Court Opinion

ID: 9911408
Source: CourtListenerOpinion
Date Created: 2023-12-19 20:10:41.865157+00
Date Added: 2024-06-11T12:57:43.831204
License: Public Domain

J-A15029-23; J-A15030-23

                                  2023 PA Super 268

  IN RE: DRAVO LLC-DERIVATIVE                      :   IN THE SUPERIOR COURT OF
  CLAIMS AGAINST CARMEUSE LIME,                    :        PENNSYLVANIA
  INC., AND CERTAIN AFFILIATED                     :
  ENTITIES                                         :
                                                   :
                                                   :
  APPEAL OF: ALL PLAINTIFFS                        :
  REPRESENTED BY GOLDBERG,                         :
  PERSKY & WHITE, P.C.                             :   No. 1210 WDA 2022

               Appeal from the Order Entered October 5, 2022
      In the Court of Common Pleas of Allegheny County Civil Division at
                           No(s): GD 20-010198

 IN RE: DRAVO LLC - DERIVATIVE                 :       IN THE SUPERIOR COURT OF
 CLAIMS AGAINST CARMEUSE LIME,                 :            PENNSYLVANIA
 INC., AND CERTAIN AFFILIATED                  :
 ENTITIES                                      :
                                               :
                                               :
 APPEAL OF: ALL PLAINTIFFS                     :
 REPRESENTED BY SAVINIS, KANE &                :
 GALLUCCI, LLC                                 :       No. 1284 WDA 2022

              Appeal from the Order Entered October 5, 2022
 In the Court of Common Pleas of Allegheny County Civil Division at No(s):
                             G.D. 20-010198

BEFORE:      MURRAY, J., McLAUGHLIN, J., and PELLEGRINI, J.*

OPINION BY McLAUGHLIN, J.:                              FILED: DECEMBER 19, 2023

       Here we have an appeal in a proceeding to determine whether asbestos

plaintiffs may pierce the corporate veil and hold Carmeuse Lime, Inc. and

certain affiliated entities (together, “CLI”) liable for the torts of Dravo

____________________________________________

* Retired Senior Judge assigned to the Superior Court.
J-A15029-23; J-A15030-23

Corporation (“Dravo”). Each of the asbestos plaintiffs filed a lawsuit against

CLI as well as other defendants. The trial court severed the claims against CLI

from each individual case and consolidated them into the instant proceeding.1

The asbestos plaintiffs are in two groups: those represented by Goldberg,

Persky & White, P.C. (“GPW Plaintiffs”), and those represented by Savinis,

Kane & Gallucci, LLC (“SKG Plaintiffs”). The asbestos plaintiffs’ cases against

the remaining defendants in the individual actions continued in the individual

actions.

       The trial court granted summary judgment to CLI, holding that plaintiffs

could not pierce the veil, and the asbestos plaintiffs appealed. We conclude

that the court erred in granting summary judgment to CLI. The asbestos

plaintiffs produced evidence that in practice CLI and Dravo acted as a single

entity and that CLI used its control of Dravo to leave Dravo subject to the

asbestos liabilities, take significant assets for itself, and leave Dravo with

inadequate assets to satisfy foreseeable asbestos liabilities. We therefore

reverse and remand.

                                   Factual History

    A. Dravo’s Background and Insurance Policies

       Prior to October 19, 1998, Dravo was a publicly traded corporation.

Stipulation of Undisputed Facts (“Undisputed Facts”), filed Dec. 3, 2021, at ¶

4. It was “involved in a number of businesses involving heavy industry,”
____________________________________________

1 See Order Severing Claims Against [CLI] and Transferring Them to
Commerce and Complex Litigation Center, dated Sept. 24, 2020.

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including manufacturing watercraft and industrial heating equipment and

providing construction and engineering services in steel mills, chemical plants,

and other industrial settings. Id. at ¶ 5. Since at least the early 1990s, Dravo

had been sued in a number of lawsuits that sought damages due to alleged

bodily injury caused by exposure to asbestos, where the exposure typically

occurred during its operations from the 1940s through the 1980s. Id. at ¶¶

6-7.

       Between 1971 and 1986, Dravo purchased primary liability insurance

policies (“Primary Policies”) from Liberty Mutual Insurance Company (“Liberty

Mutual”). The policies provided coverage for the defense and resolution of

asbestos claims. Dravo also obtained during that same period excess liability

insurance from London Market insurers, providing similar coverage. Id. at ¶

8.

       In the early 1990s, Dravo and Liberty Mutual had a disagreement “over

what constituted ‘an occurrence’ under the Primary Policies, as that term was

to be applied in the context of asbestos-related bodily injury claims against

Dravo.” Supplemental Stipulation of Undisputed Facts (“Supplemental

Stipulation”), at ¶ 11. They resolved the dispute “by agreeing to treat ‘clusters’

of asbestos-related claims as occurrences under those policies[.]” Id. They

memorialized the agreement in 1996 in a written document. Id. Dravo and

Liberty Mutual continued to have disagreements, and created another

“cluster” for asbestos-related claims arising out of Allegheny County,

Pennsylvania. Id. at ¶ 12. They also continued to disagree about the limits of

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coverage applicable to each cluster. Id. Dravo and Liberty Mutual resolved the

issues in a 2015 settlement regarding “Dravo’s coverage for asbestos-related

bodily injury claims under the Primary Policies.” Id. Dravo received $8 million

in insurance proceeds as part of the settlement.

