HeiTech Services, Inc. v. Front Rowe, Inc. et al
Filing
56
MEMORANDUM OPINION re: 31 MOTION for Summary Judgment with Roseboro,. by HeiTech Services, Inc. (See Memorandum Opinion For Details). Signed by District Judge James C. Cacheris on 5/26/15. (Copies Mailed 5/26/15)(nhall )
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
HEITECH SERVICES, INC.,
Plaintiff,
v.
FRONT ROWE, INC., et al.,
Defendants.
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M E M O R A N D U M
1:14cv739 (JCC/TCB)
O P I N I O N
This matter is before the Court on Plaintiff HeiTech
Services, Inc.’s Motion for Summary Judgment against the
individual Defendants Atron Rowe and Karen Rowe.
[Dkt. 31.]
For the reasons set forth below, the Court will grant the motion
and enter judgment in favor of Plaintiff against the individual
Defendants Atron Rowe and Karen Rowe.
I. Background
On June 16, 2014, Plaintiff HeiTech Services, Inc.
(“Plaintiff”) filed a Complaint against Defendants Front Rowe,
Inc. (“FRI”), Atron Rowe (“Atron”), and Karen Rowe (“Karen”)
(collectively “Defendants”) alleging Breach of Contract, as to
FRI only, and Fraud, as to all Defendants.
7-10.)
(Compl. [Dkt. 1] at
On December 9, 2014, the Court stayed this matter as to
the two individual Defendants, Atron and Karen, after the Court
received notice of their Chapter 13 bankruptcy filings.
1
(Order
[Dkt. 40].)
Subsequently, the Court granted Plaintiff’s
unopposed motion for summary judgment against FRI, and the Clerk
of Court entered judgment in favor of Plaintiff against FRI in
the amount of $505,758.63.
(Mem. Op. [Dkt. 42]; Order [Dkt.
43]; Judgment [Dkt. 44].)
On April 7, 2015, upon Plaintiff’s motion, the Court
lifted the stay previously imposed as to Atron and Karen because
their bankruptcy proceedings were dismissed.
(Order [Dkt. 51].)
At that time, the Court also set a briefing schedule for
Plaintiff’s motion for summary judgment against Atron and Karen,
which is now before the Court and ripe for disposition.
(Id.)
II. Standard of Review
Summary judgment is appropriate only if the record
shows that “there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of
law.”
Fed. R. Civ. P. 56(c); see also Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247-48 (1986); Evans v. Techs.
Applications & Serv., Co., 80 F.3d 954, 958-59 (4th Cir. 1996)
(citations omitted).
In reviewing the record on summary
judgment, “the court must draw any inferences in the light most
favorable to the non-movant [and] determine whether the record
taken as a whole could lead a reasonable trier of fact to find
for the non-movant.”
Brock v. Entre Computer Ctrs., 933 F.2d
1253, 1259 (4th Cir. 1991) (citations omitted).
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However, once a motion for summary judgment is
properly made and supported, the opposing party has the burden
of showing that a genuine dispute exists.
See Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986);
see also Ray Commc’ns, Inc. v. Clear Channel Commc’ns, Inc., 673
F.3d 294, 299 (4th Cir. 2012) (stating the opposing party must
“come forward with specific facts showing that there is a
genuine issue for trial.”) (citations and internal quotations
omitted).
Specifically, on summary judgment, the parties are
required to list the undisputed material facts.
Civil Rule 56(B).
E.D. Va. Local
“In determining a motion for summary
judgment, the Court may assume that facts identified by the
moving party in its listing of material facts are admitted,
unless such a fact is controverted in the statement of genuine
issues filed in opposition to the motion.”
Id.
Similarly,
“[i]f a party fails to properly support an assertion of fact or
fails to properly address another party’s assertion of fact as
required by Rule 56(c), the court may consider the fact
undisputed for purposes of the motion.”
Fed. R. Civ. P.
56(e)(2).
III. Undisputed Material Facts
Individual pro se Defendants Atron and Karen filed a
response to Plaintiff’s motion for summary judgment.
Opp’n [Dkt. 52].)
(Defs.’
Atron and Karen attached emails to their
3
response that are irrelevant to the issues now before the Court.
(Defs.’ Opp’n Ex. 1.)
Furthermore, Atron and Karen do not
otherwise attach or cite to any evidence in an attempt to
contradict or address Plaintiff’s assertion of fact as required
by Rule 56(c) of the Federal Rules of Civil Procedure.
Accordingly, the Court deems Plaintiff’s assertion of undisputed
facts admitted.
JDS Uniphase Corp. v. Jennings, 473 F. Supp. 2d
705, 707 (E.D. Va. 2007).
The Court previously summarized the
undisputed material facts of this case and therefore need not
repeat those facts here.
(See Mem. Op. at 4-7; HeiTech Servs.,
Inc. v. Front Rowe, Inc., No. 1:14cv739 (JCC/TCB), 2014 WL
7240184, at *2-3 (E.D. Va. Dec. 19, 2014).)
