James A. Dailey III v. RJM Holdings, LLC , 825 S.E.2d 351 ( 2019 )

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
January 2019 Term
FILED
_____________________
March 15, 2019
released at 3:00 p.m.
No. 18-0040 EDYTHE NASH GAISER, CLERK
_____________________ SUPREME COURT OF APPEALS
OF WEST VIRGINIA
JAMES A. DAILEY, III, NICOLE DAILEY,
TRAVIS A. HILL, AND SCARLETT J. HILL,
Plaintiffs Below, Petitioners
v.
AYERS LAND DEVELOPMENT, LLC; A AND A HOMES, INC.;
AYERS BUILDERS, INC.; ROGER E. AYERS; JERRY A. AYERS;
RJM HOLDINGS, LLC; FRYE CONSTRUCTION, INC.; AND MICHAEL E. FRYE,
Defendants Below, Respondents
___________________________________________________________
Appeal from the Circuit Court of Berkeley County
Honorable Christopher C. Wilkes, Judge
Civil Action No. 15-C-59
REVERSED AND REMANDED
_________________________________________________________
Submitted: February 13, 2019
Filed: March 15, 2019
Susan R. Snowden, Esq.
Jackson Kelly PLLC
Martinsburg, West Virginia
Attorney for Petitioners
J. Victor Flanagan, Esq.
Matthew R. Whitler, Esq.
Benjamin P. Warder, Esq.
Pullin, Fowler, Flanagan, Brown & Poe, PLLC
Martinsburg, West Virginia
Attorneys for Ayers Land Development, LLC; A and A Homes, Inc.; Ayers Builders, Inc.;
Roger E. Ayers; and Jerry A. Ayers
Christopher C. Luttrell, Esq.
Luttrell LC
Martinsburg, West Virginia
Attorney for Frye Construction, Inc., and Michael E. Frye
JUSTICE HUTCHISON delivered the Opinion of the Court.
SYLLABUS BY THE COURT
1. “A motion for summary judgment should be granted only when it is
clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not
desirable to clarify the application of the law.” Syl. Pt. 3, Aetna Cas. & Sur. Co. v. Fed.
Ins. Co., 148 W.Va. 160, 133 S.E.2d 770 (1963).
2. “The circuit court’s function at the summary judgment stage is not to
weigh the evidence and determine the truth of the matter, but is to determine whether there
is a genuine issue for trial.” Syl. Pt. 3, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755(1994).
3. “‘A joint venture or, as it is sometimes referred to, a joint adventure,
is an association of two or more persons to carry out a single business enterprise for profit,
for which purpose they combine their property, money, effects, skill, and knowledge. It
arises out of a contractual relationship between the parties. The contract may be oral or
written, express or implied.’ Syl. pt. 2, Price v. Halstead, 177 W.Va. 592, 355 S.E.2d 380(1987).” Syl. Pt. 5, Armor v. Lantz, 207 W.Va. 672, 535 S.E.2d 737 (2000).
4. “‘While, legally speaking, a corporation constitutes an entity separate
and apart from the persons who own it, such is a fiction of the law introduced for purpose
of convenience and to subserve the ends of justice; and it is now well settled, as a general
i
principle, that the fiction should be disregarded when it is urged with an intent not within
its reason and purpose, and in such a way that its retention would produce injustices or
inequitable consequences.’ Syl. pt. 10, Sanders v. Roselawn Memorial Gardens, [Inc.,]
152 W.Va. 91, 159 S.E.2d 784 (1968).” Syl. Pt. 2, Laya v. Erin Homes, Inc., 177 W.Va.
343, 352 S.E.2d 93 (1986).
5. “W.Va. Code § 31B-3-303 (1996) (Repl. Vol. 2009) permits the
equitable remedy of piercing the veil to be asserted against a West Virginia limited liability
company.” Syl. Pt. 5, Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).
6. “‘[T]o “pierce the corporate veil” in order to hold the shareholder(s)
actively participating in the operation of the business personally liable . . . , there is
normally a two-prong test: (1) there must be such unity of interest and ownership that the
separate personalities of the corporation and of the individual shareholder(s) no longer exist
(a disregard of formalities requirement) and (2) an inequitable result would occur if the
acts are treated as those of the corporation alone (a fairness requirement).’ Syllabus point
3, in part, Laya v. Erin Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986).” Syl. Pt. 6,
Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).
7. “To pierce the veil of a limited liability company in order to impose
personal liability on its member(s) or manager(s), it must be established that (1) there exists
such unity of interest and ownership that the separate personalities of the business and of
ii
the individual member(s) or managers(s) no longer exist and (2) fraud, injustice, or an
inequitable result would occur if the veil is not pierced.” Syl. Pt. 7, in part, Kubican v. The
Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).
