter
        of law.” Fed. R. Civ. P. 56(a). Because this case comes to us under
        diversity jurisdiction and arose in Florida, we apply the substantive
        law of Florida. Sutton v. Wal-Mart Stores E., LP, 64 F.4th 1166, 1168
        (11th Cir. 2023). Florida’s guiding case on piercing the corporate
        veil does not explicitly address summary judgment where a party
        seeks to pierce the corporate veil. See Dania Jai-Alai Palace, Inc. v.
        Sykes, 450 So. 2d 1114, 1121 (Fla. 1984). Regardless of procedural
        posture, Florida veil-piercing law focuses on whether “improper
        conduct” occurred. Id.
              Both parties agree that the following three elements are re-
        quired to pierce the corporate veil in Florida:
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        6                      Opinion of the Court                 23-10922

              (1) the shareholder dominated and controlled the cor-
              poration to such an extent that the corporation’s in-
              dependent existence, was in fact non-existent and the
              shareholders were in fact alter egos of the corporation;

              (2) the corporate form must have been used fraudu-
              lently or for an improper purpose; and

              (3) the fraudulent or improper use of the corporate
              form caused injury to the claimant.

        Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1349 (11th
        Cir. 2011) (alterations adopted) (quoting Gasparini v. Pordomingo,
        972 So. 2d 1053, 1055 (Fla. Dist. Ct. App. 2008) (per curiam)).
               Several core ideas guide our analysis of fraudulent or im-
        proper purpose under the second element. Improper purposes can
        include “a subterfuge to mislead or defraud creditors, to hide assets,
        to evade the requirements of a statute or some analogous betrayal
        of trust.” Lipsig v. Ramlawi, 760 So. 2d 170, 187 (Fla. Dist. Ct. App.
        2000).
               “Although an S corporation’s net income is taxed directly to
        the shareholders under the Act, the shareholders do not necessarily
        receive distributions in an amount equivalent to what is taxed pur-
        suant to the Subchapter S election.” Zold v. Zold, 911 So. 2d 1222,
        1227 (Fla. 2005). This makes taxes unreliable indicators of share-
        holder income from an S corporation.
               In Florida, “an S corporation’s authority to make distribu-
        tions to shareholders is limited by the corporation’s articles of
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        23-10922                Opinion of the Court                           7

        incorporation” and Florida’s Rule of Priorities. Id. Florida’s Rule
        of Priorities requires corporations to refrain from making distribu-
        tions if doing so would cause the following to occur:
               (a) The corporation would not be able to pay its debts
                   as they become due in the usual course of the cor-
                   poration’s activities and aﬀairs; or

               (b) The corporation’s total assets would be less than
                   the sum of its total liabilities plus (unless the arti-
                   cles of incorporation permit otherwise) the
                   amount that would be needed, if the corporation
                   were to be dissolved and wound up at the time of
                   the distribution, to satisfy the preferential rights
                   upon dissolution . . . .

        Fla. Stat § 607.06401(3).
               “A corporation that has been administratively dissolved con-
        tinues in existence but may only carry on activities necessary to
        wind up its activities and affairs, liquidate and distribute its assets,
        and notify claimants . . . .” Id. at § 607.1420(5). A “dissolved cor-
        poration may not carry on any business except that appropriate to
        wind up and liquidate its business and affairs,” which include both
        “[d]ischarging or making provision for discharging its liabilities”
        and “[m]aking distributions of its remaining assets among its share-
        holders according to their interests.” Id. at § 607.1405(1)(c)–(d).
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        8                        Opinion of the Court                     23-10922

                                     III.    Analysis
                The district court did not err by piercing the corporate veil
        on summary judgment. 5 Determinations to pierce the corporate
        veil are fact intensive, but piercing the corporate veil on summary
        judgment is appropriate where there is no genuine dispute of ma-
        terial fact regarding any relevant element under substantive state
        law. See Fed. R. Civ. P. 56(a); see generally Miller v. Harco Nat’l Ins.
        Co., 241 F.3d 1331, 1332–33 (11th Cir. 2001) (per curiam). Although
        Florida courts have differed in their approach to piercing the cor-
        porate veil at the summary judgment stage, we will not create a
        categorical ban on granting summary judgment when a case oth-
        erwise meets the Rule 56(a) criteria simply because it happens to
        involve piercing the corporate veil.
               After addressing the threshold issue that the corporate veil
        can be pierced at the summary judgment stage, we find that the
        undisputed facts regarding Silverman and WPP warrant piercing
        the corporate veil here. The parties do not dispute Silverman’s sta-
        tus as an alter ego of WPP. Further, it seems clear that if we find
        that Silverman used WPP’s corporate form for an improper pur-
        pose, that use injured Sam’s West. Therefore, our analysis focuses
        on Florida’s second element for piercing the corporate veil.

