Date: 07-06-2015

Case Style: Gabriel F. Martinez v. Victor F. Petrenko

Case Number: 14-2112

Judge: Kayatta

Court: United States Court of Appeals for the First Circuit on appeal from the District of New Hampshire

Plaintiff's Attorney: Ben King, Douglas, Leonard & Garvey, P.C.
was on brief, for appellant.

Defendant's Attorney: Martha Van Oot, Jackson Lewis, P.C. was on brief,
for appellee.

Description: To maintain a private action
under the Fair Labor Standards Act ("FLSA" or "the Act") for a
failure to pay for overtime at the mandated rate, an employee must
prove a nexus to interstate commerce sufficient to trigger coverage
under the Act. The employee can prove this nexus by showing that
the employee engaged in commerce for the employer within the
meaning of the Act, or by showing that the employer has other
employees who engaged in commerce within the meaning of the Act
and that the employer also generated annual gross sales of not
less than $500,000. In filing this lawsuit asserting an FLSA claim
for unpaid overtime, Gabriel Martinez alleged that his employer
engaged in commerce within the meaning of the Act and generated
annual gross sales of not less than $500,000. While this
allegation served to fend off a motion to dismiss, Martinez was
ultimately unable to ferret out any evidence to prove that his
employer's sales were high enough to trigger coverage under the
Act.
Eventually confronted with a motion for summary judgment
based on the fact that his employer's annual gross sales were less
than $500,000, Martinez pointed to evidence that he himself engaged
in commerce within the meaning of the Act. Finding that this
change in the way Martinez proposed to establish coverage came too
late, the district court granted summary judgment against Martinez
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on his FLSA claim. For other reasons, the court also granted
summary judgment on Martinez's state-law claims. We affirm.
I. Background
A. Statutory Background

An employee enjoys the protections of the FLSA's
overtime pay requirements only when either the employee
individually or the employer's enterprise as a whole is "engaged
in commerce or in the production of goods for commerce." 29 U.S.C.
§ 207(a)(1). The burden is on the employee to prove a sufficient
nexus to interstate commerce as an essential element of the claim.
See Chao v. Hotel Oasis, Inc., 493 F.3d 26, 32-33 & n.6 (1st Cir.
2007) (holding that coverage is "an element of the claim," and
that the defendants' stipulation relieved the plaintiff of her
burden to prove it).
FLSA coverage triggered by the business activities of
the employer (often called "enterprise coverage") requires a
showing that the employer:
(i) has employees engaged in commerce or in
the production of goods for commerce, or that
has employees handling, selling, or otherwise
working on goods or materials that have been
moved in or produced for commerce by any
person; and (ii) is an enterprise whose annual
gross volume ["AGV"] of sales made or business
done is not less than $500,000 . . . .
29 U.S.C. § 203(s)(1)(A); see also 29 C.F.R. § 779.259 (defining
"[w]hat is included in annual gross volume").
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How one shows that coverage is triggered by the
activities of the individual employee (so-called "individual
coverage") is less clear. Neither the statute nor our circuit
precedent offers any road map. Other circuits have held that the
employee must "directly participate" in the movement of persons or
things in interstate commerce, but this can be satisfied through
regular use of an instrument of interstate commerce, such as by
using a telephone to call other states for business purposes. See,
e.g., Reagor v. Okmulgee Cnty. Family Res. Ctr., 501 F. App'x 805,
809 (10th Cir. 2012) (internal quotation marks and alterations
omitted). What is clear, in any event, is that the facts capable
of establishing individual coverage are different from those
supporting a theory of enterprise coverage. To establish
individual coverage, the employee must present facts showing his
own activities. To establish enterprise coverage, the employee
instead must present facts showing the activities of other
employees, and the employer's sales.