      As early as 2005, Dravo notified the excess insurers that the excess

coverage could be implicated in the future. Id. at ¶ 13. “In a letter dated

October 13, 2005, an attorney” for certain excess insurers “advised that those

insurers were reserving their rights and defenses regarding Dravo’s right to

coverage under the Excess Policies for reasons that included (among others)

issues regarding what may or may not constitute an ‘occurrence’ under the

Excess Policies.” Id. at ¶ 14.

   B. CLI’s Acquisition of Dravo and Dravo’s Dissolution

      Previously, in 1998, CLI, a Belgian company specializing in the mining

and sale of natural resources such as lime, sought to acquire Dravo to gain

control of Dravo Lime Company. Undisputed Facts at ¶¶ 10. CLI formed a

wholly owned subsidiary called DLC Acquisition Corporation (“DLCAC”) for the

purpose of acquiring Dravo. Id. at ¶ 11. When announcing plans for this

acquisition, CLI and Dravo issued a “Joint Press Release” stating that they had

“announced agreement on a merger[.]” Id. at ¶¶ 12-13. The press release

explained that DLCAC, as the acquiring company, would make a cash tender

offer for all outstanding stock of Dravo. Id. at ¶ 13. DLCAC ultimately acquired

100% of the shares of Dravo common stock. Id. at ¶ 14. An “Agreement and

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Plan of Merger” that governed the process by which CLI acquired Dravo2 stated

explicitly that DLCAC merged into Dravo and ceased to exist.

       [U]pon DLCAC’s purchase of the shares of Dravo, DLCAC ‘shall be
       merged into [Dravo] and the separate existence of [DLCAC] shall
       thereupon cease, and [Dravo], as the surviving corporation in the
       Merger, shall by virtue of the Merger continue its corporate
       existence under the laws of the Commonwealth of Pennsylvania
       with all of its rights, privileges, immunities, powers, and franchises
       unaffected thereby.

Id. at ¶ 16 (alterations in original). The articles of merger were filed with the

Pennsylvania Corporation Bureau, in October 1998, and DLCAC merged with

and into Dravo, with Dravo being the surviving corporation. Id. at ¶ 18.

       After the acquisition, Dravo continued to be named as a defendant in

asbestos suits. It continued to have access to insurance coverage under the

primary insurance policies “and presumably the Excess Policies for the purpose

of defending and resolving [a]sbestos [c]laims.” Undisputed Facts at ¶ 21.

       Dravo determined in 2018 that it would dissolve. Trial Court Opinion,

dated Oct. 3, 2022, at 5. CLI, as Dravo’s sole shareholder, exercised its right

to approve plans for termination. Id. It formed a new subsidiary, Dravo 2018

Inc. (“Dravo 2018”), to serve as a holding company for Dravo. Id. Dravo and

Dravo 2018 then reorganized so that Dravo 2018 was the direct parent of

Dravo. Id. CLI transferred all Dravo stock to Dravo 2018, making Dravo 2018

the direct parent of Dravo, and leaving CLI the direct parent of Dravo 2018.

____________________________________________

2 Id. at ¶ 15.

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Id. Dravo – until then a corporation - then converted to a limited liability

company. Subsequently, on July 5, 2018, it filed for dissolution. Id.

   C. Dravo’s Operations

      From 1998 until Dravo converted to a limited liability company in 2018,

“every one of Dravo’s corporate officers simultaneously were also officers or

employees of CLI.” Id. at ¶ 20. After CLI acquired Dravo, Dravo “ceased

having employees of its own, and the people within CLI’s corporate family who

did Dravo-related work were employees of CLI or an affiliate of CLI other than

Dravo.” Supplemental Stipulation, at ¶ 1. Those individuals did not receive a

salary or wages from Dravo for the work they performed on Dravo’s behalf.

Id. Therefore, from the 1998 until the time Dravo converted to a limited

liability company, it had only corporate officers, and no employees. Id. at ¶

2. Once it converted to a limited liability company, it had only a member and

managers, no employees. Id. CLI does not have corporate minutes or similar

records to show who served as its corporate officers between 1999 and 2002.

Id. at ¶ 3.

      Dravo’s insurers contacted and communicated with people employed by

CLI (or an affiliate other than Dravo) about coverage issues involving Dravo.

Id. at ¶ 4-5. CLI’s employees, and employees of its affiliates other than Dravo,

“used CLI letterhead (or letterhead identifying a non-Dravo affiliate)” to

correspond with third parties about Dravo. Id. Insurance consultants

providing advice about Dravo’s asbestos coverage contacted or communicated

with people employed by CLI (or an affiliate other than Dravo). Id. at ¶ 6.

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Email communications with insurers “routinely included a disclaimer”

indicating the communication was only for “the recipient and that the

communication was private and/or privileged and not intended for third

parties.” Id. at ¶¶ 7-8. Some contained address and contact information for

the sender that listed CLI or an affiliate as the sender’s workplace. Id.