8. “The propriety of piercing the corporate veil should rarely be
determined upon a motion for summary judgment. Instead, the propriety of piercing the
corporate veil usually involves numerous questions of fact for the trier of the facts to
determine upon all of the evidence.” Syl. Pt. 6, Laya v. Erin Homes, Inc., 177 W.Va. 343,
352 S.E.2d 93 (1986).
9. “The law presumes that two separately incorporated businesses are
separate entities and that corporations are separate from their shareholders.” Syl. Pt. 3, S.
Elec. Supply Co. v. Raleigh Cty. Nat’l Bank, 173 W.Va. 780, 320 S.E.2d 515 (1984).
10. “[T]he failure of a limited liability company to observe the usual
company formalities or requirements relating to the exercise of its company powers or
management of its business may not be a ground for imposing personal liability on the
member(s) or manager(s) of the company.” Syl. Pt. 7, in part, Kubican v. The Tavern, LLC,
232 W.Va. 268, 752 S.E.2d 299 (2013).
iii
HUTCHISON, Justice:
Petitioners James and Nicole Dailey and Travis and Scarlett Hill appeal the
December 19, 2017, order of the Circuit Court of Berkeley County certifying as final the
prior orders that granted summary judgment to the respondents, Ayers Land Development,
LLC; A and A Homes, Inc.; Ayers Builders, Inc.; Roger E. Ayers and Jerry A. Ayers
(hereinafter collectively “Ayers respondents”); Frye Construction, Inc., and Michael E.
Frye, in this civil action arising out of the modification of covenants pertaining to a
residential subdivision developed by RJM Holdings, LLC (“RJM”).1 In this appeal, the
petitioners assert several assignments of error but primarily contend that the circuit court
erred by granting summary judgment because genuine issues of material fact exist
regarding whether the respondents were engaged in a joint venture with RJM to develop
the subdivision and whether the veils of the respondent corporations and limited liability
companies should be pierced to hold Roger Ayers, Jerry Ayers, and Michael Frye,
personally liable.
Upon consideration of the parties’ briefs and oral arguments, the submitted
record, and the applicable authorities, this Court finds merit to the petitioners’ arguments.
1
Although RJM is named as a respondent in this appeal, the circuit court rulings at
issue do not address any of the petitioners’ claims against RJM. All of the petitioners’
claims against RJM remain pending below. Accordingly, reference to the “respondents”
in this opinion means the Ayers respondents, Frye Construction, and Michael E. Frye,
collectively.
1
Accordingly, for the reasons set forth below, the circuit court’s final order is reversed, and
this case is remanded for further proceedings consistent with this opinion.
I. Facts and Procedural Background
Respondents Roger Ayers and Jerry Ayers are brothers who are engaged in
the business of real estate development and construction of residential homes. To facilitate
their business, they have formed multiple limited liability companies and corporations
including Ayers Holdings, LLC, whose sole members are Roger Ayers and Jerry Ayers;
Ayers Land Development, LLC, whose sole members are Jerry Ayers and his wife,
Deborah Ayers; Ayers Builders, Inc., with Jerry Ayers as president and his wife, Deborah
as vice president; and A and A Homes, Inc., with Roger Ayers as president and Jerry Ayers
as vice president. Ayers Holdings and Ayers Land Development are holding companies
for real estate; Ayers Builders and A and A Homes are home contractors. Michael Frye is
also a real estate developer and home builder. His business is Frye Construction, Inc.
In November 2004, Ayers Holdings and Michael Frye formed RJM for the
purpose of developing a 117-acre tract of land in Berkeley County into a residential
subdivision known as Brookside. Michael Frye has a fifty percent interest in RJM, and
Ayers Holdings owns the other fifty percent. To finance the project, RJM secured a $2.4
million dollar bank loan, which Roger Ayers, Jerry Ayers and Michael Frye personally
guaranteed.
2
On May 30, 2007, RJM recorded a series of final plats for Brookside that
created thirty-eight individual single family lots at least one acre in size with common
areas, shared roads, and a parcel for future development. Brookside was marketed as a
“premier, upscale subdivision.” To that end, RJM recorded a “Declaration of Covenants,
Conditions and Restrictions for Brookside” in 2007 (“the 2007 Covenants”) in the Berkeley
County Clerk’s Office. Pertinent to this case are the following requirements for Brookside
homes set forth in the 2007 Covenants:
All one-story Dwellings shall contain a minimum of 2,800
square feet. All multiple-story Dwellings shall contain a
minimum of 3,000 square feet, with at least 1,500 square feet
on the first floor. Dimensions stated shall be exterior wall
dimensions excluding basements, garages, decks, porches,
eaves and other similar extension and overhangs.
The exposed surface of all exterior walls of any building
constructed upon any Lot may be clad with only the following
materials: brick, stone, solid wood, or stucco. Without
limitation of the foregoing, no vinyl or aluminum siding shall
be permitted on any exterior wall, and no concrete shall be
exposed.
