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William E. Weaner & Associates, LLC v. 369 West First, LLC

Court of Appeals of Ohio, Second District, Montgomery

January 10, 2020

WILLIAM E. WEANER & ASSOCIATES, LLC, et al. Plaintiffs-Appellants/Cross-Appellees
369 WEST FIRST, LLC, et al. Defendants-Appellees/Cross-Appellants

          Civil Appeal from Common Pleas Court Trial Court Case No. 2017-CV-255

          CRAIG T. MATTHEWS, Atty. Reg. No. 0029215, Attorney for Plaintiffs-Appellants/Cross-Appellees

          T. ANDREW VOLLMAR, Atty. Reg. No. 0064033 and ADAM ARMSTRONG, Atty. Reg. No. 0079178, Attorneys for Defendants-Appellees/Cross-Appellants


          WELBAUM, P.J.

         {¶ 1} This case is before the court on the appeal of Plaintiffs-Appellants/Cross-Appellees, Shooter Construction Company dba Possert Construction ("Possert") and William Weaner and Associates, LLC ("Servpro"), and the cross-appeal of Defendants-Appellees/Cross-Appellants, Whichard Whichard, N.W. Fashion, LLC ("NW"), and Olympia Shoppes, LLC ("Olympia").[1]

         {¶ 2} Plaintiffs appeal from a judgment denying in part their motion for summary judgment against Defendants; the motion was also granted in part. Specifically, the trial court found Defendants jointly and severally liable for a total of $14, 000 toward the payment of $60, 143 in attorney fees and/or unpaid interest on an attorney fee judgment that was awarded to Plaintiffs in July 2015. The basis for the judgment was that transfers of this amount by a limited liability company (LLC), 369 West First Street, LLC ("369") to N.W. and Olympia violated the Ohio Uniform Fraudulent Transfer Act ("UFTA"). Plaintiffs do not appeal from this part of the judgment, but Defendants have cross-appealed, contending that the trial court erred in awarding this amount to Plaintiffs.

         {¶ 3} The trial court rejected Plaintiffs' fraudulent transfer claims concerning January 2013 transfers of $100, 000 to Whichard and $123, 690 to Ashton Limited, LLC ("Ashton"). Ashton was a defendant in the trial court, and like N.W. and Olympia, was an LLC owned solely by Whichard. The trial court also refused to pierce the corporate veil of 369 and hold Whichard responsible for the attorney fee judgment against 369. Plaintiffs appeal from this part of the trial court judgment as well.

         {¶ 4} After considering the evidence, we conclude that the trial court did not err in awarding $14, 000 to Plaintiffs. However, there were genuine issues of material fact regarding the piercing of the corporate veil and the transfers to Whichard and Ashton. As a result, the judgment of the trial court will be affirmed in part and reversed in part, and this cause will be remanded to the trial court for further proceedings.

         I. Facts and Course of Proceedings

         {¶ 5} Plaintiffs' claims are based on what is now nearly an eleven-year attempt to collect on amounts that 369 owed for work that Plaintiffs performed in 2008. As noted, Whichard was the sole owner of 369, which was formed to purchase property at 369 West First Street, in Dayton, Ohio. In late August 2008, a large rainstorm damaged 369's building. At the time, the building was the only property that 369 owned.

         {¶ 6} Servpro is a company that provides water remediation services. Whichard's assistant, Jeanette Hagood, signed a contract with Servpro, agreeing to pay for any amounts that were not covered by insurance immediately upon receipt of an invoice. The contract imposed interest and finance charges at the maximum allowable by law or at 1.5% per month, whichever was less, on accounts that were over 30 days past due. Further, the contract provided that if legal action were brought, Servpro would be entitled to reasonable legal fees and costs of collection, in addition to any other amounts the customer owed. Finally, the contract provided for the filing of mechanics liens. The total charge for Servpro's services was $13, 939.04.

