Enforcement of Judgment • Piercing Corporate Veil • Claim Preclusion • Breach
Madonna v. Francisco, PICS Case No. 14-0476 (E.D. Pa. March 13, 2014) Pratter, J. (15 pages).
Plaintiff failed to plead facts sufficient to pierce corporate veil where he alleged that defendant failed to forward payroll deductions to proper authorities, failed to pay plaintiff after promising payment and, “on information and belief,” used company money for his son’s tuition. Defendant’s motion to dismiss granted in part and denied in part; AvanuOne’s motion to dismiss denied.
In 2007, defendant, as agent for Kinesis entities, recruited plaintiff, based on his reputation as an athlete, to assist with the marketing and sales of a fitness-related business, which featured the “coachware” software product. Plaintiff entered into an employment contract with Kinesis (a nonparty to the action) under which he would receive $60,000 annually plus eight percent in commissions for his services. Plaintiff filed suit, alleging that defendant breached the contract by refusing to pay him. The court entered default judgment in favor of plaintiff. Thereafter, AvanuOne purchased the assets of Kinesis, including the “coachware” product.
Plaintiff filed suit in the U.S. District Court for the Eastern District of Pennsylvania seeking enforcement of the outstanding judgment. He sought to pierce the corporate veil and hold defendant and AvanuOne liable for the state court judgment entered against the Kinesis entities. Defendant and AvanuOne moved to dismiss, asserting that plaintiff’s claim was barred by the doctrine of claim preclusion and the statute of limitations, and that plaintiff failed to state a claim against them. The district court denied AvanuOne’s motion to dismiss, and denied in part and granted in part defendant’s motion.
Claims in a second suit are barred when a defendant establishes that there has been a final judgment on the merits in a prior suit involving the same parties or their privies and a subsequent suit based on the same cause of action. Here, plaintiff was attempting to enforce a judgment obtained in a prior suit against other parties by piercing the corporate veil and/or asserting successor liability. This case did not meet the third prong of the test, as it was not a subsequent suit based on the same cause of action.
Piercing the corporate veil is not a cause of action unto itself; rather it is an equitable doctrine used to remove the protection of the corporate form in cases where justice so requires. The proper statute of limitations to apply to a piercing the corporate veil claim depends on the claim against the corporation for which plaintiff seeks to hold someone else liable. Here, plaintiff sought to hold defendant liable for the judgment entered against the Kinesis entities. Under Pennsylvania law, an action upon a judgment or decree of any court must be commenced within four years.
The state court judgment in question was entered less than four years ago, and thus the enforcement claim against defendants was timely. However, plaintiff failed to plead facts sufficient to pierce the corporate veil. To pierce the corporate veil under Pennsylvania law, a court considers factors such as undercapitalization, failure to adhere to corporate formalities, substantial intermingling of corporate and personal affairs and use of the corporate form to perpetrate a fraud. Here, plaintiff alleged that defendant failed to forward payroll deductions to the proper authorities, failed to pay plaintiff after promising payment and, “on information and belief”, used company money for his son’s tuition. Although relevant, these allegations did not come close to meeting the high bar set by Pennsylvania court to pierce the corporate veil. Plaintiff was granted the opportunity to cure the deficiency.