Court Opinion

ID: 9961503
Source: CourtListenerOpinion
Date Created: 2024-04-18 21:07:44.865093+00
Date Added: 2024-06-11T08:20:50.118035
License: Public Domain

140 Nev., Advance Opinion       ab
                       IN THE SUPREME COURT OF THE STATE OF NEVADA

                OVIDIU ENE, INDIVIDUALLY; AND                         No. 84800
                INTERNATIONAL PROPERTY
                HOLDINGS, LLC, A DOMESTIC
                LIMITED LIABILITY COMPANY,                                FiLED
                Appellants,
                vs.
                LAURA GRAHAM,
                                                                       ELI
                Respondent.                                          CLE

                                                                     BY
                                                                          IEE DEPUTY CLERK

                           Appeal from a district court judgment on a jury verdict in a
                personal injury action. Eighth Judicial District Court, Clark County; Linda
                Marie Bell, Judge.
                            Reversed and remanded.

                Roger P. Croteau & Associates, Ltd., and Roger P. Croteau and Christopher
                L. Benner, Las Vegas,
                for Appellants.

                Moss Berg Injury Lawyers and John C. Funk and Marcus A. Berg, Las
                Vegas,
                for Respondent.

                BEFORE  THE    SUPREME             COURT,      HERNDON,          LEE,        and
                           ,
                PARRAGUIRRE JJ.

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                                                  OPINION

                By the Court, LEE, J.:
                            Generally, a limited liability company's members and managers

                are not liable for the debts and liabilities of the company. Here, however,
                the district court found that a limited liability company's sole member and
                manager was the alter ego of the company and thus held him personally
                liable for injuries sustained on company property. We issue this opinion to
                clarify that the alter ego analysis for a limited liability company is the sarne
                as the analysis that is applied to determine whether an alter ego
                relationship exists with respect to a corporation. As with the alter ego
                analysis for a corporation, a district court must make specific findings as to
                influence over and governance of the company, the unity of interest and
                ownership between the alleged alter ego and the company, and whether
                adherence to the notion of separate entities would sanction fraud or promote
                injustice. Reviewing the district court's findings under this analysis, we

                conclude that substantial evidence does not support the district court's alter
                ego determination. Accordingly, we reverse the district court's judgment as
                to its alter ego determination and remand for further proceedings.
                                  FACTS AND PROCEDURAL HISTORY
                            Respondent Laura Graham sustained injuries when she tripped
                and fell over a sprinkler box on the property of appellant International
                Property Holdings, LLC (IPH). IPH was the sole owner of the property, and
                appellant Ovidiu Ene was the sole member of IPH.              Graham filed a

                complaint against IPH and Ene, among others, alleging negligence.
                Graham did not assert alter ego theories of liability against Ene in her
                complaint or in any amended complaint.

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                            During trial, Graham moved to amend her complaint to assert
                that Ene was the alter ego of IPH. Although Graham's motion was never
                resolved by the district court, the motion ultimately resulted in the initial
                inclusion, followed by the later exclusion, of jury instructions related to
                corporate protections and the alter ego theory of liability. Specifically, after
                Graham rested her case, the defense recalled Ene. Ene testified generally
                to his relationship with IPH and the property, ostensibly to establish facts
                to limit his liability as the owner and manager of IPH.            After Ene's

                testimony, and over the objection of Ene and IPH, the district court added
                jury instructions on the protections of a limited liability company (LLC) and
                on the alter ego doctrine. Thereafter, Ene and IPH moved for a directed
                verdict, arguing that Ene was not individually liable and that the
                determination of alter ego liability was a legal issue for the court to decide.
                The district court denied the motion.
                            Ene and IPH then moved the district court to determine as a
                matter of law whether the evidence established Ene was the alter ego of
                IPH.   The district court determined that Ene was the alter ego of IPH
                because he was the sole member of the LLC, there was a unity of interest
                and ownership, and adherence to the corporate fiction would promote an
                injustice. In making its decision, the district court relied on the following
                facts: (1) Ene had his own personal gate code to the property and had
                accessed the property on multiple occasions for personal use when it was
                not being rented, (2) Ene did not pay IPH or the property management
                company when he used the property for personal reasons, (3) Ene's father
                maintained a garden and a chicken coop on the property, (4) insurance for
                the property was in Ene's name, and (5) he remained the guarantor on the
                mortgage loan for the property.