B. Factual Background
As this is an appeal from a grant of summary judgment,
we recite the facts in the light most favorable to Martinez, the
non-movant, and we draw all reasonable inferences in his favor.
See Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 122 (1st
Cir. 2008).
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Victor Petrenko is an emeritus professor of engineering
at Dartmouth College who founded Ice Code LLC,1 a start-up that
commercialized a de-icing technology Petrenko had developed.
Petrenko served variously as a board member, board chair, and chief
technology officer. Martinez, one of Petrenko's former graduate
students, began working in research and development for Ice Code
in 2005, and rose to the title of senior manager in 2007. In
February 2010, Martinez became chief operating officer pursuant to
a written "executive agreement" that promised a $190,000 salary,
to be paid in monthly installments.
Because Ice Code was facing significant cash-flow
problems, Martinez was never paid in accordance with this
agreement. Instead, he intermittently received partial payment of
the sums owed. On November 3, 2010, the four-member board (which
included Martinez, Petrenko, and Ice Code CEO Roman Zhigalov)
unanimously2 passed a "special resolution" listing the legal,
financial, and operational challenges facing the company, and
putting Zhigalov on warning that, because he had failed to generate
any revenue for the last six months while incurring over $2 million
in debt, he faced termination as CEO.
1 The parties in their filings spell Ice Code as both "IceCode"
and "Ice Code." For consistency, we use the latter. The company
was previously called Ice Engineering LLC.
2 Zhigalov recused himself.
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A few weeks later, in mid- to late November 2010,
Martinez approached the board and asked to be paid 10,000
additional equity units of Ice Code because he needed "additional
incentive" to keep working for the company. Petrenko balked at
Martinez's request for 10,000 equity units and, according to
Martinez, told him that 10,000 units were worth more than $2
million. (The number seems to have been derived from the per-unit
price set for an attempt to raise private capital that had ended
in August 2010.) Nevertheless, the board approved the transfer of
units to Martinez, and the deal was formalized through an "equity
grant agreement" signed on January 13, 2011, by Zhigalov on behalf
of the company. It provided that the units would be released on
a quarterly basis over two years, and that as partial consideration
for the units, Martinez's job duties under the executive agreement
would be amended to add a requirement to work to secure "at least
one" investment or licensing/development transaction "such that
the [company] is able to return to, and continue its full business
operations and activities."
At the time, Ice Code did indeed need more investment or
business. According to Martinez, by January 2011, all of the
employees except for Martinez had been let go, and the company
owed money to suppliers and contractors. Over the next few months,
Martinez, Petrenko, and Zhigalov all came to be involved, to
varying degrees, in formulating what appear to be at least two
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competing plans for escaping Ice Code's liabilities while still
marketing the de-icing technology (which was owned by Dartmouth
and licensed to Ice Code). Martinez's preferred approach entailed
the continuation of Ice Code as a viable entity. For purposes of
summary judgment, we take as true Martinez's claim that he was
unaware that an alternative plan ultimately preferred by Petrenko,
"Plan B," called for the formation of an entirely new entity to
license the technology from Dartmouth, rendering worthless any
equity in Ice Code.
In late April 2011, Petrenko told Martinez and Zhigalov
that he would not support or participate in Martinez's preferred
plan for escaping Ice Code's debts. About two weeks later, on May
13, 2011, Martinez sent a letter to Petrenko and Zhigalov
indicating that he considered the failure to pay him pursuant to
the executive agreement a constructive termination.3 He calculated
that at the time, the company owed him $172,860.99 in unpaid wages.
He also sought the immediate vesting of his 10,000 equity units.
He received neither, and through a complicated series of events
that need not be recited for purposes of this appeal, Ice Code
lost the license to the de-icing technology and, as a practical
3 Petrenko wrote to respond that there had been no
constructive termination, but whether or not there had been is not
relevant to this appeal.
