Mortimer v. McCool

255 A.3d 261

Ryan Fell MORTIMER, Appellant

v.Michael Andrew MCCOOL, Raymond Christian McCool, Estate of Raymond R. McCool and McCool Properties, LLC, Appellees

Ryan Fell Mortimer, Appellant

v.340 Associates, LLC and McCool Properties, LLC, Appellees

No. 37 MAP 2020

No. 38 MAP 2020

Supreme Court of Pennsylvania.

Argued: December 2, 2020

Decided: July 21, 2021

Robert L. Byer, Esq., Pittsburgh, for Chamber of Commerce of the United States of America, et al., Amicus Curiae.

Loudon L. Campbell, Esq., Eckert Seamans Cherin & Mellott, LLC, Harrisburg, for Pennsylvania Manufactured Homes Association, Pennsylvania Apartment Association, NAIOP Pittsburgh, Amici Curiae.

Loudon L. Campbell, Esq., Casey Alan Coyle, Esq., Eckert Seamans Cherin & Mellott, LLC, Harrisburg, for Pennsylvania Builders Association, et al., Amicus Curiae.

Laurence M. Kelly, Esq., Montrose, for Pennsylvania Association for Justice, Amicus Curiae.

John P. Lavelle Jr., Esq., Morgan, Lewis & Bockius LLP, Philadelphia, for Product Liability Advisory Council, Inc., Amicus Curiae.

Leah Ariel Mintz, Esq., Philadelphia, Jessica Ann Priselac, Esq., Duane Morris LLP, Pittsburgh, for Chamber of Commerce of the United States of America, et al., Amicus Curiae.

Joel William Goldberg, Esq., Goldberg, Goldberg & Janoski, West Chester, for Appellant.

Robert Anthony Burke, Esq., West Chester, Brian James Forgue, Esq., Leo M. Gibbons, Esq., MacElree Harvey, Ltd., West Chester, for Appellees McCool, Michael Andrew, Raymond McCool, McCool Properties, LLC.

Michael T. Imms, Esq., Ryan, Morton & Imms, LLC, West Chester, for Appellee 340 Associates, LLC.

BAER, C.J., SAYLOR, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

OPINION

JUSTICE WECHT

In this case, we examine the doctrine of "piercing the corporate veil," an area "among the most confusing in corporate law."¹ On March 15, 2007, Ryan Fell Mortimer was seriously and permanently injured when an intoxicated driver collided with her car. The driver recently had been served by employees of the Famous Mexican Restaurant ("the Restaurant") in Coatesville, Pennsylvania. The owners of the Restaurant had a contractual management agreement with the owner of the Restaurant's liquor license ("the License"), Appellee 340 Associates, LLC. The Restaurant was located in a large, mixed-use building owned by Appellee McCool Properties, LLC. At the time of the injury, Appellees Michael Andrew McCool ("Andy") and Raymond Christian McCool ("Chris") were the sole owners of 340 Associates. With their father, Raymond McCool ("Raymond"), they also owned McCool Properties. In an underlying "dram shop action," Mortimer obtained a combined judgment of $6.8 million against 340 Associates and numerous other defendants. Under the Liquor Code, 340 Associates as licensee was jointly and severally liable for Mortimer's entire judgment. 340 Associates had no significant assets beyond the License itself, and neither carried insurance for such actions nor was required by law to do so.

Seeking to collect the balance of the judgment,² Mortimer commenced the instant litigation against 340 Associates, McCool Properties, Chris, Andy, and the Estate of Raymond, who died after the collision but before the commencement of this action.³ Mortimer sought to pierce the corporate veil to hold some or all of the individual McCool defendants and McCool Properties liable for her judgment. To reach McCool Properties, the focus of this appeal, Mortimer wishes to avail herself of a doctrine, novel to Pennsylvania law, known variously as "single-entity," "enterprise," or "horizontal" liability, among other formulations.⁴ The thrust of the doctrine is that, just as a corporation's owner or owners may be held liable for judgments against the corporation when equity requires, so may affiliated or "sister" corporations—corporations with common ownership, engaged in a unitary commercial endeavor—be held liable for each other's debts or judgments.

While we conclude that a narrow form of what we will refer to as "enterprise liability" may be available under certain circumstances, it cannot apply under the facts of this case.

I. Background⁵

A. The Corporations

In 2001, Chris, Andy (collectively "the Brothers"), and Charles O'Neill formed and registered TA Properties and 340 Associates as limited liability companies⁶ with the Pennsylvania Department of State. TA Properties was formed to acquire and hold real estate, including the Property, a six-story building containing twenty apartments as well as a convenience store and restaurant space on the first floor. 340 Associates was formed by the same three people to acquire and hold the License.

