Sydney Silverman appeals the district courts grant of summary judgment in favor of Sams West, Inc.
1
The district court pierced the corporate veil and held Silverman personally liable for judgments entered in favor of Sams West against W.P. Productions (WPP). WPP owed significant debt to Sams West but brought a tort lawsuit against Tramotina U.S.A., Inc.
2
and Sams West. After the court entered a final judgment against WPP in that tort case, Sams West eventually brought this supplemental lawsuit to pierce WPPs corporate veil and hold Silverman personally liable for WPPs unpaid judgments. The district court granted summary judgment in favor of Sams West. On appeal, Silverman alleges that the district court improperly pierced the corporate veil on summary judgment. After careful review and with the benefit of oral argument, we affirm the district court.
I. Factual and Procedural Background
Silverman was the sole shareholder of WPP, which was an S Corporation.
3
Silverman used a shared bank account for his personal funds and WPPs corporate funds. He allegedly used a “scorecard” system to distinguish personal from corporate funds. Between January 2015 and June 2022, Silverman spent $3,248,003 from the shared account. These expenses can be broken up as (1) $2,415,803 on personal expenses
4
charged to WPP and personal credit cards, and (2) $832,200 transferred to himself, his relatives, or their trust funds.
WPP had a license agreement allowing WPP to use Wolfgang Pucks name. WPP sold Wolfgang Puck-branded kitchen products to Sams Club for Sams Club to sell in its stores. In 2015, WPP and Sams Club entered an agreement whereby Sams Club would feature WPP products in two Instant Savings Booklets in exchange for a set payment from WPP for each unit sold during the two promotions. By April 2016, WPP failed to pay the $1.75 million it owed Sams Club and entered a Claim Installment Payment Agreement. In May 2016, WPP placed another product in an Instant Savings Booklet, adding $1.2 million to its debt. In September 2016, WPP made its last payment to Sams Club but left over $2 million of debt unpaid. In October 2017, Sams Club made a written demand to WPP for payment of money.
Silverman shut down WPP in August 2018 while continuing to move money between himself, WPP, and affiliated companies. Later in 2018, in the Southern District of Florida, WPP sued Sams West alleging, among other things: (1) Sams West tortiously interfered with WPPs potential relationship with Costco; (2) Sams West defamed WPP; and (3) Sams West committed civil conspiracy against WPP. Sams West filed a counterclaim, which included counts related to WPP breaching a promissory note and contract. In June 2020, the district court entered a $2,672,977.86 judgment for Sams West against WPP and awarded Sams West $58,573.50 in attorneys fees in October. In September 2020, the Florida Secretary of State administratively dissolved WPP.
When Sams West could not satisfy its judgments against WPP, it initiated these supplemental proceedings pursuant to Florida Statute § 56.29. Sams West sought to pierce WPPs corporate veil to add Silverman as a judgment debtor under collateral estoppel and alter ego theories. In 2021, a magistrate judge issued a Report and Recommendation (R&R) determining that a California court decision established the first element of piercing the corporate veil—shareholder as alter ego of a corporation—but not the remaining elements of improper conduct or causing an injury. The district judge adopted this R&R.
Both parties then moved for summary judgment regarding whether the second and third elements of piercing the corporate veil in Florida were present as a matter of law. In November 2022, the magistrate judge issued a second R&R stating that the undisputed facts showed Sams West was entitled to judgment as a matter of law on its veil piercing claim. The district court judge adopted this R&R over Silvermans objections. Silverman timely appealed.
II. Applicable Law
“We review grants of summary judgment de novo.” King v. King, 69 F.4th 738, 742 (11th Cir. 2023) (per curiam). Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Because this case comes to us under diversity jurisdiction and arose in Florida, we apply the substantive law of Florida. Sutton v. Wal-Mart Stores E., LP, 64 F.4th 1166, 1168 (11th Cir. 2023). Floridas guiding case on piercing the corporate veil does not explicitly address summary judgment where a party seeks to pierce the corporate veil. See Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114, 1121 (Fla. 1984). Regardless of procedural posture, Florida veil-piercing law focuses on whether “improper conduct” occurred. Id.
Both parties agree that the following three elements are required to pierce the corporate veil in Florida:
(1) the shareholder dominated and controlled the corporation to such an extent that the corporations independent existence, was in fact non-existent and the shareholders were in fact alter egos of the corporation;
(2) the corporate form must have been used fraudulently or for an improper purpose; and
(3) the fraudulent or improper use of the corporate form caused injury to the claimant.
Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1349 (11th Cir. 2011) (alterations adopted) (quoting Gasparini v. Pordomingo, 972 So. 2d 1053, 1055 (Fla. Dist. Ct. App. 2008) (per curiam)).
Several core ideas guide our analysis of fraudulent or improper purpose under the second element. Improper purposes can include “a subterfuge to mislead or defraud creditors, to hide assets, to evade the requirements of a statute or some analogous betrayal of trust.” Lipsig v. Ramlawi, 760 So. 2d 170, 187 (Fla. Dist. Ct. App. 2000).
“Although an S corporations net income is taxed directly to the shareholders under the Act, the shareholders do not necessarily receive distributions in an amount equivalent to what is taxed pursuant to the Subchapter S election.” Zold v. Zold, 911 So. 2d 1222, 1227 (Fla. 2005). This makes taxes unreliable indicators of shareholder income from an S corporation.
In Florida, “an S corporations authority to make distributions to shareholders is limited by the corporations articles of incorporation” and Floridas Rule of Priorities. Id. Floridas Rule of Priorities requires corporations to refrain from making distributions if doing so would cause the following to occur:
(a) The corporation would not be able to pay its debts as they become due in the usual course of the corporations activities and affairs; or
(b) The corporations total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved and wound up at the time of the distribution, to satisfy the preferential rights upon dissolution ․
Fla. Stat § 607.06401(3).