      Individuals who were officers of both CLI and Dravo (“or who otherwise

acted on behalf of CLI and Dravo on an as-needed basis”) “advised Dravo’s

insurers and/or insurance consultants that communications and notices

regarding Dravo should be directed to individuals who acted on behalf of both

CLI and Dravo[.]” Id. at ¶¶ 9-10. They communicated on behalf of Dravo

through   email   addresses    that   included   a   CLI-related   suffix,   i.e.,

“@carmeusena.com.”

      In communications about the negotiations for the 2015 settlement

between Dravo and Liberty Mutual, a Dravo and CLI officer emailed that

another individual “would attend for [CLI].” SKG’s Response to CLI’s Motion

for Summary Judgment (“SKG’s Response”), Exh. 13, Email from Kevin Whyte

to Gregg Russell and Carl Brigada dated Dec. 3, 2014. Emails show that during

the negotiations, Liberty Mutual understood that a settlement with Dravo

could be reached only if CLI approved it. SKG’s Response, Dep. of Bruce Inglis,

dated July 10, 2019, Exh. 15, Email from Barrett Breitun to David Young dated

Sept. 6, 2018. In contrast to the emails, Dravo’s corporate representative

testified that Dravo did not need CLI’s approval to reach the settlement. SKG’s

Response, Exh. 17, N.T., Dep. Of Kevin Whyte, July 18, 2019, at 139-140.

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   D. Transactions Between Dravo and CLI

      Until 2007, Dravo Lime remained a wholly owned subsidiary of Dravo.

Stipulation of Facts at ¶ 22. At some point before 2002, it changed its name

to Carmeuse Lime & Stone, Inc. (“CLS”). Id. at ¶ 23. CLI and CLS “engaged

in the same type of business operations . . . namely, . . . lime and limestone

compan[ies] that owned equipment, quarries, and mines and conducted

operations to service various customers.” Id. at ¶ 24. In 2007, “Dravo

obtained an appraisal of the value of CLS from McCrory and McDowell, LLC,

an independent accounting and consulting firm.” Id. at ¶ 25. CLS appraised

for a fair market value of $249,300. Id.

      After the appraisal, Dravo’s directors by Unanimous Written Consent of

the Board of Directors’ dated July 26, 2007, which approved Dravo’s sale of

all of the issued and outstanding shares of common stock of CLS (as well as

another wholly-owned subsidiary of Dravo, Carmeuse Lime Sales Corporation)

to CLI pursuant to a ‘Stock Purchase Agreement.’” Id. at ¶ 26. The Unanimous

Written Consent stated that entering into the Stock Purchase Agreement

would be in Dravo’s best interest. Id. Similarly, CLI’s directors executed an

“‘Action by Unanimous Written Consent of the Board of Directors’ dated July

31, 2007 which approved CLI’s purchase of all of the issued and outstanding

shares of common stock of CLS from Dravo pursuant to a ‘Stock Purchase

Agreement.’” Id. at ¶ 27. The Unanimous Written Consent also stated that

entering into the Stock Purchase Agreement would be in CLI’s best interest.

Id. at ¶ 27. Dravo and CLI then entered into a Stock Purchase Agreement

                                    -8-
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pursuant to which CLI agreed to acquire all outstanding shares of the common

stock of CLS and Carmeuse Lime Sales Corporation. Id. at ¶ 28. In exchange,

CLI would pay $249,300 “by delivery to Dravo of a ‘Demand Note.’” Id. CLI

then issued to Dravo a “Demand Note” dated August 31, 2007 in the amount

of $249,300. Id. at ¶ 29. The demand note “bore interest at the lowest

Applicable Federal Rate as defined in Section 1274(d) of the Internal Revenue

Code.” Id.

     Dravo’s directors then executed an “Action by Unanimous Written

Consent of the Board of Directors,” dated the same day as the demand note,

wherein it “authorized and declared ‘a special dividend in the amount of

$235,300,000 . . . payable to [CLI] out of profits and surplus of the

Corporation.’” Id. at ¶ 30. It also cancelled the Demand Note and the delivery

of the same to CLI ‘in exchange for a promissory note made by [CLI] in favor

of [Dravo] in the aggregate principal amount of $14,000,000[.]’” Id.

(alteration in original). The CLI directors also executed an “Action by

Unanimous Consent” that same day where it “authorized CLI to ‘deliver to

Dravo a promissory note in the principal amount of $14,000,000 . . . in

exchange for the cancellation and return of the Demand Note.” Id. at ¶ 31.

     In 2009, the Chief Financial Officer discovered that CLI owed Dravo $144

million, dating back to the 1998 merger. He discovered this by reviewing the

1999 tax return. SKG’s Response, Exh. 21, N.T. of Dep. Of Bruch Inglis, Dec.

15, 2021, at 22, 25. The CFO was unsure which CLI entity owed Dravo the

money and removed the debt by issuing a dividend to CLI in the amount of

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$126 million, testifying that he did so because it “tidie[d] up the books.” Id.

at 21-26, 91.

    E. Post-Dissolution Events

       After Dravo filed for dissolution in 2018, Dravo LLC remained subject to

claims or lawsuits filed within two years of the date it dissolved, July 13, 2018.

