Adema Technologies, Inc v. Eiffert et al
Filing
117
ORDER denying 75 Motion for Summary Judgment. Plaintiff's claims based on alter ego against both ImaginIt and Dr. Eiffert are DISMISSED with prejudice. All claims against ImaginIt Inc. are DISMISSED with prejudice. As a result of this ruling, the only counts remaining for trial by a jury are Counts 1 and 2 as against Defendant Patrina Eiffert. By Judge Christine M. Arguello on 08/04/2015. (athom, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 13-cv-01139-CMA-NYW
ADEMA TECHNOLOGIES, INC.,
d/b/a GLORIA SOLAR (USA),
Plaintiff,
v.
PATRINA EIFFERT, and
IMAGINIT, INC.,
Defendants.
ORDER REGARDING PLAINTIFF’S ALTER EGO CLAIMS AND
MOTION FOR SUMMARY JUDGMENT
Because the facts presented by Plaintiff are insufficient to raise a genuine issue
of material fact that SolarFrame Works (“SFW”) is the alter ego of Imaginit Inc.
(“ImaginIt”) or that ImaginIt or SFW is the alter ego of Dr. Patrina Eiffert, Plaintiff’s alter
ego claims are dismissed. (Doc. ## 110; 115.) However, the Court determines that
genuine issues of material fact preclude the Court from granting Plaintiff’s Motion for
Summary Judgment. (Doc. # 75.)
I.
BACKGROUND
On October 22, 2010, SFW issued two price quotations to Plaintiff for materials
related to solar panel mounting systems. (Doc. # 75 at 2.) Adema’s Vice President of
Sales, Jerry Shinn, signed the price quotations. (Doc. # 75-3 at 2.) Although the price
quotations required a deposit of $691,998.97, Adema paid SFW a deposit in the amount
of $360,566.40 on October 26, 2010. (Doc. # 75-2.) The price quotations indicated that
the “[d]eposit is not-refundable.” (Id.) In January 2011, Plaintiff cancelled the purchase
orders. 1 (Doc. ## 75 at 3; 102 at 9.) Thereafter, Adema and SFW unsuccessfully
attempted to find other projects to which the parties could apply the $360,566.40
deposit.
(Doc. # 75-2 at 5, ¶¶ 26, 28.)
On April 29, 2013, Plaintiff brought suit against Patrina Eiffert, Ph.D. (“Dr. Eiffert”)
and ImaginIt to recover the $360,566.40 deposit it paid to ImaginIt doing business as
SFW, which is not a party to this case. 2 At the time Plaintiff paid the deposit, Dr. Eiffert
was the Chief Executive Officer of SFW and ImaginIt was the sole owner of SFW. (Doc.
# 1 at 1.) On December 1, 2015, Plaintiff filed a motion for summary judgment. (Doc.
# 75.) On April 29, 2015, Defendants filed a Response, to which Plaintiff replied on May
6, 2015. (Doc. ## 102; 108.) Because neither party addressed the issue of alter ego
via a summary judgment motion, the Court ordered the parties to file simultaneous
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Plaintiff claims it no longer required the materials because the third-party company that Plaintiff
ordered the materials for “was having difficulty obtaining final permission to install the rooftop
solar system at the project site, and that it appeared that the potential lessor had backed out of
the arrangement with [the third-party company].” (Doc. # 75-2 at 4, ¶ 24.) Defendant asserts
Plaintiff cancelled the Purchase Order because it “failed to obtain an executed lease agreement
to allow construction of the solar panel generation facilities on the Building rooftops.” (Doc.
# 102 at 9.)
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On March 19, 2012, Plaintiff filed an action against SFW in the U.S. District Court for the
District of California, San Jose Division to recover the deposit. (Doc. # 110-1, Ex. E.) On
November 20, 2012, SFW filed a Chapter 7 Petition for Bankruptcy in the U.S. Bankruptcy Court
for the District of Colorado, which stayed Plaintiff’s suit against SFW. (Doc. # 115-2, Ex. L.) On
February 23, 2015, Plaintiff and SFW entered into a settlement agreement whereby Plaintiff will
receive a distribution from SFW’s bankruptcy estate. (Doc. # 110-1, Ex. G.) The settlement
agreement does not “in any manner serve to liquidate or eliminate any of the claims or
defenses” asserted in this case, “except as a dollar-for-dollar offset of the sum actually received
by Adema . . . against any damages awarded to Adema” in this case. (Id.)
