407 N 117 Street v. Harper , 314 Neb. 843 ( 2023 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
08/04/2023 09:11 AM CDT
- 843 -
Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843407 N 117 Street, LLC, appellant, v.
Marc Harper and Art McGill, appellees.
___ N.W.2d ___
Filed August 4, 2023. No. S-22-610.
1. Summary Judgment: Appeal and Error. An appellate court reviews a
district court’s grant of summary judgment de novo, viewing the record
in the light most favorable to the nonmoving party and drawing all rea-
sonable inferences in that party’s favor.
2. Judgments: Appeal and Error. An appellate court independently
reviews questions of law decided by a lower court.
3. Corporations: Liability. Generally, a corporation is viewed as a com-
plete and separate entity from its shareholders and officers, who are not,
as a rule, liable for the debts and obligations of the corporation.
4. Corporations: Fraud. A court will disregard a corporation’s identity
only where the corporation has been used to commit fraud, violate a
legal duty, or perpetrate a dishonest or unjust act in contravention of the
rights of another.
5. Corporations. A corporation’s identity as a separate legal entity will
be preserved, as a general rule, until sufficient reason to the con-
trary appears.
6. Corporations: Proof: Fraud. A plaintiff seeking to pierce the cor-
porate veil must allege and prove that the corporation was under the
actual control of the shareholder and that the shareholder exercised such
control to commit a fraud or other wrong in contravention of the plain-
tiff’s rights.
7. Summary Judgment. Summary judgment is proper only when the
pleadings, depositions, admissions, stipulations, and affidavits in the
record disclose that there is no genuine issue as to any material fact or
as to the ultimate inferences that may be drawn from those facts and that
the moving party is entitled to judgment as a matter of law.
8. Summary Judgment: Pleadings. The pleadings frame the issues to be
considered on a motion for summary judgment.
- 844 -
Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 8439. Summary Judgment. One of the primary purposes of summary judg-
ment is to pierce the allegations in the pleadings and show conclusively
that the controlling facts are other than as pled.
10. Summary Judgment: Proof. The party moving for summary judgment
must make a prima facie case by producing enough evidence to show
the movant would be entitled to judgment if the evidence were uncon-
troverted at trial. If the moving party makes a prima facie case, the bur-
den shifts to the nonmovant to produce evidence showing the existence
of a material issue of fact that prevents judgment as a matter of law. But
in the absence of a prima facie showing by the movant that he or she
is entitled to summary judgment, the opposing party is not required to
reveal evidence which he or she expects to produce at trial.
11. ____: ____. If the burden of proof at trial would be on the nonmov-
ing party, then the party moving for summary judgment may satisfy its
prima facie burden either by citing to materials in the record that affirm­
atively negate an essential element of the nonmoving party’s claim or
by citing to materials in the record demonstrating that the nonmoving
party’s evidence is insufficient to establish an essential element of the
nonmoving party’s claim.
Appeal from the District Court for Douglas County: J
Russell Derr, Judge. Affirmed.
Jason M. Bruno and Thomas G. Schumacher, of Sherrets,
Bruno & Vogt, L.L.C., for appellant.
Gabreal M. Belcastro and John M. Lingelbach, of Koley
Jessen, P.C., L.L.O., for appellees.
Heavican, C.J., Cassel, Stacy, Funke, Papik, and
Freudenberg, JJ.
Funke, J.
I. INTRODUCTION
A landlord sued a commercial tenant for nonpayment of
rent and recovered a judgment, which the commercial tenant
has failed or refused to pay. Accordingly, the landlord brought
this action against a nonshareholder officer and a nonshare-
holder former director, seeking to pierce the corporate veil
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Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843of the commercial tenant. The district court granted summary
judgment in favor of the officer and the former director. The
landlord appeals. For the reasons discussed below, we affirm.
II. BACKGROUND
1. Facts
The landlord, 407 N 117 Street, LLC (407), is a Nebraska
limited liability company and the owner of certain property
located at 407 North 117th Street in Omaha, Nebraska. In
February 2007, 407 leased this property to the entity Planet
Group for a 7-year term. Planet Group is a Nebraska corpora-
tion and the parent company of several subsidiary software
companies. Generally, the revenues of the subsidiary compa-
nies were consolidated and funded that corporation.
In August 2013, Planet Group exercised a lease option for an
additional 5-year term, which began June 2, 2014, and ended
May 31, 2019. Planet Group executed the lease option through
its then vice president of finance and administration, David B.
Gerhauser, Jr.
In February 2014, nearly 6 months after Planet Group
exercised its lease option, Art McGill was appointed to Planet
Group’s board of directors. Over 2 years later, Marc Harper
was appointed treasurer of Planet Group. Harper transitioned
to president of Planet Group in March 2017 to assist with the
winding down of Planet Group’s affairs. McGill resigned from
Planet Group’s board of directors in 2018, but Harper remains
its corporate president.
At certain points, both Harper and McGill participated in
and made official decisions, including financial decisions, on
behalf of Planet Group. McGill was still a member of the board
during Planet Group’s sale of two of its subsidiary companies
for “six figures into seven figures” each. As Planet Group’s
president, Harper presently makes financial decisions on that
corporation’s behalf. However, neither Harper nor McGill
was part of Planet Group when it was incorporated, when it
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Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843entered into its lease, or when it exercised the lease option.
Additionally, neither Harper nor McGill has been a shareholder
of or received a salary from Planet Group.
Over 90 percent of Planet Group’s shares are owned by the
limited liability company West Partners. West Partners makes
decisions on behalf of Planet Group and has been a secured
creditor of Planet Group. Harper and McGill have both been
“partner[s]” of West Partners. Both acknowledge having been
part of a group of people who made decisions on behalf of
West Partners. Harper became involved with West Partners in
2011 or 2012, and McGill became involved with West Partners
in 2013. McGill ceased his involvement with West Partners
in 2018.
In or around 2018, Planet Group faced at least two major
payment obligations, namely its repayments to West Partners
and its lease payments to 407. By 2018, West Partners had
made various loans and capital contributions to Planet Group.
West Partners ultimately foreclosed on a portion of its out-
standing loans to Planet Group. Harper and McGill were
both “involved” in West Partners’ decision to foreclose.
Subsequently, Planet Group stopped making lease payments
to 407. Harper acknowledges that he was “involved” in Planet
Group’s decision to stop making the lease payments, explain-
ing, “[W]e were running out of cash” and “[h]ad a lot of debt
and a lot of other issues.”
Eventually, 407 brought an action against Planet Group for
nonpayment of rent pursuant to the August 2013 lease option.
On May 3, 2019, the district court entered a default judgment
in favor of 407 and against Planet Group in the amount of
$714,471.64, plus interest. Planet Group has failed or refused
to make any payments on that judgment, and a writ of execu-
tion issued for $733,221.48 remains unsatisfied.
2.Procedural History
After 407 was unable to recover from Planet Group on its
judgment, 407 commenced the instant action in June 2020
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Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843against Harper, McGill, and Gerhauser. In its complaint, 407
sought to pierce Planet Group’s corporate veil and hold Harper,
McGill, and Gerhauser personally liable for the judgment
against Planet Group. Also in its complaint, 407 alleged that
Harper “is the President and alter ego” of Planet Group and
that McGill “is the Director and alter ego” of Planet Group.
The complaint alleged that Gerhauser had “held himself out
. . . as the Vice President of Finance and Administration” of
Planet Group. Finally, 407 alleged that Harper and McGill
“authorized” Gerhauser to exercise the August 2013 lease
option with knowledge that Planet Group lacked the ability
or intention to pay; absconded with, diverted, and utilized
Planet Group’s assets for their personal benefits; and failed to
(1) “adequately capitalize Planet Group,” (2) “provide Planet
Group with sufficient assets to pay its debts,” or (3) “cause or
enable Planet Group to satisfy its lease and Judgment obliga-
tions to 407.” Further, 407 alleged that Harper, McGill, and
Gerhauser “defraud[ed] and harm[ed]” 407 by exercising the
August 2013 lease option. In January 2021, 407 voluntarily
dismissed its claims against Gerhauser with prejudice.
In January 2022, Harper and McGill moved for summary
judgment. Harper and McGill offered, and the court received,
the operative pleadings, the affidavit of Harper, and the affi-
davit of McGill. Relying on this evidence, Harper and McGill
argued that neither of them had decisionmaking authority
within Planet Group at any relevant time. Harper and McGill
also argued that Nebraska case law does not support piercing
the corporate veil against a nonshareholder, emphasizing that
neither of them had ever been shareholders or received a salary
or compensation of any kind from Planet Group.
In opposing summary judgment, 407 offered, and the court
received, the depositions of Harper and McGill with exhib-
its attached and the affidavit of 407’s attorney with exhibits
attached. The attached exhibits included the following:
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Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843• Planet Group’s notice of its exercise of its option to extend
its lease, signed by Gerhauser on behalf of Planet Group and
dated August 21, 2013;
• a letter from counsel to 407 asserting that Planet Group had
“ceased all operations” and attempting to return all keys to the
leased property, dated December 15, 2017;
• a Uniform Commercial Code financing statement amendment
indicating a collateral change authorized by West Partners as a
secured creditor of Planet Group, dated August 22, 2018;
• the district court’s order granting a default judgment in favor
of 407 and against Planet Group, dated May 3, 2019;
• a writ of execution issued for $733,221.48, dated December 3,
2019; and
• other records relating to Planet Group and its subsidiary com-
panies, including financial records.
According to 407, this evidence showed that Harper and
McGill were “heavily involved” in both Planet Group and
West Partners and that Harper and McGill benefited from their
dual roles by causing Planet Group to prioritize repayment of
its outstanding debt to West Partners over repayment of its out-
standing debt to 407.
On July 15, 2022, the district court entered summary judg-
ment in favor of Harper and McGill and against 407, dismiss-
ing the case with prejudice. The court observed that it was
undisputed that Harper and McGill were never shareholders of
Planet Group, never received a salary or compensation from
Planet Group, and were not part of Planet Group at the time
of (1) Planet Group’s formation, (2) Planet Group’s execution
of the lease, or (3) Planet Group’s exercise of the lease option.
Thus, Harper and McGill did not—and could not—exercise
any control over Planet Group at any time “relevant” to 407’s
claims. Further, so far as the court could determine, “no
Nebraska court has ever extended the ‘piercing the corporate
veil’ doctrine to hold non-shareholder officers and directors . . .
personally liable for pre-existing corporate debts.”
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Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843This appeal by 407 followed. Before the Nebraska Court
of Appeals addressed the appeal, we moved the case to
our docket. 1
III. ASSIGNMENTS OF ERROR
On appeal, 407 assigns that the district court erred in
granting summary judgment in favor of Harper and McGill.
Specifically, 407 argues that the district court failed to analyze
Harper’s and McGill’s control over both Planet Group and its
majority shareholder, West Partners.
IV. STANDARD OF REVIEW
[1,2] An appellate court reviews the district court’s grant
of summary judgment de novo, viewing the record in the
light most favorable to the nonmoving party and drawing
all reasonable inferences in that party’s favor. 2 An appellate
court independently reviews questions of law decided by a
lower court. 3
V. ANALYSIS
1. Piercing Corporate Veil
[3-5] Generally, a corporation is viewed as a complete and
separate entity from its shareholders and officers, who are
not, as a rule, liable for the debts and obligations of the cor-
poration. 4 A court will disregard a corporation’s identity only
where the corporation has been used to commit fraud, violate
a legal duty, or perpetrate a dishonest or unjust act in contra-
vention of the rights of another. 5 A corporation’s identity as
1
See Neb. Rev. Stat. § 24-1106(3) (Cum. Supp. 2022).
2
Slama v. Slama, 313 Neb. 836, 987 N.W.2d 257 (2023).
3
McGill Restoration v. Lion Place Condo. Assn., 313 Neb. 658, 986 N.W.2d
32 (2023).
4
Christian v. Smith, 276 Neb. 867, 759 N.W.2d 447 (2008).
5
Id.- 850 -
Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843a separate legal entity will be preserved, as a general rule, until
sufficient reason to the contrary appears. 6
While the parties dispute whether the corporate veil may
be pierced against nonshareholders, we do not reach the issue.
Instead, and for the sake of analysis, we assume without
deciding that the corporate veil may be pierced to reach a
nonshareholder. The assumption is ineffectual because, as we
will explain below, the record in this case does not otherwise
support veil piercing.
[6] A plaintiff seeking to pierce the corporate veil must
allege and prove that the corporation was under the actual
control of the shareholder and that the shareholder exercised
such control to commit a fraud or other wrong in contravention
of the plaintiff’s rights. 7 In determining whether to disregard
the corporate entity on the basis of fraud, we consider the fol-
lowing factors: (1) grossly inadequate capitalization, (2) insol-
vency of the debtor corporation at the time the debt is incurred,
(3) diversion by the shareholder or shareholders of corporate
funds or assets to their own or other improper uses, and (4)
the fact that the corporation is a mere facade for the personal
dealings of the shareholder and that the operations of the cor-
poration are carried on by the shareholder in disregard of the
corporate entity. 8
2. Summary Judgment Procedure
[7-9] Summary judgment is proper only when the plead-
ings, depositions, admissions, stipulations, and affidavits in
the record disclose that there is no genuine issue as to any
material fact or as to the ultimate inferences that may be
drawn from those facts and that the moving party is entitled to
judgment as a matter of law. 9 The pleadings frame the issues
6
Id.7
Id.8
Id.9
Clark v. Scheels All Sports, ante p. 49, 989 N.W.2d 39 (2023).