Dravo petitioned the trial court for a determination of the amount and form of

security for “payment of claims that are reasonably expected to arise after the

date of dissolution[.]” 15 Pa.C.S.A. § 8876(a); see In re Dravo LLC

Subchapter G Dissolution, No. 893 WDA 2020, 2021 WL 5176403, at *2

(Pa.Super. Nov. 8, 2021). After the dissolution but before the two-year

deadline, asbestos claimants against Dravo – similarly to this case, captioned

as “All Claimants Represented by Savinis, Kane, & Gallucci, LLC and Goldberg,

Persky, & White, P.C.” – alleged in that proceeding that Dravo had more than

$100 million in excess coverage. See In re Dravo LLC Subchapter G

Dissolution, 2021 WL 5176403, at *2, *5; R. 1a-14a. Dravo ultimately

settled with the excess insurers for $7 million. Id. 3

                              Procedural Background

       The GPW and SKG Plaintiffs filed asbestos-related claims more than two

years after Dravo LLC’s dissolution. They claimed, among other things, that
____________________________________________

3 In that proceeding, Dravo also filed a petition for court approval of the
settlement agreement it had reached with the excess insurance carriers. On
appeal of the order approving the settlement agreement, this Court remanded
for the trial court to issue a supplemental opinion explaining why it approved
the settlement notwithstanding the claims that Dravo potentially had $100
million in insurance coverage. Id. at *5. The parties settled after the remand.

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CLI should be liable for Dravo’s asbestos liabilities under a corporate veil

piercing theory. In September 2020, the trial court severed Plaintiffs’ claims

from the underlying actions and consolidated them into the instant

proceeding.

      CLI moved for summary judgment arguing, among other things, the

Plaintiffs were unable to establish that the corporate veil should be pierced.

The GPW Plaintiffs filed a counter-motion for summary judgment arguing there

was no genuine issue of material fact regarding DLCAC’s absolute identity with

CLI. The trial court granted CLI’s motion and denied the GPW Plaintiffs’

motion. The GPW Plaintiffs and SPK Plaintiffs separately appealed.

                                    Issues

      The SGK Plaintiffs raise the following issues:

         A. Whether the Trial Court erred by placing undue weight on
         the four-part test from which was explicitly supplanted by
         the twopart test based in equity that was established as
         precedent Lumax Indus. v. Aultman by the Pennsylvania
         Supreme Court in Mortimer v. McCool?

         B. Whether the Trial Court erred in applying the wrong
         standard at summary judgment by resolving factual
         disputes under the Lumax factors, thereby usurping the
         role of the jury at trial?

         C. Whether the Trial Court erred in ruling that no fraud or
         injustice occurred as a matter of law, despite the
         requirement that the Court view the evidence in the light
         most favorable to the non-moving party when Plaintiffs
         offered various disputed and stipulated facts showing fraud
         and injustice?

SGK Plaintiffs’ Br. at 4.

      The GPW Plaintiffs raise the following issues:

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         1. Did the [trial] court err by failing to find that no genuine
         issue of material fact existed in relation to evidence of
         record in this matter that [CLI] had such unity of interest
         and ownership with [DLCAC] that the separate personalities
         of the two corporations did not exist when DLCAC merged
         with [Dravo], with the Court therefore denying [GPW
         Plaintiffs’] Counter-Motion for Partial Summary Judgment?

         2. Did the [trial] court err by failing to find that a genuine
         issue of material fact existed in relation to evidence of
         record in this matter that CLI had such unity of interest and
         ownership with DLCAC that the separate personalities of the
         two corporations did not exist when DLCAC merged with
         Dravo, with the Court therefore granting . . . CLI’s Motion
         for Summary Judgment?

         3. Did the [trial] court err by failing to find that the evidence
         of record in this matter demonstrated a genuine issue of
         material fact in relation to whether the Court would promote
         injustice if it found as a matter of law that it should adhere
         to DLCAC’s corporate fiction and determine that CLI had not
         in fact merged with Dravo, with the Court therefore granting
         . . . CLI’s Motion for Summary Judgment?

GPW Plaintiffs’ Br. at 4.

  Whether Plaintiffs Can Assert the Corporate Veil Piercing Theory

      Before turning to the Plaintiffs’ claims, we will address CLI’s argument

that corporate veil piercing is a remedy, not an independent cause of action,

and “is only available to impose liability already legally established by

judgment against the entity whose veil is sought to be pierced.” CLI’s Br. at

16. CLI maintains that because Dravo dissolved, the Plaintiffs “do not and can

never have viable causes of action against Dravo,” and their bid to pierce the

veil and hold CLI liable necessarily fails. Id.

      CLI relies on Commonwealth v. Golden Gate National Senior Care,

194 A.3d 1010 (Pa. 2018). There, the Office of the Pennsylvania Attorney

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General (“OAG”) sued multiple nursing homes and their parent companies,

alleging violations of the Unfair Trade Practices and Consumer Protection Law

(“UTPCPL”). The OAG sought to pierce the corporate veil to reach the parent

companies and requested damages for unjust enrichment. Id. at 1015. The

Commonwealth Court sustained preliminary objections and dismissed the suit

in its entirety. The Pennsylvania Supreme Court found the UTPCPL claims were

adequately pleaded, but concluded that the unjust enrichment claim was

premature. Id. at 1012.