         {¶ 7} Hagood also signed a contract with Possert for needed property repairs. Although Possert estimated $75, 000 in construction costs, only limited repairs were done. Possert's contract, like Servpro's, imposed 1.5% interest due per month on all past-due invoices. In addition, Possert's contract provided for recovery of reasonable attorney fees and costs. The total cost of Possert's repairs was $9, 402.25, which was billed by Possert on November 7, 2008. That same day, Traveler's Insurance had informed both Servpro and Possert that it had denied 369's claim for insurance, and that they would need to individually invoice 369. They did so, but 369 never paid the invoices.

         {¶ 8} Both Servpro and Possert filed mechanics' liens against 369's property on West First Street. Subsequently, on December 29, 2008, Whichard signed a general warranty deed, conveying the 369 property to Eufala corporation. Whichard's son, Chad Whichard ("Chad"), who was the managing member of another LLC (Northwest Outparcels, LLC), also signed the warranty deed. According to Whichard, 369 owned a 90% interest in the property, and Northwest owned 10%.

         {¶ 9} According to the settlement statement, the purchase price was $300, 000, and the cash amount due to the sellers was $226, 478.98, based on various settlement charges, including payoff of several mechanics' lien. These liens included $14, 103.38 for Possert, $22, 612.15 for Servpro, and $28, 547.61 to Beerman Realty Company. However, Possert or Servpro were not paid. As a result, Servpro filed suit against 369 in October 2009, seeking $13, 939.04, plus interest and reasonable attorney fees. Possert also sued 369 in March 2011, seeking $9, 402.25, plus interest and reasonable attorney fees.[2] After the cases were consolidated, a magistrate held a joint two-day trial in November 2012. The magistrate found in favor of Servpro and Possert and awarded the requested amounts, plus interest at the contractual rate of 1.5% from the date of default by 369 (October 21, 2008, and November 7, 2008, respectively).

         {¶ 10} The magistrate's April 2013 decision noted that due to the inclusion in the contract of provisions for reasonable attorney fees and costs, the matter of attorney fees would be set for a hearing. April 10, 2013 Amended Magistrate's Decision in Montgomery C.P. No. 2009-CV-9715, pp. 11 and 14-15.[3] In addition, the magistrate stressed that "[t]he Court is well aware of the extensive procedural history of this case." Id. at p. 2. Both Plaintiffs and 369 filed objections to the magistrate's decision. In October 2013, the case was transferred to another judge.

         {¶ 11} In November 2013, Whichard's attorney, Lemuel Whitsett, offered to settle both claims for $25, 000. According to Plaintiff's counsel, the amount of the judgment at that time (prior to the attorney fee award) was $58, 601.87. More than five years had elapsed since the work was done on 369. Plaintiff's counsel offered to settle the action for $42, 250, but no agreement was reached.

         {¶ 12} In April 2014, the trial court issued a decision overruling all the objections to the magistrate's decision. 369 appealed from the decision, but we dismissed the appeal for lack of a final appealable order. See Weaner & Assocs. v. 369 W. First LLC, 2d Dist. Montgomery No. 26404 (December 8, 2014).

         {¶ 13} Another judge was assigned to the 2009 collection case early in 2015 and held a hearing on attorney fees. In July 2015, the judge awarded Plaintiffs a total of $60, 143.25 in attorney fees. Following 369's appeal, which raised only the attorney fee issue, we affirmed the trial court's judgment. See Weaner & Assocs., LLC. v. 369 W. First St., LLC, 2d Dist. Montgomery No. 26792, 2016-Ohio-8077. In rejecting 369's claim that Plaintiffs' recovery should be limited to a contingency amount, we stressed that "limiting plaintiffs' recovery to that amount encourages the precise behavior that occurred in this case: defendant's obfuscation, denial, delay and distraction that turned this rather simple collection case into a six year ordeal." Id. at ¶ 34.

         {¶ 14} Our opinion was issued in December 2016, and no further appeal was taken. Plaintiffs then filed an action on January 1, 2017, against 369 and Whichard, as well as three other LLCs that Whichard owned: Ashton, NW, and Olympia. The complaint alleged violation of the UFTA and also asked the court to pierce the corporate veil. Another extensive course of litigation ensued. In May 2017, the court set a trial for July 23, 2018. In February 2018, Plaintiffs filed a motion for summary judgment on all claims. Defendants then filed a cross-motion for summary judgment in April 2018. However, in late May 2018, 369 filed for bankruptcy and then filed a motion on August 1, 2018, asking the trial court to stay the case until the bankruptcy proceeding was complete.

