LFC MARKETING GROUP, INC., APPELLANT,
v. CEBE W. LOOMIS, ANDREW F. LOOMIS, CHRISTIAN W. LOOMIS AND JUST C. LOOMIS,
September 19, 2000
8 P.3d 841
Appeal from an order granting a writ of attachment and
denying a third-party claim to the attached property. Second Judicial
District Court, Washoe County; Brent T. Adams, Judge.
Judgment creditor obtained ex parte writ of attachment in attempt to satisfy
judgment against individual from assets held in escrow for corporation
he allegedly controlled. Corporation filed third-party claim asserting
sole ownership of assets. The district court determined that corporation
was alter ego of individual and allowed satisfaction of judgment out of
attached assets. Corporation appealed. The supreme court held that: (1)
writ of attachment may be used post-judgment, (2) alter ego doctrine may
be applied in reverse to reach corporation's assets to satisfy controlling
individual's debt, and (3) substantial evidence supported determination
that corporation was alter ego of individual
Skinner Sutton Watson & Rounds and Philip A. Olsen,
Incline Village, for Appellant.
Richard G. Hill and William Patterson Cashill, Reno, for Respondents
Writ of attachment may be used post-judgment under stafute that allows
application for writ of attachment at time of issuance of summons or "at
any time thereafter." NRS 31.010.
Essence of alter ego doctrine, which allows piercing of the corporate
shield, is to do justice whenever it appears that the protections provided
by the corporate form are being abused.
Reverse piercing, under which alter ego doctrine is applied to recover
individual debt from assets of corporation determined to be alter ego
of individual debtor, is appropriate in those limited instances where
the particular facts and equities show the existence of an alter ego relationship
and require that the corporation fiction be .ignored so that justice may
4. APPEAL AND ERROR.
Exception to deferential standard normally applied to trial court's application
of alter ego doctrine exists when it is clear that a wrong conclusion
has been reached.
Following factors, though not conclusive, may indicate the existence of
an alter ego relationship: (1) commingling of funds, (2) undercapitalization,
(3) unauthorized diversion of funds, (4) treatment of corporate assets
as the individual's own, and (5) failure to observe corporate formalities.
Absence of corporate ownership by individual debtor does not automatically
preclude application of reverse piercing. Circumstances of each case and
interests of justice control.
Evidence, that individual debtor, despite not owning single share of corporation,
held himself out as its president, CEO, and primary owner, acted as ultimate
authority for all of corporation's dealings, and allowed corporation's
bills to be paid by related entity owned by his wife, showed sufficient
unity of ownership and interest to support determination that corporation
was alter ego of individual.
In determining whether corporate veil can be pierced to satisfy debt of
individual out of corporate assets, potential harm to innocent share holders
or corporate creditors must be considered.
Evidence that judgment creditors had been unable to satisfy judgment against
individual debtor for three years, despite debtor's being dominant force
behind Nevada corporation, and that debtor's brother, as corporation's
sole shareholder, would not be harmed if debt was collected from corporate
assets, supported finding that refusing to allow reverse piercing would
sanction fraud or promote injustice.
Before ROSE, C. J., YOUNG and LEAVITT, JJ.
This case presents us with two issues: (1) whether a writ
of attachment may be used to secure property after a judgment has already
been obtained; and (2) whether a judgment creditor can pierce the corporate
veil using a reverse alter ego analysis to reach the assets of a corporation
that is allegedly controlled by the judgment debtor. Since 1996, Cebe,
Andrew, Christian and Just Loomis (the "Loomises") have been
trying to recover a $25,000.00 judgment from William Lange ("William")
concerning a failed real estate transaction with William's brokerage firm
Lange Financial Corporation ("LFC"). Unable to satisfy their
judgment, the Loomises obtained a writ of attachment on commissions payable
to LFC Marketing Group, Inc. ("LFC Marketing") held in escrow
by a Nevada title company. LFC Marketing, whose sole shareholder is William's
brother Robert Lange ("Robert"), disputed that William was entitled
to any of the commissions and requested a hearing on the writ to settle
title to the deposited monies. The district court determined that LFC
Marketing was the alter ego of William, and thus ordered that the Loomises'
judgment be satisfied out of the attached commissions.
We fIrst conclude that the procedure employed by the Loomises-using a
writ of attachment to aid in post-judgment recovery-is allowable under
our statutes. Further, we conclude that in certain limited circumstances,
the alter ego doctrine may be applied to recover an individual debt from
the assets of a corporation determined to be the alter ego of the individual
debtor. Finally, we conclude that there was substantial evidence in this
case to support the district court's finding.