On June 29, 2007, Travis and Scarlett Hill purchased Lot No. 17 in Brookside
for $154,900. They were provided a copy of the 2007 Covenants, but they have yet to
build a home on the lot they purchased. James and Nicole Dailey purchased Lot No. 18 in
Brookside for $154,900 on July 6, 2007. They began construction of a home on their lot
in August 2013 in accordance with the 2007 Covenants.
3
Between 2008 and 2011, RJM only sold one lot in Brookside. In 2010, RJM
began discussing amending the 2007 Covenants to lessen the restrictive uses in an effort to
sell more lots. On April 16, 2013, RJM executed a Supplementary Declaration of
Covenants, Conditions, and Restrictions (“the 2013 Covenants”) for Brookside which
amended the 2007 Covenants by decreasing the required minimum square footage for
homes and permitting the use of vinyl siding.2 According to the petitioners, they were not
informed that the 2007 Covenants were going to be amended. In fact, the Hills maintain
that they were never informed by RJM or any of the respondents of the amendments to the
covenants prior to filing their complaint. The Daileys have stated that they received the
2013 Covenants by email without any explanation on August 1, 2014, after leaving a
2
The 2013 Covenants amended the requirements for residence sizes as follows:
All one story Dwellings shall contain a minimum of 1,800
square feet. All multiple-story Dwellings shall contain a
minimum of 2000 square feet with at least 1000 square feet on
the first floor. Dimensions stated shall be exterior wall
dimensions excluding basements, garages, decks, porches,
eaves and other similar extensions and overhangs.
With respect to exterior materials, the 2013 Covenants provided as follows:
Except as provided herein, the exposed surface of the exterior
walls of any building constructed upon any Lot may be clad
with only the following materials: brick, stone, solid wood, or
stucco. Notwithstanding the foregoing, vinyl siding shall be
permitted on the entire building. Aluminum siding is not
permitted on any surface. Furthermore, the side and rear
foundation may be exposed but must be painted to match the
exterior of the building. The foundation of the front of the
building must remain covered with brick, stone, solid wood, or
stucco.
4
voicemail for the respondents inquiring about homes being constructed in Brookside that
did not comply with the 2007 Covenants.
The petitioners contend that at least three homes have been built in Brookside
that fail to comply with the 2007 Covenants. RJM has acknowledged that the houses on
Lots 14 and 15 do not comply with the 2007 Covenants. The record shows that A and A
Homes built the home on Lot 14. Michael Frye and Frye Construction completed the
excavation for Lot 14, and Roger Ayers was the sewer installer. While the home on Lot
14 was being built, Frye Construction was also doing excavation work for the Daileys.
According to the Daileys, they asked Michael Frye about the square footage of the home
being constructed on Lot 14. The Daileys contend that Michael Frye “evaded the question”
and never mentioned that the 2007 Covenants had been amended.
In 2015, separate complaints were filed by the Daileys and the Hills against
RJM and Ayers and Ayers Holdings alleging, inter alia, civil conspiracy, fraud and breach
of the covenants. The cases were consolidated by the circuit court. In August 2016, the
petitioners sought leave to amend their complaints to add additional defendants, including
the Ayers respondents, Michael Frye, and Frye Construction. 3 The request to amend was
3
The amended complaint also named as defendants all other persons and entities
owning real property in Brookside. The circuit court ordered the petitioners to name these
property owners as defendants, deeming their inclusion necessary for a complete
adjudication of the petitioners’ declaratory judgment claims concerning the 2013
Covenants. These defendants are not parties to this appeal.
5
granted, and on January 18, 2017, the petitioners filed “Plaintiffs’ Consolidated Amended
Verified Complaint.” The petitioners sought declaratory judgment, asking the court to find
that the 2013 Covenants “destroy[] the Community Standard and [are] void ab initio.” In
addition, the petitioners sought to recover monetary damages for the actions taken by RJM
and the respondents in executing the 2013 Covenants. The petitioners alleged that the
respondents were members of a joint venture with RJM making them “jointly and severally
liable for all acts and omissions of individual co-venturers as they relate to Brookside.”
The petitioners also sought to pierce the veil of the respondent corporations and limited
liability companies to hold Roger Ayers, Jerry Ayers, and Michael Frye personally liable.
On April 19, 2016, Ayers and Ayers Holdings filed a motion for summary
judgment seeking dismissal of the claims brought against it because of its status as a
member of RJM. The circuit court granted the motion on February 13, 2017, concluding,
“Any involvement by Defendant Ayers and Ayers Holding, LLC in enacting and signing
documents was not done as a separate limited liability company entity, but rather in its
official capacity as a member of RJM[.]” The petitioners have not appealed this order.4
4
During oral argument of this case, the petitioners’ attorney stated that the circuit
court had failed to include the necessary language in the order granting summary judgment
to Ayers and Ayers Holdings to make it a final appealable order. Accordingly, the decision
remains as an interlocutory ruling that is not appealable at this juncture. See W.Va. R. Civ.
