Islamic Society v. Building Contractors ( 2014 )

J-S70044-14
NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P 65.37
ISLAMIC SOCIETY OF GREATER VALLEY : IN THE SUPERIOR COURT OF
FORGE : PENNSYLVANIA
:
v. :
:
BUILDING CONTRACTORS :
INTERNATIONAL, LTD and JOHN :
COCIVERA and GARIG VANDERVELDT :
(MD) and GINA VANDERVELDT AND :
ANGELA COCIVERA A/K/A/ ANGELA :
NARDINI and JOANNA COCIVERA :
:
APPEAL OF: ISLAMIC SOCIETY OF :
GREATER VALLEY FORGE : No. 1437 EDA 2014
Appeal from the Judgment Entered September 4, 2013
in the Court of Common Pleas of Chester County,
Civil Division, at No(s): 12-08706-RC
BEFORE: LAZARUS, MUNDY, and STRASSBURGER,* JJ.
MEMORANDUM BY STRASSBURGER, J.: FILED DECEMBER 09, 2014
Islamic Society of Greater Valley Forge (Islamic Society) appeals from
the September 4, 2014 judgment entered following a verdict in favor of
Islamic Society and against Building Contractors International, LTD (BCI).
Specifically, Islamic Society challenges the March 5, 2013 order which
dismissed on preliminary objections all claims stated in its Amended
Complaint against John Cocivera, Garig Vanderveldt, Gina Vanderveldt, and
Angela Cocivera (a/k/a/ Angela Nardini) (Individual Defendants,
*Retired Senior Judge assigned to the Superior Court.
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collectively).1 We reverse the order in part and remand for further
proceedings consistent with this memorandum.
The trial court2 summarized the facts of the case as follows.
[Islamic Society] contracted with [BCI], as general contractor, to
construct a house of worship. BCI contracted with various
subcontractors to complete the project. [Islamic Society] paid
BCI the total contract price of $1,399,050. Subsequently,
[Islamic Society] became aware that BCI failed to pay all of its
subcontractors. In fact, numerous subcontractors filed
mechanics liens against the property. [Islamic Society] further
alleges that there were deficiencies in certain aspects of the
construction. With regard to the [I]ndividual Defendants,
[Islamic Society] asserts that all four were owners, shareholders
or officers of BCI. The Amended Complaint asserts the following
Counts: I - Indemnification Under the Mechanics Lien Statute; II
- Breach of Contract; III - Breach of Warranty; IV - Fraud in the
Inducement; V - Breach of the Implied Covenant of Good Faith
and Fair Dealing; VI - Unjust Enrichment[;] and VII - Piercing
the Corporate Veil. All of the counts were brought against all
defendants. [Islamic Society] stated in a footnote: “[Islamic
Society] seeks judgment against all defendants on the basis of a
piercing the corporate veil claim as set forth in Count VII below.
All counts against BCI are also asserted against the [Individual]
Defendants as they are the owners, shareholder and officers of
BCI.” Defendants filed preliminary objections to the Amended
Complaint. The order on appeal sustained in part and overruled
in part those objections. Specifically, the order sustained the
objection to Count V as well as the objection to Count VII. The
order also stated that the claims against the [I]ndividual
Defendants were dismissed.
Trial Court Opinion, 6/30/2014, at 1-2 (unnecessary capitalization omitted).
1
While Joanna Cocivera is listed in the caption of this case, she is not
referenced in Islamic Society’s Amended Complaint, the order resolving the
preliminary objections thereto, nor Islamic Society’s brief on appeal.
2
The trial court opinion was authored by the Honorable Jeffrey R. Summer,
the judge who ultimately tried the case. The order disposing of the
preliminary objections was entered by the Honorable Ann Marie Wheatcraft.
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The case proceeded to trial against BCI, resulting in a $462,545.76
verdict in favor of Islamic Society. Islamic Society timely filed a notice of
appeal following the entry of judgment on the verdict. 3 Islamic Society
timely filed a statement of errors complained of on appeal pursuant to court
order, and the trial court filed an opinion.
Islamic Society presents two questions for this Court’s review.
1. Whether the trial court erred in sustaining the
preliminary objections to Count VII of the Amended Complaint
seeking to pierce the corporate veil and erred in dismissing all
claims against the Individual Defendants [] where sufficient facts
were pleaded to support such claims.
2. Whether the trial court erred by overruling the
preliminary objections to Count VI of the Amended Complaint
asserting a claim for fraud in the inducement but dismissing the
Individual Defendants from the case…[.]