         {¶ 15} Although Plaintiffs had dismissed 369 as a party in July 2018 and had opposed a stay, the trial court stayed the action on September 9, 2018. After the bankruptcy case ended in November 2018, the trial court lifted the stay and reactivated the action. Subsequently, in April 2019, the court ruled on Plaintiffs' motion for summary judgment and Defendants' cross-motion for summary judgment.

         {¶ 16} In its judgment, the court set aside November 2015 transfers from 369 to N.W. and Olympia, and held Whichard and both entities jointly and severally liable for payment of $14, 000. However, the court rejected the attempt to set aside transfers from 369 in January 2013 to Whichard and Ashton. Following the judgment, Plaintiffs filed a notice of appeal, and Defendants cross-appealed.

         II. Piercing the Corporate Veil

         {¶ 17} Plaintiffs First Assignment of Error states that:

The Trial Court Erred by Granting [Defendants'] Motion for Summary Judgment as to the [Plaintiffs'] Claim Regarding Piercing the Corporate Veil of 369 and Holding [Whichard] Personally Liable for the Debt Owed.

         {¶ 18} Under this assignment of error, Plaintiffs contend that the trial court erred in refusing to pierce the corporate veil and hold Whichard responsible for 369's debts. According to Plaintiffs, the trial court failed to use the well-known test for disregarding corporate entities. They stress that by using this test, the court should have found that 369 was Whichard's alter ego and had no separate mind, will, or existence of its own.

         {¶ 19} In its decision, the trial court concluded that there has been little discussion in Ohio case law of how the standards of Ohio corporations apply to Ohio limited liability companies. The court then rejected the Plaintiffs' claims against Whichard because she did not exercise complete control over 369's operation. The court also relied on the fact that Whichard used her "personal credit" to pay off the mechanics' liens.

         {¶ 20} The law is well-settled concerning the standards that apply to summary judgment decisions." 'A trial court may grant a moving party summary judgment pursuant to Civ.R. 56 if there are no genuine issues of material fact remaining to be litigated, the moving party is entitled to judgment as a matter of law, and reasonable minds can come to only one conclusion, and that conclusion is adverse to the nonmoving party, who is entitled to have the evidence construed most strongly in his favor.'" GNFH, Inc. v. W. Am. Ins. Co., 172 Ohio App.3d 127, 2007-Ohio-2722, 873 N.E.2d 345, ¶ 16 (2d Dist.), quoting Smith v. Five Rivers MetroParks, 134 Ohio App.3d 754, 760, 732 N.E.2d 422 (2d Dist.1999). Due to the nature of summary judgment, we apply a de novo standard of review, which means that we apply the same standards as the trial court. Id.

         {¶ 21} "A fundamental rule of corporate law is that, normally, shareholders, officers, and directors are not liable for the debts of the corporation. * * * An exception to this rule was developed in equity to protect creditors of a corporation from shareholders who use the corporate entity for criminal or fraudulent purposes." Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274, 287, 617 N.E.2d 1075 (1993).

         {¶ 22} In Belvedere, the Supreme Court of Ohio held that "the corporate form may be disregarded and individual shareholders held liable for corporate misdeeds when (1) control over the corporation by those to be held liable was so complete that the corporation has no separate mind, will, or existence of its own, (2) control over the corporation by those to be held liable was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong." Id. at 289. The party who seeks to impose individual liability under this theory has the burden of proof. Zimmerman v. Eagle Mtge. Corp., 110 Ohio App.3d 762, 772, 675 N.E.2d 480 (2d Dist.1996).

         {¶ 23} Subsequently, the Supreme Court of Ohio accepted a certified conflict concerning whether Belvedere would allow piercing when a shareholder's acts were simply unjust or inequitable, rather than fraudulent or illegal. Dombroski v. WellPoint, Inc., 119 Ohio St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538, ¶ 1. The court rejected this theory. However, the court also stressed that its "pronouncement in Belvedere is too limited to protect other potential parties from the wide variety of egregious shareholder misdeeds that may occur. Limiting piercing to cases of fraud or illegal acts protects the established principle of limited liability, but it insulates shareholders when they abuse the corporate form to commit acts that are as objectionable as fraud or illegality. In view of the reality that shareholders could seriously misuse the corporate form and evade personal liability under the second prong as presently worded, we find it necessary to modify the second prong of the Belvedere test to allow for piercing in the event that egregious wrongs are committed by shareholders." Id. at ¶ 28.

