NetJets Aviation, Inc. v. LHC Communications, LLC, No. 06-3340 (2d Cir. 2008)

Annotate this Case

Download PDF

06-3340-cv NetJets Aviation, Inc. v. LHC Communications, LLC 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 - - - - - - 4 August Term, 2007 5 (Argued: January 15, 2008 Decided: August 8, 2008) 6 7 Docket No. 06-3340-cv 8 _________________________________________________________ 9 NETJETS AVIATION, INC., and NETJETS SALES, INC., 10 Plaintiffs-Appellants, 11 - v. - 12 LHC COMMUNICATIONS, LLC, and LAURENCE S. ZIMMERMAN, 13 14 Defendants-Appellees. _________________________________________________________ 15 Before: KEARSE, LEVAL, and CABRANES, Circuit Judges. 16 Appeal from so much of a judgment of the United States 17 District Court for the Southern District of New York, Deborah A. 18 Batts, Judge, as (a) dismissed claims against defendant company for 19 breach of contract, and (b) dismissed claims against the individual 20 defendant, on a veil-piercing theory of liability, for breach of 21 contract and account stated. 22 23 24 25 26 27 28 Vacated and remanded. ROBERT T. BARNARD, New York, New York (Joseph B. Koczko, Courtney L. Scheinmel, Thompson Hine, New York, New York, O. Judson Scheaf, Scott A. Campbell, Michele L. Noble, Thompson Hine, Columbus, Ohio, on the brief), for Plaintiffs-Appellants. 1 2 3 4 5 MICHAEL F. SCHWARTZ, New York, New York (Penn Proefriedt Schwarzfeld & Schwartz, New York, New York, on the brief), for Defendants-Appellees. KEARSE, Circuit Judge: 6 Plaintiffs NetJets Aviation, Inc., and NetJets Sales, Inc. 7 (collectively "NetJets"), appeal from so much of a judgment of the 8 United States District Court for the Southern District of New York, 9 Deborah A. Batts, Judge, as summarily dismissed their claims against 10 defendant LHC Communications, LLC ("LHC"), for breach of contract 11 and their claims against defendant Laurence S. Zimmerman, as LHC's 12 alter ego, for breach of contract and account stated. 13 court, having granted partial summary judgment in favor of NetJets 14 on account-stated claims against LHC, sua sponte dismissed NetJets's 15 breach-of-contract claims against LHC on the ground that they were 16 duplicative of the account-stated claims. 17 granted 18 Zimmerman on the ground that NetJets had not adduced sufficient 19 evidence to pierce the corporate veil. 20 principally that the district court erred (1) in treating its 21 breach-of-contract 22 claims, because the pertinent contracts allow NetJets to recover not 23 only the balances due on LHC's accounts but also attorneys' fees, 24 and (2) in concluding that there was not sufficient evidence to 25 support its breach-of-contract and account-stated claims against 26 Zimmerman summary as judgment claims LHC's alter dismissing as -2- The court sua sponte NetJets's claims against On appeal, NetJets contends duplicative ego. The district Finding of its-account-stated merit in NetJets's 1 contentions, we vacate so much of the judgment as dismissed the 2 above claims and remand for further proceedings. 3 I. BACKGROUND 4 NetJets is engaged in the business of leasing fractional 5 interests in airplanes and providing related air-travel services. 6 LHC is a Delaware limited liability company whose sole member-owner 7 is Zimmerman. 8 between NetJets and LHC are not in dispute. 9 A. Most of the facts with respect to the relationship The Contracts Between NetJets and LHC 10 On August 1, 1999, LHC entered into two contracts with 11 NetJets. 12 LHC a 12.5 percent interest in an airplane, for which LHC was to pay 13 NetJets a fixed monthly rental fee. 14 with LHC having a qualified right of early termination. 15 contract (the "Management Agreement") required NetJets to manage 16 LHC's interest in the leased airplane and to provide services such 17 as maintenance and piloting with respect to that airplane, or 18 substitute aircraft, at specified hourly rates. 19 pay a monthly management fee, as well as fuel charges, taxes, and 20 other 21 Agreement allotted to LHC use of the airplane for an average of 100 22 hours per year for the five-year term of the lease ("LHC air 23 hours"), In the first (the "Lease Agreement"), NetJets leased to fees associated and it with provided LHC's that -3- The lease term was five years, air if It required LHC to travel. the The second leased The Management airplane were 1 unavailable at a time when LHC wished to use it, NetJets would 2 provide substitute aircraft. 3 for the services provided under the Lease and Management Agreements. 4 The Lease Agreement provided that "[i]f any action at law 5 or in equity is necessary to enforce the terms of this Agreement, 6 the prevailing party shall be entitled to reasonable attorneys' fees 7 in 8 entitled." 9 Agreement would be "governed by and construed in all respects in addition to any other NetJets regularly sent LHC invoices relief (Lease Agreement § 19.) to which such party may be It was agreed that the Lease 10 accordance with the laws of the State of New York." 11 The Management Agreement, which the parties agreed would be governed 12 by Ohio law (see Management Agreement § 21), provided that if LHC 13 failed to pay amounts due under that Agreement, LHC would be liable 14 for the costs of collection, including reasonable attorneys' fees 15 (see id. § 7). (Id. § 17.) 16 In July 2000, LHC terminated its agreements with NetJets. 17 LHC's chief financial officer ("CFO") James P. Whittier sent a 18 letter, addressed to a NetJets vice president, stating, in pertinent 19 part, that "[t]he present outstanding is $440,840.39 and we are 20 requesting that you apply the deposit of $100,000 against the 21 outstanding 22 (Letter from James P. Whittier to Ron Miller dated July 24, 2000 23 ("LHC Termination Letter").) 24 As and contact requested, this office NetJets to contacted resolve LHC the and balance." applied the 25 $100,000 deposit against LHC's debt; however, it did not receive 26 payment of the remaining balance of $340,840.39. -4- In 2001, LHC 1 ceased operations. 