Islamic Society’s Brief at 5 (trial court answers and unnecessary
capitalization omitted).
We consider Islamic Society’s questions mindful of the following
standard of review.
Our standard of review of an order of the trial court overruling or
granting preliminary objections is to determine whether the trial
court committed an error of law. When considering the
3
The March 5, 2013 order did not dispose of all claims and all parties, and
only became final and appealable after judgment was entered on September
4, 2014. See, e.g., Strausser v. PRAMCO, III, 944 A.2d 761, 764 (Pa.
Super. 2008) (holding that when different defendants are removed from a
case piecemeal, the orders dismissing earlier defendants become appealable
when the case is resolved as to the final defendant; prior to such resolution
the orders were not final).
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appropriateness of a ruling on preliminary objections, the
appellate court must apply the same standard as the trial court.
Preliminary objections in the nature of a demurrer test the legal
sufficiency of the complaint…. Preliminary objections which seek
the dismissal of a cause of action should be sustained only in
cases in which it is clear and free from doubt that the pleader
will be unable to prove facts legally sufficient to establish the
right to relief. If any doubt exists as to whether a demurrer
should be sustained, it should be resolved in favor of overruling
the preliminary objections.
Little Mountain Community Ass’n, Inc. v. Southern Columbia Corp.,
92 A.3d 1191, 1195 (Pa. Super. 2014) (quoting Joyce v. Erie Ins. Exch.,
74 A.3d 157, 162 (Pa. Super. 2013)). “The question presented by the
demurrer is whether, on the facts averred, the law says with certainty that
no recovery is possible.” Shafer Elec. & Const. v. Mantia, 96 A.3d 989,
994 (Pa. 2014) (quoting Lord Corp. v. Pollard, 695 A.2d 767, 768 (Pa.
1997)).
Preliminary objections in the nature of a demurrer require the
court to resolve the issues solely on the basis of the pleadings;
no testimony or other evidence outside of the complaint may be
considered to dispose of the legal issues presented by the
demurrer. All material facts set forth in the pleading and all
inferences reasonably deducible therefrom must be admitted as
true.
Hill v. Ofalt, 85 A.3d 540, 547 (Pa. Super. 2014) (quoting Lugo v.
Farmers Pride, Inc., 967 A.2d 963, 966 (Pa. Super. 2009)).
We first consider the trial court’s sustaining of a demurrer as to the
contract claims against Individual Defendants. “It is fundamental contract
law that one cannot be liable for a breach of contract unless one is a party to
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that contract.” Electron Energy Corp. v. Short, 597 A.2d 175, 177 (Pa.
Super. 1991). There is no dispute that Islamic Society’s contract was with
BCI alone; Individual Defendants were not parties thereto. Islamic Society’s
Brief at 13. However, Islamic Society’s contract-based claims against
Individual Defendants are based upon a theory of piercing BCI’s corporate
veil.
“The purpose of the doctrine of piercing the corporate veil is to assess
liability for the acts of a corporation to the equity holders in the corporation
by removing the statutory protection otherwise insulating a shareholder from
liability.” Newcrete Products v. City of Wilkes-Barre, 37 A.3d 7, 12 (Pa.
Cmwlth. 2012).
There is a strong presumption in Pennsylvania against piercing
the corporate veil. When making the determination of whether
to pierce the corporate veil, the court must start from the
general rule that the corporate entity should be recognized and
upheld, unless specific, unusual, circumstances call for an
exception. Care should be taken on all occasions to avoid
making the entire theory of corporate entity ... useless.
S.T. Hudson Engineers, Inc. v. Camden Hotel Development
Associates, 747 A.2d 931, 935 (Pa. Super. 2000) (internal citations and
quotation marks omitted).
Factors courts consider when determining whether to pierce the
corporate veil include corporate undercapitalization, the failure to adhere to
corporate formalities, a substantial intermingling of corporate and personal
affairs, the use of corporate assets for personal interests, and the use of the
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corporate form to perpetrate a fraud. Advanced Telephone Systems,
Inc. v. Com-Net Professional Mobile Radio, LLC, 846 A.2d 1264, 1278
(Pa. Super. 2004).
In the instant case, Islamic Society offered the following averments in
support of proceeding against Individual Defendants on the contract claims
under a piercing-the-corporate-veil theory.