         {¶ 24} The court, therefore, held that "to fulfill the second prong of the Belvedere test for piercing the corporate veil, the plaintiff must demonstrate that the defendant shareholder exercised control over the corporation in such a manner as to commit fraud, an illegal act, or a similarly unlawful act." Id. at ¶ 29.

         {¶ 25} Contrary to the trial court's impression, numerous Ohio cases have applied the standard in Belvedere to limited liability corporations. See Denny v. Breawick, LLC, 3d Dist. Hancock No. 5-18-12, 2019-Ohio-2066, ¶ 15 (citing cases from the First, Second, Seventh, Eighth, and Tenth Appellate Districts). The trial court also stressed that LLCs are set up to conduct business in a less formal manner than corporations. See Doc. #90, Decision and Entry on Cross-Motions for Summary Judgment, p. 10. However, this was not a limitation expressed in either Dombrowski or Belvedere. In fact, Belvedere emphasized that "[t]he ease with which close corporations and corporate subsidiaries can be created and the ability to transfer ownership of an existing corporation lead us to believe that corporations formed for legitimate purposes can easily be later used to commit fraud or other wrongs." Belvedere, 67 Ohio St.3d at 288, 617 N.E.2d 1075.

         {¶ 26} The same comment would apply to LLCs, which are a hybrid of a close corporation and a partnership. Holdeman v. Epperson, 2d Dist. Clark No. 2004-CA-49, 2005-Ohio-3750, ¶ 33. Close corporations also resemble partnerships. Vontz v. Miller, 2016-Ohio-8477, 111 N.E.3d 452, ¶ 31 (1st Dist.). Both close corporations and LLCs have the advantage, however, of limited liability. Holdeman at ¶ 33; Vontz at ¶ 33. We further noted in Holdeman that because an LLC has "some attributes of a corporation" and also has "some partnership attributes, the logical approach would be to use rules typically applied to these entities." Holdeman at ¶ 34.

         {¶ 27} With these points in mind, we will consider whether summary judgment was appropriate on the question of piercing the corporate veil.

         A. Alter Ego

         {¶ 28} "The first prong of the Belvedere test 'is a concise statement of the alter ego doctrine; to succeed a plaintiff must show that the individual and the corporation are fundamentally indistinguishable.'" State ex rel. DeWine v. S & R Recycling, Inc., 195 Ohio App.3d 744, 2011-Ohio-3371, 961 N.E.2d 1153, ¶ 30 (7th Dist.), quoting Belvedere at 288. A party's sole control of a company is not sufficient to establish that an individual is the alter ego of a company. Springfield v. Palco Invest. Co., 2013-Ohio-2348, 992 N.E.2d 1194, ¶ 83 (2d Dist.) Instead, to decide if a corporation [or LCC, as here, ] "is an individual's alter ego, Ohio appellate courts consider various factors, such as (1) whether corporate formalities were observed, (2) whether corporate records were kept, (3) whether corporate funds were commingled with personal funds, (4) whether corporate property was used for a personal purpose, and (5) gross undercapitalization." Id. at ¶ 84, citing My Father's House No. 1 v. McCardle, 2013-Ohio-420, 986 N.E.2d 1081, ¶ 28 (3d Dist.) (using factors 1-4) and DeCaprio v. Gas & Oil, Inc., 9th Dist. Summit No. 26140, 2012-Ohio-5866, ¶ 14 (using factors 1-5).