2 B. The Present Action and the Decision of the District Court 3 NetJets commenced the present diversity action in 2002, 4 asserting claims against LHC and Zimmerman for breach of contract, 5 account stated, and unjust enrichment. 6 breach-of-contract claims, NetJets requested an award of attorneys' 7 fees. In connection with the 8 Following a period of discovery, NetJets moved for summary 9 judgment against both defendants on the breach-of-contract and 10 account-stated claims. 11 held liable for the debts of LHC as its alter ego based on evidence, 12 described in greater detail in Part II.B. below, of, inter alia, (a) 13 the frequent use of LHC air hours for personal travel by Zimmerman 14 and his friends and family, (b) the frequent transfers of funds 15 between 16 frequent withdrawal of funds from LHC for his own personal use, and 17 (d) the fact that LHC is no longer in business and has no assets 18 with which to pay its debt to NetJets, a condition that NetJets 19 contends was caused by Zimmerman's withdrawals. 20 LHC In and a NetJets contended that Zimmerman should be Zimmerman's Memorandum and other Order companies, dated June (c) 12, Zimmerman's 2006, the 21 district court granted NetJets's summary judgment motion in part, 22 awarding it $340,840.39 against LHC on the account-stated claims. 23 See NetJets Aviation, Inc. v. LHC Communications LLC, No. 02 Civ. 24 7441, 2006 WL 1627899 (S.D.N.Y. June 12, 2006). The court concluded 25 that, in light of the LHC Termination Letter, whose authenticity was -5- 1 unchallenged, there was no genuine issue to be tried with respect to 2 LHC's liability to NetJets in the amount of $340,840.39. 3 WL 1627899, at *7. 4 NetJets's motion and dismissed its contract claims against LHC--as 5 well as its unjust enrichment claims. 6 because it had ruled in favor of NetJets against LHC on the theory 7 of account stated, NetJets's claims against LHC "for alternative 8 relief under a breach of contract theory do not survive." 9 court concluded that NetJets could not recover against LHC for 10 unjust enrichment, a theory alternative to breach of contract, 11 because NetJets's rights were grounded in contracts that were 12 essentially undisputed. 13 The See 2006 The district court denied the remainder of district The court concluded that Id. The See id. at *8. court also denied NetJets's motion for 14 summary judgment on its contract and account-stated claims against 15 Zimmerman. 16 against Zimmerman for the debts of LHC, NetJets would be required to 17 meet a two-pronged test showing "(1) that the business entity and 18 its owner 'operated as a single economic entity' and (2) that [there 19 was] an 'overall element of injustice or unfairness.'" 20 (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1458 (2d Cir. 1995), 21 which applied Delaware law). 22 NetJets had "shown that Zimmerman and LHC functioned as a single 23 economic unit," 2006 WL 1627899, at *5, NetJets had not "set forth 24 any facts from which a jury could reasonably conclude that Zimmerman 25 formed LHC with the specific fraudulent intent of evading liability 26 to Plaintiffs," id. at *6. It stated that under Delaware law, in order to recover Id. at *4 The court concluded that although The court noted that while "something -6- 1 other than specific fraudulent intent could satisfy the second 2 prong, wherever courts have given shape to the second prong, they 3 primarily have focused on the need to show fraud or bad faith," id.; 4 it stated that NetJets had "not proven as a matter of law that 5 Zimmerman conducted a sophisticated shell game to the purposeful 6 detriment of creditors, namely NetJets," id. 7 rejected the proposition that the requisite unfairness was shown by 8 the evidence that "Zimmerman allowed LHC to default on its payments 9 to NetJets even as he was siphoning money from the company coffers, 10 transferring funds to other companies he controlled, and making 11 payments through LHC on a mortgage and luxury cars that were in his 12 own name." 13 stated that "each of these actions are factors in considering the 14 first prong of the alter ego analysis and cannot simultaneously be 15 used by Plaintiffs to satisfy the second prong. 16 would render the fraud or injustice element meaningless . . . .'" 17 Id. (quoting Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 18 260, 268 (D. Del. 1989)). The district court Id. (internal quotation marks omitted). The court 'To hold otherwise 19 Although Zimmerman had not moved for summary judgment in 20 his favor, the court sua sponte granted summary judgment dismissing 21 all of NetJets's claims against him. 22 II. 23 24 DISCUSSION On appeal, NetJets contends principally (1) that the district court erred in dismissing -7- its contract claims as 1 duplicative of its account-stated claims, arguing that the pertinent 2 contracts allow NetJets to recover not only the balances due on 3 LHC's accounts but also reasonable attorneys' fees incurred in 4 collecting those debts; and (2) that the evidence as to Zimmerman's 5 operation of LHC for his personal use warranted the entry of summary 6 judgment in NetJets's favor on its veil-piercing breach-of-contract 7 and 8 sufficient to preclude the entry of summary judgment dismissing 9 those claims. account-stated claims against Zimmerman, or at least was Zimmerman, in addition to endorsing the district 10 court's decision that he was entitled to judgment for lack of proof 11 of an overall element of injustice or unfairness, contends that the 12 entry of summary judgment in his favor may also be upheld on a 13 different ground, see, e.g., Massachusetts Mutual Life Insurance Co. 14 v. Ludwig, 426 U.S. 479, 480-81 (1976) (a party need not cross- 15 appeal in order to assert an alternative ground, based on the 16 record, to support the district court's judgment). 