Todd Leany v. Zurich American Ins. Co.

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 6, 2020
• Docket: 18-17056
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION APR 6 2020 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

TODD L. LEANY, No. 18-17056

Plaintiff-counter- D.C. No. defendant-Appellee, 2:16-cv-01890-RFB-PAL

v. MEMORANDUM* ZURICH AMERICAN INSURANCE COMPANY,

Defendant-counter-claimant- Appellant.

Appeal from the United States District Court for the District of Nevada Richard F. Boulware II, District Judge, Presiding

Submitted March 25, 2020** Las Vegas, Nevada

Before: W. FLETCHER, BYBEE, and WATFORD, Circuit Judges.

In 2008, Century Steel (Century) sold the majority of its assets for $150

million. From that $150 million, Century put aside $2.1 million to satisfy any

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). future debts the company might incur. It spent and distributed the rest. Five years

later, Zurich American Insurance Company (Zurich) sought to collect a $300,000

debt from Century. But by then, unforeseen litigation costs had exhausted the $2.1

million reserve, and Century was unable to pay. Zurich now seeks to force

Century into arbitration in accordance with an arbitration agreement between the

two companies. It wants to “pierce the corporate veil” and force Todd

Leany—Century’s president, sole board-member, and majority shareholder—into

arbitration too. The district court granted summary judgment to Leany. We

review this decision de novo. See Animal Legal Def. Fund v. U.S. FDA, 836 F.3d

987, 988 (9th Cir. 2016) (en banc) (per curiam). We affirm.

Under Nevada law, a party may “pierce the corporate veil” and force an

individual to abide by a corporation’s arbitration agreement only if the party can

show: (1) the corporation is “influenced and governed by the [individual],” (2)

there is “such unity of interest and ownership” that the corporation is inseparable

from the individual, and (3) “adherence to the fiction of separate entity would,

under the circumstances, sanction a fraud or promote injustice.” Frank McCleary

Cattle Co. v. Sewell, 317 P.2d 957, 959 (Nev. 1957), overruled on other grounds

by Callie v. Bowling, 160 P.3d 878 (Nev. 2007) (en banc); see also Nev. Rev. Stat.

§ 78.747(2) (codifying this test). The party seeking to pierce the corporate veil

2 bears the burden to establish all three of the above factors by a preponderance of

the evidence. See Ecklund v. Nev. Wholesale Lumber Co., 562 P.2d 479, 480 (Nev.

1977).

Summary judgment for Leany was proper because Zurich has not shown that

adhering to the corporate form would sanction fraud or promote injustice. Zurich

has not established that Leany knew or should have known that Century’s $2.1

million reserve was insufficient, nor has it presented any evidence demonstrating

that the $2.1 million would not have been sufficient but for the unanticipated

litigation against Century. And though Zurich correctly notes that adherence to the

corporate form sanctions injustice when the financial setup of the corporation is a

sham, a corporation’s financial setup is not a sham if it was established for

legitimate reasons. See Paul Steelman, Ltd. v. Omni Realty Partners, 885 P.2d

549, 550–51 (Nev. 1994) (per curiam) (refusing to pierce the corporate veil when a

corporation was undercapitalized not “to defraud . . . creditors” but “to minimize

losses”). Zurich has not presented evidence that Leany left Century with $2.1

million for any illegitimate reason, and so we cannot conclude that Century’s

financial setup was a sham. Moreover, when comparing this case with those in

which the Nevada Supreme Court has pierced the corporate veil, it is apparent that

Nevada law requires a showing of much more egregious conduct to find fraud or

3 injustice in adhering to the corporate form. See, e.g., Carson Meadows Inc. v.

Pease, 533 P.2d 458, 460–61 (Nev. 1975) (piercing the corporate veil after finding

defendant “manipulated [corporate assets] to suit himself” and “used the corporate

shell as a conduit for his individual enterprise”); Caple v. Raynel Campers, Inc.,

526 P.2d 334, 336 (Nev. 1974) (piercing the veil when corporation “had no

apparent independent business operation and existed solely for the purpose of

conducting the personal business of” defendant).

Unable to show that “adherence to the fiction of separate entity would, under

the circumstances, sanction a fraud or promote injustice,” Zurich cannot pierce the

corporate veil. Sewell, 317 P.2d at 959. Accordingly, it cannot force Leany to

abide by Century’s arbitration agreement. For this reason, summary judgment for

Leany was proper.

AFFIRMED.