IV. Analysis
On Plaintiff’s previous motion for summary judgment
against FRI, the Court found that FRI was liable for breach of
contract to Plaintiff in the amount of $450,421.43.1
at 7-10.)
(Mem. Op.
The Court also found that because Plaintiff was
entitled to judgment as a matter of law on the breach of
contract claim against FRI as discussed above, Plaintiff was not
entitled to double recovery for the same harm under a theory of
fraud.
Thus, the Court denied Plaintiff’s motion as to the
fraud claim.
(Id. at 10-11.)
Finally, the Court did not
1
This amount was the sum owed for unpaid invoices ($166,309.62)
and under-reported production output ($284,111.81). (Id.)
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previously address Plaintiff’s fraud claim against individual
Defendants Atron and Karen Rowe, nor did it address Plaintiff’s
request to pierce the corporate veil of FRI and hold Atron and
Karen Rowe personally liable for the judgment entered against
FRI because, at that time, the instant litigation had been
stayed against Atron and Karen Rowe due to their bankruptcy
proceedings.
(Id. at 11-12.)
Now that the stay has been
lifted, there are two issues the Court must address.
First,
whether Plaintiff is entitled to summary judgment on its fraud
claim against Atron and Karen Rowe.
And second, whether
Plaintiff is entitled to judgment as a matter of law against
Atron and Karen Rowe under a theory of piercing the corporate
veil to hold them personally liable for the breach of contract
judgment previously entered by the Court.
A. Fraud Claim Against Individual Defendants
As to the first issue, Plaintiff claims that (1) it
relied on the material misrepresentations of Atron and Karen
Rowe as to the actual production outputs; (2) had it not relied
on the material representations of the individual Defendants,
Plaintiff contends it would have stopped work under the
Subcontract and not committed further resources; and (3) it is
entitled to $284,111.81 in damages.
16 n.1.)
(Compl. ¶ 51; Pl.’s Mem. at
The Court previously entered judgment in Plaintiff’s
favor against FRI in this exact amount under the breach of
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contract claim.
(Mem. Op. at 9; Order at 1.)
The harm at issue
in the fraud claim is the same harm at issue in the breach of
contract claim.
Thus, any award under the fraud claim would
constitute double recovery because of Plaintiff’s prior recovery
under the breach of contract claim.
(See Mem. Op. at 10-11
(citing Equal Emp’t Opportunity Comm’n v. Waffle House, 534 U.S.
279, 297 (2002); Winant v. Bostic, 5 F.3d 767, 775 (4th Cir.
1993); X-It Prods., LLC v. Walter Kidde Portable Equipment,
Inc., 227 F. Supp. 2d 494, 524 (E.D. Va. 2002) (“Federal law
also prohibits multiple recovery for one cause of action or set
of injuries.”)).)
Because the Court has previously found that
Plaintiff is entitled to judgment as a matter of law on the
breach of contract claim, which remedies the same harm that the
fraud claim seeks to remedy, Plaintiff is not entitled to double
recovery.
See Winant, 5 F.3d at 775 (“Although a party may
assert claims for money damages based on fraud, breach of
contract, and unfair and deceptive trade practices, he may
succeed on only one basis.”) (citing Cool Light Co. v. GTE
Prods. Corp., 973 F.2d 31, 35 (1st Cir. 1992), cert. denied, 507
U.S. 973 (1993)).
Therefore, the Court will not enter judgment
as a matter of law as to the fraud claim against Atron and Karen
Rowe.
The only issue that remains is whether Plaintiff is
entitled to judgment as a matter of law against Atron and Karen
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Rowe under a theory of piercing the corporate veil to hold them
personally liable for the breach of contract judgment previously
entered by the Court against FRI.
B. Piercing the Corporate Veil
Under Virginia law, a court may pierce the
corporate veil to find that an individual is
the alter ego of a corporation where it
finds (i) a unity of interest and ownership
between the individual and the corporation,
and (ii) that the individual used the
corporation to evade a personal obligation,
to perpetrate fraud or a crime, to commit an
injustice, or to gain an unfair advantage.
Newport News Holdings Corp. v. Virtual City Vision, Inc., 650
F.3d 423, 434 (4th Cir. 2011) (quoting C.F. Trust, Inc. v. First
Flight Ltd. P’ship, 306 F.3d 126, 132 (4th Cir. 2002)) (internal
quotation marks and brackets omitted).
To make a finding of
unity of interest and ownership under the first prong, courts
consult a number of factors, including: (1) comingling of
personal and corporate funds; (2) siphoning business assets into
personal pockets or accounts; (3) undercapitalization of the
business; and (4) whether business formalities were observed.
McCarthy v. Giron, No. 1:13-CV-1559-GBL, 2014 WL 2696660, at *15
(E.D. Va. June 6, 2014) (citing cases).
To make a finding under
the second factor, courts ultimately must determine “if there
was a legitimate business purpose for the conduct in question.”
Id. (citing C.F. Trust, Inc. v. First Flight Ltd. P’ship, 140 F.
