Teitelbaum v. Lin & Mochdar , 423 F. App'x 106 ( 2011 )

10-3510-cv
Teitelbaum v. Lin & Mochdar
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 A SUMMARY ORDER MUST
SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals
2 for the Second Circuit, held at the Daniel Patrick Moynihan
3 United States Courthouse, 500 Pearl Street, in the City of
4 New York, on the 3rd day of June, two thousand eleven.
5
6 PRESENT: DENNIS JACOBS,
7 Chief Judge,
8 DEBRA ANN LIVINGSTON,
9 Circuit Judge,
10 JED S. RAKOFF,
11 District Judge.*
12
13 - - - - - - - - - - - - - - - - - - - -X
14 WILLIAM A. TEITELBAUM,
15 Plaintiff-Counter-Defendant-
16 Appellant,
17
18 -v.- 10-3510-cv
19
20 LAY SIOK LIN,
21 Cross-Claimant-Counter-
22 Claimant-Appellee,
23
24 AZIZ MOCHDAR,
25 Cross-Claimant-Appellee,
26
27 BRUCE MABEY, PLATINUM TOO, LLC,
28 Defendants-Cross-Defendants.
29 - - - - - - - - - - - - - - - - - - - -X
*
The Honorable Jed S. Rakoff, of the United States
District Court for the Southern District of New York,
sitting by designation.
1
2 FOR APPELLANT: Anton J. Borovina, Melville, New York.
3
4 FOR APPELLEES: Matthew N. Metz, Metz Law Group, PLLC,
5 Seattle, Washington (Levy, Ehrlich &
6 Petriello, P.C., Newark, New Jersey, on
7 the brief).
8
9 Appeal from a judgment of the United States District
10 Court for the Eastern District of New York (Wexler, J.).
11
12 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
13 AND DECREED that the judgment of the district court be
14 AFFIRMED.
15
16 William Teitelbaum appeals from portions of the
17 judgment of the United States District Court for the Eastern
18 District of New York (Wexler, J.) finding that Platinum Too,
19 LLC, breached its obligation to repay two investors, Lay
20 Siok Lin and Aziz Mochdar, in connection with promissory
21 notes issued by the company and holding Teitelbaum
22 personally liable for the breach under an alter ego theory
23 of liability. We assume the parties’ familiarity with the
24 underlying facts, the procedural history, and the issues
25 presented for review.
26
27 The district court’s legal conclusion that Platinum Too
28 was the alter ego of Teitelbaum is reviewed de novo, but we
29 defer to factual findings of the district court unless they
30 are clearly erroneous. United States v. Funds Held in the
31 Name or for the Benefit of Wetterer, 210 F.3d 96, 106 (2d
32 Cir. 2000); see also Fed. R. Civ. P. 52(a)(6). The parties’
33 assumption that Utah law controls the alter ego analysis “is
34 sufficient to establish choice of law.” Motorola Credit
35 Corp. v. Uzan, 388 F.3d 39, 61 (2d Cir. 2004) (internal
36 quotation marks omitted).
37
38 Under Utah law, “[o]rdinarily, a corporation is
39 regarded as a separate and distinct legal entity . . . .”
40 Colman v. Colman, 743 P.2d 782, 786 (Utah Ct. App. 1987)
41 (internal quotation marks omitted). Although “there is
42 little case law discussing veil piercing theories outside
43 the corporate context,” the doctrine has been applied to
44 limited liability companies such as Platinum Too. Ditty v.
45 CheckRite, Ltd., 973 F. Supp. 1320, 1335 (D. Utah 1997); see
46 also d’Elia v. Rice Dev., Inc., 147 P.3d 515, 521 n.5 (Utah
2
1 Ct. App. 2006). In order to disregard the corporate entity
2 under the alter ego doctrine, the court must find:
3
4 (1) [s]uch a unity of interest and ownership that
5 the separate personalities of the corporation and
6 the individual no longer exist, but the
7 corporation is, instead, the alter ego of one or a
8 few individuals; and (2) if observed, the
9 corporate form would sanction a fraud, promote
10 injustice, or result in an inequity. . . . It is
11 not necessary that the plaintiff prove actual
12 fraud, but must only show that failure to pierce
13 the corporate veil would result in an injustice.
14
15 Colman, 743 P.2d at 786. Utah courts look to a list of
16 “factors which are deemed significant, although not
17 conclusive,” id., in evaluating whether the alter ego test
18 is satisfied:
19
20 (1) undercapitalization of a one-man corporation;
21 (2) failure to observe corporate formalities; (3)
22 nonpayment of dividends; (4) siphoning of
23 corporate funds by the dominant stockholder; (5)
24 nonfunctioning of other officers or directors; (6)
25 absence of corporate records; (7) the use of the
26 corporation as a facade for operations of the
27 dominant stockholder or stockholders; and (8) the
28 use of the corporate entity in promoting injustice
29 or fraud.
30
31 Id. (internal footnotes omitted). For substantially the
32 reasons stated by the district court, we affirm the district
33 court’s ruling that Platinum Too was Teitelbaum’s alter ego.
34
35 Teitelbaum invokes Utah Revised Limited Liability
36 Company Act, Utah Code Ann. § 48-2c-605 (the “Revised Act”),
37 which provides that the “failure of a company to maintain
38 records, to hold meetings, or to observe any
39 formalities . . . is not a ground for imposing personal
40 liability on any member, manager, or employee for any debt,
41 obligation, or liability of the company.” Teitelbaum argues
42 that it was therefore legal error to hold him personally
43 liable to Lay Siok Lin and Mochdar. “No Utah state court or
44 federal court has explicitly decided whether the veil of an
45 LLC can be pierced under the Revised Act. In the absence of
46 controlling state authority, we must predict as best we can
47 what the Utah Supreme Court would do in these
3
1 circumstances.” TFH Props., LLC v. MCM Dev., LLC, No. CV-
2 09-8050-PCT-FJM, 2010 WL 2720843, at *6 (D. Ariz. July 9,
3 2010).
4
5 Under the Revised Act, it would clearly be error to
6 impose alter ego liability based solely on the failure to
7 observe formalities. “But it does not follow that because
8 formalities cannot be the lone basis for piercing, no LLC
9 member can be held personally liable for an LLC’s debts.”
10 Id. In addition to disregarding formalities, Teitelbaum
11 “conduct[ed] his private and corporate business on an
12 interchangeable or joint basis as if they were one,” and
13 “failure to pierce the [LLC’s] veil would result in an
14 injustice.” Colman, 743 P.2d at 786.
15
16 Finding no merit in Teitelbaum’s remaining arguments,
17 we hereby AFFIRM the judgment of the district court.
18
19
20 FOR THE COURT:
21 CATHERINE O’HAGAN WOLFE, CLERK
22
4