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Acadia Resources Inc. v. VMS LLC

Superior Court of Maine, Penobscot

October 21, 2016

ACADIA RESOURCES INC., Plaintiff,
v.
VMS LLC and GENEVILLACCI Defendants,

          JUDGMENT

          Ann M. Murray, Justice Maine Superior Court.

         This 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.[1]

         FACTS

         Acadia 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 together regularly.

         Acadia 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.

         The "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).

          It 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.

         The 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.

         In 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.

         In 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.

         There 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.

         As of 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.

         ANALYSIS

         A 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).

         However, 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.

         A. Piercing the LLC veil

         If a 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.

         Disregarding 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.

         To 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 ...

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