Cohen v. Schroeder ( 2018 )

17-1301
Cohen v. Schroeder
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT
ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
28th day of February, two thousand eighteen.
Present:
DEBRA ANN LIVINGSTON,
GUIDO CALABRESI,
Circuit Judges,
EDGARDO RAMOS,
District Judge.*
_____________________________________
BRIAN S. COHEN,
Plaintiff-Appellant,
v. 17-1301
THEODORE F. SCHROEDER,
Defendant-Appellee.
_____________________________________
For Plaintiff-Appellant: BRIAN J. FISCHER (Andrew H. Bart, Alison I. Stein &
Gretchen O. Stertz, on the brief), Jenner & Block LLP,
New York, NY.
For Defendant-Appellee: SIDNEY S. LIEBESMAN (David Dormont, Charles
Palella, Michael C. Witsch, and Jonathan Landua, on
*
Judge Edgardo Ramos, of the United States District Court for the Southern District of New York, sitting by
designation.
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the brief), Montgomery McCracken Walker & Rhoads
LLP, New York, NY and Wilmington, DE.
Appeal from a judgment of the United States District Court for the Southern District of
New York (Sullivan, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is AFFIRMED.
Brian S. Cohen (“Cohen”) appeals from a March 31, 2017 judgment of the United States
District Court for the Southern District of New York, dismissing his suit on the defendant’s motion
for summary judgment under Federal Rule of Civil Procedure 56. Cohen filed this suit to pierce
the corporate veil of Skoop Media Associates, Inc. (“Skoop”), an entity that Cohen claims is the
alter-ego of the defendant, Theodore F. Schroeder (“Schroeder”). Cohen seeks to hold Schroeder
personally liable for a June 4, 2015 judgment by the Delaware Court of Chancery, which, inter
alia, ordered Skoop to indemnify Cohen for litigation expenses. We assume the parties’ familiarity
with the underlying facts, the procedural history of the case, and the issues on appeal.
A. Standard of Review
“We review de novo a district court’s grant of summary judgment after construing all
evidence, and drawing all reasonable inferences, in favor of the non-moving party.” Sotomayor v.
City of New York, 713 F.3d 163, 164 (2d Cir. 2013) (per curiam). “Summary judgment is
appropriate only when ‘there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.’” Id. (quoting Fed. R. Civ. P. 56(a)). A court may grant a motion
for summary judgment if, “even after drawing all inferences in the light most favorable to [the
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plaintiff], no reasonable jury could have issued a verdict in his favor.” Jeffreys v. City of New York,
426 F.3d 549, 554 (2d Cir. 2005).
B. Piercing the Corporate Veil
Because Skoop was incorporated in Delaware, Delaware law applies in this case under
New York choice of law principles. See Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995).
In certain circumstances, Delaware law allows a court to disregard the distinction between a
corporation and its owner and “require [the] owner to answer for the entity’s debts.” NetJets
Aviation, Inc. v. LHC Commc’ns, LLC, 537 F.3d 168, 176 (2d Cir. 2008). A court may do so when
the corporation is nothing more than the owner’s “alter-ego.” See id. To prevail under this “alter-
ego” theory, the plaintiff must demonstrate that the corporation and the owner “operated as a single
economic entity such that it would be inequitable . . . to uphold a legal distinction between them.”
Id. at 177 (quoting Harper v. Del. Valley Broads., Inc., 743 F. Supp. 1076, 1085 (D. Del. 1990)).
This is a “difficult task.” Id. at 176 (quoting Harco Nat. Ins. Co. v. Green Farms, Inc., No. CIV.
A. 1331, 1989 WL 110537, at *4 (Del. Ch. Sept. 19, 1989)). The plaintiff must show both that (1)
the owner and his corporation “operated as a single economic entity,” and that (2) the owner’s
actions contained “an overall element of injustice or unfairness.” Id. at 177. Thus, “mere ownership
or direction of a corporate entity, without more, is not sufficient to establish that the corporate
form should be disregarded.” Marnavi S.P.A. v. Keehan, 900 F. Supp. 2d 377, 391 (D. Del. 2012)
(quoting CNH Am. LLC v. Kinzenbaw, No. C.A. 08-945 (GMS), 2009 WL 3737653, at *1 (D. Del.
Nov. 9, 2009)). “[T]he plaintiff must [also] show some fraud, injustice, or inequity in the use of
the corporate form.” Id. (quoting Kinzenbaw, 2009 WL 3737653, at *1).