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matter, ceased to exist. The technology was licensed to a new
entity with which Petrenko was involved but Martinez was not.
In August 2012, Martinez brought suit against Ice Code
and Petrenko in district court, alleging violations of the overtime
provisions of the FLSA, violations of New Hampshire labor laws,
breach of contract, wrongful discharge, and intentional
misrepresentation. Ice Code was dismissed without prejudice when
Martinez failed to file a timely return of service. Petrenko is
now the sole defendant.
In support of the FLSA claim, paragraph 57 of the
complaint alleges that FLSA coverage was triggered by Ice Code's
activities, i.e., "enterprise coverage." The entirety of this
allegation is as follows:
Ice Code was a covered employer within the
meaning of the Fair Labor Standards Act for
the period running from March 1, 2010, through
March 1, 2011. Ice Code, LLC, engaged in
interstate commerce. Furthermore, Ice Code's
annual gross volume of sales made or business
done exceeded $500,000.00 for this time period
. . . totaling approximately $719,391.46.
The complaint also alleges that Petrenko individually
qualified as Martinez's employer under the FLSA. See 29 U.S.C.
§ 203(d). Petrenko does not dispute this allegation as it bears
on the FLSA claim in this appeal.
Petrenko moved to dismiss the FLSA claim under Federal
Rule of Civil Procedure 12(b)(6), arguing that Martinez had failed
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to plead sufficient facts to plausibly support the element of FLSA
coverage. In particular, he noted that Martinez had alleged that
Ice Code had received "revenues and investments" totaling more
than $500,000, but argued that investments do not count as "sales
made or business done" under the FLSA. See 29 C.F.R. § 779.259.
Petrenko also pointed out in his motion that Martinez had "not
even attempted to allege that he was a 'covered employee' or that
there was individual coverage under the FLSA," let alone alleged
facts sufficient to support such a claim.
Martinez filed an objection to the motion to dismiss,
stating that the claim "should be allowed to proceed because Mr.
Martinez has adequately pled enterprise coverage." For an obvious
reason (it was correct), Martinez did not dispute Petrenko's
characterization of his complaint as attempting to allege
enterprise coverage only. For reasons that are less obvious,
indeed inexplicable, he did not at the same time amend his
complaint to add a plausible assertion of individual coverage.
See Fed. R. Civ. P. 15(a)(1)(B) (allowing a party to amend the
pleadings as a matter of course within 21 days after service of a
motion under Rule 12(b)). Nor did he thereafter seek leave to
amend. See Fed. R. Civ. P. 15(a)(2) (providing that after the
time to amend by right has expired but before trial begins, the
court should "freely give leave [to amend the pleadings] when
justice so requires").
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The district court denied Petrenko's motion to dismiss.
In a March 2013 scheduling order, the court approved a twelvemonth
discovery plan setting an April 1, 2013, deadline for
amending the pleadings and a summary judgment deadline of March 3,
2014. The parties commenced discovery. Petrenko submitted
interrogatories to Martinez, including a question asking Martinez
to "[s]tate each and every fact upon which you rely to support
your claim that [Ice Code] was a 'covered employer' under the Fair
Labor Standards Act." Martinez replied that "Ice Code engaged in
interstate commerce," but he offered no facts demonstrating any
such engagement. Instead, the only facts Martinez provided in
response to that inquiry were a list of Ice Code's gross receipts
as reflected in bank statements. Nor did Martinez cite any of his
own activities as a basis for asserting coverage.
After fourteen months of litigation and well after the
deadline for amending the pleadings had passed, Petrenko in October
2013 moved for summary judgment on the FLSA claim, arguing that
Martinez had not established facts sufficient to meet his burden
of proving that Ice Code had at least $500,000 in non-investment
sales or business to establish enterprise coverage.
Martinez tried to parry the motion on three levels.
First, he argued that proof of FLSA coverage was not a required
element of his cause of action. Unsurprisingly, the district court
rejected this argument. See Chao, 493 F.3d at 33 (describing
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coverage as an element of the claim). Second, Martinez reiterated
his argument that Ice Code engaged in commerce and had revenues in