STATEMENT OF FACTS
The underlying facts of the transaction that ultimately
resulted in a judgment in favor of the Loomises against William are recited
in Loomis v. Lange Financial Corp., 109 Nev. 1121, 865 P.2d 1161 (1993).
The relevant judgment in that case was the district court order requiring
William to pay the Loomises $25,000.00 in attorney fees. .
This case involves the Loomises' attempts to collect the judgment owed
by William, a California resident and sole shareholder of LFC, who currently
does not have a Nevada real estate license.
LFC, a California brokerage firm with whom the Loornises contracted to
market and sell property owned by the Loornises in downtown Reno, is associated
with a consortium of smaller companies, collectively known as the LFC
Real Estate Network. Included in this network is LFC Marketing, a Nevada
corporation performing real estate brokering services whose sole shareholder
and president is William's brother Robert. A month after LFC Marketing's
incorporation, William was elected vice president "for the purpose
of conducting related activities," but was not authorized to conduct
any. activity on behalf of LFC Marketing that required a real estate license.
Also included in the network is LFC Communications Limited ("LFC
Communications"), a California entity performing advertising services
whose sole shareholder is William's wife and whose president is William.
Importantly, the. Nevada Land and Resources Company ("NLRC")
hired LFC Marketing and LFC Communications to assist in selling its substantial
Nevada real estate holdings. As a result of services provided by LFC Marketing,
NLRC deposited funds in excess of $25,000.00 with a local Nevada title
company to be paid to LFC Marketing. Having learned of the NLRC deposit,
the Loomises filed an ex parte motion for a writ of attachment! on August
4, 1997, which requested the seizure of the deposited monies in the amount
of $25,000.00 plus interest to satisfy William's judgment debt.
Believing that the attached funds did not belong to William in any way,
LFC Marketing filed a third-party claim asserting sole ownership of the
attached funds. Pursuant to NRS 31.070(5),2 a hearing was scheduled and
held to settle the ownership of the property
At the hearing, which was not attended by William, the Loomises argued
that LFC Marketing was the alter ego of William, and thus sought to pierce
the corporate veil in reverse to reach the deposited funds. In support
of their contention, the Loomises presented the following: (1) Robert's
testimony that William wrote ninety percent of LFC Marketing's correspondence
to NLRC; (2) evidence that William negotiated and signed early drafts
of the marketing agreement between LFC Marketing and NLRC; (3) testimony
from one of LFC Marketing's brokers that William drafted the [mal marketing
agreement but asked that the broker sign the final version on LFC Marketing's
behalf; (4) evidence that William hired and supervised LFC Marketing's.
brokers; (5) testimony from NLRC's accountant that he dealt exclusively
with William and believed William to be the ultimate authority for all
of LFC Marketing's dealings; (6) documentation indicating that William
was holding himself out to be the "president and CEO" and the
"primary owner" of LFC Marketing; (7) evidence that LFC Communications
paid LFC Marketing's bills and that checks written to LFC Marketing should
be made out only to "LFC"; (8) evidence that William was being
personally compensated for LFC Marketing's work; and (9) evidence that
William had negotiated a settlement agreement between the LFC entities
and NLRC, and determined how the proceeds were to be divided. - .
LFC Marketing presented the following evidence supporting its claim that
William's participation in LFC Marketing's activities was minimal: (1)
testimony from Robert that he made LFC Marketing's decisions; (2) testimony
from the president of NLRC that he consulted Robert for marketing decisions
and William for advertising decisions, but also had joint meetings with
the two; (3) testimony that the only reason William dealt more with NLRC
was because the parties had agreed that there should be only one point
person; and (4) testimony that inter-company checks were only used to
pay "incidental expenses."
At the conclusion of the hearing, the district court made an oral ruling
concluding that LFC Marketing was the alter ego of William, and thus granted
the motion for writ of attachment. Further, the district court ordered
that the attached funds be released to the Loomises in satisfaction of
the debt owed by William.