17 the court was presented with sufficient evidence to preclude a 18 finding that he and LHC operated as a single entity. He argues that 19 For the reasons that follow, we conclude that NetJets's 20 breach-of-contract claims against LHC were erroneously dismissed and 21 that NetJets is entitled to trial on its contract and account-stated 22 claims against Zimmerman as LHC's alter ego. 23 A. NetJets's Breach-of-Contract Claims Against LHC 24 Two claims are duplicative of one another if they "arise 25 from the same facts . . . and do not allege distinct damages." -8- 1 Sitar v. Sitar, 50 A.D.3d 667, 670, 854 N.Y.S.2d 536, 538 (2d Dep't 2 2008); see, e.g., Conway v. Icahn & Co., 16 F.3d 504, 511 (2d Cir. 3 1994). Where a claimant is entitled to a particular category of 4 damages on 5 duplicative. See generally Freitag v. Bill Swad Datsun, 3 Ohio App. 6 3d 83, 86, 443 N.E.2d 988, 992 (1981) (when a plaintiff establishes 7 the elements of two claims arising out of the same set of facts, he 8 is entitled to judgment on the claim that provides the greater 9 measure of damages). one claim but not the other, the claims are not 10 Under New York law, a contract that provides for an award 11 of reasonable attorneys' fees to the prevailing party in an action 12 to enforce the contract is enforceable if the contractual language 13 is sufficiently clear. See, e.g., Mid-Hudson Catskill Rural Migrant 14 Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 177-79 (2d Cir. 15 2005); Hooper Associates, Ltd. v. AGS Computers, Inc., 74 N.Y.2d 16 487, 491-92, 549 N.Y.S.2d 365, 366-67 (1989) (same). 17 law, such contractual provisions for attorneys' fees are enforceable 18 to the extent that the trial court, after consideration of all the 19 circumstances of the case, may award such fees as are fair, just, 20 and reasonable. 21 Inc. v. Darby, 33 Ohio St. 3d 32, 37, 514 N.E.2d 702, 706-07 (1987); 22 Northwoods Condominium Owners' Association v. Arnold, 147 Ohio App. 23 3d 343, 348, 770 N.E.2d 627, 630-31 (2002). Under Ohio See, e.g., Nottingdale Homeowners' Association, 24 On a valid cause of action for account stated, a plaintiff 25 is entitled to recover the amount due on the defendant's account. 26 Recovery on such a claim does not ordinarily include an award for -9- 1 attorneys' fees. 2 Martin, 11 Misc. 3d 219, 225 n.6, 807 N.Y.S.2d 284, 290 n.6 (Civ. 3 Ct. 2005) (a "fee award cannot be based upon a cause of action 4 pleading an account stated"); see generally Keal v. Day, 164 Ohio 5 App. 3d 21, 24, 840 N.E.2d 1139, 1141 (2005) ("Ohio has adopted the 6 'American Rule,' by which each party to a lawsuit must pay his or 7 her own attorney fees," unless an exception applies, such as "the 8 parties' contract provid[ing] for fee-shifting"). 9 party has both a claim for account stated and a claim under a 10 contract that provides for an award of attorneys' fees, the claims 11 for breach of contract and account stated are not duplicative. 12 In See, e.g., Citibank (South Dakota), N.A. v. dismissing NetJets's Thus, when a breach-of-contract claims as 13 duplicative of its account-stated claims, the district court relied 14 on Lankler Siffert & Wohl, LLP v. Rossi, No. 02 Civ. 10055, 2004 WL 15 541842 (S.D.N.Y. Mar. 19, 2004) ("Lankler"). 16 misplaced, however, because in that case the plaintiffs' claims (for 17 account stated, breach of contract, conversion, unjust enrichment, 18 and tortious interference with contractual relations) all "s[ought] 19 the same relief"; thus, the Lankler court noted that "[i]f each of 20 the judgments for the Moving Plaintiffs on their account stated 21 claims are satisfied, then the Moving Plaintiffs will have received 22 full relief." That reliance was Id. at *4. 23 LHC's brief on appeal presents no serious argument in 24 support of the district court's conclusion that the NetJets claims 25 for account stated and breach of contract were duplicative. 26 merely states conclusorily that those claims "are duplicative" (LHC - 10 - It 1 brief on appeal at 22), and cites the fact that "NetJets' Memorandum 2 of Law" in support of its motion for summary judgment discussed the 3 account-stated 4 contract claims (id. at 21-22). claims "first" before discussing the breach-of- 5 As set forth in Part I.A. above, both the Lease Agreement, 6 which the parties agreed is to be governed by New York law, and the 7 Management Agreement, which the parties agreed is to be governed by 8 Ohio law, contain clauses that allow NetJets to recover reasonable 9 attorneys' fees incurred in collecting the sums due under the 10 respective Agreements. 11 claims for account stated, NetJets's contract claims were not 12 duplicative of its claims for account stated. 13 B. 14 As those fees could not be recovered on NetJets's Claims Against Zimmerman 1. Limitations on Limited Liability 15 A limited liability company (or "LLC"), formed by one or 16 more entities and/or individuals as its "members," is an entity 17 that, 18 partnership and limited liability akin to the corporate form." 19 Altochem North America, Inc. v. Jaffari, 727 A.2d 286, 287 (Del. 20 1999); see generally id. at 290. 21 and the members of an LLC generally are not liable for the debts of 22 the entity, and a plaintiff seeking to persuade a Delaware court to 23 disregard the corporate structure faces "a difficult task," Harco 24 National Insurance Co. v. Green Farms, Inc., No. CIV. A. 1331, 1989 25 WL 110537, at *4 (Del. Ch. Sept. 19, 1989) ("Harco"). as a general matter, provides "tax benefits akin to a Elf The shareholders of a corporation - 11 - 1 Nonetheless, in appropriate circumstances, the distinction 2 between the entity and its owner "may be disregarded" to require an 3 owner to answer for the entity's debts. 4 Continental Oil Co., 239 A.2d 629, 633 (Del. 1968). 5 with respect to the limited liability of owners of a corporation, 6 Delaware law permits a court to pierce the corporate veil 7 "where there is fraud or where [the corporation] is in fact a mere 8 instrumentality or alter ego of its owner." 