Murray, Justice Maine Superior Court.
matter came before the Court for a jury-waived trial on June
28, 2016, after having been filed in the Newport District
Court. Attorney Economy represented the Plaintiff. Attorney
Douglas represented the Defendants.
Auto Auction (hereinafter Acadia Auto) is a wholesale
business that sells used vehicles to dealers. VMS LLC
(hereinafter VMS) was a dealer who sold used vehicles to
consumers. In 2006, Acadia Auto and VMS began doing business
Resources, Inc., (hereinafter Acadia Resources) provides
Acadia Auction clients with financing. In August of 2006, VMS
entered into a financing agreement with Acadia Resources
whereby Acadia Resources would provide financing to VMS, and
the financing fee was $1.00 per day per $1, 000.00 borrowed.
For instance, if $20, 000.00 was borrowed for one day, the
financing fee would be $20.00. On August 3, 2006, Gene
Villacci signed, on behalf of VMS, the "master"
Acadia Resources Inc. Security Agreement. Plaintiff was
initially satisfied to do business with VMS, without a
personal guarantee from Mr. Villacci. Mr. Villacci also
signed, on behalf of VMS, the separate "Security
Agreement and Promissory Note" for each vehicle financed
by Acadia Resources. According to Acadia Resources, the
financing was designed for the quick turn-over of vehicles to
consumers by used car dealers and was not designed as floor
financing, and Mr. Villacci agreed that he understood this.
"master" Security Agreement and the agreements with
respect to each individual vehicle in dispute provided that
VMS granted to Acadia Resources a security interest in the
vehicle and in the proceeds of the vehicle. According to Mr.
Westcott, whose testimony the Court accepts, Acadia Resources
could not effectively perfect its security interest in the
vehicles it sold because the State of Maine refused to
allowed it to do so (at the times relevant to this case).
appears that the relationship between Acadia Resources and
VMS was mutually beneficial until 2008 - 2009. When VMS was
struggling, Acadia Resources asked Mr, Villacci for a
personal guarantee, and he refused. Until February 27, 2009,
Mr. Villacci and his wife were both members of VMS.
Thereafter Mr. Villacci was the only member.
financing of thirteen vehicles by VMS through Acadia
Resources is at the crux of this case. Ten of the thirteen
vehicles were financed by VMS in 2008, and three in 2009.
Financing and other fees were charged on these vehicles
beginning on June 26, 2008 continuing through May, 2013, when
Acadia Resources stopped charging fees.
2009, VMS continued to purchase vehicles from Acadia Auto.
VMS struggled, but continued to pay Acadia Resources some
amounts in 2009, and Acadia Resources continued to provide
financing to VMS in 2009. During 2009, VMS paid Acadia
Resources over $51, 000.00, the last payment having been made
in December of 2009.
2010, VMS transferred real estate it owned at 390 Middle Rd,
Falmouth, Maine to VEI, LLC, Mr. Villacci was the sole member
of VEI. Mr. Villacci testified that this transfer was to
prevent the property from being foreclosed upon.
is no question that the economic downturn in 2008-2009
affected the business of both VMS and Acadia Resources.
Acadia Resources was able to weather the downturn, and VMS
was not. VMS was administratively dissolved in 2014.
May 1, 2013, VMS owed Acadia Resources $237, 357.00, about
$72, 370.00 for the principal amount financed and about $164,
987.00 in financing and other fees. There is no dispute that
VMS owes Acadia Resources this amount. The real dispute in
this case is whether Mr. Villacci should be held personally
liable for this debt.
member of a limited liability company is generally not
individually liable for the debts of the LLC. 31 M.R.S.
§ 645. The concept of limited liability is a hallmark of
corporate law. LaBelle v Crepeau, 593 A.2d 653, 655
(Me. 1991) (principal benefit of incorporation is limited
liability for shareholders).
in this case, Acadia Resources argues that the Court should
"pierce the corporate veil" and hold Gene Villacci
liable for VMS's debt to Acadia Resources. Alternatively,
Acadia Resources argues that Mr. Villacci should be held
personally liable for the Acadia Resources debt due to his
participation in wrongful acts.
Piercing the LLC veil
corporate entity is merely the "alter ego" of an
individual or another corporation, the entity maybe pierced.
Stanley v. Liberty, 2015 ME 21. Theberge v.
Darbro, Inc., 684 A.2d 1298 (1996). However, courts must
"disregard the legal entity of a corporation ... with
caution and only when necessary in the interest of
justice". Theberge (court refused to pierce the
corporate veil despite co-mingling of business among
defendants). Additionally, in the context of a contractual
dispute, courts apply "more stringent standards ...
because the party seeking relief in a contract case is
presumed to have voluntarily and knowingly entered into an
agreement with a corporate entity, and is expected to suffer
the consequences of the limited liability associated with the
corporate business form". Id.
the corporate veil has two prongs for analysis: (1) whether
the defendant abused the privilege of a separate corporate
identity; and (2) whether an unjust or inequitable
result would occur if the court recognized the separate
corporate existence. Stanley. The same test applies
to determination whether the LLC veil should be pierced.
Town of Lebanon v. East Lebanon Auto Satles, LLC,
2011 ME 78.
determine whether a shareholder abused the privilege of a
separate corporate identity under the first prong of the
piercing doctrine, courts examine a variety factors. The Law
Court has cited with approval the following twelve factors:
(1) common ownership;
(2) pervasive control;
(3) confused intermingling of business activity[, ] assets or