LFC Marketing appeals this order, claiming that the post-judgment writ
of attachment procedure employed by the Loomises was improper and that
the district court erred in allowing the corporate veil to be pierced
Whether a writ of attachment may be used post-judgment to secure
property to satisfy the judgment
LFC .Marketing argues that the. unusual procedure utilized by
the Loomises here-using a writ of attachment in the post-judgment context-was
unprecedented and improper. Specifically, LFC Marketing contends that
the statutes governing the satisfaction of Judgments required the Loomises
to obtain a writ of execution, not attachment, and to then issue a writ
of garnishment, as the funds were in the hands of a third party, namely
Typically, . a writ of attachment is used as a pre-judgment remedy by
which a plaintiff requests the court to secure the property of the defendant
so that it may be used in satisfaction of any judgment obtained. See 6
Am. Jur. 2d Attachment and Garnishment §1 (1999). In contrast, a
writ of execution is a post-judgment remedy by which a successful plaintiff
requests the court to enforce the judgment by seizing and delivering property
owned by the defendant in satisfaction of the debt. See 30 Am. Jur. 2d
Executions and Enforcement of Judgments §§ 43, 51 (1994). However,
because attachment procedures are provided by statute, the issue of whether
a writ of attachment may be issued postjudgment is controlled by the terms
of these statutes. We have often stated that" , "[w ]here the
language of a statute is plain and unambiguous, and its meaning clear
and unmistakable, there is no room for construction, and the courts are
not permitted to search for its meaning beyond the statute itself."'"
Erwin v. State of Nevada; 111 Nev. 1535, 1538-39, 908 P.2d 1367, 1369
(1995) (quoting Charlie Brown Constr. Co. v. Boulder City, 106 Nev. 497,503,797
P.2d 946, 949 (1990) (quoting State v. Jepsen, 46 Nev. 193,196, 209 P.
501, 502 (1922»).
The Nevada. provisions regulating writs of attachment are contained in
sections 31.010 through 31.220 of the Nevada Revised
Statutes. In particular, NRS 31. 0 1 0 provides the general rule for'
when such writs may issue:
The plaintiff at the time of issuing the summons, or at any time thereafter,
may apply to the court for an order directing the clerk to issue a writ
of attachment and thereby cause the property of the defendant to be attached
as security for the satisfaction of any judgment that may be recovered,
unless the defendant gives security to pay such judgment as provided in
(Emphasis added.) We conclude that the plain language of this provision
allows the unusual procedure of using a writ of attachment post-judgment.
LFC Marketing argues that other language in the statute namely, that a
writ of attachment causes the defendant's property "to be attached
as security for the satisfaction of any judgment that may be recovered"
-suggests that the writ is a pre-judgment remedy only. However, we conclude
that the language relied upon by LFC Marketing is ambiguous and unpersuasive
in light of the plain and unambiguous provision allowing a plaintiff to
apply for a writ of attachment at the time of issuance of the summons
or "at any time thereafter."
We further note that under both attachment and execution procedures, the
rights of third parties claiming title to the property levied upon is
identical. 3 Specifically, a third party is entitled to a hearing within
ten days of service of the third party's written, verified claim to resolve
title to the property. See NRS 31.070 (providing third-party hearing in
writ of attachment context); NRS 21.120(2) (providing that identical hearing
procedure is used for third parties in writ of execution context).
Therefore, we conclude that the Loomises' use of a writ of attachment
to recover a post-judgment debt is allowed under Nevada's existing statutory
Whether the district court erred in allowing the corporate veil to be
pierced in reverse
LFC Marketing first contends that the district court erred when it allowed
the Loomises to satisfy their judgment against William out of property
belonging to LFC Marketing by piercing the corporate veil in reverse.
Specifically, LFC Marketing argues that there is no precedent in Nevada
for such a remedy and contends that the court's ruling resulted in fundamental
unfairness to LFC Marketing by favoring the Loomises over other parties
who may have an interest in the money. '
Whether the district court erred in allowing the corporate
veil to be pierced in reverse
LFC Marketing first contends that the district court erred
when it allowed the Loomises to satisfy their judgment against William
out of property belonging to LFC Marketing by piercing the corporate veil
in reverse. Specifically, LFC Marketing argues that there is no precedent
in Nevada for such a remedy and contends that the court's ruling resulted
in fundamental unfairness to LFC Marketing by favoring the Loomises over
other parties who may have an interest in the money.