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Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843to be considered on a motion for summary judgment—one of
the primary purposes of summary judgment is to pierce the
allegations in the pleadings and show conclusively that the
controlling facts are other than as pled. 10
[10] We recently discussed the procedure for resolving a
summary judgment motion in Clark v. Scheels All Sports. 11
The party moving for summary judgment must make a prima
facie case by producing enough evidence to show the movant
would be entitled to judgment if the evidence were uncontro-
verted at trial. 12 If the moving party makes a prima facie case,
the burden shifts to the nonmovant to produce evidence show-
ing the existence of a material issue of fact that prevents judg-
ment as a matter of law. 13 But in the absence of a prima facie
showing by the movant that he or she is entitled to summary
judgment, the opposing party is not required to reveal evidence
which he or she expects to produce at trial. 14
[11] In Clark, we held that if the burden of proof at trial
would be on the nonmoving party, as it would be here, then the
party moving for summary judgment may satisfy its prima facie
burden either by citing to materials in the record that affirma-
tively negate an essential element of the nonmoving party’s
claim or by citing to materials in the record demonstrating that
the nonmoving party’s evidence is insufficient to establish an
essential element of the nonmoving party’s claim. 15
3. Harper and McGill
Met Their Burden
The complaint alleges that Harper and McGill defrauded
407 by “authoriz[ing]” Gerhauser to exercise the lease option
10
See id.11
See id.12
Id.13
Id.14
Id.15
Id.- 852 -
Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843even though they “knew, or should have known, that Planet
Group was insolvent, that Planet Group did not have suffi-
cient capital or income to satisfy the obligations undertaken
pursuant to the Lease Option, and that Planet Group had
no intention or ability to satisfy the obligations under the
Lease Option.” The complaint further alleges that Harper and
McGill failed to adequately capitalize Planet Group, failed to
provide Planet Group with sufficient assets to pay its debts
as they became due, and absconded with or diverted assets of
Planet Group for their own personal benefits.
In support of summary judgment, Harper and McGill offered
the operative pleadings, as well as affidavits explaining that
they did not have any decisionmaking authority within Planet
Group at the times of incorporation, execution of the lease, or
exercise of the lease option. Both averred, also, that they had
never received any property or compensation of any kind from
the corporation. As such, Harper and McGill met their prima
facie burden.
4. Failure of 407 to Present Genuine
Issue of Material Fact
At trial, the burden of proof is on the party seeking to have
the court apply the exception to the general rule and pierce the
corporate veil. 16 Accordingly, once Harper and McGill estab-
lished a prima facie case, the burden shifted to 407 to produce
evidence showing the existence of a material issue of fact that
prevents judgment as a matter of law. 17
A party asserting that a fact is genuinely disputed must
support that assertion by citing to particular parts of materials
in the record, including depositions, interrogatories, admis-
sions, stipulations, affidavits, and other materials. 18 The com-
plaint and arguments of 407 seek to pierce the corporate veil
16
See Christian, supra note 4.
17
Clark, supra note 9.
18
Id.
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Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843of Planet Group on the basis of fraud and, specifically, on the
basis of multiple fraud factors. As such, we address each of
the fraud factors in turn and conclude that, even giving 407
the benefit of all reasonable inferences, none of the factors
weighs in favor of veil piercing.
(a) Inadequate Capitalization
The first factor is whether there is evidence of inade-
quate capitalization, or capitalization very small in relation
to the nature of the business of the corporation and the risks
entailed. 19 A corporation which was adequately capitalized
when formed but which has suffered losses is not necessarily
undercapitalized. 20 Inadequate capitalization is measured at the
time of incorporation. 21
Here, it is undisputed that Harper and McGill were not
positioned to exercise any control over Planet Group at the
time of incorporation. Accordingly, it is unnecessary to deter-
mine whether the evidence establishes that Planet Group was
undercapitalized at that time—this factor cannot and does not
weigh in favor of piercing the corporate veil against Harper
or McGill.
(b) Insolvency
The second factor is whether the corporation was insolvent
at the time the debt was incurred. 22 A corporation is insolvent
if it is unable to pay its debts as they become due in the usual
course of its business, or if it has an excess of liabilities of the
corporation over its assets at a fair valuation. 23 Whether a cor-
poration is insolvent is usually a question of fact. 24
19
Christian, supra note 4.
20
Id.