         {¶ 29} Courts have also considered other factors, including "insolvency at the time of the disputed act"; whether "the individual held himself out as personally liable for certain corporate obligations"; "the entity's inability to pay debts due to high salaries or loans to shareholders"; "commingling of individual and entity funds"; "lack of corporate records, especially regarding claimed loans to or from the entity to be pierced"; "common office space"; and "the degree of domination by the person to be held liable, e.g. where the corporation was a mere facade for the operations of the dominant shareholders." Premier Therapy, LLC v. Childs, 2016-Ohio-7934, 75 N.E.3d 692, ¶ 84 (7th Dist.). These lists are not exhaustive, nor are the factors mandatory considerations. Id. at ¶ 84-85.

         {¶ 30} Under the standard for assessing directed verdicts, which is the same for summary judgment motions, reviewing courts consider" 'only whether there exists any evidence of substantive probative value that favors the position of the nonmoving party.'" Id. at ¶ 62, quoting Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur Co., 95 Ohio St.3d 512, 2002-Ohio-2842, 769 N.E.2d 835, ¶ 3. See also Knop v. Toledo, 107 Ohio App.3d 449, 453, 669 N.E.2d 27 (6th Dist.1995) (the same standard applies to both summary judgments and directed verdicts). Therefore, the issue here is not whether Plaintiffs will prevail on their claim of piercing the corporate veil, but whether any substantive, probative evidence existed in Plaintiffs' favor on this issue.

         {¶ 31} After applying the factors, we conclude there is substantive, probative evidence that Whichard was the alter ego of 369. Whichard was the sole member of 369, which was created to buy the property at 369 West First Street in Dayton, Ohio. See Doc. #57, Ex. C, Deposition of Angela Whichard, pp. 15-16. Whichard also had full control and authority over 369. Id. at p. 27. In addition to NW, Olympia, Ashton, and 369, Whichard was a member or shareholder of other LLCs and corporations, including Branson Commercial Properties, LLC, in Branson, Missouri; Georgetown Village Shoppes in Georgetown, Kentucky; Windsor Richland Mall, LP, which was formed in Texas; Angela Whichard, a Nevada corporation; AT100, LLC, a Nevada LLC; Whichard Family Holdings; and OKO, LLC, an Oklahoma LLC. Id. at pp. 25-26, 71, and 101.

         {¶ 32} During its life as an LLC, 369 owned three properties: (1) the 369 building in Dayton, Ohio, which was purchased in 2007 and was sold in January 2009; (2) a Pearl Road property in Cleveland, Ohio, which was purchased in 2012 and sold in August 2013; and a Boaz, Alabama property, which was purchased in December 2012 and sold in January 2013. Whichard Affidavit at ¶ 3, 10, and 11; Whichard Affidavit, Ex. A-2 and Ex. A-5, pp. 5 and 6. After the August 2013 sale of the Pearl Road property, 369 owned no other properties and did not earn any money.

         {¶ 33} 369 did not have any employees. Hagood assisted Whichard with 369, but she was Whichard's personal assistant and was paid by Whichard, not 369. Whichard Deposition at pp. 30-31 and 34.

         {¶ 34} During her deposition, Whichard presented no evidence that corporate formalities were observed, nor did she have any idea where corporate records might be kept. Later, in opposing summary judgment, Whichard did produce documents indicating that 369 was registered with the Ohio Secretary of State and also produced a general ledger for 369 from May 2012 through August 2016. However, Whichard did not attach any other documents indicating that formalities were observed, including holding meetings and keeping minutes, and she did not provide any evidence like promissory notes or other loan documents to explain or substantiate the terms under which 369 gave money to other entities or allegedly borrowed from other entities. [4] Additionally, no explanation was ever offered as to what happened to the $300, 000 that 369 received when it sold the Dayton property in January 2009.

         {¶ 35} As to mingling corporate and personal money, the evidence indicates that this occurred in many instances. As an initial point, Whichard stated that as a sole owner of an LLC, she could take money out of the LLC whenever she needed it; she could also put the money in another LLC, or she could use it for personal matters, like real estate taxes. Whichard Deposition at pp. 96-97.