Nevada has long recognized that although corporations are generally to
be treated as separate legal entities, the equitable remedy of "piercing
the corporate veil" may be available to a plaintiff in circumstances
where it appears that the corporation is acting as the alter ego of a
controlling individual. See McCleary Cattle Co. v. Sewell, 73 Nev. 279,
317 P.2d 957 (1957) (early application of alter ego doctrine). Indeed,
the "essence" of the alter ego doctrine is to "do justice"
whenever it appears that the protections provided by the corporate fonn
are being abused. See Polaris Industrial Corp. v. Kaplan, 103 Nev. 598,
603, 747 P.2d 884, 888 (l987).
While the classic alter ego situation involves a creditor reaching the
personal assets of a controlling individual to satisfy a corporation's
debt, the "reverse" piercing situation involves a creditor reaching
the assets of a corporation to satisfy the debt of a corporate insider
based on a showing that the corporate entity is really the alter ego of
the individual. See generally Gregory S. Crespi, The Reverse Piercing
Doctrine: Applying Appropriate Standards, 16 J. Corp. L. 33, 55-69 (1990)
(reviewing the case law on outsider reverse piercing). Although our case
law has never directly addressed reverse piercing, most courts considering
the issue have allowed such piercing.4 See, e.g., McCall Stock Fanns,
Inc. v. United States, 14 F.3d 1562, 1568 (Fed. Cir. 1993); Towe Antique
Ford Foundation v. I.R.S., 999 F.2d 1387, 1390-94 (9th Cir. 1993); Zahra
Spiritual Trust v. United States, 910 F.2d 240, 243-45 (5th Cir. 1990);
Select Creations, Inc. v. Paliafito Am., Inc., 852 F. Supp. 740, 773-74
(E.D. Wis. 1994); Taylor v. Newton, 257 P.2d 68, 72-73 (Cal. Ct. App.
1953); Cargill, Inc. v. Hedge, 375 N.w.2d 477, 478-80 (Minn. 1985); State
v. Easton, 647 N.Y.S.2d 904, 908-910 (App. Div. 1995); cf. Floyd v. I.R.S.,
151 F.3d 1295, 1298-1300 (lOth Cir. 1998) (criticizing reverse piercing
theory because practice may unfairly prejudice innocent shareholders and
harm a corporation's ability to raise credit).
Conceptually, we conclude that reverse piercing is not inconsistent with
traditional piercing in its goal of preventing abuse of the corporate
fonn. Indeed, "[i]t is particularly appropriate to apply the alter
ego doctrine in 'reverse' when the controlling party uses the controlled
entity to hide assets or secretly to conduct business to avoid the pre-existing
liability of the controlling party." Select Creations, 852 F. Supp.
at 774. However, it should be emphasized that "[t]he corporate cloak
is not lightly thrown aside" arid that the alter ego doctrine is
an exception to the general rule recognizing corporate independence. Baer
v. Amos J. Walker, Inc., 85 Nev. 219, 220, 452 P.2d 916, 916 (1969). Accordingly,
we conclude that reverse piercing is appropriate in those limited instances
where the particular facts and equities show the existence of an alter
ego relationship and require that the corporate fiction be ignored so
that justice may be promoted.
Whether there was substantial evidence to support
the district court's finding
LFC Marketing next argues that the district court erred
in fmding it to be the alter ego of William because two of the requisite
three elements of the doctrine were not demonstrated by substantial evidence
This court has stated that it will uphom a district court's determination
with regard to the alter ego doctrine if substantial evidence exists to
support the decision. See Lorenz v. Beltio, Ltd., 114 Nev. 795, 807, 963
P.2d 488, 496 (1998). However, there is an exception to this deferential
standard where it is clear that a wrong conclusion has been reached. See
Polaris Industrial Corp. v. Kaplan, 103 Nev. 598, 601, 747 P.2d 884, 886
The elements for finding an alter ego, which must be established by a
preponderance of the evidence, are:
(1) the corporation must be influenced and governed by the person asserted
to be the alter ego; (2) there must be such unity of interest and ownership
that one is inseparable from the other; and (3) the facts must be such
that adherence to the corporate fiction of a separate entity would, under
the circumstances, sanction [a] fraud or promote injustice.
[d. at 601, 747 P.2d at 886. Further, the following factors, though not
conclusive, may indicate the existence of an alter ego relationship: (1)
commingling of funds; (2) undercapitalization; (3) unauthorized diversion
of funds; (4) treatment of corporate assets as the individual's own; and
(5) failure to observe corporate formalities. See id. at 601, 747 P.2d
at 887. We have emphasized, however, that "[t]here is no litmus test
for determining when the corporate fiction should be disregarded; the
result depends on the circumstances of each case." [d. at 602, 747
P.2d at 887.