9 Publications Co., 621 A.2d 784, 793 (Del. Ch. 1992); see, e.g., 10 Martin v. D.B. Martin Co., 10 Del. Ch. 211, 217, 88 A. 612, 615 11 (1913) ("Martin") ("Where one corporation owns all the shares of 12 another corporation, co-operating in the same business, the former 13 financing the latter, and the same persons are officers of both 14 corporations, the latter is for certain purposes to be considered as 15 an agency, adjunct or instrumentality of the former."); id. at 216- 16 17, 88 A. at 615 ("It must be in the power of the court to look 17 through these legal fictions to the equitable realities and see by 18 whom and through what agencies the wrong is done and on whom the 19 loss ultimately falls."). 20 are provided by corporations and LLCs to their respective owners, 21 "[e]merging caselaw illustrates" that "situations that result in a 22 piercing of the limited liability veil are similar to those [that 23 warrant] piercing the corporate veil." 24 Nollkamper & P. Whynott, The Limited Liability Company § 11:130, at 25 11-7 (rev. ed. 2007); see also id. at 11-9 ("Every state that has 26 enacted LLC piercing legislation has chosen to follow corporate law Pauley Petroleum Inc. v. In general, Geyer v. Ingersoll Given the similar liability shields that - 12 - J. Leet, J. Clarke, P. 1 standards and not develop a separate LLC standard."). 2 To prevail under the alter-ego theory of piercing the 3 veil, a plaintiff need not prove that there was actual fraud but 4 must show a mingling of the operations of the entity and its owner 5 plus an "overall element of injustice or unfairness." 6 WL 110537, at *4. 7 8 9 10 11 12 13 14 15 16 17 18 19 Harco, 1989 "[A]n alter ego analysis must start with an examination of factors which reveal how the corporation operates and the particular defendant's relationship to that operation. These factors include whether the corporation was adequately capitalized for the corporate undertaking; whether the corporation was solvent; whether dividends were paid, corporate records kept, officers and directors functioned properly, and other corporate formalities were observed; whether the dominant shareholder siphoned corporate funds; and whether, in general, the corporation simply functioned as a facade for the dominant shareholder." 20 Id. at *4 (quoting United States v. Golden Acres, Inc., 702 F. Supp. 21 1097, 1104 (D. Del. 1988) ("Golden Acres"), aff'd, 879 F.2d 857 & 22 860 (3d Cir. 1989)). 23 24 25 26 27 28 29 "[N]o single factor c[an] justify a decision to disregard the corporate entity, but . . . some combination of them [i]s required, and . . . an overall element of injustice or unfairness must always be present, as well." Harco, [1989 WL 110537, at *5] (quoting Golden Acres, 702 F.Supp. at 1104). 30 Harper v. Delaware Valley Broadcasters, Inc., 743 F. Supp. 1076, 31 1085 (D. Del. 1990) ("Harper") (emphasis added), aff'd, 932 F.2d 959 32 (3d Cir. 1991). 33 As the above discussion indicates, "[n]umerous factors 34 come into play when discussing whether separate legal entities 35 should be regarded as alter egos," id., and "[t]he legal test for - 13 - 1 determining when a corporate form should be ignored in equity cannot 2 be reduced to a single formula that is neither over- nor under- 3 inclusive," Irwin & Leighton, Inc. v. W.M. Anderson Co., 532 A.2d 4 983, 989 (Del. Ch. 1987). 5 focuses on whether "those in control of a corporation" did not 6 "treat[] the corporation as a distinct entity"; and, if they did 7 not, the court then seeks "to evaluate the specific facts with a 8 standard of 'fraud' or 'misuse' or some other general term of 9 reproach in mind," id., such as whether the corporation was used to 10 engage in conduct that was "inequitable," Mobil Oil Corp. v. Linear 11 Films, Inc., 718 F. Supp. 260, 269 (D. Del. 1989) ("Mobil Oil") 12 (internal quotation marks omitted), or "prohibited," David v. Mast, 13 No. 1369-K, 1999 WL 135244, at *2 (Del. Ch. Mar. 2, 1999), or an 14 "unfair trade practice," id., or "illegal," Martin, 10 Del. Ch. at 15 219, 88 A. at 615. 16 17 18 19 20 21 22 Stated generally, the inquiry initially Simply phrased, the standard may be restated as: "whether [the two entities] operated as a single economic entity such that it would be inequitable for th[e] Court to uphold a legal distinction between them." Mabon, Nugent & Co. [v. Texas American Energy Corp., No. CIV. A. 8578, 1990 WL 44267, at *5 (Del. Ch. Apr. 12, 1990)]. 23 Harper, 743 F. Supp. at 1085. 24 pronged test focusing on (1) whether the entities in question 25 operated as a single economic entity, and (2) whether there was an 26 overall element of injustice or unfairness. 27 Inc., 68 F.3d 1451, 1457 (2d Cir. 1995). 28 29 Our Court has stated this as a two- See Fletcher v. Atex, Finally, we note that the plaintiff need not prove that the corporation was created with fraud or unfairness in mind. - 14 - It is 1 sufficient to prove that it was so used. 2 Ch. at 219, 88 A. at 615 (corporate form may be disregarded "when 3 used as a shield for fraudulent or other illegal acts, though it 4 does not appear that the arrangement was originally intended to 5 perpetrate a fraud"); Sonne v. Sacks, No. CIV.A. 4416, 1979 WL 6 178497, at *2 (Del. Ch. June 12, 1979) (courts "look behind the 7 corporate curtain" generally "where the facts indicate that the 8 corporate entity has been or is being used by those in control of it 9 to perpetrate a fraud" or to "promote injustice" (internal quotation 10 See, e.g., Martin, 10 Del. marks omitted)). 11 These principles are generally applicable as well where 12 one of the entities in question is an LLC rather than a corporation. 13 See, e.g., Oliver v. Boston University, No. 16570, 2000 WL 1091480, 14 at *9, *12 (Del. Ch. Jul. 18, 2000) (holding that a Massachusetts 15 LLC, 16 completely dominated by the owner, could be fairly characterized as 17 the alter ego of its owner). 18 somewhat 19 internal formalities because fewer such formalities are legally 20 required. 