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briefing on the issue of whether it is appropriate for the Court to pierce the corporate veil
in this case, i.e., whether SFW is an alter ego of ImaginIt and whether ImaginIt is an
alter ego of Dr. Eiffert. (Doc. # 109.) On June 6, 2015, each party filed a brief regarding
alter ego. (Doc. ## 110, 115.)
II.
STANDARD OF REVIEW
Summary judgment is warranted when “the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). A fact is “material” if it is essential to the proper
disposition of the claim under the relevant substantive law. Wright v. Abbott Labs., Inc.,
259 F.3d 1226, 1231–32 (10th Cir. 2001). A dispute is “genuine” if the evidence is such
that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v.
Muskogee, Okl., 119 F.3d 837, 839 (10th Cir. 1997). When reviewing motions for
summary judgment, a court must view the evidence in the light most favorable to the
non-moving party. Id. However, conclusory statements based merely on conjecture,
speculation, or subjective belief do not constitute competent summary judgment
evidence. Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
The moving party bears the initial burden of demonstrating an absence of a
genuine dispute of material fact and entitlement to judgment as a matter of law. Id. In
attempting to meet this standard, a movant who does not bear the ultimate burden of
persuasion at trial does not need to disprove the other party’s claim; rather, the movant
need simply point out to the Court a lack of evidence for the other party on an essential
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element of that party’s claim. Adler v. Wal–Mart Stores, Inc., 144 F.3d 664, 671 (10th
Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).
Once the movant has met its initial burden, the burden then shifts to the
nonmoving party to “set forth specific facts showing that there is a genuine issue for
trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). The nonmoving party
may not simply rest upon its pleadings to satisfy its burden. Id. Rather, the nonmoving
party must “set forth specific facts that would be admissible in evidence in the event of
trial from which a rational trier of fact could find for the nonmovant.” Adler, 144 F.3d at
671. “To accomplish this, the facts must be identified by reference to affidavits,
deposition transcripts, or specific exhibits incorporated therein.” Id.
III.
A.
ANALYSIS
ALTER EGO
Plaintiff contends that the Court should find that it is appropriate to pierce the
corporate veil of SFW such that it may reach the assets of its corporate parent ImaginIt
and Dr. Eiffert. Naturally, Defendants disagree.
Whether the corporate veil should be pierced must be determined pursuant to
Colorado law. Boughton v. Cotter Corp., 65 F.3d 823, 835 (10th Cir. 1995). To
determine whether piercing the corporate veil is appropriate, the Court must determine:
(1) whether the corporate entity is the alter ego of the person or entity in issue;
(2) whether justice requires recognizing the substance of the relationship between the
person or entity sought to be held liable and the corporation over the form because the
corporate fiction was “used to perpetrate a fraud or defeat a rightful claim”; and
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(3) whether an equitable result will be achieved by disregarding the corporate form and
holding the shareholder or other insider personally liable for the acts of the business
entity. In re Phillips, 139 P.3d 639, 644 (Colo. 2006). All three prongs of the analysis
must be satisfied.
The corporate veil may be pierced if not doing so would defeat public
convenience, justify wrong, or protect fraud. Great Neck Plaza, L.P. v. Le Peep
Restaurants, LLC, 37 P.3d 485, 490 (Colo. App. 2001) (citation omitted). In determining
whether to disregard the corporate entity, the court may consider the following factors:
(1) The parent corporation owns all or majority of the capital stock of the
subsidiary. (2) The parent and subsidiary corporations have common
directors or officers. (3) The parent corporation finances the subsidiary.
(4) The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation. (5) The subsidiary has
grossly inadequate capital. (6) The parent corporation pays the salaries or
expenses or losses of the subsidiary. (7) The subsidiary has substantially
no business except with the parent corporation or no assets except those
conveyed to it by the parent corporation. (8) In the papers of the parent
corporation, and in the statements of its officers, the subsidiary is referred
to as such or as a department or division. (9) The directors or executives
of the subsidiary do not act independently in the interest of the subsidiary
but take direction from the parent corporation. (10) The formal legal
requirements of the subsidiary as a separate and independent corporation
are not observed.
Id. (citing Skidmore, Owings & Merrill v. Canada Life Assurance Co., 907 F.2d 1026,
1027 (10th Cir. 1990)). In applying the ten criteria, the Court does not “determine the
winner by a numerical score, as in a ball game.” Boughton, 65 F.3d at 838 (applying
Colorado law). Instead, the Court views all the factors and even if a majority favor the
party seeking to pierce the corporate veil, the corporate entity is not disregarded unless
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the corporate form was used to defeat public convenience or protect wrong, fraud, or
crime. Id. (internal quotation marks omitted).