“A corporation that has been administratively dissolved continues in existence but may only carry on activities necessary to wind up its activities and affairs, liquidate and distribute its assets, and notify claimants ․” Id. at § 607.1420(5). A “dissolved corporation may not carry on any business except that appropriate to wind up and liquidate its business and affairs,” which include both “[d]ischarging or making provision for discharging its liabilities” and “[m]aking distributions of its remaining assets among its shareholders according to their interests.” Id. at § 607.1405(1)(c)–(d).
III. Analysis
The district court did not err by piercing the corporate veil on summary judgment.
5
Determinations to pierce the corporate veil are fact intensive, but piercing the corporate veil on summary judgment is appropriate where there is no genuine dispute of material fact regarding any relevant element under substantive state law. See Fed. R. Civ. P. 56(a); see generally Miller v. Harco Natl Ins. Co., 241 F.3d 1331, 1332–33 (11th Cir. 2001) (per curiam). Although Florida courts have differed in their approach to piercing the corporate veil at the summary judgment stage, we will not create a categorical ban on granting summary judgment when a case otherwise meets the Rule 56(a) criteria simply because it happens to involve piercing the corporate veil.
After addressing the threshold issue that the corporate veil can be pierced at the summary judgment stage, we find that the undisputed facts regarding Silverman and WPP warrant piercing the corporate veil here. The parties do not dispute Silvermans status as an alter ego of WPP. Further, it seems clear that if we find that Silverman used WPPs corporate form for an improper purpose, that use injured Sams West. Therefore, our analysis focuses on Floridas second element for piercing the corporate veil. Finding that Silverman used WPPs corporate form for an improper purpose is the determining factor for finding the district court properly granted summary judgment.
No party contends that WPP was organized for an improper purpose, so instead we evaluate whether Silverman used WPP for an improper purpose. In Florida, piercing the corporate veil is appropriate when the corporate form was “used fraudulently or for an improper purpose.” Molinos, 633 F.3d at 1349 (emphasis added). Silverman focuses on how he did not deliberately defraud Sams West, but his argument narrows the inquiry more than Florida law requires. Improper purpose in Florida includes using the corporate form to “evade the requirements of a statute.” Lipsig, 760 So. 2d. at 187.
We find no genuine dispute of material fact as to whether Silverman used WPP for the improper purpose of evading Floridas statutory Rule of Priorities. Under Floridas Rule of Priorities, Florida corporations cannot make distributions to shareholders if doing so would make the corporation unable to pay its debts as they become due. See Fla. Stat. § 607.06401(3)(a). When a shareholder knows a company has dissolved and continues to move corporate money around, the shareholder, by default, is using the corporate form for the improper purpose of violating Floridas Rule of Priorities.
After WPPs dissolution, rather than paying Sams West, Silverman moved money from his shared personal and corporate account, which undermined the ability of WPPs creditors to recover. Using WPPs corporate form for the improper purpose of thwarting Floridas Rule of Priorities makes piercing the corporate veil appropriate. The impropriety here became even more pronounced after Florida administratively dissolved WPP, which severely restricted the actions of the corporation. See id. § 607.1420(5).
This analysis does not change because WPP was organized as an S corporation. As an S corporation, WPP could pass corporate income, losses, deductions, and credits to Silverman—the sole shareholder. But being an S corporation only impacted the tax structure of WPP. Floridas Rule of Priorities still applies to S corporations like WPP. See Zold, 911 So. 2d at 1227–28.
Finally, the S corporation designation undermines Silvermans consistent claim that the money he spent came from his “personal funds.” Silvermans “scorecard” tells us little, and Silverman claims that the funds were personal because he paid income taxes on them. As Zold instructs, “an S corporations net income is taxed directly to the shareholders” but this does not mean shareholders “receive distributions in an amount equivalent to what is taxed pursuant to the Subchapter S election.” Id. Silvermans taxes do not indicate his amount of personal funds, which supports that Silverman spent WPPs funds. The absence of a genuine dispute of material fact regarding Silvermans spending supports the propriety of piercing the corporate veil here.
In sum, the district court correctly found no genuine dispute of material fact regarding the three elements for piercing the corporate veil in Florida: (1) Silverman was the alter ego of WPP; (2) Silverman used WPP for the improper purpose of evading Floridas Rule of Priorities; and (3) this improper use of WPPs corporate form caused injury to Sams West.
Therefore, we AFFIRM the district courts grant of summary judgment in favor of Sams West and piercing the corporate veil.
AFFIRMED.
FOOTNOTES
1
. “Sams West, Inc.” is a corporation that includes “Sams Club” stores. Often, including in the briefing, “Sams West” and “Sams Club” are used interchangeably. In this opinion, “Sams Club” specifically refers to Sams Club stores.
2
. Tramotina, U.S.A., Inc. was involved in the underlying tort lawsuit brought by WPP. However, Tramotina has not been involved with the litigation Sams West brought to pierce WPPs corporate veil.
3
. S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal income tax purposes. See Subchapter S of the Internal Revenue Code, 26 U.S.C. § 1361.
4
. Sams West had an expert witness analyze the receipts for these purchases. This expert could not discern a business purpose for the purchases.
5
. On appeal, Silverman alleges failure to state a claim as a reason he should have received summary judgment. Denying summary judgment on that ground was proper. Silverman was not entitled to judgment as a matter of law because Sams Wests complaint plausibly pled all three elements for piercing the corporate veil in Florida. See Fed. R. Civ. P. 56(a).
Per Curiam: