NetJets Aviation, Inc. v. LHC Communications

United States Court of Appeals for the Second Circuit · Corporations

Corporationspiercing the corporate veilalter egolimited liability companybreach of contractaccount statedLLC veil piercingsingle economic entity

Facts

NetJets leased a fractional airplane interest to LHC and entered a management agreement under which LHC owed monthly fees and travel-related charges; both contracts also allowed NetJets to recover attorneys' fees in collecting amounts due. After terminating the agreements in July 2000, LHC acknowledged an outstanding balance of $440,840.39, requested application of a $100,000 deposit, and did not pay the remaining balance. Zimmerman was LHC's sole member-owner, and the record showed repeated transfers of money between Zimmerman and LHC, use of LHC funds for Zimmerman's personal expenses, use of LHC air hours for personal travel, and LHC's eventual inability to pay NetJets. LHC ceased operations in 2001.

Issue

Were NetJets's breach-of-contract claims against LHC properly dismissed as duplicative of its account-stated claims? Was there sufficient evidence for a reasonable factfinder to conclude that Zimmerman and LHC operated as a single economic entity and that an overall element of injustice or unfairness existed, such that summary judgment dismissing the alter-ego claims against Zimmerman was improper?

Rule

Claims are duplicative only if they arise from the same facts and do not allege distinct damages; where a contract claim permits recovery of attorneys' fees not recoverable on an account-stated claim, the two claims are not duplicative. Under Delaware alter-ego law, veil piercing may be warranted when the owner and entity operated as a single economic entity and an overall element of injustice or unfairness is present; the plaintiff need not prove actual fraud or that the entity was created with fraudulent intent, but it is enough to show the entity was used in a way that was fraudulent, illegal, or inequitable.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Summit Charter Services, a fictional aviation company based in Denver, sued Ridgefield Media LLC in New York for unpaid monthly service invoices. Summit pleaded both account stated and breach of contract; the service agreement expressly required Ridgefield to pay reasonable attorneys' fees incurred in collection actions.

If Ridgefield argues the breach-of-contract claim should be dismissed as duplicative because both claims arise from the same unpaid invoices, what is the best answer?

Explanation. Two claims are duplicative only if they arise from the same facts and do not allege distinct damages. A contract claim that permits recovery of attorneys' fees is not duplicative of an account-stated claim, because account-stated recovery ordinarily does not include attorneys' fees. (Derived from NetJets Aviation, Inc. v. LHC Communications (n.d.).)