Proc. 54(b); Syl. pt. 3, in part, Hubbard v. State Farm Indem. Co., 213 W.Va. 542, 584
S.E.2d 176 (2003) (“An otherwise interlocutory order that is not expressly certified as final
by using the language required by Rule 54(b) of the West Virginia Rules of Civil Procedure
remains interlocutory so long as the affected party does not seek an appeal.”).
6
In September 2017, the parties began filing additional motions for summary
judgment. Discovery was continuing, and a dispute arose between the petitioners and the
Ayers respondents regarding withheld communications and other documents identified in
a privilege log. The petitioners filed a motion to compel and sought an in-camera review
of the withheld materials, asserting that the information contained therein supported their
allegation that the Ayers companies were involved in Brookside. Despite the discovery
dispute, the circuit court granted summary judgment on November 7, 2017, through
separate orders to (1) the Ayers respondents; (2) Michael Frye; and (3) Frye Construction
and dismissed them from the case. The circuit court then entered an order on November
15, 2017, dismissing the petitioners’ motion to compel as moot. Finally, on December 19,
2017, the circuit court entered its “Order Granting Motion to Certify as Final the Court’s
Orders Granting Summary Judgment to Select Defendants.” This appeal followed.
II. Standard of Review
We apply a de novo review to a circuit court’s grant of summary judgment.
See Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994). It has long been
established that “[a] motion for summary judgment should be granted only when it is clear
that there is no genuine issue of fact to be tried and inquiry concerning the facts is not
desirable to clarify the application of the law.” Syl. Pt. 3, Aetna Cas. & Sur. Co. v. Fed.
Ins. Co., 148 W.Va. 160, 133 S.E.2d 770 (1963). This Court has explained that “[t]he
circuit court’s function at the summary judgment stage is not to weigh the evidence and
determine the truth of the matter, but is to determine whether there is a genuine issue for
7
trial.” Painter, 192 W.Va. at 190, 451 S.E.2d at 756, syl. pt. 3. Therefore, “we must draw
any permissible inference from the underlying facts in the most favorable light to the party
opposing the motion.” Williams v. Precision Coil, Inc., 194 W.Va. 52, 59, 459 S.E.2d 329,
336 (1995). Because
[c]redibility determinations, the weighing of the evidence, and
the drawing of legitimate inferences from the facts are jury
functions, not those of a judge . . . [s]ummary judgment should
be denied even where there is no dispute as to the evidentiary
facts in the case but only as to the conclusions to be drawn
therefrom.
Id. (internal quotations and citations omitted). With these standards in mind, we consider
whether the circuit court erred in granting summary judgment to the respondents.
III. Discussion
As set forth above, the petitioners argue that the circuit court erred by
granting summary judgment because genuine issues of material fact exist with regard to
whether the respondents were engaged in a joint venture with RJM to develop Brookside
and whether the corporate veils of the respondent businesses should be pierced to hold
Roger Ayers, Jerry Ayers and Michael Frye personally liable. We will separately consider
these issues below, followed by a discussion regarding the other assignments of error
asserted by the petitioners.
8
A. Joint Venture
The petitioners first contend that the circuit court erred by finding that they
failed to establish the existence of a joint venture between the respondents and RJM to
create, develop, and market Brookside. This Court has held that
“[a] joint venture or, as it is sometimes referred to, a
joint adventure, is an association of two or more persons to
carry out a single business enterprise for profit, for which
purpose they combine their property, money, effects, skill, and
knowledge. It arises out of a contractual relationship between
the parties. The contract may be oral or written, express or
implied.” Syl. pt. 2, Price v. Halstead, 177 W.Va. 592, 355
S.E.2d 380 (1987).
Syl. Pt. 5, Armor v. Lantz, 207 W.Va. 672, 535 S.E.2d 737 (2000). This Court has also
recognized that “[m]embers of a joint venture are . . . jointly and severally liable for all
obligations pertaining to the venture, and the actions of the joint venture bind the individual
co-venturers.” Id. at 678, 535 S.E.2d at 743.
