Court Opinion

ID: 2807652
Source: CourtListenerOpinion
Date Created: 2015-06-11 20:02:32.663519+00
Date Added: 2024-06-11T11:30:05.080397
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                 JUN 11 2015

                                                                          MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

VOLVO CONSTRUCTION                               No. 13-15408
EQUIPMENT RENTS, INC.,
                                                 D.C. No. 2:09-cv-00032-JCM-
              Plaintiff - Appellant,             VCF

 v.
                                                 MEMORANDUM*
NRL RENTALS, LLC; et al.,

              Defendants - Appellees.

                   Appeal from the United States District Court
                            for the District of Nevada
                    James C. Mahan, District Judge, Presiding

                       Argued and Submitted May 14, 2015
                            San Francisco, California

Before: THOMAS, Chief Judge, OWENS, Circuit Judge, and COLLINS,** Chief
District Judge.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

        **
             The Honorable Raner C. Collins, Chief District Judge for the U.S.
District Court for the District of Arizona, sitting by designation.
      Volvo Construction Equipment Rents, Inc. (“Volvo Rents”) appeals the

district court’s order granting the defendants’ motion for judgment under Federal

Rule of Civil Procedure 52(c). We have jurisdiction under 28 U.S.C. § 1291.

      “In reviewing a judgment following a bench trial, this court reviews the

district court’s findings of fact for clear error and its legal conclusions de novo.

The same standard applies to the district court’s involuntary dismissal of a claim

under Rule 52(c).” Price v. U.S. Navy, 39 F.3d 1011, 1021 (9th Cir. 1994)

(citations omitted). We affirm. Because the parties are familiar with the factual

and legal history of the case, we need not recount it here.

                                           I

      The district court did not err in holding that Dwight and Marcel Bosworth

(“Bosworths”) were not personally liable under an alter ego theory for the

approximately $10 million judgment entered against Bosworth Nevada

Investments (“BNI”). BNI was a Nevada LLC of which the Bosworths served as

members.

      To hold a member of a Nevada LLC personally liable for the LLC’s debts

and obligations, a claimant must show that the member acted “as the alter ego of

                                           2
the corporation.” Nev. Rev. Stat. § 78.747(1).1 To make such a showing, the

claimant must demonstrate that (1) the LLC is “influenced and governed by” the

member; (2) there is “such unity of interest and ownership that the [LLC] and the

[member] are inseparable from each other”; and (3) “[a]dherence to the corporate

fiction of a separate entity would sanction fraud or promote a manifest injustice.”

Id. § 78.747(2). “Each of these requirements must be present before the alter ego

doctrine can be applied.” N. Arlington Med. Bldg., Inc. v. Sanchez Constr. Co.,

471 P.2d 240, 243 (Nev. 1970). “‘[T]he corporate cloak is not lightly thrown

aside’ and [] the alter ego doctrine is an exception to the general rule recognizing

corporate independence.” LFC Mktg. Grp., Inc. v. Loomis, 8 P.3d 841, 846 (Nev.

      1
        Technically, § 78.747 provides that “no stockholder, director or officer of a
corporation is individually liable for a debt or liability of the corporation, unless
the stockholder, director or officer acts as the alter ego of the corporation.” Nev.
Rev. Stat. § 78.747(1) (emphasis added). Although the provision does not refer to
LLCs or their members – and, by its terms, governs only corporate shareholders
and officers – both the district court and the parties in this case have assumed that
the provision applies with equal force to LLC members, like the Bosworths. The
Nevada Supreme Court has made the same assumption, without expressly deciding
the issue, in recent cases. See, e.g., Webb v. Shull, 270 P.3d 1266, 1271 n.3 (Nev.
2012) (“The parties assume that NRS 78.747, which is part of the statutory chapter
governing corporations, applies to the alter ego assertion against Shull and
Celebrate, an LLC. Accordingly, for purposes of this appeal, we likewise assume,
without deciding, that the statute applies and analyze their alter ego arguments
under that standard.”). We therefore also assume, without deciding, that § 78.747
governs the scope of LLC member liability in Nevada.

                                          3
2000) (per curiam) (quoting Baer v. Amos J. Walker, Inc., 452 P.2d 916, 916 (Nev.

1969)).

      Volvo Rents contends that the Bosworths treated BNI as their alter ego by

allegedly: undercapitalizing both BNI and the Las Vegas franchise, NRL Rentals;

lending funds to NRL Rentals and helping NRL Rentals apply for outside

financing; overseeing the filing of certain tax documents; and failing to keep

precise business records. The district court correctly concluded that these

allegations – many of which are not even relevant to establishing alter ego

liability – were not supported by the trial record.

      Because Volvo Rents did not present sufficient evidence to prevail on its

alter ego claim, its contention that the district court erred by requiring it to produce

additional evidence of “fraud or intentional wrongdoing,” does not provide

grounds for reversal. Even if the district court did impose such a requirement on

Volvo Rents – and it is not entirely clear that it did – Volvo Rents’ failure to satisfy

the three factors outlined in § 78.747 rendered that error harmless.