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                             The district court ultimately removed the jury instructions on
                the protections of an LLC and the alter ego theory based on its
                determination that Ene was the alter ego of IPH.        The jury returned a
                verdict finding Ene and IPH partially liable.         Ene and IPH appeal,
                challenging the district court's determination that Ene was the alter ego of
                IPH and the propriety of the alter ego theory being introduced by Graham
                mid-trial.
                                               DISCUSSION
                Introduction of the alter ego issue
                             "When an issue not raised by the pleadings is tried by the
                parties' express or implied consent, it must be treated in all respects as if
                raised in the pleadings. . . . [F]ailure to amend does not affect the result of
                the trial of that issue." NRCP 15(b)(2).' The district court's determination
                under NRCP 15(b) is reviewed for an abuse of discretion. Yount v. Criswell
                Radovan, LLC, 136 Nev. 409, 415, 469 P.3d 167, 172 (2020).
                             Our analysis here is stifled by the incomplete and disorganized
                record before us on appeal.2 What does appear from the record, however, is

                      'The parties do not cogently argue this issue under NRCP 15(b)(2),
                nevertheless we conclude that NRCP 15(b)(2) provides the correct analysis.

                      2We note that the trial was rescheduled for an earlier date, that no
                motions in lirnine or other substantive pretrial motions are included in the
                record before us, and that the trial judge was replaced right before trial.
                There is some indication that Graham attempted to amend her complaint
                intra-trial; however, the district judge either deferred ruling on her motion
                or did not rule on it at all, perhaps because Ene's counsel was late on the
                morning of trial and thus was not present. Instead, the district judge
                appears to have included jury instructions on alter ego, which was incorrect
                because alter ego is a question of law. NRS 86.376. Ene's subsequent recall
                of himself as a witness and motion for a ruling on the alter ego issue as a
                matter of law appears to be in response to the improper jury instructions.
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                that the issue of alter ego was not impliedly tried by either party and should
                not have been entertained by the district court during trial. Regardless,

                even if Ene had consented to try the alter ego issue, substantial evidence
                does not support the district court's determination that Ene was the alter
                ego of IPH, as we discuss further below.
                Substantial evidence does not support the district court's determination that
                Ene was the alter ego of IPH
                            Ene and IPH assert that the district court improperly applied

                the three-part analysis for determining alter ego of an LLC set forth in NRS
                86.376. Graham asserts that the district court properly applied the analysis
                and that substantial evidence exists to support the decision. We recognize
                that the alter ego analysis for LLCs is the same as that for corporations and
                conclude that substantial evidence does not support the district court's
                determination that Ene was the alter ego of IPH.
                      The alter ego analysis for LL,Cs under NRS 86.376 is the same as the
                      analysis for corporations under NRS 78.747
                            This court has yet to interpret NRS 86.376. Questions of law,
                including issues of statutory interpretation, are reviewed de novo. State
                Indus. Ins. Sys. v. United Exposition Servs. Co., 109 Nev. 28, 30, 846 P.2d
                294, 295 (1993).
                            NRS 86.376, setting forth the corporate veil protections and
                alter ego exceptions as pertains to LLCs, was enacted by the Legislature in
                2019. Prior to its enactment, this court relied on NRS 78.747, which sets
                forth the corporate veil protections and alter ego exceptions for corporations,
                when analyzing individual liability for managers or members of LLCs. See,
                e.g., Gardner v. Eighth Jud. Dist. Ct., 133 Nev. 730, 736, 405 P.3d 651. 656
                (2017).