The petitioners contend that RJM is merely a “shell company” and that it
could not have developed Brookside without the contributions and efforts of the
respondents, which is the essence of a joint venture. To support their claim that the
respondents were engaged in a joint venture with RJM to develop Brookside, the
petitioners produced evidence showing that the Ayers respondents were involved in the
marketing of the Brookside lots. In that regard, A and A Homes advertised Brookside on
its websites and provided its own contact information for sales inquiries; A and A Homes
exchanged communications regarding Brookside with realtors concerning lot sales and had
9
a listing agreement with one realtor; and A and A Homes listed Brookside properties in its
name with realtors to try to “help RJM move the lots.” In addition, the petitioners provided
evidence that A and A Homes completed applications for names of roads within Brookside
that were submitted to the county planning commission for approval. There was also
evidence produced showing that Frye Construction performed the infrastructure work for
Brookside at a cost of more than $500,000 and that A and A Homes and other Ayers
respondents transferred funds to RJM to pay bills on a regular basis including the
excavation costs paid to Frye Construction. The petitioners also presented evidence that
the respondents were involved in the construction of the home on Lot 14 of Brookside,
which does not comply with the 2007 Covenants. Finally, there was evidence showing that
RJM uses the physical office location and staff of A and A Homes for RJM’s day-to-day
operations although there is no agreement to do so and RJM does not pay rent. The
petitioners maintain that this evidence created a genuine issue of material fact regarding
the existence of a joint venture between the respondents and RJM to preclude summary
judgment.
Characterizing the evidence produced by the petitioners as “random facts,”
the respondents maintain that the circuit court’s grant of summary judgment was proper
because the petitioners were unable to provide any evidence with respect to the essential
elements of a joint venture, which as discussed in Armor, are an agreement to share profits
and joint management and control of the business enterprise. 207 W.Va. at 678-80, 535
S.E.2d at 743-45. Armor involved a legal malpractice suit brought by the clients of an
10
attorney who served as local counsel for their out-of-state attorney in their underlying
products liability action. The plaintiffs asserted that their local counsel and out-of-state
attorney were engaged in a joint venture to represent them, and they sought to hold their
local counsel liable for the alleged malpractice committed by their out-of-state attorney.
Finding no evidence to show that the respondent local attorney had agreed to undertake
active management and control of his clients’ lawsuit in federal court or sufficient evidence
of an agreement to share in the profits and losses of the joint representation, we upheld the
circuit court’s grant of summary judgment to the local attorney because the appellants did
not “raise a triable issue of fact as to whether a joint venture existed.” Id. at 746, 535 S.E.2d
at 681. Although we upheld the grant of summary judgment in Armor, we noted that
“[w]hether or not a joint venture exists is normally a question to be answered by the trier
of fact.” Id. at 678, 535 S.E.2d at 743. Indeed, this Court has recognized that “‘a plaintiff
has a right to a jury trial upon the factual issues to determine whether a joint venture
existed.” Bowers v. Wurzburg, 207 W.Va. 28, 37, 528 S.E.2d 475, 484 (1999) (quoting
Lasry v. Lederman, 147 Cal.App.2d 480, 305 P.23d 663 (1957)).
Unlike the appellants in Armor who essentially produced no evidence to
support their joint venture theory other than the respondent attorney’s agreement to act as
local counsel, the petitioners here have presented evidence that indicates the respondents
took an active role in marketing the Brookside lots, transferred funds to RJM so that it
could pay expenses, and performed construction work. This Court has recognized that
contributions of “property, money, efforts, skill [and] knowledge,” raise a jury question
11
regarding the existence of a joint venture. Sipple v. Starr, 205 W.Va. 717, 725, 520 S.E.2d
884, 892 (1999) (citation omitted).
In Sipple, the administrator of the estate of a customer who was shot and
killed by a convenience store employee brought suit against the convenience store, its
owner, and the gasoline supplier contending they were liable for the actions of their
employee. One of the administrator’s theories of liability was that the defendants were
engaged in a joint venture to operate the convenience store. This Court reversed the circuit
court’s grant of summary judgment to the gasoline supplier on the administrator’s joint
venture theory despite a lack of evidence that the gasoline supplier received any profit from
the convenience store’s grocery and beer sales. Id. at 725, 520 S.E.2d at 892. Rejecting
the gasoline supplier’s contention that there was no joint venture because there was no
direct sharing of profits, this Court explained that “intrinsic to a joint venture[] is the
concept of mutual efforts to promote the business, the success of which would accrue to
the benefit of all parties[.]” Id. Elaborating further, we stated:
To constitute a joint adventure the parties must combine their
property, money, efforts, skill, or knowledge, in some common
undertaking of a special or particular nature, but the
contributions of the respective parties need not be equal or of
the same character. There must, however, be some contribution
by each party of something promotive of the enterprise.
Id. (quoting Pownall v. Cearfoss, 129 W.Va. 487, 497-98, 40 S.E.2d 886, 893 (1946)).
