A Suffolk judge has refused to pierce the corporate veil against the principal of a construction company to enforce a $2.2 million judgment over a failed project, ruling that the plaintiffs failed to show that the principal misused the corporate form and deliberately dissipated the company’s assets.
Supreme Court Justice Emily Pines (See Profile) found in a July 1 order in Vivir of LI v. Ehrenkranz, 043523/09, that while there was evidence that Julian Boylan, principal of the now-defunct construction company, had used company funds for himself, it was not enough to pierce the corporate veil.
The case involves a dispute between Boylan and a couple, John and Andra Ehrenkranz, who hired his company, Opus Virir, to build a house.
The Ehrenkranzes met Boylan in 2007 as they were seeking to buy a home. Boylan told them that he was a builder with homes for sale on Long Island. The couple bought a property in Bridgehampton from him and contracted with Opus Virir to build the house.
In 2008, the relationship between the parties broke down and Opus Virir stopped work on the project. The company sued the Ehrenkranzes, alleging that they had stopped making payments and breached their contract.
The Ehrenkranzes, however, filed counterclaims alleging that Boylan had made various misrepresentations. They alleged that Boylan represented himself as the owner of the property, when in fact he was acting as an agent for the true owner—his brother Dmitri. They also alleged that Boylan had misrepresented the financial health of Opus Virir and its ability to complete the project.
A jury awarded the couple $2.2 million, but Opus Virir did not have the assets to pay the judgment. The Ehrenkranzes moved to pierce the corporate veil against Boylan. They claimed that he had deliberately “dissipated” the company’s assets while the dispute was going on in order to avoid paying the judgment, including taking $350,000 out of the company to repay himself for a loan for which there were no originating documents.
Boylan, for his part, maintained that he kept appropriate records at all times and never abused the corporate form.
The Ehrenkranzes’ expert, a certified public accountant, reviewed the company’s records and found no documentation showing any loan from Boylan to Opus Virir. He did find a wire transfer from Boylan to the company in 2006 of $75,000, but said subsequent records showed much larger transfers from the company back to Boylan. The expert further testified that the company had been undercapitalized and insolvent since its founding, that Boylan had used company funds for himself and that he had filed inaccurate tax documents.
Boylan’s expert, another accountant, rejected those conclusions. He said the company’s record books provided evidence that Boylan had lent the company $730,000 since 2004, even though source documents were not available. He also said the company was adequately capitalized, and that for a company of its size, it accounted for its funds very thoroughly, even though it did mix funds from different construction projects.
Pines wrote in her decision that “thoroughness and competence of both experts makes the decision in this case a difficult one.”
“Faced with two excellent experts and a corporate accountant on an extremely complex matter, the Court finds that the testimony weighs so evenly that it is required to find that the Ehrnekranzs have failed to meet their burden of demonstrating that they are entitled to the somewhat extraordinary relief requested in the context of piercing the corporate veil,” she wrote. “While the court acknowledges that Julian Boylan exercised dominion and control over the entity, such is not only common in closely held corporations, but is simply not sufficient to apply the remedy sought herein.”
Any improprieties the Ehrenkranzes’ expert had uncovered were not relevant to their own case, she said.
“Thus, while the court agrees with the Ehrnekranzs’ excellent expert that Julian Boylan used the corporation for personal expenses and filed questionable tax documents, this is not a case where these actions were done in order to commit a wrong or fraud upon the Ehrnekranzs,” the judge said.
Pines further agreed with Boylan’s expert that “Opus Vivir corporate books and records were actually more detailed than those kept by closely held corporations in the construction business.”
Boylan is represented by Sam Israel.
“The fact is that if the veil was pierced in this instance—where a small construction company did an impressive job of accounting for all of its transactions, and did so responsibly and consistently—no small business owners would be immune to personal liability even in the context of the most mundane contractual dispute,” Israel said in an email.
The Ehrenkranzes are represented by Michael Bowen, a partner at Kasowitz, Benson, Torres & Friedman, who could not be reached for comment.