Ene v. Graham

546 P.3d 1232

Ovidiu ENE, Individually; and International Property Holdings, LLC, a Domestic Limited Liability Company, Appellants,

v.Laura GRAHAM, Respondent.

No. 84800

Supreme Court of Nevada.

Filed April 18, 2024

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.

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.

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 same 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. Ac- cordingly, 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.

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.

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

[1] "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).¹The 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 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 LLCs under NRS 86.376 is the same as the analysis for corporations under NRS 78. 747

[2, 3] 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).

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."

[4] 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 under NRS 86.376

[5–7] "[Although 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. However. "[t]he corporate cloak is not lightly thrown aside." Baer v. Amos J. Walker, Inc., 85 Nev. 219, 220, 452 P.2d 916, 916 (1969).

[8–11] "[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). "[T]he following factors, though not conclusive, may indicate the existence of an alter ego relationship: (1) commingling of funds; (2) under- capitalization; (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...