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                            NRS 86.376 states that the question of whether a person acts
                as the alter ego of an LLC is a matter of law and requires the court to make
                findings under the three following elements: whether (a) the LLC is
                influenced and governed by the person, (b) there is a unity of interest and
                ownership such that the person and LLC are inseparable, and (c) adherence
                to the notion of separate entities would sanction fraud or promote injustice.
                NRS 86.376 mirrors the language and elements of NRS 78.747, simply
                replacing the term "corporation" with "limited liability company."
                            Additionally, "LLCs provide the same sort of possibilities for
                abuse as corporations, and creditors of LLCs need the same ability to pierce
                the LLCs' veil when such abuse exists." Gardner, 133 Nev. at 736, 405 P.3d
                at 656.   Based on the mirroring language of the statutes, the similar
                potentials for abuse, and the need for creditors to pierce the LLCs' veil to
                prevent abuse, it is clear the Legislature intended the analysis and
                application of the alter ego doctrine for LLCs to be the same as that of
                corporations. Therefore, our caselaw analyzing the alter ego doctrine for
                corporations remains instructive when reviewing a district court's
                application of the doctrine to an LLC.
                      Substantial evidence does not support the district court's alter ego
                      determination ttnder NRS 86.376
                            "[A]lthough corporations are generally to be treated as separate
                legal entities, the equitable remedy of piercing the corporate veil may be
                available to a plaintiff in circumstances where it appears that the
                corporation is acting as the alter ego of a controlling individual." LFC Mktg.
                Grp., Inc. v. Loomis, 116 Nev. 896, 902, 8 P.3d 841, 845 (2000) (internal
                quotations omitted). This court "will uphold a district court's determination
                with regard to the alter ego doctrine if substantial evidence exists to support
                the decision."   LFC Mktg. Grp., Inc., 116 Nev. at 904, 8 P.3d at 846.
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                However, "[t]he corporate cloak is not lightly thrown aside." Baer v. Arno.s
                J. Walker, Inc., 85 Nev. 219, 220, 452 P.2d 916, 916 (1969).

                            "[T]he essence of the alter ego doctrine is to do justice whenever
                it appears that the protections provided by the corporate form are being
                abused." LFC Mktg. Grp., Inc., 116 Nev. at 903, 8 P.3d at 845-46 (internal
                quotation marks omitted). "[Title following factors, though not conclusive,
                may indicate the existence of an alter ego relationship: (1) commingling of
                funds; (2) undercapitalization; (3) unauthorized diversion of funds;
                (4) treatment of corporate assets as the individual's own; and (5) failure to
                observe corporate formalities." Id. at 904, 8 P.3d at 847. However, "[t]here
                is no litmus test for determining when the corporate fiction should be
                disregarded; the result depends on the circumstances of each case." Id.
                (quoting Polaris Indus. Corp. v. Kaplan, 103 Nev. 598, 602, 747 P.2d 884,
                887 (1987)). Finally, the evidence supporting a finding of an alter ego "must
                also be the cause of [the] injury and must have sentenced a fraud or
                promoted an injustice before the corporate veil can be pierced." Polaris, 103
                Nev. at 602, 747 P.2d at 887; see also N. Arlington Med. Bldg., Inc. v.
                Sanchez Constr. Co., 86 Nev. 515, 522, 471 P.2d 240, 244 (1970) (concluding
                that the alter ego doctrine did not apply where the party seeking to pierce
                the corporate veil "failed to show any causal connection between the
                [corporation's alleged inadequate] financing and the inability to pay" a
                promissory note).
                            As noted, a person acts as the alter ego of an LLC only if (a) the
                LLC is influenced and governed by the person, (b) there is a unity of interest
                and ownership such that the person and LLC are inseparable, and
                (e) adherence to the notion of separate entities would sanction fraud or
                promote injustice. NRS 86.376(2). Here, the district court found that IPH

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                was a 'one-person LLC," with Ene as the only member, and therefore, the
                first alter ego element—influence and government by the person—was
                satisfied. As to the second element—a unity of interest and ownership such
                that the person and LLC are inseparable—the district court noted that the
                mortgages on the property were held by Ene personally, that the property
                was insured by Ene personally, and that, even assuming all of the corporate
                formalities were observed, Ene would access the property for personal use
                at times without paying anything to the LLC. Thus, the district court found
                the second alter ego element was satisfied. As to the third element—fraud
                or injustice—the district court specifically found no fraud and instead
                summarily found that adherence to the idea that IPH was a separate entity
                from Ene would promote an injustice. We address each of the district court's
                findings below and conclude that substantial evidence does not support the
                district court's finding of alter ego.
                             Substantial evidence supports the district court's finding that
                             IPH was influenced and governed by Ene
                             We agree with the district court that single member LLCs
                structurally tend toward a finding that the LLC is "influenced and governed

                by the person."    NRS 86.376(2)(a).         We therefore hold that substantial
                evidence supports the district court's finding that the first element of alter
                ego analysis was satisfied. However, we emphasize that the mere fact that
                ownership and management of the LLC are accomplished by the supposed
                alter ego is insufficient by itself to support veil piercing without further
                findings. See Lipshie v. Tracy Inv. Co., 93 Nev. 370, 377, 566 P.2d 819, 823