1.
Whether SFW is an alter ego of ImaginIt
In this case, Plaintiff argues that the following facts establish that SFW is an alter
ego of ImaginIt. First, Plaintiff asserts that ImaginIt and SFW were operated as one
entity because: (1) SFW was incorporated with ImaginIt as its sole owner; (2) SFW
operated out of the office and manufacturing space (“SFW’s Office”) leased by and
listed under the name of ImaginIt; (3) ImaginIt used SFW’s Office address as its own
business address; (4) ImaginIt and SFW did not have a separate lease agreement for
use of SFW’s Office; (5) ImaginIt supplied office furniture and other assets for SFW’s
use; and (6) ImaginIt and SFW shared a bookkeeper. Additionally, there was no license
agreement between ImaginIt and SFW for SFW’s use of ImaginIt’s patents. ImaginIt
owned 100% of the equity interest in SFW; and SFW also filed taxes under ImaginIt’s
name. Lastly, SFW was “grossly undercapitalized” and, thus, ImaginIt financed SFW
with “influxes of capital” and lines of credit.
Reviewing these facts in the light most favorable to Plaintiff, the Court finds that
the facts are insufficient to raise a genuine issue of material fact as to whether SFW is
the alter ego of ImaginIt. The fact that ImaginIt owns all the stock of SFW, standing
alone, is an insufficient basis to depart from the general rule that the corporation and its
shareholders are to be treated as distinct legal persons. Lowell Staats Min. Co. v.
Pioneer Uravan, Inc., 878 F.2d 1259, 1263 (10th Cir. 1989) (applying Colorado law).
The fact that SFW and ImaginIt shared some common officers and directors is
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insufficient to allow corporate veil piercing. Id. (applying Kansas law). The fact that
ImaginIt sent financial advances to SFW for the purpose of assisting SFW in meeting its
financial obligations—and not for the purpose of perpetrating a fraud—is insufficient to
expose ImaginIt to liability under the alter ego theory. Id. (applying Colorado law).
Indeed, SFW made payments to ImaginIt on its long-term loan provided to it by ImaginIt;
and paid monthly rent, utilities, insurance, and related expenses of the shared office
space. Additionally, the commingling of assets, alone, is an insufficient basis to impose
liability on ImaginIt under the theory of alter ego. Id. (applying Colorado law). SFW and
ImaginIt had separate purposes, had their own customers and suppliers, observed
separate and distinct corporate formalities, and held themselves out to the public as
separate legal entities. Additionally, because Plaintiff has failed to prove any dominion
or control by ImaginIt over SFW, the fact of consolidated financial reports is insufficient
to impose liability under the alter ego doctrine. Id. at 1264 (citing Texas law). Indeed,
“[t]he Internal Revenue Code allows a parent corporation to file consolidated income tax
returns with its subsidiaries when the parent owns at least eighty percent of the
subsidiary.” Id. (citing 26 U.S.C. § 1501 (1982)).
Further, Plaintiff failed to establish what an adequate level of capitalization would
be in SFW’s line of business, thus, it failed to demonstrate that SFW was
undercapitalized, and the issue of undercapitalization is insufficient to create an issue
for the jury. Id. at 1263. In any event, SFW was adequately capitalized when the
company was formed in 2006, despite its revenues and profits declining sharply in
2011. Indeed, the mere fact that SFW may have been suffering from a “cash crunch”
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does not support a ruling that ImaginIt abused the corporate privilege and should be
held personally liable. Newport Steel Corp. v. Thompson, 757 F. Supp. 1152, 1157 (D.
Colo. 1990). Exercise of limited supervision of or participation in SFW’s affairs by
ImaginIt does not equate to the domination of day-to-day business decisions that must
be shown in order to render ImaginIt an alter ego of SFW. See Lowell Staats Min. Co.,
878 F.2d at 1264 (citing American Trading & Prod. Corp. v. Fischbach & Moore, Inc.,
311 F.Supp. 412, 415 (N.D. Ill. 1970)). ImaginIt did not manage or control the design
and fabrication of SFW’s solar mounting systems and had nothing to do with the
purchase order between SFW and Plaintiff or the decision to keep the deposit.
Although ImaginIt owned patents relating to the mounting system and solar
technologies, SFW separately developed, branded, marketed, and commercialized its
products, developed trade secrets, and obtained trademarks for the design,
manufacture, marketing, and sale of its mounting systems. SFW did not pay ImaginIt’s
debts and ImaginIt did not pay SFW’s debts. Accordingly, under the circumstances of
this case, the Court concludes that Plaintiff has failed to prove by a preponderance of
the evidence that SFW is the alter ego of ImaginIt.