        5 On appeal, Silverman alleges failure to state a claim as a reason he should

        have received summary judgment. Denying summary judgment on that
        ground was proper. Silverman was not entitled to judgment as a matter of
        law because Sam’s West’s complaint plausibly pled all three elements for
        piercing the corporate veil in Florida. See Fed. R. Civ. P. 56(a).
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        23-10922               Opinion of the Court                          9

        Finding that Silverman used WPP’s corporate form for an im-
        proper purpose is the determining factor for finding the district
        court properly granted summary judgment.
                No party contends that WPP was organized for an improper
        purpose, so instead we evaluate whether Silverman used WPP for
        an improper purpose. In Florida, piercing the corporate veil is ap-
        propriate when the corporate form was “used fraudulently or for
        an improper purpose.” Molinos, 633 F.3d at 1349 (emphasis added).
        Silverman focuses on how he did not deliberately defraud Sam’s
        West, but his argument narrows the inquiry more than Florida law
        requires. Improper purpose in Florida includes using the corporate
        form to “evade the requirements of a statute.” Lipsig, 760 So. 2d.
        at 187.
               We find no genuine dispute of material fact as to whether
        Silverman used WPP for the improper purpose of evading Florida’s
        statutory Rule of Priorities. Under Florida’s Rule of Priorities, Flor-
        ida corporations cannot make distributions to shareholders if doing
        so would make the corporation unable to pay its debts as they be-
        come due. See Fla. Stat. § 607.06401(3)(a). When a shareholder
        knows a company has dissolved and continues to move corporate
        money around, the shareholder, by default, is using the corporate
        form for the improper purpose of violating Florida’s Rule of Prior-
        ities.
              After WPP’s dissolution, rather than paying Sam’s West, Sil-
        verman moved money from his shared personal and corporate ac-
        count, which undermined the ability of WPP’s creditors to recover.
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        10                     Opinion of the Court                 23-10922

        Using WPP’s corporate form for the improper purpose of thwart-
        ing Florida’s Rule of Priorities makes piercing the corporate veil
        appropriate. The impropriety here became even more pro-
        nounced after Florida administratively dissolved WPP, which se-
        verely restricted the actions of the corporation. See id.
        § 607.1420(5).
               This analysis does not change because WPP was organized
        as an S corporation. As an S corporation, WPP could pass corpo-
        rate income, losses, deductions, and credits to Silverman—the sole
        shareholder. But being an S corporation only impacted the tax
        structure of WPP. Florida’s Rule of Priorities still applies to S cor-
        porations like WPP. See Zold, 911 So. 2d at 1227–28.
               Finally, the S corporation designation undermines Silver-
        man’s consistent claim that the money he spent came from his
        “personal funds.” Silverman’s “scorecard” tells us little, and Silver-
        man claims that the funds were personal because he paid income
        taxes on them. As Zold instructs, “an S corporation’s net income is
        taxed directly to the shareholders” but this does not mean share-
        holders “receive distributions in an amount equivalent to what is
        taxed pursuant to the Subchapter S election.” Id. Silverman’s taxes
        do not indicate his amount of personal funds, which supports that
        Silverman spent WPP’s funds. The absence of a genuine dispute
        of material fact regarding Silverman’s spending supports the pro-
        priety of piercing the corporate veil here.
             In sum, the district court correctly found no genuine dispute
        of material fact regarding the three elements for piercing the
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        23-10922              Opinion of the Court                      11

        corporate veil in Florida: (1) Silverman was the alter ego of WPP;
        (2) Silverman used WPP for the improper purpose of evading Flor-
        ida’s Rule of Priorities; and (3) this improper use of WPP’s corpo-
        rate form caused injury to Sam’s West.
              Therefore, we AFFIRM the district court’s grant of sum-
        mary judgment in favor of Sam’s West and piercing the corporate
        veil.
              AFFIRMED.