      It is the Court’s discussion of unjust enrichment and piercing the

corporate veil that is relevant here. The OAG had alleged that “the parent

companies received the allegedly improper payments, and it [sought] to

pierce the corporate veil so as to recover these sums.” Id. at 1034. The Court

pointed out that because the UTPCPL claims were based on alleged misconduct

by the nursing homes, the OAG’s efforts to impose liability on their parents

would be “necessary only in the event that it obtains a judgment against the

[f]acilities that the [f]acilities cannot satisfy.” Id. at 1035. The Court explained

that “[a] request to pierce the corporate veil is not an independent cause of

action, but rather is a means of imposing liability established in an underlying

cause of action, such as tort or breach of contract, against another.” Id. The

Court thus affirmed the dismissal, but did so “without prejudice to raise it at

a later date in an action to enforce any judgment obtained if the circumstances

so require.” Id.

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       Golden Gate is inapposite. It did not address a situation such as this

case presents, where the parent corporation allegedly dissolved the entity

against which “an underlying cause of action” would be asserted. Courts’

“decisions are to be read against their facts[.]” Tincher v. Omega Flex, Inc.,

104 A.3d 328, 398 (Pa. 2014). As discussed below, piercing the corporate veil

is an equitable principle, that applies when justice so requires. See id. We

conclude that in cases such as this, where a parent is alleged to have dissolved

the entity against which a lawsuit would be filed, a plaintiff can press a claim

against the parent.4

   Whether the Court Erred in Granting Summary Judgment to CLI

       The GPW Plaintiffs and SGK Plaintiffs make two arguments in support of

piercing the veil to reach CLI. First, they claim that since 1998, CLI and Dravo

have not operated as separate companies, but, rather, that CLI and Dravo

have been acting as one entity such that the corporate veil should be pierced.

____________________________________________

4 The dissent concludes that the plaintiffs’ claims are barred by the statute of

limitations, because the claims were not raised within two years of Dravo’s
filing of a certificate of dissolution. This conclusion is based on 15 Pa.C.S. §
1979(a)(2). That provision, by its terms, provides that so long as an action or
proceeding is brought before or within two years of the dissolution of a
business corporation, the dissolution “shall not eliminate nor impair any
remedy available to or against the corporation.” Here, the defendant is CLI,
not Dravo, so no remedy is being sought against the dissolved corporation. As
discussed above, no case prevents a court from piercing the corporate veil
where a parent is alleged to have dissolved an entity against which a claim
would have been asserted.

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Second, they claim that CLI controlled DLCAC such that CLI, not DLCAC,

merged with Dravo in 1998.5

       “[S]ummary judgment is only appropriate in cases where there are no

genuine issues of material fact and the moving party is entitled to judgment

as a matter of law.” Nicolaou v. Martin, 195 A.3d 880, 891 (Pa. 2018) (citing

Pa.R.C.P. 1035.2(1)). “When considering a motion for summary judgment,

the trial court must take all facts of record and reasonable inferences

therefrom in a light most favorable to the non-moving party and must resolve

all doubts as to the existence of a genuine issue of material fact against the

moving party.” Id. We reverse a grant of summary judgment if there has been

an error of law or an abuse of discretion. Id. at 892. Because the issue of

whether there is a genuine issue of material fact is a question of law, our

standard of review is de novo and our scope of review is plenary. Id.

   A. The Veil Piercing Test

       The Pennsylvania Supreme Court recently discussed the doctrine of

piercing the corporate veil in Mortimer v. McCool, 255 A.3d 261 (Pa. 2021).

In Mortimer, the Court set forth a two-part inquiry for courts to use to

determine when to pierce the corporate veil:

____________________________________________

5 In their responses to   summary judgment in the trial court, each group of
plaintiffs incorporated the response of the other group of plaintiffs. See GPW
Plaintiffs’ Response to CLI’s Motion for Summary Judgement, dated Jan. 10,
2022, at 9, 10 (incorporating SKG Plaintiffs’ response); SKG Plaintiffs’
Response to CLI’s Motion for Summary Judgment, dated Jan. 12, 2023, at 1
n.1 (incorporating the GPW Plaintiffs’ Response).

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           First, there must be such unity of interest and ownership
           that the separate personalities of the corporation and the
           individual no longer exist, and second, adherence to the
           corporate fiction under the circumstances would sanction
           fraud or promote injustice[.]

Id. at 286-87 (citation omitted).

      The parties here dispute whether in Mortimer, the Supreme Court

supplanted a test previously used to determine whether a court should pierce

the corporate veil, which had been outlined in Lumax Industries, Inc. v.

Aultman, 669 A.2d 893 (Pa. 1995). In Lumax, the Supreme Court had “cited

favorably the Commonwealth Court’s enumeration of factors relevant to the

piercing    inquiry:   ‘undercapitalization,    failure   to   adhere   to   corporate

formalities, substantial intermingling of corporate and personal affairs[,] and

use of the corporate form to perpetrate a fraud.’” Mortimer, 255 A.3d at 268

(quoting Lumax, 669 A.2d at 895).

      Here, the trial court applied the Mortimer two-part inquiry, but used

the Lumax factors to determine whether Plaintiffs had met the first inquiry.

The GPW and SKG Plaintiffs argue the Supreme Court Majority rejected the

Lumax test, and claim that by requiring that they meet the Lumax test, the

trial court increased the burden of proof. They note fraud is not required under

Mortimer but is required under Lumax. They argue that in Mortimer the

Supreme Court looked to avoid multi-faceted tests.