71. BCI was insufficiently capitalized prior to entering in
to the Construction Contract and during the course of the
Project. The reality of the capitalization of BCI does not match
the documents proffered by Defendants in their attempt to
induce [Islamic Society] to enter into the Construction Contract.
72. The individual Defendants, Mr. Cocivera, Mr.
Vanderveldt, Mrs. Vanderveldt and Ms. Nardini, as the alter ego
of BCI, have conducted, managed, and controlled BCI’s affairs
without regard to the separate existence of the corporate entity,
and have used the corporation to deprive [Islamic Society] and
the subcontractors of the monies that are rightfully due and
owing.
73. The individual Defendants, Mr. Cocivera, Mr.
Vanderveldt, Mrs. Vanderveldt and Ms. Nardini, have at all times
relevant hereto exercised total control over BCI.
74. The individual Defendants, Mr. Cocivera, Mr.
Vanderveldt, Mrs. Vanderveldt and Ms. Nanlini, have misused the
corporate form for their own personal benefit.
75. The individual Defendants, Mr. Coeivcra, Mr.
Vanderveldt, Mrs. Vanderveldt and Ms. Nardini, have
commingled personal and financial affairs with those of the
corporate entity.
76. The individual Defendants, Mr. Cocivera, Mr.
Vanderveldt, Mrs. Vanderveldt and Ms. Nardini, have
misappropriated company funds to pay personal expenses.
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77. BCI has failed to observe corporate formalities.
78. Defendants further misrepresented and held out
certain parties to be owners, officers and shareholders of BCI,
when they were not.
79. Conversely, Defendants represented certain parties
were not owners, officers and shareholders of BCI, when they
actually were.
80. Defendants made the aforesaid false representations
with the express intent of misleading [Islamic Society].
***
82. The individual Defendants, Mr. Coeivera, Mr.
Vanderveldt, Mrs. Vanderveldt and Ms. Nardini, have acted in a
fashion such that what they did as representatives of BCI and
what they did in a personal capacity were indistinguishable.
Amended Complaint, 11/15/2012, at 19-20. The trial court sustained the
objections to Count VII (piercing the corporate veil), noting the presumption
against piercing the corporate veil and that the “corporate form will be
disregarded only when the entity is used to defeat public convenience,
justify wrong, protect fraud or defend crime.” 4 Order, 3/5/2013, at 3 n.5
(citing Good v. Holstein, 787 A.2d 426, 430 (Pa. Super. 2001)).
4
The trial court further dismissed all claims against Individual Defendants
because “[p]rivity of contract must exist between the parties for plaintiff to
maintain an action for breach of contract. Only the corporation may
ordinarily be held liable for contract damages. If the president of a
corporation signs a contract in his representative capacity and the contract
does not suggest that the president will have personal liability, the president
is not personally liable under the contract. Defendant John Cocivera signed
the contract as a representative on behalf of [BCI]. None of the other
[I]ndividual [D]efendants signed the contract.” Order, 3/5/2013, at 3 n.6.
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Islamic Society maintains that the trial court erred in so doing, arguing
that reversal is warranted by this Court’s decision in Village at Camelback
Property Owners Assn. Inc. v. Carr, 538 A.2d 528 (Pa. Super. 1988).
Individual Defendants, on the other hand, claim that resolution of the instant
case is controlled by First Realvest, Inc. v. Avery Builders, Inc., 600
A.2d 601 (Pa. Super. 1991). We examine those two cases, both of which
concerned dismissal of piercing-the-corporate-veil claims on preliminary
objections.
In Village at Camelback, the plaintiff homeowners’ association sued
Carr and several corporations and limited partnerships of which it alleged
Carr was an officer, a director, the controlling shareholder, or the controlling
partner. 538 A.2d at 530. On claims of breach of contract and breach of
warranties, the plaintiff sought to hold Carr personally liable based upon a
theory of piercing the corporate veil. In support, the plaintiff alleged the
following facts:
(a) the corporations were insufficiently capitalized at the outset;
(b) there was an intermingling of funds between and among the
corporations as well as with personal assets of Defendant Carr;
(c) other officers and directors, if any, of the corporations were
not functioning;
(d) the corporations failed to observe corporate formalities;
(e) the corporations did not pay dividends in the regular and
ordinary course of their business; and
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(f) in conducting the business affairs of the corporations
Defendant Carr consistently held himself out as individually
conducting such affairs without use of the corporate names and
without identifying that his actions were taken as an officer or
employee of the corporation.