On June 22, 2001, 340 Associates applied to the Pennsylvania Liquor Control Board ("PLCB") to transfer the License from its then-owners. On June 28, TA Properties acquired the Property from the same parties who owned the License. The PLCB approved the transfer of the License to 340 Associates on March 25, 2002. The former manager of the Restaurant located on the Property stayed on as manager.

In 2002, the Brothers bought out O'Neill’s interests in both corporations. Thereafter, the Brothers’ father, Raymond, became a one-third member of TA Properties. On December 12, 2002, 340 Associates submitted to PLCB a notice documenting O'Neill’s departure from 340 Associates and indicating that the Brothers were the sole remaining members of 340 Associates. To similar effect, on January 1, 2003, the Brothers signed a new operating agreement for 340 Associates, which identified each as holding a 50% interest. PLCB acknowledged the change on April 10, 2003.

On March 17, 2004, McCool Properties was formed and registered as a limited liability corporation with the Pennsylvania Department of State. On June 1, 2004, Chris, Andy, and Raymond (collectively, "the McCools") signed an operating agreement indicating that they were the members of McCool Properties. Shortly thereafter, TA Properties transferred all of its assets, including the Property, to McCool Properties.

B. The Restaurant, the Collision, the First Trial, and the "PUFTA" Action

The Restaurant's manager, whom 340 Associates retained when they acquired the License, took ill. 340 Associates then sought PLCB approval of a new manager, Nazario Tapia, whom the PLCB approved in October 2004. On December 17 of that year, Tapia and his wife executed complementary but distinct contracts with 340 Associates and McCool Properties. First, the Tapias entered into a management agreement with 340 Associates for the use of the License. The Tapias agreed to pay all expenses associated with the License. They also agreed to remit sales taxes collected upon food sales to 340 Associates, for 340 Associates to pass on to the taxing authority, and to reimburse 340 Associates for any expenses advanced in maintaining the License. Second, the Tapias signed a market-rate lease for the Restaurant with McCool Properties.

On the date of the 2007 collision, the Restaurant had no liquor liability insurance. In November of the same year, Mortimer initiated her dram shop action against ten defendants, including 340 Associates as licensee. On June 16, 2009, with the litigation still pending, 340 Associates entered into an agreement to transfer the License to 334 Kayla, Inc.—an entity with no apparent affiliations to the parties of any relevance to this appeal—in exchange for below-market consideration of $75,000, for which 340 Associates retained a note. Contemporaneously, 334 Kayla entered into a lease with McCool Properties for the Restaurant.

On October 4, 2009, Raymond died. On August 18, 2010, a jury awarded Mortimer $6.8 million in damages against ten defendants, including 340 Associates. Thereafter, Mortimer filed a separate and ultimately successful action under the Pennsylvania Uniform Fraudulent Transfers Act⁷ ("PUFTA") against 340 Associates and 334 Kayla. Mortimer ultimately took possession of the License and sold it for $415,000—an order of magnitude shy of her outstanding judgment.

Mortimer then filed the two since-consolidated actions now before us, which sought to pierce 340 Associates’ corporate veil to reach the assets of the McCools individually and McCool Properties.

C. The Lower Courts’ Decisions

As an entry point to discussing the lower courts’ opinions, we begin with a brief review of the doctrine of piercing the corporate veil. "[T]here is a strong presumption in Pennsylvania against piercing the corporate veil."⁸ "[A]ny court must start from the general rule that the corporate entity should be recognized and upheld, unless specific, unusual circumstances call for an exception."⁹

Piercing the corporate veil is ... a matter of equity, allowing a court to disregard the corporate form and assess one corporation's liability against another. The corporate veil will be pierced and the corporate form disregarded whenever justice or public policy demand, such as when the corporate form has been used to defeat public convenience, justify wrong, protect fraud, or defend crime.¹⁰

The corporate form thus may be disregarded "where rights of innocent parties are not prejudiced nor the theory of the corporate entity rendered useless."¹¹

In Ashley , we held that the corporate form may be disregarded "whenever one in control of a corporation uses that control, or uses the corporate assets, to further his or her own personal interests."¹² And in Lumax , we 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."¹³

Though 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. Our Superior Court has observed that "there appears to be no clear test or settled rule in Pennsylvania ... as to exactly when the corporate veil can be...