excess of $500,000. The district court rejected this argument
because a $295,600 investment by Zhigalov did not qualify as "sales
made or business done" as required by the plain language of the
statute, 29 U.S.C. § 203(s)(1)(A)(ii), and the remaining revenue
sources, even if they counted toward AGV, did not total $500,000.
Finally, Martinez submitted an affidavit claiming that he himself
engaged in interstate travel and phone calls sufficient to
establish individual coverage under the Act. The district court
rejected that last argument because it was "a new and unadvertised
theory of individual coverage" not raised in the complaint or in
response to the earlier motion to dismiss.
After the district court granted Petrenko's motion for
summary judgment on the FLSA claim, Martinez v. Petrenko, No. 12-
cv-331-JD, 2014 WL 109073, at *5 (D.N.H. Jan. 13, 2014), Martinez
moved for reconsideration, arguing that the language in paragraph
57 of his complaint (quoted above) was broad enough to encompass
both individual and enterprise coverage. The district court
disagreed, interpreting paragraph 57 as pleading only enterprise
coverage, and denied the motion.
In a separate order, the district court also granted
summary judgment for Petrenko on Martinez's various state-law
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claims.4 With regard to the three of those claims raised on this
appeal, Martinez sought to prevail against Petrenko personally for
liabilities allegedly incurred by Ice Code (which was no longer a
defendant). Martinez therefore had to demonstrate that New
Hampshire's version of the doctrine of piercing the corporate veil
allowed him, a company executive and director, to state a claim
against another director. The district court held that Martinez
had not demonstrated a triable issue of fact as to the
applicability of the veil-piercing doctrine to Martinez's claims.
II. Standard of Review
We review a district court's grant of summary judgment
de novo. Litz v. Saint Consulting Grp., Inc., 772 F.3d 1, 3 (1st
Cir. 2014). The moving party is entitled to summary judgment if
it "shows that there is no genuine dispute as to any material fact
and [it] is entitled to judgment as a matter of law." Fed. R.
Civ. P. 56(a).
4 Petrenko had initially argued that because Martinez's claim
under the federal FLSA failed, the court lacked subject-matter
jurisdiction over the state-law claims under 28 U.S.C. § 1331.
The district court held that there existed complete diversity
between the parties (at least once Ice Code was dismissed as a
defendant), so the court had jurisdiction under 28 U.S.C. § 1332.
Martinez, 2014 WL 109073, at *5-6.
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III. Analysis
A. FLSA Claim
"The fundamental purpose of our pleadings rules is to
protect a defendant's inalienable right to know in advance the
nature of the cause of action being asserted against him." Ruiz
Rivera v. Pfizer Pharm., LLC, 521 F.3d 76, 84 (1st Cir. 2008)
(internal quotation marks omitted). The complaint must provide
this notice not with mere "conclusions," but rather with "factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged." Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).
As we said in Manning v. Boston Medical Center
Corporation, a complaint must allege facts "sufficient to show an
entitlement to relief." 725 F.3d 34, 43 (1st Cir. 2013). One of
the "basic elements" necessary to showing an entitlement to relief
under the FLSA is that "the work involved interstate activity."
Id. The complaint must therefore allege facts sufficient to
establish that either the plaintiff's work or another employee's
work involved interstate commerce within the meaning of the Act.
Id.
On appeal, Martinez abandons his attempt to prove
enterprise coverage. He argues, instead, that his complaint's
conclusory allegation that "Ice Code was a covered employer" under
the FLSA was sufficient to give notice that he might try to prove
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individual coverage. This argument is twice flawed. First, as we
explained in Manning, when we read a complaint, "conclusory
allegations that merely parrot the relevant legal standard are
disregarded." Id. at 43. Second, the only nonconclusory
allegations pertinent to establishing FLSA coverage refer to Ice
Code's annual sales, and thus point only to enterprise, not
individual, coverage. As such, the complaint gave even less notice
than a "merely" conclusory complaint would have given that
Martinez's individual activities would provide the grounds upon
which coverage depended, because it pointed specifically and
exclusively in the other direction. See Ruiz Rivera, 521 F.3d at