      CLI argues that the trial court properly applied the veil-piercing test and

found that neither of the Mortimer elements could be satisfied. It further

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argues that Mortimer did not supersede prior case law, but rather

harmonized them into a test with simpler articulation.

      In Mortimer the question at issue was “[w]hether . . . the Supreme

Court should adopt the ‘enterprise theory’ or ‘single entity’ theory of piercing

the corporate veil to prevent injustice when two or more sister companies

operate as a single corporate combine?” Id. at 272. The Court concluded that

“a narrow form of . . . ‘enterprise liability’ may be available under certain

circumstances.” Id. at 266. In discussing the case’s procedural history, it

noted that the trial court had applied the Lumax factors to determine whether

it should pierce the corporate veil. Id. at 269. The Court stated that “[t]hough

these principles scan well enough, they are themselves a veil of sorts,

obscuring the difficulty of applying them predictably and fairly from one case

to the next.” Id. at 268. It further noted that this Court had “observed that

there appears to be no clear test or settled rule in Pennsylvania . . . as to

exactly when the corporate veil can be pierced.” Id. (alteration in original).

The Court later stated that “Pennsylvania has resisted the temptation to

formalize the inquiry with an ever-increasing number of predefined factors

embodying the many considerations that might aid in determining whether

the corporate form has been abused.” Id. at 286. However, in discussing the

law for piercing the corporate veil, the Court noted that the Lumax factors

were the “[o]ft-cited factors that might lead a court to disregard the corporate

form.” Id. at 278.

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        The Court then discussed the law regarding enterprise liability in

Pennsylvania and in other jurisdictions, and ultimately concluded that such

liability can exist in Pennsylvania. Id. at 277-286. The Court then stated the

two-part inquiry for courts to use to determine when to pierce a corporate

veil:

          First, there must be such unity of interest and ownership
          that the separate personalities of the corporation and the
          individual no longer exist, and second, adherence to the
          corporate fiction under the circumstances would sanction
          fraud or promote injustice.

Id. at 286-87 (citation omitted). It clarified that “[t]he second element – that

there be fraud, wrong, or injustice—seems to be nothing more than a

restatement of the basic starting point that piercing is an equitable remedy

used to prevent injustice.” Id. at 287 (citation and ellipses omitted). The Court

stated that the fraud and injustice element tells a court when to pierce the

veil and the control element “tells it against whom” it should be pierced. Id.

(citation omitted) (emphasis removed). Throughout the case, the Court

emphasized a corporate veil should be pierced only where there is great

injustice and inequity. See, e.g., id. at 281, 284. Further, regarding the

enterprise liability doctrine, the Court stated that “it remains for the lower

courts in future cases to consider its application consistently with the approach

described above, in harmony with prior case law, mindful of the salutary public

benefits of limited liability, and with an eye always toward the interests of

justice.” Id. at 288.

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      In sum, although the Supreme Court distilled the corporate veil piercing

law into a two-prong inquiry, Pennsylvania’s prior case law regarding the

doctrine, including cases applying the Lumax factors, remain good law and

can be used to determine whether the veil should be pierced in a particular

case. Although all Lumax factors may not be needed or relevant in each

piercing the veil case, courts may still look to those factors, and the cases that

applied them, for guidance when determining whether the Mortimer inquiry

is met. We further note that although the Lumax factors and prior case law

continue to be relevant following Mortimer to determine whether a court

should pierce the corporate veil, a plaintiff need not prove fraud to establish

piercing is appropriate, even though fraud is listed as a Lumax factor. The

Pennsylvania Supreme Court has stated that “[f]raud in its narrow sense need

not be shown.” Mortimer, 255 A.3d at 278 (citations omitted). Rather,

“Pennsylvania courts will disregard the corporate form ‘whenever it is

necessary to avoid injustice,’ and so long as ‘the rights of innocent parties are

not prejudiced nor the theory of corporate entity rendered useless.’” Id.

(citations omitted); see Fletcher-Harlee Corp. v. Szymanski, 936 A.2d 87,

96 (Pa.Super. 2007) (quoting Village at Camelback Prop. Owners Assn.

Inc. v. Carr, 538 A.2d 528, 532-33 (Pa.Super. 1988), and noting corporate

existence can be disregarded without a showing of fraud).

   B. Applying the Mortimer Test

      We will next address whether the trial court erred in granting CLI’s

summary judgment motion. The SKG Plaintiffs allege that the evidence relied

                                     - 19 -
J-A15029-23; J-A15030-23

on by the trial court depends on the credibility of individuals who were

receiving a salary from CLI, “but on the other hand allegedly performing work

for Dravo.” SKG Plaintiffs’ Br. at 24. They argue the trial court essentially

issued findings of fact, which is improper at the summary judgment stage. As

an example, they cite the court’s conclusion that CLI went through the proper

steps to ensure it was separate from Dravo, which the SKG Plaintiffs allege

was a contested issue of fact. They further contend there was evidence that

the corporate formalities were not followed.