Because the administrator produced evidence that the gasoline supplier provided property
in the form of gas pumps and other equipment as well as “skill and knowledge in the sale
12
of gasoline,” we concluded that summary judgment had been improvidently granted and
that a jury should decide whether a joint venture existed. Id. at 725, 520 S.E.2d at 892; see
also Herrod v. First Republic Mortg. Corp., Inc., 218 W.Va. 611, 621, 625 S.E.2d 373,
383 (2005) (concluding “it should be up to a jury to determine whether there is sufficient
evidence of a joint venture” between mortgagee and its assignee in predatory lending case);
Bowers v. Wurzburg, 207 W.Va. 28, 38, 528 S.E.2d 475, 485 (1999) (finding that
“percentage clause” in commercial lease raised question of fact regarding existence of joint
venture between convenience store lessor and lessee).
Given that the petitioners have produced substantial evidence that the
respondents made contributions to promote the development of Brookside including
marketing the lots, providing capital to pay RJM’s expenses, and performing actual
construction work, we find that the circuit court erred by granting summary judgment to
the respondents on the petitioners’ joint venture theory. As noted in Sipple, “[w]e are by
no means suggesting that just any mutually beneficial commercial relationship . . . rises to
the level of a joint venture.” 205 W.Va. at 725, 520 S.E.2d 892. However, based on the
record before us, we find that the petitioners have raised sufficient genuine issues of
material fact regarding the existence of a joint venture between the respondents and RJM
to preclude summary judgment.
13
B. Piercing the Corporate Veil
The petitioners also argue that the circuit court erred by finding that they
failed to produce sufficient evidence to pierce the veil of the respondent corporations and
limited liability companies to hold Jerry Ayers, Roger Ayers, and Michael Frye personally
liable. This Court has recognized that “[a] corporate shield may . . . be ‘pierced’ to subject
a sole shareholder to liability for corporate acts or to make a corporation liable for behavior
of another corporation within its total control.” S. Elec. Supply Co v. Raleigh Cty. Nat’l
Bank, 173 W.Va. 780, 787, 320 S.E.2d 515, 522 (1984). As we have explained:
While, legally speaking, a corporation constitutes an
entity separate and apart from the persons who own it, such is
a fiction of the law introduced for purpose of convenience and
to subserve the ends of justice; and it is now well settled, as a
general principle, that the fiction should be disregarded when
it is urged with an intent not within its reason and purpose, and
in such a way that its retention would produce injustices or
inequitable consequences.” Syl. pt. 10, Sanders v. Roselawn
Memorial Gardens, [Inc.,] 152 W.Va. 91, 159 S.E.2d 784(1968).
Syl. Pt. 2, Laya v. Erin Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986). Likewise, we
have acknowledged that “W.Va. Code § 31B-3-303 (1996) (Repl. Vol. 2009) permits the
equitable remedy of piercing the veil to be asserted against a West Virginia limited liability
company.” Syl. Pt. 5, Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).
Whether the business is a corporation or a limited liability company, the same two-part test
is applied to determine whether the veil may be pierced. As set forth in syllabus points six
and seven, respectively, of Kubican, there is a “disregard of the formalities requirement”
and a “fairness requirement”:
14
“[T]o ‘pierce the corporate veil’ in order to hold the
shareholder(s) actively participating in the operation of the
business personally liable . . . , there is normally a two-prong
test: (1) there must be such unity of interest and ownership that
the separate personalities of the corporation and of the
individual shareholder(s) no longer exist (a disregard of
formalities requirement) and (2) an inequitable result would
occur if the acts are treated as those of the corporation alone (a
fairness requirement).” Syllabus point 3, in part, Laya v. Erin
Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986).
To pierce the veil of a limited liability company in order
to impose personal liability on its member(s) or manager(s), it
must be established that (1) there exists such unity of interest
and ownership that the separate personalities of the business
and of the individual member(s) or managers(s) no longer exist
and (2) fraud, injustice, or an inequitable result would occur if
the veil is not pierced.
Kubican, 232 W.Va. at 270, 752 S.E.2d at 301, syl. pts. 6 & 7, in part.
Application of the two-part test to determine whether to pierce the veil of a
corporation or a limited liability company requires a fact-driven analysis that is specific
to each case. Recognizing the multitude of considerations involved and the close
scrutiny of the actions of the parties that is required, this Court has made clear that
“decisions to look beyond, inside and through corporate facades must be made case-
by-case, with particular attention to factual details.” S. Elec. Supply, 173 W.Va. at 787,
320 S.E.2d at 523. Likewise, “the analysis necessary to [pierce the veil of an LLC] is
fact based and must be applied to LLCs on a case-by-case basis[.]” Kubican, 232 W.Va.