Supp. 2d 628, 643 (E.D. Va. 2001)).
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Here, first, there is no material dispute that a unity
of interest and ownership existed between Atron and Karen Rowe
and FRI.
Atron and Karen Rowe comingled their personal account
with the FRI account and regularly siphoned business assets into
their personal accounts.
During his deposition, Atron Rowe
testified that between July of 2012 and April of 2014, the
individual Defendants would regularly transfer funds between the
FRI account and their personal bank account.
[Dkt. 34-2] (“Atron Dep.”) at 41-44.)
(Pl.’s Mem. Ex. 1
Specifically, in some
months, the individual Defendants, on at least nine occasions,
“took what little money [they] needed or what [they] needed at
the time or what was available for [them] to take.
basic living expenses.”
(Atron Dep. at 44.)
It was just
Atron Rowe
admitted that they would both take money out of the Front Rowe
account to meet their personal living expenses.
(Id.)
The
total amount transferred from their FRI account into their
personal bank account was $308,858.25 for this 22-month period.
(Id. at 43.)
In 2013 alone, the individual Defendants
transferred $199,303.25 into their personal bank account.
(Id.)
Atron Rowe also acknowledged that he would transfer money from
their personal account into the FRI account because they
“probably had an expense and [he] just moved money over into the
account.”
(Id.)
Additionally, FRI’s street address on many
certified invoices and bank statements is the same street
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address as Karen Rowe’s personal home, which also indicates that
the individual Defendants treated the FRI bank account as their
personal bank account.
to 34-33].)
(See Pl.’s Mem. Exs. 15-32 [Dkts. 34-15
This comingling of personal and corporate funds and
siphoning of business assets into personal accounts shows that a
unity of interest existed between FRI and Atron and Karen Rowe.
See McCarthy, 2014 WL 2696660, at *15 (“The corporate bank
account was used as Defendants’ personal account, where they
deposited and withdrew money, and paid their personal expenses .
. . . These transfers were made with the money paid to [the
company] . . . .”).
Moreover, FRI was undercapitalized at this time while
the individual Defendants regularly comingled FRI and personal
funds.
FRI was not making payments to Plaintiff on its invoices
that were due.
(See Pl.’s Mem. at 12-13, Exs. 57-77, 78-98;
Defs.’ Answer ¶¶ 20-26.)
Additionally, there is no evidence in
the record that any business formalities were observed by FRI.
Karen Rowe is the President/CEO and Atron Rowe is the Vice
President, Treasurer, and Chief Financial Officer.
at 12; Answer ¶¶ 3-4.)
(Atron Dep.
Thus, it appears FRI is a closely-held
corporation managed exclusively by Atron and Karen Rowe, and the
individual Defendants have failed to present any evidence to the
contrary.
(Id.)
Accordingly, the Court finds under the first
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prong that it is undisputed that a unity of interest existed
between FRI and Atron and Karen Rowe.
Second, there is also no material dispute that the
individual Defendants used FRI to evade personal obligations and
to gain an unfair advantage.
The Court’s ultimate inquiry under
the second prong is to determine “if there was a legitimate
business purpose for the conduct in question.”
McCarthy, 2014
WL 2696660, at *15 (citing C.F. Trust, Inc. v. First Flight Ltd.
P’ship, 140 F. Supp. 2d 628, 643 (E.D. Va. 2001)).
Atron and
Karen Rowe have not put forth any explanation that might
constitute a valid business purpose for the transfers discussed
above.
The only explanation in the record shows that transfers
were made to meet basic personal living expenses.
“In the
absence of a valid business reason for their conduct, the Court
may conclude that Defendants were using the corporate form
improperly.”
McCarthy, 2014 WL 2696660, at *15.
Because Atron
and Karen Rowe used FRI for an improper purpose, “they should
not be protected by the limited liability shield that is
afforded by the corporate form.”
Id.
Indeed, this factual
scenario is exactly the type of situation where piercing the
corporate veil is required.
Accordingly, the Court finds under the second prong it
is undisputed that Atron and Karen Rowe used FRI to evade
personal obligations and to gain an unfair advantage with no
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proper business purpose.
Thus, under the facts of this case, it
is appropriate to pierce the corporate veil and hold Atron and
Karen Rowe personally liable for the judgment entered against
FRI.2
V. Conclusion
For the foregoing reasons, the Court will grant
Plaintiff’s motion for summary judgment and enter judgment in
its favor against individual Defendants Atron and Karen Rowe.
An appropriate Order shall issue.
May 26, 2015
Alexandria, Virginia
/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE
2
Having previously found that judgment should be entered as a
matter of law in favor of Plaintiff against FRI as to the breach
of contract claim, and having now found that judgment should be
entered as a matter of law against Atron and Karen Rowe
individually as to this prior judgment against the corporation,
there is no issue of fact that remains for a jury to decide.
Winant, 5 F.3d at 775. Because these findings award Plaintiff
the full relief that it seeks, this matter shall be concluded.
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