       The SKG Plaintiffs provide facts they argue prove unity of interest and

ownership, including, among other things, that Dravo had no employees or

physical location; the officers for each company had identical titles; corporate

formalities were not upheld for the first four years; Dravo used CLI letterhead;

and confidentiality existed between CLI and Dravo. They further claim that

neither company had board meetings, but rather took actions by unanimous

written consent. They point out that communications were sent on Dravo’s

behalf from CLI email addresses, with someone testifying it would be

impractical to have different email addresses for CLI’s 30 different United

States affiliates. The SKG Plaintiffs further note that Dravo’s communications

were often signed by individuals in their capacity as CLI officers.6 They further

____________________________________________

6 The SKG Plaintiffs further claim that a confidentiality agreement directed
that all notices for Dravo should be sent to CLI’s attorney. We are unable to
find this confidentiality agreement in the certified record. In its brief, SKG
Plaintiffs cite page 310 of the reproduced record, which is their response to
(Footnote Continued Next Page)

                                          - 20 -
J-A15029-23; J-A15030-23

point out that the insurance companies communicated with CLI and claim the

insurance companies thought the coverage was for CLI. They assert CLI was

making the decisions during the negotiations with the insurance companies,

noting documents and testimony support a finding that Dravo needed

approval from CLI for the settlement. The SKG Plaintiffs contend that at a

minimum a factfinder should have reviewed the evidence and made the factual

findings.

       The SKG Plaintiffs next contend the court erred in finding no fraud or

injustice occurred. They claim the wrong and injustice in this case includes the

intermingling of corporate and personal interests, the fraudulent transfer of a

$250 million asset to CLI for $14 million, the waiver of a debt of $129 million

owed by CLI, CLI and Dravo committing PUFTA violations, and the waiver of

more than $100 million in excess insurance coverage. They claim the

intermingling was “egregious with [CLI] reaching into Dravo’s coffers

repeatedly, and removing hundreds of millions of dollars for [CLI’s] benefit –

and to Dravo’s detriment.” SKG Plaintiffs’ Br. at 53 (emphasis omitted). They

claim CLI did not want Dravo to have value when the insurance ran out.7

____________________________________________

CLI’s motion for summary judgment. That page includes a quotation from
page 3 of the confidentiality agreement, but does not state where that
agreement can be found in the certified record.
7 The GPW Plaintiffs focus on whether DLCAC had a separate identity than CLI,

arguing that it did not and therefore Dravo merged with CLI in 1998, not
DLCAC. Because we agree with the SKG Plaintiffs that the actions of CLI and
Dravo following the 1998 merger create genuine issues of material fact
preventing summary judgment on the issue of piercing the corporate veil, we
do not reach this issue.

                                          - 21 -
J-A15029-23; J-A15030-23

      The trial court found the Plaintiffs had not established that the corporate

veil should be pierced. It found Dravo and CLI were separate personalities.

Trial Court Opinion, dated Oct. 3, 2022, at 6. It pointed out the corporations

were legally separate entities, as Dravo was acquired in a reverse triangular

merger, noting that the benefit of this type of merger is that the parent

company acquires the target entity’s ownership interests, without assuming

any of the liability. Id. It then discussed whether they remained separate and

distinct, applying the Mortimer factors to determine whether the corporate

veil should be pierced. Id. at 7. In addressing the first factor, the court applied

the four-factor test from Lumax – undercapitalization, failure to adhere to

corporate formalities, intermingling of corporate and personal affairs, and use

of corporate form to perpetuate a fraud. Id. It reasoned these factors help

expand on the first Mortimer factor. Id.

      The court found Dravo was not undercapitalized, as it maintained the

insurance to manage the asbestos claims. Id. It pointed out that the majority

of Dravo’s business was managing asbestos claims, which it used the

insurance proceeds and capital from accounts receivable to do. Id. It further

noted that when Dravo sold CLS to CLI, it retained $14 million for operating

expenses. Id.

      The trial court also found that Dravo adhered to corporate formalities.

Id. at 8. The court stated that Dravo had “separate slates of officers and

directors and separate financial records and accounts,” and maintained its own

corporate records and minutes book. Id. It reasoned that although “every

                                      - 22 -
J-A15029-23; J-A15030-23

officer and director of Dravo . . . was simultaneously an officer or employee

of [CLI], Dravo . . . still adhered to corporate formalities necessary for the two

entities to be treated as separate.” Id. The court further found the entities

“respected corporate formalities during [CLI’s] acquisition of CLS.” Id. It

pointed out that CLI had CLS appraised by a third party and executed facially

valid payment notes in exchange, which were voted on and approved by CLI’s

board. Id. Further, Dravo’s board voted on and approved the action cancelling

the note in consideration for a new note for operating costs. Id. The court

reasoned that although “these actions occurred on the same day, and had the

effect of transferring CLS to [CLI], corporate formalities were adhered to.” Id.

      The court next found “there [was] no intermingling of corporate or

personal affairs.” Id. It found the corporate affairs of CLI and Dravo were

“intentionally and consciously separated,” reasoning they had separate boards

of directors, financial records, and minutes, and had different business goals.

Id. It stated that “[CLI] reaped financial benefits from Dravo . . . much like

any corporate parent in a similar situation.” Id. at 9. The court further found

there was no use of the corporate form to perpetuate fraud. Id. It reasoned

that “Pennsylvania common law recognizes that it is not fraudulent for

investors to take steps to wind-down a failing business venture.” Id. It

reasoned Dravo was a failing business that “had managed asbestos liabilities

for two decades,” and it was within its right to dissolve. Id. It found there was

no evidence of fraudulent activity, noting that Dravo settled with its insurance

                                      - 23 -
J-A15029-23; J-A15030-23

policies before dissolving and had $7 million to cover asbestos liabilities for

the two-year period following dissolution. Id.