2.
Whether ImaginIt or SFW are the alter egos of Dr. Eiffert
Plaintiff contends that ImaginIt and SFW are alter egos of Dr. Eiffert and, thus,
the Court should pierce the corporate veils of both companies. Plaintiff supports its
contention with the following facts: (1) Dr. Eiffert acted as SFW’s President and
represented herself to be the Managing Member of SFW in SFW’s bankruptcy filings;
(2) Dr. Eiffert holds 70% of ImaginIt’s stock and Dr. Eiffert’s family holds 10% of
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ImaginIt’s stock; (3) Dr. Eiffert and her sister were officers and directors of ImaginIt;
(4) Dr. Eiffert was ImaginIt’s registered agent; (5) Dr. Eiffert executed the Statement and
Plan of Merger on behalf of ImaginIt as its President and Chief Executive Officer;
(6) Dr. Eiffert operated SFW as her or her family’s business; and (7) Dr. Eiffert hired her
daughter’s boyfriend to work at SFW. Plaintiff also asserts that Dr. Eiffert was the only
person involved in the management of SFW and was paid a salary by ImaginIt.
The facts presented by Plaintiff, however, are insufficient to raise a genuine issue
of material fact that Dr. Eiffert consistently disregarded the corporate formalities and
dominated the affairs of ImaginIt or SFW in a manner that would promote injustice and
harm public convenience unless ImaginIt or SFW were held liable for the actions of
Dr. Eiffert. Geringer v. Wildhorn Ranch, Inc., 706 F. Supp. 1442, 1445 (D. Colo. 1988).
Indeed, ImaginIt and SFW operated as distinct entities with separate directors and
shareholders, maintained their own customers and suppliers, paid taxes, did not
comingle their assets with Dr. Eiffert’s personal funds, did not pay personal obligations
for Dr. Eiffert, and maintained separate corporate and financial records. ImaginIt’s
board of directors supervised Dr. Eiffert’s business decisions on behalf of ImaginIt and
determined her compensation based upon annual performance reviews. Further,
ImaginIt conducted regular shareholder meetings, reported regularly to Colorado and
Delaware regulatory authorities, hired and fired its own employees, and separately paid
income, employment, and payroll taxes.
In sum, under the circumstances of this case, the Court concludes that Plaintiff
has failed to prove by a preponderance of the evidence that SFW is the alter ego of
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ImaginIt or that ImaginIt or SFW are the alter egos of Dr. Eiffert. The facts simply do not
demonstrate that the corporate form was used to defeat public convenience, or to justify
or protect wrong, fraud, or crime. Because the Court has determined that it cannot
disregard the corporate entity, the Court need not address the additional requirements
in the three-part alter-ego inquiry.
B.
SUMMARY JUDGMENT MOTION
Plaintiff contends that, even if the Court finds that it is not appropriate to pierce
SFW’s corporate veil, its claims against Defendants still stand. Because the Court has
found that SFW is not the alter ego of ImaginIt and that ImaginIt is not the alter ego of
Dr. Eiffert, ImaginIt cannot be held liable for the conversion or civil theft claims based on
conduct of SFW and/or Dr. Eiffert. As such, Plaintiff’s claims against ImaginIt are
dismissed with prejudice.
However, the Court agrees that Dr. Eiffert, as Chief Executive Officer of SFW,
could be held individually liable for Plaintiff’s claims of conversion and civil theft, if
Plaintiff proves that that she participated in, approved of, sanctioned, or directed the
theft or conversion. Nonetheless, the Court determines that genuine issues of material
fact preclude the Court from granting Plaintiff’s summary judgment motion (Doc. # 75).
IV.
CONCLUSION
For the reasons provided above, the Court ORDERS that Plaintiff’s Motion for
Summary Judgment (Doc. # 75) is DENIED. It is
FURTHER ORDERED that Plaintiff’s claims based on alter ego against both
ImaginIt and Dr. Eiffert are DISMISSED with prejudice. It is
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FURTHER ORDERED that all claims against ImaginIt Inc. are DISMISSED with
prejudice. As a result of this ruling, the only counts remaining for trial by a jury are
Counts 1 and 2 as against Defendant Patrina Eiffert.
DATED: August 4, 2015
BY THE COURT:
_______________________________
CHRISTINE M. ARGUELLO
United States District Judge
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