                                           II

      The district court did not err in holding that the Bosworths were not

personally liable under an alter ego theory for the approximately $10 million

                                           4
judgment entered against NRL Texas Rentals, LLC (“NRL Texas”) and NRL San

Antonio Rentals, LP (“NRL San Antonio”) (collectively, “the Texas Franchises”).

                                           A

      The parties and the district court proceeded under the assumption that the

plaintiff’s alter ego theory against the Bosworths for the judgment against the

Texas Franchises should be decided under Nevada law and, further, that there were

no substantive differences between Nevada and Texas law concerning alter ego

liability. “To determine the applicable substantive law, a federal court sitting in

diversity applies the choice-of-law rules of the forum.” Narayan v. EGL, Inc., 616
F.3d 895, 898 (9th Cir. 2010). The forum state in this case, Nevada, follows the

approach endorsed by the Restatement (Second) of Conflict of Laws to determine

the substantive law governing questions of shareholder liability. Under that

approach, the “local law of the state of incorporation will be applied to determine

the existence and extent of a shareholder’s liability to the corporation for

assessments or contributions and to its creditors for corporate debts.” Restatement

(Second) of Conflict of Laws § 307; see also Nev. Rev. Stat. § 88.570 (“The laws

of the state or jurisdiction under which a foreign limited partnership is organized

govern its organization and internal affairs and the liability of its limited

partners.”); id. § 86.543 (“The laws of the state, pursuant to which a foreign

                                           5
limited-liability company is organized, govern its organization, internal affairs and

the liability of its managers and members.”).

      In this case, the Texas Franchises were organized under Texas law. Thus,

we must apply Texas law to determine whether the Bosworths may be held

personally liable for the debts of the Texas Franchises.

                                          B

      NRL Texas is an LLC owned and operated solely by the Bosworths’ former

business associate, Roberto Balli. The Bosworths themselves never served as

members, managers, or officers of the company nor did they ever hold themselves

out as such. Accordingly, they cannot be held personally liable for the company’s

debts and obligations. While “Texas case law is replete with scenarios where

courts have disregarded the corporate fiction and applied the alter ego doctrine as a

means to impose personal liability on a shareholder or a corporate officer for

corporate obligations,” Valley Mech. Contractors, Inc. v. Gonzales, 894 S.W.2d
832, 835 (Tex. App. 1995) (emphasis added), there do not appear to be any Texas

cases imposing such liability on individuals who did not own or control a stake in

the corporation.

      Even if the Bosworths could theoretically be held liable for NRL Texas’s

debts and obligations, the evidence presented at trial was not sufficient to show that

                                          6
they treated the company as their alter ego under Texas law. Texas law provides

that “the veil of an LLC may be pierced with respect to the entity’s contractual

liabilities only upon proof that the defendant used the LLC to perpetrate actual

fraud for the defendant’s direct personal benefit.” Shook v. Walden, 368 S.W.3d
604, 607 (Tex. App. 2012) (emphasis added); see also id. at 612-13 (discussing

“actual fraud” requirement of Tex. Bus. Orgs. Code Ann. §§ 101.002, 21.223).

Volvo Rents did not present sufficient evidence at trial to show that the Bosworths

committed “actual fraud” for their “direct personal benefit.”

                                          C

      NRL San Antonio is a limited partnership and, under Texas law, the “theory

of piercing the corporate veil is inapplicable to limited partnerships.” Seidler v.

Morgan, 277 S.W.3d 549, 558 n.5 (Tex. App. 2009); see also Pinebrook Props.,

Ltd. v. Brookhaven Lake Prop. Owners Ass’n, 77 S.W.3d 487, 499 (Tex. App.

2002) (“The theory of alter ego, or piercing the corporate veil, is inapplicable to

partnerships.”). Thus, because the Bosworths are limited partners – not general

partners – they may not be held personally liable for NRL San Antonio’s debts and

obligations. See Tex. Bus. Org. Code Ann. § 153.102 (providing that a limited

partner shall not be liable for the debts of a partnership unless he or she induces

someone to reasonably believe that he or she is a general partner).

                                          7
                                         D

      Thus, Volvo Rents is not entitled to judgment against the Bosworths under

an alter ego theory for the judgment entered against the Texas franchises. To the

extent that the district court applied Nevada law, that error was harmless because

Volvo Rents was not entitled to recover under Texas law.2

      AFFIRMED.

      2
         We also note that the parties agreed that the result would be the same
under Nevada or Texas law, so neither party suggests error. Because Texas law
imposes more stringent requirements for alter ego liability, a holding that recovery
was not permitted under Nevada law necessarily implies that Volvo Rents could
not satisfy the more rigorous requirements of Texas law.

                                         8