         {¶ 36} As an example of mingling corporate and personal money, the evidence indicates that between 2012 and 2016, 369 paid a total of $26, 351.97 in expenses on a 2011 Ford Ranger truck that was titled in 369's name, but was kept by Whichard for her personal use. See Whichard Affidavit Ex. A-5 at p. 17. Although Whichard claimed the truck could be driven to Cleveland if needed (the location of the Pearl Road property that 369 owned from around May 2012 through August 2013), there is no evidence that it was ever used for that property or for the only other property 369 owned - a property in Boaz, Alabama that was owned for a very short period of time in late 2012 to early 2013. Furthermore, 369 did not own any property after August 2013, nor is there any indication that it did any business thereafter.

         {¶ 37} Whichard's home was located in North Carolina, and she stated that the truck was used for whatever she wanted, or by anyone who came by the house and wanted to use it; it was a "community truck." Whichard Deposition at pp. 92-93. The expenses 369 paid for the truck included car payments, car insurance payments, and license plates for something that was for Whichard's personal use, particularly after August 2013. See Ex. A-5.

         {¶ 38} In other examples of co-mingling, Whichard used money from 369 to pay expenses of other LLCs she owned, with no evidence that any of these entities were obligated to pay the money back. According to the evidence, 369 purchased a property in Boaz, Alabama, on December 27, 2012, for $25, 000. The property was sold to 369 by the Boaz Downtown Redevelopment Authority. See Whichard Affidavit at ¶ 11 and Ex. A-2 attached to the affidavit. According to Whichard's affidavit and the attached documents, 369 sold the same property to VFFO Boaz Opportunity, LLC for $633, 000 in January 2013. Id. at Ex. A-2. $411, 798 was then deposited into 369's checking account on January 18, 2013. Id. at ¶ 11 and Ex. A-5 at p. 3.

         {¶ 39} The oddities in this transaction abound. As a preliminary point, Ex. A-2 indicates that Whichard signed a deed transferring the property to VFFO on December 26, 2012 - before the property was deeded to her. The deed was then not filed until April 11, 2013, several months after the $411, 798 was deposited into 369's account. Furthermore, the difference between the low purchase price and the very high selling price is inexplicable - and Whichard offered nothing to explain this anomaly. She also did not explain why only $411, 798 was deposited, rather than the additional $196, 202 that would have resulted from the sale ($633, 000 minus $25, 000 equals 608, 000. $608, 000 minus $411, 798 equals $196, 202). Legitimate explanations may have existed, at least for the difference between the sales price and the amount deposited, but there appears to be no rational explanation for the significant increase in the sales price in less than a month.

         {¶ 40} More importantly, after the money from this sale was deposited, Whichard took a member's draw of $100, 000. During her deposition, which was taken on August 4, 2016, Whichard stated that she "did not know" why she would have paid herself $100, 000 in January 2013. Whichard Deposition at pp. 86-87. However, in her summary judgment affidavit, which was signed on April 16, 2018, Whichard stated that she had taken an owner's draw of $100, 000 "[i]n good faith, after the sale of the Boaz property and in consideration of the personal risk I accepted in making this purchase, including my personal guarantee of the loan." Whichard Affidavit at ¶ 11. These statements, made on separate dates, are irreconcilable.

         {¶ 41} Moreover, no documents were submitted to substantiate that Whichard personally guaranteed a loan in connection with this purchase. However, even if she had done so, the risk involved in a $25, 000 loan that was satisfied by a sale less than a month later in an amount more than 25 times the loan amount is hardly a risk - particularly where the property was conveyed to the purchaser prior to the date when the seller received its own deed to the property.

         {¶ 42} 369's ledger also indicates a deposit of $107, 401.25 on August 9, 2013 from the sale of 369's remaining property, the Pearl Road property in Cleveland, Ohio. On August 28, 2013, Whichard took another $100, 000 in a member's draw. In her affidavit, Whichard again claimed that she took this draw in consideration of the risk she took in making this purchase, including her personal guarantee of the loan. No documents were offered to support this assertion.

         {¶ 43} In its decision, the trial court made numerous references to the fact that Whichard personally guaranteed loans. See Doc. #90 at p. 6 (referencing "statements" in Defendants' memorandum); p. 7 (referencing the fact that Whichard acquired and sold the Boaz and Pearl Road properties with contributions from her other companies and her personal guarantee); p. 8 (referring to Ex. A-3, an open-end mortgage); and p. 10 (concerning piercing the corporate ...

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