                (1977) (holding that "the fact that [company 1] owned all shares of [company
                2] and that the officers of [company 1 and company 2] were identical" was
                insufficient to satisfy the first two requirements of the alter ego doctrine):
                see also Bonanza Hotel Gift Shop, Inc. v. Bonanza No. 2, 95 Nev. 463, 466,
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                596 P.2d 227. 229 (1979) ("Nor is mere mutuality of interest sufficient to
                make such a showing [of alter ego], without evidence of a commingling of
                funds or property interests, or of prejudice to creditors.").
                              Substantial evidence does not support the di,strict court's finding
                              of a unity of interest and ownership
                              We also agree with the district court that there is some evidence
                that Ene would occasionally use the subject property for his own personal
                enjoyment.     This evidence alone, however, does not satisfy the unity of

                interest and ownership element without further findings as to a lack of
                observance of corporate formalities, maintenance of corporate records,
                comingling of funds, or prejudice to creditors_ LFC Mktg. Grp., Inc., 116
                Nev. at 903, 8 P.3d at 845-46; Bonanza Hotel Gift Shop, Inc., 95 Nev. at 466,
                596 P.2d at 229-30. Most notably, there were no findings by the district
                court as to a causal connection between the occasional use of the property
                by Ene and the injury sustained by the plaintiff. Thus, we conclude that

                substantial evidence does not support the district court's conclusion under
                the second element of unity of interest and ownership that Ene is the alter
                ego of IPH.
                              Substantial evidence does not support the chstrict court's finding
                              of manifest injustice
                              Turning to the third element of the alter ego analysis, courts
                determine whether "[a]dherence to the notion of the limited-liability
                company being an entity separate from the person would sanction fraud or
                promote manifest injustice."       NRS 86.376(2)(c) (emphasis added).        The

                district court specifically considered and rejected fraud; therefore, we limit
                our review to whether substantial evidence supports a finding of injustice.
                              For the third element, "[i]t is enough if the recognition of the
                two entities as separate would result in an injustice." Polaris, 103 Nev. at

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                601, 747 P.2d at 886. An injustice may be found, for example, where the
                controlling officers misuse the corporate fbrm to the detriment of their
                creditors. See id. at 602-03, 747 P.2d at 887-88 (determining veil piercing
                was appropriate where individual officers advanced withdrawals for

                personal use from corporate accounts after a complaint was filed, resulting
                in an undercapitalized corporation and an unpaid debt). An injustice may
                also be found where the owner makes "personal assurances to the creditor
                that [the owner] would be personally responsible for the debt." Mosa v.
                Wilson-Bates Furniture Co., 94 Nev. 521, 524, 583 P.2d 453, 455 (1978).
                "Undercapitalization, where it is clearly shown, is an irnportant factor in
                determining whether the doctrine of alter ego should be applied."
                N. Arlington Med. Bldg., Inc., 86 Nev. at 522, 471 P.2d at 244. Absent fraud
                or injustice, however, "it is not an absolute ground for disregarding a
                corporate entity." Id.
                             The district court made the following statement as to the
                i nj ustice inquiry:
                                    THE COURT: That adherence to the
                             corporate—that because he has—the LLC is almost
                             a fictitious entity, right? I mean, he has all of these
                             things in his personal name. He's treating it—
                             whenever it's not being rented, he's treating it as
                             his personal property, that that would promote an
                             injustice by adhering to the corporate fiction.
                             The district court made no findings as to the causal connection
                to the injury.    Consequently, it is unclear how recognition of IPH as a

                separate entity would result in an injustice to Graham. Instead of making
                findings specific as to an injustice, the district court effectively collapsed its
                analysis of the first and second elements into its analysis of the third
                element. Because substantial evidence does not support the district court's

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                determination of alter ego, we reverse. See LFC Mktg. Grp., lite., 116 Nev.
                at 904, 8 P.3d at 846.
                                              CONCLUSION
                              We clarify that the alter ego analysis for LLCs under NRS
                86.376 is the same analysis that applies to corporations under NRS 78.747.
                But as substantial evidence does not support the district              court's

                determination that Ene was the alter ego of IPH, we reverse the district
                court's alter ego determination.    As a result, we hold that Ene is not

                personally liable for the negligence of IPH and remand for further
                proceedings in accordance with this opinion.

                                                                                  j.
                                                    Lee

                We concur:

                                               J.
                Herndo

                Parraguirre

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