21 Code Ann. tit. 6, § 18-101 et seq. ("DLLCA") (requiring little more 22 than that an LLC execute and file a proper certificate of formation, 23 see id. § 18-201(a), maintain a registered office in Delaware, see 24 id. § 18-104(a)(1), have a registered agent for service of process 25 in Delaware, see id. § 18-104(a)(2), and maintain certain records 26 such as membership lists and tax returns, see id. § 18-305(a)). created less solely to emphasis serve is the interests of its owner and In the alter-ego analysis of an LLC, placed on whether the LLC observed See, e.g., Delaware Limited Liability Company Act, Del. - 15 - On 1 the other hand, if two entities with common ownership "failed to 2 follow legal formalities when contracting with each other it would 3 be tantamount to declaring that they are indeed one in the same." 4 Trustees of Village of Arden v. Unity Construction Co., No. C.A. 5 15025, 2000 WL 130627, at *3 (Del. Ch. Jan. 26, 2000) (emphasis 6 added). 7 2. Summary Judgment Principles 8 With the above substantive framework in mind, we turn to 9 (a) Zimmerman's contention that he was entitled to summary judgment 10 on the ground--contrary to the district court's opinion--that there 11 was insufficient evidence to permit a finding that he and LHC 12 operated as a single economic entity, and (b) NetJets's contention 13 that 14 intertwined operation of Zimmerman and LHC, there was insufficient 15 evidence to permit a finding of an overall element of injustice or 16 unfairness. 17 principles that, in reviewing the grant--or denial--of summary 18 judgment, see, e.g., Local Union No. 38, Sheet Metal Workers' 19 International Association, AFL-CIO v. Pelella, 350 F.3d 73, 80 (2d 20 Cir. 2003) (denial of summary judgment is reviewable after a final 21 decision has rendered the case appealable), we review the record de 22 novo, and we view the evidence in the light most favorable to the 23 party against which summary judgment was granted or sought, see, 24 e.g., Amidon v. Student Association of the State University of New 25 York at Albany, 508 F.3d 94, 98 (2d Cir. 2007); Cronin v. Aetna Life the district court erred in finding that despite the In addressing these contentions, we apply the familiar - 16 - 1 Insurance Co., 46 F.3d 196, 202-03 (2d Cir. 1995); New York State 2 Association of Realtors, Inc. v. Shaffer, 27 F.3d 834, 838 (2d 3 Cir.), cert. denied, 513 U.S. 1000 (1994). 4 Further, we note that although a district court may, on an 5 appropriate record, grant summary judgment sua sponte--after giving 6 the party against which the court is contemplating such a decision 7 notice and an opportunity to present evidence and arguments in 8 opposition, see, e.g., B.F. Goodrich v. Betkoski, 99 F.3d 505, 531 9 (2d Cir. 1996)--the court, in considering such a decision, is 10 required to view the record in the light most favorable to the party 11 against which summary judgment is contemplated and to resolve all 12 ambiguities and draw all factual inferences in favor of that party, 13 see generally Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 14 (1986); Coach Leatherware Co. v. AnnTaylor, Inc., 933 F.2d 162, 167 15 (2d Cir. 1991). Summary judgment is not appropriate if the evidence 16 is such that a reasonable jury could return a verdict in favor of 17 the party against which summary judgment is contemplated. 18 e.g., Anderson, 477 U.S. at 248. See, 19 Finally, we emphasize that the fact that a party who has 20 moved for summary judgment in his own favor has not shown that he is 21 entitled to judgment as a matter of law does not mean that it is 22 appropriate to grant summary judgment against him. 23 id. at 248-49 ("[T]he issue of material fact required . . . to 24 entitle a party to proceed to trial is not required to be resolved 25 conclusively in favor of the party asserting its existence; rather, 26 all that is required is that sufficient evidence supporting the - 17 - See, e.g., 1 claimed 2 omitted) (emphasis added)); Brown v. Cara, 420 F.3d 148, 160-61 (2d 3 Cir. 2005). 4 the district court is required to view the record in the light most 5 favorable to the party against which summary judgment is sought. 6 But in considering whether to grant summary judgment against the 7 moving party sua sponte, the court is required to view the evidence 8 in the moving party's favor. 9 3. factual dispute be shown." (internal quotation marks Thus, in deciding a party's summary judgment motion, The Evidence that LHC and Zimmerman Operated as One 10 With respect to the question of whether LHC and Zimmerman 11 operated as a single entity, the record contains, inter alia, 12 financial records of LHC and deposition testimony from Zimmerman and 13 LHC's CFO, Whittier. 14 light most favorable to NetJets, shows, inter alia, that LHC, of 15 which 16 capitalization of no more than $20,100; that LHC proceeded to invest 17 millions of dollars supplied by Zimmerman, including some $22 18 million 19 Bazillion, Inc. ("Bazillion"); and that Zimmerman put money into LHC 20 as LHC needed it, and took money out of LHC as Zimmerman needed it. 21 Whittier, who had known Zimmerman since 1980 and worked 22 with him full time from 1996 until April 2002 (see, e.g., Deposition 23 of James P. Whittier ("Whittier Dep.") at 10-12), was LHC's only 24 officer other than Zimmerman (see Affidavit of Laurence Zimmerman 25 dated October 14, 2004 ("Zimmerman Aff."), ¶ 16). Zimmerman in an is The evidence discussed below, taken in the the internet sole member-owner, technology - 18 - company was started eventually with a called In addition to 1 LHC, Zimmerman directly or indirectly owned or controlled a number 2 of companies, including Landover Telecom Corporation ("Landover 3 Telecom"), LandTel N.V. ("LandTel"), IP II Partners, LP ("IP II"), 4 Fox Lair Holdings Corporation ("Fox Lair"), and Kimlar Consulting 5 Corporation ("Kimlar"). 6 Whittier acted as CFO for each of those companies. 7 68, 71, 72, 74, 79.) During most of the period 1996 to April 2002, 8 Whittier from 9 corporations." 10 "got paid (See Whittier Dep. 66-67, 70, 72-73, 78.) either Mr. Zimmerman (See id. at 23, or one of his (Id. at 14.) Zimmerman formed LHC in 1998; for most of its operating 11 life, 12 companies; LHC employed no more than five-to-seven people at any 13 given time; and some of its employees worked for both LHC and 14 Zimmerman's other companies or for LHC and Zimmerman personally. 15 (See Whittier Dep. 24; Deposition of Laurence Zimmerman, October 1, 16 2003 ("Zimmerman Dep. I"), at 58.) 