      The court also found Plaintiffs could not establish that a corporate action

would promote fraud or other injustice. It noted that Pennsylvania common

law recognizes that shielding personal assets is a legitimate use of the

corporate form. Id. at 11. It reasoned that CLI “consciously executed a

specific type of merger in order to shield itself from Dravo[’s] asbestos

liabilities,” and “comported to the letter of the law in their acquisition,

management, and dissolution of Dravo.” Id. It pointed out that CLI maintained

Dravo for two decades, making Dravo’s primary business the management of

asbestos related liabilities, and it made sure it retained an amount sufficient

to cover any claims filed in the two-year period following dissolution. Id.

      We conclude the trial court erred in finding there were no genuine issues

of material fact. We will first address the first prong of the Mortimer test,

whether CLI and Dravo had such unity of interest and ownership that the

separate personalities of the corporations no longer exist. We conclude there

is a genuine issue of material fact regarding this factor. Dravo had no

employees and no place of business. When conducting business on Dravo’s

behalf, individuals often used CLI email addresses and letterhead. Further,

emails suggest that Dravo’s insurance carrier believed CLI had to approve any

settlement it reached with Dravo. Moreover, there is evidence that CLI

received financial benefit from Dravo, purchasing Dravo’s subsidiary and then

immediately receiving a large shareholder dividend from Dravo and receiving

                                     - 24 -
J-A15029-23; J-A15030-23

a large payment to release it of a debt owed to Dravo. This evidence, among

other things, could lead a fact finder to conclude that CLI and Dravo had such

a unity of interest that separate personalities no longer existed. Mortimer,

255 A.3d at 278 (noting that where an owner intermingles personal and

corporate interests, “it is not the courts who first decline to recognize the

corporate form. Rather, when the shareholder derives improper personal gain

or advantage by misusing the corporate form, the court may reach through

the veil already torn by the owner's abuses”).

      Although under the paperwork, the companies may have adhered to

corporate formalities, the evidence above raises a genuine issue as to whether

those formalities continued in practice. Further, the money transfers and the

communications from CLI on behalf of Dravo and the suggestion that Dravo

required CLI’s approval for settlement raise a question as to whether the

companies intermingled their affairs. In addition, that Plaintiffs did not

establish that Dravo was undercapitalized or that a fraud had been committed

would not preclude piercing the corporate veil. Rather, they are only two

factors that a court may consider. Further, although Dravo allegedly had

sufficient funds to pay claims raised in the two-year period following

dissolution, the money transfers and settlement with the insurance carriers

raise questions about its capitalization and about whether a fraud occurred.

See Fletcher-Harlee Corp., 936 A.2d at 100-03 (applying the Lumax

factors and other factors, finding some factors met and others not met, and

concluded that “justice and equity require[d] that [the shareholder] be held

                                    - 25 -
J-A15029-23; J-A15030-23

liable for the judgment obtained by” plaintiff, finding the shareholder “failed

to adhere to corporate formalities, and . . . at least to some extent,

intermingled his personal and corporate affairs” and concluding evidence

supported conclusion shareholder “disregarded the separate legal status of

Delmarva, thus further rendering Delmarva's corporate form to be a sham”);

Lomas v. Kravitz, 130 A.3d 107, 128 (Pa.Super. 2015) (en banc) (finding

court did not err in piercing the corporate veil where the company was

undercapitalized, the shareholder failed to adhere to corporate formalities,

there was intermingling of funds, and shareholder used the corporate form to

perpetuate a fraud, “specifically, to remove assets from the reach of

creditors,” and including in the facts that the various companies loaned money

to each other or the shareholder and wrote off various debts owed by the

companies).8

       Next, we address whether adherence to the corporate fiction under the

circumstances would sanction fraud or promote injustice. We conclude that a

genuine issue of material fact as to this prong also exists. The Plaintiffs do not

need to establish fraud under this factor, rather we must determine whether

piercing the corporate veil “is necessary to avoid injustice.”

____________________________________________

8 The SKG Plaintiffs further allege that the transfers violated the Pennsylvania

UTPCPL and therefore would qualify as a fraud. Because we concluded there
is sufficient evidence to create a genuine issue of material fact regarding
piercing with corporate veil regardless whether the transactions violated the
UTPCPL, we do not determine whether a violation occurred.

                                          - 26 -
J-A15029-23; J-A15030-23

      Here, the large money transfers and the settlement with insurance

carriers for potentially significantly less than the insurance value, leaving

Dravo with only limited insurance proceeds to address the asbestos claims,

raises a genuine issue of material fact as to whether CLI and Dravo were

promoting an injustice. Although a reverse-triangular merger can be proper,

where the parent and the subsidiary in practice function as a single entity, and

the parent uses its control of the subsidiary to take the subsidiary’s assets and

leave the subsidiary without sufficient assets to satisfy foreseeable liabilities,

the corporate veil can be pierced.

      Order reversed. Case remanded. Jurisdiction relinquished.

Judge Pellegrini joins the opinion.

Judge Murray files a dissenting opinion.

DATE: 12/19/2023

                                      - 27 -