We affirm the district court’s judgment on the grounds that, even assuming arguendo that
Cohen has raised a genuine dispute of material fact as to whether Schroeder and Skoop “operated
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as a single economic entity,” he has failed to raise a genuine dispute of material fact as to whether
Schroeder used the corporate form to commit an “injustice or unfairness.” See NetJets, 537 F.3d
at 176; see also Pauley Petroleum Inc. v. Cont’l Oil Co., 239 A.2d 629, 633 (Del. 1968) (explaining
that a corporate veil may be pierced “only in the interest of justice, when such matters as fraud,
contravention of law or contract, public wrong, or where equitable consideration among members
of the corporation require it, are involved”). Cohen argues that Schroeder committed an “injustice
or unfairness” in two ways, but even after construing the evidence in the light most favorable to
Cohen we believe no reasonable jury would agree with him. First, Cohen claims that Schroeder
“knowingly restored [Skoop]’s corporate status for personal purposes”—i.e., pursuing litigation
against Cohen—“with no intention of treating it like an actual corporation.” Br. for Pl.-Appellant
at 53. Even assuming arguendo that this fact is true, however, it is unclear why Schroeder’s actions
therefore caused Cohen to suffer an “injustice.” See, e.g., 18 C.J.S. Corporations § 18 (“The
injustice that allows a corporate veil to be pierced is not a general notion of injustice, but rather, it
is the injustice that results only when corporate separateness is illusory.”). Cohen notes that he has
incurred litigation expenses because of Schroeder’s suit, but it is important to remember that
Schroeder had initially filed suit in his personal capacity. It was only after Cohen suggested that
the intellectual property at issue belonged to Skoop—and not Schroeder personally—that
Schroeder paid Skoop’s outstanding taxes, revived its charter, and added Skoop as a plaintiff. The
evidence would therefore strongly suggest that Schroeder revived Skoop not to commit “fraud,
injustice, or inequity,” but rather to redress Cohen’s alleged misappropriation of intellectual
property. See Keehan, 900 F. Supp. 2d at 391 (quoting Kinzenbaw, 2009 WL 3737653, at *1). That
is, there is no evidence that Schroeder used the corporate form “deliberately, with specific intent
to escape liability”—and, as a result, “the cause of justice [would] not require disregarding the
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corporate entity” here. See Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 269 (D. Del.
1989) (quoting Zubik v. Zubik, 384 F.2d 267, 273 (3d Cir. 1967)).
Second, Cohen alleges that Schroeder underfunded Skoop after reviving it, such that it is
now unable to meet its obligation to indemnify him and advance his litigation expenses under
Section 145 of the Delaware General Corporation Law and Article 7 of Skoop’s Certificate of
Incorporation. But there is no genuine dispute that Cohen knew very well (or, at least, had reason
to know very well) that Skoop was underfunded over the course of the suit. In his complaint to the
Delaware Court of Chancery, Cohen stated that Skoop “has engaged in no business activity
whatsoever for at least six years,” and that “upon information and belief, [Skoop] has no assets to
pay a judgment.” Joint App’x at 151, ¶¶ 61, 63. In fact, Cohen told the court that he “fully
intend[ed] to enforce expeditiously[] any judgment entered against [Skoop] against Mr. Schroeder
personally, on the basis that [Skoop] is, in fact, a mere instrumentality and alter ego of Mr.
Schroeder.” Id. at 151, ¶ 64. There is no evidence, then—and Cohen does not allege—that he took
any action in this litigation in good faith reliance on Skoop’s ability to indemnify him later. See
Mobil Oil Corp., 718 F. Supp. at 269 n. 11 (“[C]ases where the corporate veil is pierced invariably
involve some degree of reliance by plaintiff, contributing to the fraud or accenting the injustice.”
(emphasis in original)); see also 18 C.J.S. Corporations § 18 (“Piercing the corporate veil is an
equitable remedy, available . . . where maintaining the corporate form would work injustice upon
an innocent party.” (emphasis added)). Cohen correctly notes that it is possible even for a
“corporate insider” to be the victim of an injustice due to “a majority shareholder’s fraudulent
abuse of the corporation’s limited liability.” Br. for Pl.-Appellant at 57 (quoting Kertesz v. Korn,
698 F.3d 89, 91 (2d Cir. 2012)). But as we made clear in Kertesz, when a corporate officer “ha[s]
inside knowledge of the corporation’s activities,” it is far “more difficult for a majority shareholder
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to deceive” him in a fraudulent or unjust manner. Kertesz, 698 F.3d at 91. Cohen may not have
had “inside knowledge” of Skoop’s activities from 2013 and onward, but the evidence strongly
suggests that he had enough information so as not to be surprised by Skoop’s inability to satisfy
the Delaware Court of Chancery’s judgment. Cohen, in other words, does not allege that he was
“deceive[d]” in any way. See id. We therefore conclude that no reasonable jury would find that
Schroeder’s actions caused Cohen to suffer an “injustice or unfairness,” see NetJets, 537 F.3d at
176, and the district court thus correctly granted Schroeder’s motion for summary judgment.
* * *
We have considered Cohen’s remaining arguments and find them to be without merit.
Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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