at 280, 752 S.E.2d at 311. To make the determination, we have outlined some of the
relevant factors to be considered, which include:
15
(1) commingling of funds and other assets of the corporation
with those of the individual shareholders;
(2) diversion of the corporation’s funds or assets to
noncorporate uses (to the personal uses of the corporation’s
shareholders);
(3) failure to maintain the corporate formalities necessary for
the issuance of or subscription to the corporation’s stock, such
as formal approval of the stock issue by the board of directors;
(4) an individual shareholder representing to persons outside
the corporation that he or she is personally liable for the debts
or other obligations of the corporation;
(5) failure to maintain corporate minutes or adequate corporate
records;
(6) identical equitable ownership in two entities;
(7) identity of the directors and officers of two entities who are
responsible for supervision and management (a partnership or
sole proprietorship and a corporation owned and managed by
the same parties);
(8) failure to adequately capitalize a corporation for the
reasonable risks of the corporate undertaking;
(9) absence of separately held corporate assets;
(10) use of a corporation as a mere shell or conduit to operate
a single venture or some particular aspect of the business of an
individual or another corporation;
(11) sole ownership of all the stock by one individual or
members of a single family;
(12) use of the same office or business location by the
corporation and its individual shareholder(s);
(13) employment of the same employees or attorney by the
corporation and its shareholder(s);
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(14) concealment or misrepresentation of the identity of the
ownership, management or financial interests in the
corporation, and concealment of personal business activities of
the shareholders (sole shareholders do not reveal the
association with a corporation, which makes loans to them
without adequate security);
(15) disregard of legal formalities and failure to maintain
proper arm’s length relationships among related entities;
(16) use of a corporate entity as a conduit to procure labor,
services or merchandise for another person or entity;
(17) diversion of corporate assets from the corporation by or to
a stockholder or other person or entity to the detriment of
creditors, or the manipulation of assets and liabilities between
entities to concentrate the assets in one and the liabilities in
another;
(18) contracting by the corporation with another person with
the intent to avoid the risk of nonperformance by use of the
corporate entity; or the use of a corporation as a subterfuge for
illegal transactions;
(19) the formation and use of the corporation to assume the
existing liabilities of another person or entity.
Laya, 177 W.Va. at 347-48, 352 S.E.2d at 98-99; Kubican, 232 W.Va. at 281, 752 S.E.2d
at 312.
This Court has observed that
[e]xamination of the numerous relevant factors in a ‘totality of
the circumstances’ test provides a more enlightening analysis
than merely applying metaphors, like “simulacrum,” “alter
ego,” “instrumentality,” etc., to describe the unity of the
shareholder(s) and the corporation justifying, where equitable,
the piercing of the corporate veil in the case.
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Laya, 177 W.Va. at 348, 352 S.E.2d at 99. In addition, this Court has recognized that “this
evidence must be analyzed in conjunction with evidence that a corporation attempted to
use its corporate structure to perpetrate a fraud or do grave injustice on an innocent third
party seeking to ‘pierce the veil.’” S. Elec. Supply, 173 W.Va. at 788, 320 S.E.2d at 523.
Accordingly, we have held that “[t]he propriety of piercing the corporate veil should rarely
be determined upon a motion for summary judgment. Instead, the propriety of piercing the
corporate veil usually involves numerous questions of fact for the trier of the facts to
determine upon all of the evidence.” Laya, 177 W.Va. at 344, 352 S.E.2d at 94, syl. pt. 6.
In this case, the petitioners have produced evidence that the respondents and
RJM had no operating agreements with regard to the use of the same personnel, office
space, equipment, phone lines, and marketing materials. In addition, the petitioners
established that funds were transferred from the various respondents to RJM to pay its
expenses. In fact, some of the funds contributed by one respondent were used to pay
another respondent to do the infrastructure work for RJM. We, of course, recognize that
“common ownership or common management without evidence of fraudulent conduct,
total control, or a ‘dummy’ corporation [does not] justify piercing the corporate veil.” S.
Elec. Supply, 173 W.Va. at 789, 320 S.E.2d at 524. Indeed, “[t]he law presumes that two
separately incorporated businesses are separate entities and that corporations are separate
from their shareholders.” Id. at 781, 320 S.E.2d at 516, syl. pt.3. We have also held that
“the failure of a limited liability company to observe the usual company formalities or
requirements relating to the exercise of its company powers or management of its business
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may not be a ground for imposing personal liability on the member(s) or manager(s) of the
company.” Kubican, 232 W.Va. at 270, 752 S.E.2d 301, syl. pt. 7, in part; see also W.Va.
Code § 31B–3–303(b) (1996). However, based on the record before us and given our
express recognition of the fact-based nature of determining whether to “pierce the veil,”
we find this issue is a matter for the jury, and the circuit court erred by granting summary
judgment.