17 to-day 18 received from Zimmerman. it shared operations 19 office based space on with some of Zimmerman's other Whittier ran much of LHC's day- instructions, general or specific, (See Whittier Dep. 23, 39.) Zimmerman formed LHC "to be used as an investment vehicle 20 for Mr. Zimmerman for him to make investments." (Id. at 19.) "With 21 regards to investments, Mr. Zimmerman reviewed investments. If he 22 decided to go forward after his review, he would make an investment 23 through [LHC] to an investment corporation he wanted to invest in." 24 (Id. at 22.) 25 best way of accomplishing something he had decided he wanted to do 26 (see id. at Although Zimmerman sought Whittier's advice as to the 23), the ultimate decisions - 19 - were always made by 1 Zimmerman. "There were no decisions, financial decisions, made with 2 regard to LHC without Mr. Zimmerman's approval." (Id. at 22.) 3 Whittier testified that LHC also "was an operating company 4 which maintained a consulting agreement with another entity called 5 Landtel NV." 6 Zimmerman's Landover Telecom--and was apparently LHC's only paying 7 client--did not come into existence until January 2000 (id. at 8 69-70), and LHC records do not show receipt of any consulting fees 9 from LandTel until July 2000. (Id. at 19.) But LandTel, which was wholly owned by Until LandTel was formed, therefore, 10 the day-to-day LHC operations run by Whittier apparently consisted 11 only of making Zimmerman's investments and carrying on Zimmerman's 12 personal business: 13 Q. What was your role with regard to LHC? 14 A. I was acting chief financial officer. 15 16 Q. What were your responsibilities as chief financial officer? 17 18 19 A. They were defined by Mr. Zimmerman. I basically tried to carry out what Mr. Zimmerman's wishes were. 20 . . . . 21 22 Q. What did your day-to-day responsibilities with regard to Mr. Zimmerman include? 23 24 25 26 27 A. They varied. It was working on a potential investment that LHC might make; it was overseeing the consulting agreement that it had, might have had, that it did have with Landtel, and it was personal business. 28 29 Q. By "personal business," do you mean the personal business of Mr. Zimmerman? 30 A. 31 Q. Sure. Do you mean anything else by "personal - 20 - 1 business"? 2 A. No. 3 (Whittier Dep. 23, 24 (emphases added).) 4 was paid sometimes by LHC and sometimes by Zimmerman personally. 5 (See id. at 14.) Whittier's compensation 6 In connection with Zimmerman's personal business, LHC's 7 records show numerous transfers of money by Zimmerman to LHC, as 8 well as numerous transfers of money from LHC to Zimmerman. 9 the transfers by Zimmerman to LHC were for the purpose of having LHC 10 make investments, principally in Bazillion. 11 Zimmerman 12 Some of operating expenses: 13 14 15 16 17 18 to LHC were made for the Other transfers by purpose of meeting LHC's To the extent that the corporation had to pay operating expenses like rent, telephone, copy, employees, if there was not sufficient capital in the corporation, he would then advance the money personally to the corporation to meet these obligations. 19 (Whittier 20 transfer funds to LHC "as needed." 21 ("Monies would go in . . . LHC based on the need.").) 22 funds would come from Zimmerman's personal bank accounts. 23 because Zimmerman generally waited until the eleventh hour to 24 provide money to meet LHC's operating needs, sometimes "shortcuts" 25 were taken by having the money come to LHC directly from one of 26 Zimmerman's other companies (id. at 46-47) such as Landover Telecom, 27 Kimlar, Fox Lair, or 28 relationship with LHC 29 Zimmerman, February 20, 2004 ("Zimmerman Dep. II"), at 16, 24, 26; Dep. 27.) Whittier IP II, (see, testified Zimmerman would (Id. at 26; see also id. at 61 none e.g., - 21 - that of which Deposition had of Often those any However, business Laurence S. 1 Whittier Dep. 68, 75). 2 Whittier testified also that "[m]onies would go . . . out 3 of LHC based on the need." 4 For example, Zimmerman would take money out of LHC to "mak[e] an 5 investment in another entity." 6 several brokerage firms, Zimmerman had personal accounts that were 7 unrelated to LHC's operations; he had many margin calls in those 8 accounts (see id. at 60) because he "utilized margin debt very 9 aggressively," especially with respect to two stocks whose market 10 prices dropped sharply in 2000 (id. at 59 (one "from a high of above 11 90 down to the 60s" and the other "from a high of 93 down to 3")). 12 Zimmerman had LHC make payments to meet some of these margin calls 13 in his personal accounts. 14 wired a total of $2 million to Salomon Smith Barney to meet margin 15 calls or reduce the margin debt on Zimmerman's personal brokerage 16 accounts. (See id. at 50-51, 60-62.) 17 2000, sent 18 personally had "big brokerage accounts" (id. at 44), checks totaling 19 $2 million. 20 margin calls was "loan money" that Zimmerman had put into LHC. 21 (Whittier Dep. 61 (describing the money as being "repatriated back 22 to Mr. Zimmerman").) 23 calls was money that LHC received from a third party ("Riverside") 24 purchasing a share of an LHC asset. 25 paid to Salomon Smith Barney in May 2000 was money that Riverside 26 paid LHC LHC Paine (Whittier Dep. 61 (emphasis added).) (Id. at 41.) In addition, at On May 15 and 16, 2000, for example, LHC Webber, On August 22 and October 6, another firm at which Zimmerman Some of the money that LHC used to pay Zimmerman's to buy Other money used to meet Zimmerman's margin participation - 22 - Thus, the $2 million that LHC in a Bazillion convertible 1 subordinated note owned by LHC. Riverside "bought [participation in 2 the note] directly from LHC" (id. at 64); but Riverside's payment to 3 LHC was used to meet margin calls in Zimmerman's personal brokerage 4 accounts (id. at 62-64). 5 LHC also transferred money to Zimmerman, or to third 6 persons on his behalf, in connection with his living expenses. 