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Rubin v. Aquafortis Associates, LLC

Superior Court of Maine, Lincoln

February 22, 2019



         Trial was conducted in this matter on December 21 & 22, 2018 on the Plaintiffs' claim for nuisance. The Plaintiffs have proven at trial that the drop in water level of Clary-Lake was the result of the condition of the dam owned by Pleasant Pond Mill, LLC ("PPM"). The drop in the water level in the lake, beginning in 2011 and continuing until the time of trial, caused an interference with the Plaintiffs use and enjoyment of their property to such an extent that they have established all of the necessary elements of nuisance. The court is also satisfied that the Plaintiffs have established damages in the amount of $50, 000, based on the credible testimony of Plaintiff Cheryl Ayer and Appraiser Stanley Paton.

         If PPM were still a defendant in this action, the court would have no difficulty entering judgment for $50, 000 in compensatory damages and moving on to determine if any amount of punitive damages would be appropriate.

         However, PPM is no longer a defendant in this action. Instead the Plaintiffs seek judgment against Aquafortis Associates, LLC ("Aquafortis") and Richard Smith. The Plaintiffs argue that the operations of PPM and Aquafortis have been so intertwined that Aquafortis is effectively an "alter-ego" for PPM and should be held liable for damages caused by PPM.

         Because "corporations are separate legal entities with limited liability .... courts are generally reluctant to disregard the legal entity and will cautiously do so only when necessary to promote justice." Johnson v. Exclusive Props. Unlimited, 1998 ME 244, ¶ 5, 720 A.2d 568 (quoting Anderson v. Kennebec River Pulp & Paper Co., 433 A.2d 752, 756 n.5 (Me. 1981)). Despite this, courts may pierce the corporate veil and disregard the corporate entity when equity demands it, such as "when [the entity has been] used to cover fraud or illegality, or to justify a wrong." Johnson, 1998 ME 244, ¶ 5, 720 A.2d 568.

         To pierce the corporate veil, a plaintiff must show both: "(1) the defendant abused the privilege of a separate corporate identity; and (2) an unjust or inequitable result would occur if the court recognized the separate corporate existence."[1] Id. ¶ 6. The Law Court has not adopted specific factors that must be considered or found in order to determine whether the defendant abused the privilege of a separate corporate identity, but it has cited with approval twelve factors that the Massachusetts courts use. Those factors are:

(1) common ownership; (2) pervasive control; (3) confused intermingling of business activity[, ] assets, or management; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the litigated transaction; (9) siphoning away of corporate assets by the dominant shareholders; (10) nonfunctioning of officers and directors; (11) use of the corporation for transactions of the dominant shareholders; [and] (12) use of the corporation in promoting fraud.

Id. ¶ 7 (citing The George Hyman Constr. Co. v. Gateman, 16 F.Supp.2d 129, 149-50 (D. Mass. 1998). A finding of fraud or illegality is not required for the court to determine that an unjust or inequitable result would occur if the court recognized the separate corporate existence of the LLC. See Johnson, 1998 ME 244, ¶ 8, 720 A.2d 568.

         The Law Court has not directly addressed this issue of when one corporation or LLC may be held liable for the actions of another. However, it has been considered in other states and, relying upon authority from other jurisdictions, the Superior Court considered when one corporation can be held liable for another corporation's employee's negligence in Masi v. Keeley Crane Services & Keeley Construction Co., No. CV-08-303, 2011 Me. Super. LEXIS 38, (Mar. 18, 2011). There, Nick Masi, who owned Masi Builders, had contracted Keeley Crane to provide a crane and operator for part of its building project. Id. at *3. During the work, Nick Masi was injured and the plaintiffs claimed that his injuries stemmed from the negligent operation of the crane. Id. Plaintiffs brought suit against both Keeley Crane Service and Keeley Construction Company and moved for partial summary judgment declaring that the companies "were operated as though they were a single enterprise without material regard to their separate corporate existences." Id. Therefore, the plaintiffs argued "[t]hey should thus be liable in equity as a unitary business and the sole employer of [the crane operator]." Id.

         The undisputed facts showed that the companies were listed as separate corporations with Maine's Secretary of State and that both were wholly owned by James Keeley, who was also the president of both companies. Id. at *3-4. James Keeley was paid only by Keeley Construction. Id. at *4. The companies shared the same mailing address and were housed at the same location. Id. Keeley Construction paid seventy-five percent of the rent. Id. As he saw fit, James Keeley had the authority to change the amount of rent and wages each company paid. Id. At one time, Keeley Construction filed a statement of intention to do business under the name Keeley Crane Service, before it was formed as a separate entity. Id. Both companies shared the same Federal Employer Identification Number. Id. Keeley authorized the Construction company to guaranty loans taken by the Crane company and the Construction company had acted as the Crane company's guarantor. Id. Both companies were covered by the same workers' compensation insurance policy, but by different general liability policies. Id. n.2. The Crane company earned $6 million in business per year and had forty employees, while the Construction company earned $2 million in business per year and had six employees. Despite this, the Crane company had a general liability policy of $1 million, but the Construction company had a policy of $2 million, with an additional $3 million umbrella insurance policy that included the Crane company's underlying Employers' Liability coverage. Id. at *6-7.

         The Crane company had no separate employee handbook, policies, or forms but instead used the Construction company's materials. Id. A person employed by the Construction company managed payroll for both operations. Id. James Keeley would freely move employees back and forth between the Crane and Construction companies by way of promotion, demotion, or otherwise. Id. Employees' paychecks reflected whether they were being paid by the Crane company or the Construction company. Id. Although the crane operator applied for employment on forms that bore the Construction company's name, he was officially employed by the Crane company. Id. The crane operator reported to James Keeley7 s son, Ben, who worked for both companies, but was only paid by the Construction company. Id.

         Plaintiffs argued that "Keeley Crane and Keeley Construction's separate corporate personalities ha[d] merged so that one corporation [was] a mere adjunct of the other or the two companies form[ed] a single enterprise." Id. at *8-9 (citations omitted). The Plaintiffs relied on the "alter ego" doctrine enunciated by the California courts that allowed them to apply "classic veil-piercing principles to sister corporations rather than shareholders." Id. at *11.

         The Superior Court (York County, Brennan, J.) quoted the California Court of Appeal as explaining that:

[u]sually, a disregard of the corporate entity is sought in order to fasten liability upon individual stockholders. . . . However, only a difference in wording is used in stating the same concept where the entity sought to be held liable is another corporation instead of an individual....
Generally, alter ego liability is reserved for the parent-subsidiary relationship. However, under the single-enterprise rule, liability can be found between sister companies. ... 'In effect what happens is that the court, for sufficient reason, has determined that though there are two or more personalities, there is but one enterprise; and that this enterprise has been so handled ...

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