Id. at 535. The trial court sustained Carr’s preliminary objections in the
nature of a demurrer as to all counts of the complaint.
On appeal, this Court noted that the plaintiff “pled that the precise
factors that have compelled numerous other courts to pierce the corporate
veil are present in this case.” Id. While the complaint did not offer much
detail, that was not a basis to sustain a demurrer: “Although such
generalized pleading is not favored in that it does not provide in detail the
material facts supporting the pleaded ultimate facts, this is not a deficiency
that warrants the extreme sanction of dismissal on demurrer.” Id.
Therefore, because this Court could not “say with certainty that this
complaint is facially devoid of merit with regard to piercing the corporate
veil,” it reversed the dismissal of the claims against Carr. Id.
In First Realvest, the plaintiff’s factual averments in support of
piercing the corporate veil were as follows, en toto:
Defendants, Bud Avery and Marcia Avery, formed Avery Builders,
Inc. for their own benefit in that corporate funds are
intermingled with their own or other alleged corporations owned
by them and that they divert corporate funds to their own use
and treat the corporation as an individual proprietorship and as
an “alter ego.”
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600 A.2d at 604. The trial court granted the Averys’ preliminary objections
in the nature of a demurrer, and this Court affirmed, with the following
explanation.
The contents of this paragraph are not sufficient to support the
extreme remedy of piercing the corporate veil. All corporations
are formed for the benefit of their shareholders and the
shareholders draw out profits. It is ridiculous to say that the
corporate form should be abandoned because a shareholder
drew out funds; such a conclusion would render the corporate
form useless. Whether or not the corporation is treated as a
sole proprietorship or an alter ego requires a conclusion of law
and is not properly considered here. Further, there are no facts
pled here to support such a conclusion.
Id.
Our comparison of the facts alleged in the above cases to those
alleged in the instant case leads us to conclude that Islamic Society’s
Amended Complaint was sufficient to survive a demurrer. The averments in
the instant case are analogous to, if not more substantial than, those held to
be legally sufficient in Village at Camelback. Islamic Society makes
averments that Individual Defendants, inter alia, failed to operate BCI in
accordance with corporate formalities, misused the corporate form for
personal benefit, hid BCI’s undercapitalization, and misappropriated
corporate funds to pay personal expenses. Unlike the plaintiff in First
Realvest, Islamic Society does not rely upon legal conclusions or
statements of shareholder interest that are applicable to all corporations.
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Individual Defendants characterize Islamic Society’s allegations as
“bald statements” and “legal conclusions” rather than “factual averments,”
and claim “[n]o reasonable person or jury could take the conclusions at face
value without any evidence.” Individual Defendants’ Brief at 11-12. Clearly,
the allegations are factual in that they relate things that Individual
Defendants did or did not do, rather than the legal implications of those
actions or inactions. Regarding the claim that the allegations are not
supported by evidence, we remind Individual Defendants that at the
preliminary objections stage, factual averments must be accepted as true
and no other evidence may be considered. Hill, 85 A.3d at 547.
Although there is a presumption against disregarding the corporate
form, and Islamic Society will be required as the case proceeds to support its
allegations with evidence strong enough to overcome that presumption,
Islamic Society’s piercing-the-corporate-veil allegations are legally sufficient
to survive preliminary objections. Accordingly, the trial court erred as a
matter of law in dismissing those claims as to the Individual Defendants.
We now consider the trial court’s dismissal of Islamic Society’s tort
claim against Individual Defendants. In Count IV of the Amended
Complaint, Islamic Society alleged the following against BCI and Individual
Defendants in support of its claim of fraud in the inducement.
54. Defendants created a scheme to induce, lure, and by
artifice delude [Islamic Society] into believing that BCI would
and/or could fulfill its obligations under the Construction
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Contract and that BCI would pay subcontractors for the work
they performed from the funds that were given to BCI from
[Islamic Society], thus inducing [it] to enter into the
Construction Contract.
55. Defendants misrepresented the financial health of
BCI to lure and induce [Islamic Society] to enter into the
Construction Contract.
56. Although the [I]ndividual Defendants represented
that BCI had no liabilities and provided fraudulent documentation
to [Islamic Society] reflecting same, the reality is that BCI had
significant liabilities at the time it entered into the Construction
Contract.
57. Defendants further misrepresented and held out
certain parties to be owners, officers and shareholders, when
they were not.
58. Conversely, Defendants misrepresented certain
parties were not owners, officers and shareholders, when they
actually were.
