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In re Dravo LLC-Derivative Claims, 2023 Pa. Super. LEXIS 612 (December 19, 2023) (McLaughlin, J.).

Each of the asbestos plaintiffs filed a lawsuit against CLI as well as other defendants. The trial court severed the claims against CLI from each individual case and consolidated them into the instant proceeding. The asbestos plaintiffs are in two groups: those represented by Goldberg, Persky & White, P.C. (“GPW Plaintiffs”), and those represented by Savinis, Kane & Gallucci, LLC (“SKG Plaintiffs”). The asbestos plaintiffs’ cases against the remaining defendants in the individual actions continued in the individual actions.

The trial court granted summary judgment to CLI, holding that plaintiffs could not pierce the veil, and the asbestos plaintiffs appealed. We conclude that the court erred in granting summary judgment to CLI. The asbestos plaintiffs produced evidence that in practice CLI and Dravo acted as a single entity and that CLI used its control of Dravo to leave Dravo subject to the asbestos liabilities, take significant assets for itself, and leave Dravo with inadequate assets to satisfy foreseeable asbestos liabilities. We therefore reverse and remand.

We conclude that in cases such as this, where a parent is alleged to have dissolved the entity against which a lawsuit would be filed, a plaintiff can press a claim against the parent.

The Pennsylvania Supreme Court recently discussed the doctrine of piercing the corporate veil in Mortimer v. McCool, 255 A.3d 261 (Pa. 2021). In Mortimer, the Court set forth a two-part inquiry for courts to use to determine when to pierce the corporate veil:

First, there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and second, adherence to the corporate fiction under the circumstances would sanction fraud or promote injustice[.]

Id. at 286-87 (citation omitted).

Lumax Industries, Inc. v. Aultman, 543 Pa. 38, 669 A.2d 893 (Pa. 1995). In sum, although the Supreme Court distilled the corporate veil piercing law into a two-prong inquiry, Pennsylvania’s prior case law regarding the doctrine, including cases applying the Lumax factors, remain good law and can be used to determine whether the veil should be pierced in a particular case. Although all Lumax factors may not be needed or relevant in each piercing the veil case, courts may still look to those factors, and the cases that applied them, for guidance when determining whether the Mortimer inquiry is met. We further note that although the Lumax factors and prior case law continue to be relevant following Mortimer to determine whether a court should pierce the corporate veil, a plaintiff need not prove fraud to establish piercing is appropriate, even though fraud is listed as a Lumax factor. The Pennsylvania Supreme Court has stated that “[f]raud in its narrow sense need not be shown.” Mortimer, 255 A.3d at 278 (citations omitted). Rather, “Pennsylvania courts will disregard the corporate form ‘whenever it is necessary to avoid injustice,’ and so long as ‘the rights of innocent parties are not prejudiced nor the theory of corporate entity rendered useless.'” Id. (citations omitted); see Fletcher-Harlee Corp. v. Szymanski, 2007 PA Super 310, 936 A.2d 87, 96 (Pa.Super. 2007) (quoting Village at Camelback Property Owners Ass’n v. Carr, 371 Pa. Super. 452, 538 A.2d 528, 532-33 (Pa.Super. 1988), and noting corporate existence can be disregarded without a showing of fraud).

We conclude the trial court erred in finding there were no genuine issues of material fact. We will first address the first prong of the Mortimer test, whether CLI and Dravo had such unity of interest and ownership that the separate personalities of the corporations no longer exist. We conclude there is a genuine issue of material fact regarding this factor. Dravo had no employees and no place of business. When conducting business on Dravo’s behalf, individuals often used CLI email addresses and letterhead. Further, emails suggest that Dravo’s insurance carrier believed CLI had to approve any settlement it reached with Dravo. Moreover, there is evidence that CLI received financial benefit from Dravo, purchasing Dravo’s subsidiary and then immediately receiving a large shareholder dividend from Dravo and receiving a large payment to release it of a debt owed to Dravo. This evidence, among other things, could lead a fact finder to conclude that CLI and Dravo had such a unity of interest that separate personalities no longer existed.

Although under the paperwork, the companies may have adhered to corporate formalities, the evidence above raises a genuine issue as to whether those formalities continued in practice. Further, the money transfers and the communications from CLI on behalf of Dravo and the suggestion that Dravo required CLI’s approval for settlement raise a question as to whether the companies intermingled their affairs. In addition, that Plaintiffs did not establish that Dravo was undercapitalized or that a fraud had been committed would not preclude piercing the corporate veil. Rather, they are only two factors that a court may consider. Further, although Dravo allegedly had sufficient funds to pay claims raised in the two-year period following dissolution, the money transfers and settlement with the insurance carriers raise questions about its capitalization and about whether a fraud occurred.

Next, we address whether adherence to the corporate fiction under the circumstances would sanction fraud or promote injustice. We conclude that a genuine issue of material fact as to this prong also exists. The Plaintiffs do not need to establish fraud under this factor, rather we must determine whether piercing the corporate veil “is necessary to avoid injustice.”

Here, the large money transfers and the settlement with insurance carriers for potentially significantly less than the insurance value, leaving Dravo with only limited insurance proceeds to address the asbestos claims, raises a genuine issue of material fact as to whether CLI and Dravo were promoting an injustice.