21
Id.
22
Id.
23
Id.
24
Id.
- 854 -
Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843The complaint alleges that Harper and McGill caused Planet
Group to exercise the lease option while insolvent, thereby
defrauding and harming 407. However, as previously men-
tioned, Harper and McGill both produced evidence in support
of summary judgment that they lacked decisionmaking author-
ity on behalf of Planet Group at the time the lease option was
exercised. In response, 407 provided some information about
whether Planet Group was insolvent at that time. Notably,
however, 407 was unable to produce any evidence that Harper
and McGill had any control over Planet Group when the lease
was exercised. As such, this factor does not weigh in favor of
veil piercing.
(c) Diversion of Funds or Assets
The third factor is whether there is evidence of a diversion by
the shareholder or shareholders of corporate funds or assets to
their own or other improper uses. 25 The complaint alleges that
Harper and McGill absconded with or diverted assets of Planet
Group that should have been used to pay 407. Specifically, 407
alleges and argues that Harper and McGill diverted and utilized
assets of Planet Group for their own personal benefits.
As previously mentioned, Harper and McGill produced affi-
davits in support of summary judgment explaining that neither
of them had ever received any property or compensation of
any kind from Planet Group. Harper’s affidavit additionally
addresses the financial transfers at issue between Planet Group
and West Partners, explaining that West Partners did foreclose
on some loans owed by Planet Group, yielding “pennies on the
dollar,” but ultimately experienced “a total loss” with regard
to millions of dollars the entity had spent over the course of
several years purchasing Planet Group’s stock. Additionally,
Harper’s and McGill’s depositions indicate that neither was an
owner of West Partners.
25
Id.- 855 -
Nebraska Supreme Court Advance Sheets
314 Nebraska Reports
407 N 117 STREET V. HARPER
Cite as 314 Neb. 843In opposing summary judgment, 407 offered Harper’s depo-
sition, wherein Harper explained that Planet Group stopped
making its rent payments to 407 because the corporation
was running out of cash and had “a lot of other issues.”
When asked where Planet Group’s money had gone, Harper
responded that some had been used for “business operations”
in connection with efforts to “save the company” and that later,
some had been used to pay off secured debt. Harper explained
that since then, Planet Group, with the assistance of counsel,
had been “trying in good faith to try and work something out”
as to both of its competing creditors, namely 407 and the State
of Nebraska.
In its brief in opposition to summary judgment, Planet
Group emphasized evidence indicating that Harper, McGill, or
both were involved in (1) Planet Group’s sale of some of its
subsidiary companies, (2) Planet Group’s decision to stop pay-
ing rent to 407, and (3) West Partners’ decision to foreclose on
some of its outstanding loans to Planet Group. As suggested by
407, such evidence warrants an inference that as the end drew
near for Planet Group, Harper and McGill liquidated certain
assets and then preferentially repaid West Partners rather than
407 in order to siphon assets or otherwise receive a personal
benefit. On the record before us, a fact finder would have to
speculate to arrive at the same conclusion.
We have previously explained that conclusions based on
guess, speculation, conjecture, or a choice of possibilities do
not create material issues of fact for the purposes of summary
judgment; the evidence must be sufficient to support an infer-
ence in the nonmovant’s favor without the fact finder engaging
in guesswork. 26 As such, while it is true that 407 is entitled to
all reasonable inferences from the record, nothing in the record
supports a reasonable inference that this factor weighs in favor
of veil piercing.
26
Clark, supra note 9.
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407 N 117 STREET V. HARPER
Cite as 314 Neb. 843(d) Corporation as Intermediary
The fourth factor is whether there is evidence that “the
corporation is a facade for the personal dealings of the share-
holder and the operations of the corporation are carried on by
the shareholder in disregard of the corporate entity.” 27 The
separate entity concept of the corporation may be disregarded
where the corporation is a mere shell, serving no legitimate
business purpose, and is used as an intermediary to perpetuate
fraud on the creditors. 28
Planet Group was not a mere shell or business conduit of
Harper and McGill, as was the case in Nebraska Engineering
Co. v. Gerstner. 29 On the contrary, Planet Group is a legitimate
business, albeit defunct. This factor does not weigh in favor of
veil piercing.
VI. CONCLUSION
The district court’s judgment was correct and is affirmed.
Affirmed.
Miller-Lerman, J., not participating.
27
Christian, supra note 4, 276 Neb. at 885, 759 N.W.2d at 463.
28
Id.29
Nebraska Engineering Co. v. Gerstner, 212 Neb. 440, 323 N.W.2d 84(1982).