59. Defendants made the aforesaid false representations
with the intent of misleading [Islamic Society].
60. [Islamic Society] justifiably relied on the
aforementioned false representations to its detriment and
entered into the Construction Contract with BCI.
Amended Complaint, 11/15/2012, at 15-16. Islamic Society claimed that all
of Defendants were liable, noting that it was pursuing Individual Defendants
on the theory of piercing the corporate veil. Id. at 16.
BCI and Individual Defendants demurred to this count, maintaining
that the gist of the action and economic loss doctrines prohibited Islamic
Society from pursuing as a tort claim what was really a breach of contract
claim, and that Islamic Society cannot show justified reliance given that the
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alleged misrepresentations occurred outside of a fully-integrated contract.
Preliminary Objections to Amended Complaint, 12/7/2012, at 8.
Holding that neither the economic loss doctrine nor the gist of the
action doctrine barred claims for fraud in the inducement, the trial court
overruled the objection. Order, 3/5/2013, at 2 n.2. However, in sustaining
the objection to the piercing-the-corporate-veil count as discussed above,
the trial court nonetheless dismissed Islamic Society’s fraud claim insofar as
it was stated against Individual Defendants. Id. at 2.
Islamic Society argues that the trial court erred in dismissing the
misrepresentation claim as to Individual Defendants not only because they
are liable for BCI’s actions, but because Individual Defendants personally
participated in the fraud. Islamic Society’s Brief at 23-24.
There is a distinction between liability for individual participation
in a wrongful act and an individual’s responsibility for any
liability-creating act performed behind the veil of a sham
corporation. Where the court pierces the corporate veil, the
owner is liable because the corporation is not a bona fide
independent entity; therefore, its acts are truly his. Under the
participation theory, the court imposes liability on the individual
as an actor rather than as an owner. Such liability is not
predicated on a finding that the corporation is a sham and a
mere alter ego of the individual corporate officer. Instead,
liability attaches where the record establishes the individual’s
participation in the tortious activity.
Wicks v. Milzoco Builders, Inc., 470 A.2d 86, 89-90 (Pa. 1983) (footnote
omitted).
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In resolving this question, we again are guided by this Court’s decision
in Village at Camelback. Therein, after determining that the complaint
was legally sufficient to survive individual defendant Carr’s preliminary
objections to the appellant’s count supporting piercing the corporate veil,
this Court considered the trial court’s sustaining of a demurrer to tort claims.
Insofar as appellant here attempts to hold Carr personally
liable for the torts of the corporation under the theory of piercing
the corporate veil, the analysis of the sufficiency of [that count]
set forth above is equally applicable. Appellant has pleaded
enough to survive a demurrer on this ground.
Insofar as appellant attempts to hold Carr individually
liable for the commission of the three named torts, we perceive
appellant as pleading that Carr personally participated in the
tortious acts of the corporations and that he is, therefore, liable
under the “participation theory.” Once again, we conclude that
appellant has pleaded sufficient ultimate facts to survive a
demurrer. In this regard, appellant has alleged that Carr,
presumably acting in his capacity as an officer of the corporate
defendants, personally participated in negligent acts,
misrepresentations and conversion. Indeed, reading the
complaint as a whole, it appears clear that appellant asserts that
Carr was the sole moving force behind all of the corporate
defendants and was directly involved in all of their actions
pertinent to this dispute. The trial court’s grant of Carr’s
demurrer to [the tort counts] was improper.
Village at Camelback, 538 A.2d at 535-36.
The same analysis applies in the instant case. Because we have held
that Islamic Society pled sufficient facts to defeat the preliminary objection
to the piercing-the-corporate-veil count, it necessarily follows that it has
pled sufficient facts to defeat a demurrer on the fraud claim. Islamic
Society’s additional allegations that Individual Defendants personally
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participated in the fraud, further renders improper the dismissal of the fraud
claim against Individual Defendants. For both of these reasons, we must
conclude that the trial court committed an error of law in dismissing Islamic
Society’s tort claim against Individual Defendants.
Accordingly, we reverse paragraphs five (sustaining the objections to
Count VII) and six (dismissing “all claims against John Cocivera, Garig
Vanderveldt, Gina Vanderveldt, and Angela Cocivera a/k/a/ Angela Nardini
individually”) of the trial court’s March 5, 2013 order, and remand the case
for further proceedings consistent with this memorandum.
Order reversed in part. Case remanded for further proceedings.
Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/9/2014
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