7 example, LHC made payments to Fox Lair (consistently called "Fox 8 Liar" in LHC's general ledger), a Zimmerman corporation that owned 9 a $15 million New York apartment on Park Avenue, which For was 10 characterized by Zimmerman as "a corporate residence" but was used 11 by no one other than Zimmerman and his family (Zimmerman Dep. II, at 12 28). 13 and things of that nature" (Whittier Dep. 80); according to LHC's 14 ledgers, from December 5, 2000, through July 2, 2001, Fox Lair 15 received some $70,000 from LHC. 16 payments to the Screen Actors Guild (of which Zimmerman's wife was 17 a member) for health insurance for Zimmerman and his family (see id. 18 at 19 approximately $350,000 for Zimmerman's personal use, placing title 20 in his name (see Zimmerman Dep. I, at 68-69); and LHC made a payment 21 of 22 receivable" and in its check register as "Interest Expense," to a 23 person who had no connection with LHC but who held a mortgage on a 24 property owned by Zimmerman personally (see Zimmerman Dep. II, at 25 28-29). 26 Fox Lair needed money "to pay phone bills and cleaning people 49-50); LHC $110,000, purchased a characterized In addition, LHC made periodic Bentley in its automobile general at ledger a cost as of "Loan In addition, many of the air hours to which LHC was - 23 - 1 entitled under its agreements with NetJets were used by Zimmerman 2 personally. 3 Zimmerman acknowledges that "approximately 6" were for vacations for 4 himself and/or his wife. 5 those six, there were at least an equal number of flights that 6 apparently 7 included several that transported Zimmerman's family to and from 8 Europe or to and from one of Zimmerman's five homes. 9 contends that use of LHC air hours for these purposes was "part of 10 [his compensation] package" (Zimmerman Dep. I, at 41) and "[o]ne of 11 the perks of being the chairman" (id. at 39-40). 12 for purposes of determining whether Zimmerman and LHC were alter 13 egos, it is pertinent that Zimmerman made all of LHC's financial 14 decisions (see, e.g., Whittier Dep. 22, 39-40); Zimmerman alone 15 decided what his perks and package would be. Of had the no 40-odd LHC flights invoiced (Zimmerman Aff. ¶ 12.) relation to LHC's by NetJets, But in addition to business. These flights Zimmerman That may be; but 16 In LHC's general ledger, each of the transfers of money 17 between LHC and Zimmerman--in either direction--is labeled "Loan 18 receivable." 19 Zimmerman's payment to LHC was to be used to make an investment or 20 was 21 responsibility for LHC's financial records, testified that the 22 ledger treated Zimmerman's payments to and withdrawals from LHC as 23 loans and loan repayments in order to allow Zimmerman to make 24 withdrawals as he needed money, without having to pay taxes on the 25 moneys withdrawn. 26 Zimmerman's initial capital contribution to LHC (which Whittier to be They were also so labeled regardless of whether used for operating expenses. (See, e.g., id. at 34.) - 24 - Whittier, who had Thus, aside from 1 thought was $100), "any monies that Mr. Zimmerman . . . deposited 2 into LHC should have been designated as loans" (id. at 38-39, 25). 3 The decision that those transactions would be labeled loans or loan 4 repayments was made by Zimmerman. (See id. at 39.) 5 "There were no written agreements" with regard to any of 6 Zimmerman's loans (id.); nor were there any "set repayment program" 7 or agreements as to repayment terms (id. at 40): 8 as needed and when money was not needed and Mr. Zimmerman needed 9 money elsewhere, he might transfer it out. "Money was put in That was his decision to 10 make." 11 Money was put in and taken out as needed." 12 added).) (Id. at 40 (emphasis added).) "There was no procedure. (Id. at 62 (emphasis 13 In all, LHC's financial records for the period January 1, 14 2000, through June 18, 2002, show--in addition to some two dozen 15 transactions 16 approximately 60 transfers of money directly from Zimmerman to LHC 17 and approximately 60 transfers of money out of LHC directly to 18 Zimmerman. 19 created LHC to be one of his personal investment vehicles; that he 20 was the sole decisionmaker with respect to LHC's financial actions; 21 that Zimmerman frequently put money into LHC as LHC needed it to 22 meet operating expenses; that LHC used some of that money, as well 23 as some moneys it received from selling shares of one of its assets, 24 to pay more than $4.5 million to third persons for Zimmerman's 25 personal 26 apartment expenses, and automobiles; and that with no written between LHC and Zimmerman's other companies-- In sum, there is evidence that, inter alia, Zimmerman expenses including margin - 25 - calls, mortgage payments, 1 agreements 2 directly, on the average of twice a month for 2½ years, took money 3 out of LHC at will in order to make other investments or to meet his 4 other personal expenses. 5 reasonable factfinder to find that Zimmerman completely dominated 6 LHC and that he essentially treated LHC's bank account as one of his 7 pockets, into which he reached when he needed or desired funds for 8 his personal use. 9 that the district court should have granted summary judgment in his 10 favor on the ground that he and LHC did not operate as a single 11 economic entity. 12 4. or documentation or procedures in place, Zimmerman This evidence is ample to permit a Accordingly, we reject Zimmerman's contention The Evidence of Fraud, Illegality, or Injustice 13 The district court ruled that NetJets had not adduced 14 sufficient evidence to show that there was any fraud or unfairness 15 in Zimmerman's operation of LHC because the court believed it could 16 not consider, with regard to that issue, any of the factors that 17 showed that Zimmerman and LHC operated as a single entity. 18 ruling, the court stated that "'[t]o hold otherwise would render the 19 fraud or injustice element meaningless . . . .'" 20 at *6 (quoting Mobil Oil, 718 F. Supp. at 268). 21 did not suggest that there can be no overlap in the proof as to 22 unity of ownership and the proof of unfairness. 