First, LFC Marketing argues that the district court blurred the second
element-unity of ownership and interest-with the first influence and control.
LFC Marketing underscores. the fact that William does not own a single
share of LFC Marketing, and thus argues that this element cannot be found.
We disagree. Although ownership of corporate shares is a strong factor
favoring unity of ownership and interest, the absence of corporate ownership
is not automatically a controlling event. Instead, the "circumstances
of each case" and the interests of justice should control. [d. This
is especially true when considering the ease with which corporations may
be formed and shares issued in names other than the controlling individual.
See State v. Easton, 647 N.Y.S.2d 904, 909 (App. Div. 1995) (allowing
a corporation's assets to be reached through reverse piercing where the
debtor did not own a single share of the corporation's stock).
In this case, there was evidence that William acted as the ultimate authority
for all of LFC Marketing's dealings, had negotiated the marketing agreement
with NLRC personally, and did not distinguish his interest from the various
Lange entities. Further, there was evidence that William considered himself
to be the "president and CEO" and the "primary owner"
of LFC Marketing. Additionally, there was evidence that LFC Communications
paid LFC Marketing's bills and that a common account was used among the
LFC entities. Finally, there was testimony that William alone negotiated
a settlement agreement with NLRC over a billing dispute and determined
which of the LFC entities received the proceeds. We conclude that this
evidence is adequate fo support the district court's conclusion that there
was a unity of interest and ownership.
Next, LFC Marketing alleges that the Loomises failed to show that adherence
to the corporate entity would sanction a fraud or promote injustice. We
disagree. The record reveals that the Loomises were unable to recover
their judgment against William for over three years, despite William's
being the dominating force behind a Nevada corporation. Indeed, the evidence
supports the district. court's conclusion that the carefully designed
business arrangements between the LFC entities, William, and NLRC contributed
to the Loomises' inability to collect their judgment.
[Headnotes 8, 9]
We recognize, however, as the district court also did, that there are
other equities to be considered in the reverse piercing situation-namely,
whether the rights of innocent shareholders or creditors are harmed by
the pierce. See Floyd v. I.R.S., 151 F.3d 1295, 1300 (10th Cir. 1998)
(recognizing potential harm to innocent shareholders or creditors when
the corporate veil is pierced in reverse); Cargill, Inc. v. Hedge, 375
N.W2d 477, 479 (Minn. 1985). In this case, the district court found that
Robert, the sole shareholder of LFC Marketing, would not be harmed by
the attachment and that the pierce was otherwise just. We therefore conclude
that the district court's conclusion that adherence to the corporate fiction.
would sanction a fraud or promote injustice was supported by substantial
evidence and proper under the circumstances
We first conclude that the procedure of utilizing a writ of attachment
in the post-judgment context is allowable under Nevada's statutes. Next,
we conclude that there are limited circumstances where the alter ego doctrine
may be applied "in reverse" in order to reach a corporation's
assets to satisfy a controlling individual's debt. Finally, we conclude
that there was substantial evidence to support the district court's ruling
that LFC Marketing was the alter ego of William. '
Accordingly, the district court's order granting and issuing the Loomises'
writ of attachment is affirmed.
1The motion was made pursuant to the writ of attachment
procedure of NRS 31.010. However, the motion recognizes that the attachment
requested is post-judgment, in contravention to the ordinary case where
attachment is a pre-judgment action.
2NRS 31.070(5) provides that a third party-after
service of a written, verified claim-is entitled to a hearing to determine
title to the property levied on
3We also note that in this case the Loomises are'
particularly benefited by those provisions allowing a writ of attachment
to issue without notice under certain circumstances. See NRS 31.017. Such
circumstances include when the debtor resides in another state or when
the property sought to be attached is in danger of being removed from
the state. See id.
4LFC Marketing contends that this court has considered
the issue in Baer v. Amos J. Walker, Inc., 85 Nev. 219,452 P.2d 916 (1969),
where we denied recovery from a creditor trying to collect an individual
debt from a corporation controlled by the debtor. However, the decision
in Baer was based on this court's conclusion that there was no
evidence of the individual debtor's control over the corporation or of
fraud. See id. at 220-21, 452 P.2d at 917. Thus, although the Baer
court recognized that the creditor was seeking to use the alter ego doctrine
in reverse, it did not expressly disapprove of such use. Accordingly,
the holding in Baer does not control our analysis here.
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