C. Other Assignments of Error
The petitioners have also assigned error to the circuit court’s dismissal of all
their other claims against the respondents based on its finding that the petitioners failed to
prove the existence of a joint venture. In their amended complaint, the petitioners asserted
the following additional claims against RJM and the respondents: cloud on title; breach of
restriction, condition and covenants; civil conspiracy; actual and/or constructive fraud;
slander of title; promissory/equitable estoppel; and breach of contract for the failure to pave
the Daileys’ driveway. The petitioners argue in this appeal that the circuit court’s finding
that they failed to present sufficient evidence of a joint venture between RJM and the
respondents was not dispositive with respect to all of their other causes of action and that
the circuit court erred by dismissing these claims against the respondents without providing
separate findings of fact and conclusions of law. To the extent that the circuit court’s grant
of summary judgment to the respondents on all of the petitioners’ other claims was based
upon its finding that the petitioners had failed to establish the existence of a joint venture
between RJM and respondents, we summarily reverse the grant of summary judgment to
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the respondents on those causes of action. Given our decision that genuine issues of
material fact exist precluding summary judgment on the petitioners’ joint venture claim,
the circuit court’s reasoning for dismissing the other claims is no longer sound.
As the petitioners’ note, the only cause of action the circuit court separately
addressed, aside from the joint venture and piercing the veil claims, was the petitioners’
allegation of fraud against Roger Ayers and Jerry Ayers. In that regard, the circuit court
found that the petitioners’ fraud claim could not be maintained against Roger Ayers and
Jerry Ayers because “the record . . . shows no evidence of intent to defraud the Plaintiffs,
but instead clearly indicates that the changes to the [2007 Convenants] that were enacted
by RJM in 2013 were due to the changes in the economy and the crash of the real estate
market.” The circuit court made no such finding, however, with respect to the other
respondents. Rather, in granting summary judgment to Frye Construction, the circuit court
dismissed all claims asserted by the petitioners based upon its finding that the joint venture
claim could not be maintained. Summary judgment was granted to Michael Frye on all of
the petitioners’ claims based on the circuit court’s finding that “he had not acted outside
the scope of his role as a member of [RJM] throughout the relevant underlying events.”
Critically, a review of the amended complaint shows the petitioners’ fraud
allegations were not limited to the actions of RJM and the respondents when Brookside
was formed. The petitioners also asserted that RJM and the respondents committed fraud
when they “took action to specifically conceal from [the Daileys] that they were creating
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and filing the 2013 Declaration in order to induce [them] to proceed forward with plans to
build their large estate home which exceeded the requirements as established by the 2007
[Covenants].” Because the circuit court did not fully address all of the petitioners’
allegations and did not make any separate findings with respect to the petitioners’
allegations of fraud against the other respondents, we find that the circuit court’s grant of
summary judgment on this issue must be reversed. A summary judgment order that fails to
set forth sufficient findings of fact and conclusions of law does not permit meaningful
appellate review. See syl., Hively v. Merrifield, 212 W.Va. 804, 575 S.E.2d 414 (2002)
(holding that circuit court’s grant of summary judgment must set forth factual findings
sufficient to permit appellate review). Moreover, because we have found that genuine
issues of material fact exist with respect to the conduct of the respondents and the use of
the various business entities to develop Brookside, the viability of all of the petitioners’
causes of action can only be determined after these genuine issues of fact have been
resolved by a jury. Accordingly, we take no position on whether the petitioners can prevail
on their fraud claim or the other causes of action set forth in the complaint.
As their final assignment of error, the petitioners argue that summary
judgment was improper because discovery was not complete and a motion to compel was
pending before the circuit court. Although we need not address this alternative argument
because of our reversal of the circuit court’s grant of summary judgment for the reasons
set forth above, we note that “[a]s a general rule, summary judgment is appropriate only
after adequate time for discovery.” Powderidge Unit Owners Ass’n v. Highland Props.,
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Ltd., 196 W.Va. 692, 701, 474 S.E.2d 872, 881 (1996); see also Precision Coil, 194 W.Va.
at 61, 459 S.E.2d at 338 (“[T]his Court and the United States Supreme Court apply the
general principle that summary judgment is appropriate only after the opposing party has
had adequate time for discovery.” (internal quotations and citation omitted)). As we have
explained, “[a] party opposing a motion for summary judgment must have a reasonable
opportunity to discover information that is essential to [its] opposition to the motion.”
Powderidge Unit Owners Ass’n, 196 W.Va, at 701, 474 S.E.2d at 881 (internal quotations
and citation omitted). Therefore, “a decision for summary judgment before the completion
of discovery is ‘precipitous.’” Precision Coil, 194 W.Va. 61, 459 S.E.2d at 338 (citing Bd.
of Educ. of the Cty. of Ohio v. Van Buren and Firestone, Arch., Inc., 165 W.Va. 140, 144,
267 S.E.2d 440, 443 (1980)).
IV. Conclusion
Accordingly, for the foregoing reasons, the circuit court’s final order entered
on December 19, 2017, is reversed, and this case is remanded for further proceedings
consistent with this opinion.
Reversed and remanded.
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