23 for the proposition that the claimed injustice must consist of more 24 than merely the tort or breach of contract that is the basis of the 25 plaintiff's lawsuit: In so 2006 WL 1627899, Mobil Oil, however, Rather, it stands "The underlying cause of action does not - 26 - 1 supply the necessary fraud or injustice. 2 render the fraud or injustice element meaningless . . . ." 3 Supp. at 268. 4 courts. 5 Kvaerner Enviropower, Inc., 685 A.2d 724, 729 (Del. Super. 1996) 6 (citing Mobil Oil for the proposition that "[t]he 'injustice'" that 7 must be shown in order to pierce the veil on an alter-ego theory 8 "must 9 complaint"). To hold otherwise would 718 F. This proposition has been endorsed by the Delaware See, e.g., Outokumpu Engineering Enterprises, Inc. v. be more than the breach of contract alleged in the But nothing prevents a court, in determining whether 10 there is sufficient evidence of fraud or unfairness, from taking 11 into 12 question of whether the two entities in question functioned as one. 13 Much of the evidence described in Part II.B.3. above, 14 along with other evidence discussed below, reveals that NetJets 15 adduced sufficient evidence of fraud, illegality, or unfairness to 16 warrant a trial on its contract and account-stated claims against 17 Zimmerman as LHC's alter ego. 18 NetJets's 19 submitted an affidavit from LHC's accountant stating that "it was 20 not intended by Zimmerman to treat the monies paid into LHC as 21 loans" (Affidavit of Mark Balaban dated October 14, 2004, ¶ 6) and 22 that all of Zimmerman's payments into LHC were in fact capital 23 contributions (see id. ¶¶ 4-8). 24 testified that Zimmerman instructed him that those payments were to 25 be characterized as loans, in order to allow Zimmerman to take money 26 out of LHC at will and to do so without tax consequences. account relevant contention evidence that that is also pertinent to the For example, in an effort to parry LHC was undercapitalized, Zimmerman Yet, as discussed above, Whittier - 27 - 1 Further, although the Balaban affidavit stops short of 2 giving an opinion as to how to characterize Zimmerman's withdrawals 3 of money from LHC, it would appear that, if his payments to LHC were 4 capital 5 payments 6 distributions. 7 qualifications, that an LLC "shall not make a distribution to a 8 member to the extent that at the time of the distribution, after 9 giving effect to the distribution, all liabilities of the limited 10 liability company . . . exceed the fair value of the assets of the 11 limited liability company." 12 that LHC ceased operating and was unable to pay its debt to NetJets, 13 if 14 withdrawals may well have been prohibited by § 18-607(a). 15 factfinder 16 deliberately mischaracterized as loans in order to mask the fact 17 that Zimmerman was making withdrawals from LHC that were forbidden 18 by law, and could thereby properly find fraud or an unfair siphoning 19 of LHC's assets. contributions to as Zimmerman Zimmerman's Yet the would the DLLCA infer be affidavit properly provides opines, that left LHC in generally, Zimmerman's that LHC's characterized with Del. Code tit. 6, § 18-607(a). withdrawals could Balaban some Given condition payments to as LHC those A were 20 The record also includes other evidence from which a 21 reasonable factfinder could find that Zimmerman operated LHC in his 22 own self-interest in a manner that unfairly disregarded the rights 23 of LHC's creditors. 24 25 26 27 28 For example, it could find - that although LHC was apparently unable in 2000 to pay its $340,840.39 (net of LHC's deposit) debt to NetJets, in that year LHC bought, and gave Zimmerman title to, a Bentley automobile for $350,210.95; - that LHC's only paying client for its consulting - 28 - 1 2 3 4 5 services began paying LHC for those services in July 2000 (the month in which LHC terminated its agreements with NetJets), sending LHC a first payment of approximately $675,000 on July 9, and that on that day Zimmerman withdrew that amount and more from LHC; 6 7 8 9 10 11 that from the point at which LHC terminated its relationship with NetJets in July 2000 until the end of 2001--the year in which NetJets ceased operations--LHC's records of its transactions directly with Zimmerman indicate that Zimmerman withdrew from LHC approximately $750,000 more than he put in; 12 13 14 15 16 - and that, excluding moneys put into LHC solely for its investments in Bazillion, the total amount of money taken out of LHC by Zimmerman and his other companies appears to exceed the amount that he and those companies put into LHC by some $3 million. 17 From this record, a reasonable factfinder could properly 18 find that there was an overall element of injustice in Zimmerman's 19 operation of LHC. 20 dismissing NetJets's breach-of-contract and account-stated claims 21 against Zimmerman. Summary judgment should not have been entered 22 We reject, however, NetJets's contention that the evidence 23 supporting its claims against Zimmerman on the alter-ego theory was 24 such as to entitle NetJets to summary judgment in its favor. In this 25 opinion, we have dealt with the granting of summary judgment against 26 NetJets and accordingly we have, as required, viewed the evidence in 27 the light most favorable to NetJets; a factfinder after trial, 28 however, is not required to view the evidence in this light. 29 the question of whether LHC was operated as Zimmerman's alter ego 30 and the question of whether it was so operated in a way that shows 31 fraud, illegality, bad faith, or an overall element of injustice or 32 unfairness, remain to be answered by the factfinder after trial. - 29 - Both 1 CONCLUSION 2 We have considered all of defendants' contentions in 3 support of the dismissals challenged by NetJets on this appeal and 4 have found them to be without merit. 5 the 6 dismissed the breach-of-contract claims against LHC and the breach- 7 of-contract and 8 respect those 9 proceedings not inconsistent with this opinion. judgment to of the district court account-stated claims, For the reasons stated above, the is claims case - 30 - vacated against is insofar as Zimmerman; remanded for it with further

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.