85 ("It simply will not do for a plaintiff to fail to plead with
adequate specificity facts to support a . . . claim, all-the-while
hoping to play that card if her initial hand is a dud."); see also
Calvi v. Knox Cnty., 470 F.3d 422, 431 (1st Cir. 2006) (stating
that a plaintiff is "not entitled to raise new and unadvertised
theories of liability for the first time in opposition to a motion
for summary judgment").
Martinez did not file a motion to amend his complaint,
so he can hardly complain about being held to his original
complaint. It nevertheless reinforces our conclusion to note that,
had he filed such a motion when he first announced his reliance on
individual coverage after the deadline for amending the pleadings
had passed, it is unlikely that we would have found the denial of
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that belated motion to be an abuse of discretion. See Fed. R.
Civ. P. 15(a)(2), 16(b)(4); see Torres-Rios v. LPS Labs., Inc.,
152 F.3d 11, 16 (1st Cir. 1998) (reviewing denial of motion to
amend the pleadings for abuse of discretion). In Torres-Rios, for
example, the complaint alleged a product liability claim through
facts establishing that the product was defective because its
warnings were inadequate. Id. at 12-15. In opposing summary
judgment, the plaintiffs then tried to rely on facts said to show
that the product was defectively designed, arguing that a design
defect theory was implicit in their complaint. Id. at 15-16.
Affirming the district court's refusal to allow the plaintiffs to
rely on the new theory, we observed that such a change after
discovery was completed "unquestionably would prejudice defendant,
whose focus until that time had been on the adequacy of the warning
labels and not on the costs and benefits of the product itself."
Id. at 16.
But, says Martinez, his change did not present a change
in a "theory of liability," because he consistently argued that
Petrenko was liable for unpaid overtime under the FLSA--all that
changed was Martinez's theory of why he should enjoy the FLSA's
protections in the first place. However, the nexus to commerce is
an element of the claim, without which there is no entitlement to
recovery, and Martinez sought to change entirely the theory
establishing a nexus. A belated change of the facts Martinez would
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use to establish that nexus implicates precisely the type of unfair
misdirection at issue in cases such as Torres-Rios.
The default rule is that, before trial, the court should
"freely give leave" to amend the pleadings "when justice so
requires." Fed. R. Civ. P. 15(a)(2). Once a court sets a deadline
for seeking such leave, though, the complaint may be modified "only
for good cause." Fed. R. Civ. P. 16(b)(4). "Good cause" does not
typically include a change of heart on a litigation strategy. See
Trans-Spec Truck Serv., Inc. v. Caterpillar Inc., 524 F.3d 315,
327 (1st Cir. 2008) (affirming a magistrate's refusal to amend the
pleadings eleven months after a scheduling order deadline had
passed because "[t]he explanation for the delay seems to be simply
that [the plaintiff] thought that it would prevail . . . without
any need to further amend. In that, its calculations were wrong.
Nonetheless, [the plaintiff] must be bound by the consequences of
its litigation strategy."). Here, we note also that all of the
facts upon which Martinez belatedly sought to demonstrate
individual coverage were known to him before he filed his
complaint.
Our decision in Bacou Dalloz USA, Inc. v. Continental
Polymers, Inc., 344 F.3d 22 (1st Cir. 2003), is not to the
contrary. In that case, we stated that a district court should
consider the full record, including affidavits and
interrogatories, when considering a motion for summary judgment.
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Id. at 26. Nothing in that case, though, suggests that a district
court need look for facts in support of a theory that was not even
pleaded. Such a rule would effectively require all litigants to
engage in discovery based not on what was pleaded but also on what
might have been pleaded. We reject such a requirement.
B. State-Law Claims
Martinez also appeals the district court's grant of
summary judgment to Petrenko on his state-law claims for unpaid
wages under New Hampshire Revised Statutes Annotated §§ 275:43 and
44, breach of contract, and wrongful discharge.5 New Hampshire
law governs these claims in this action grounded on diversity
jurisdiction. See Hansen v. Sentry Ins. Co., 756 F.3d 53, 57 (1st
Cir. 2014).
Martinez brought these claims against Petrenko
personally under the doctrine of piercing the corporate veil, which
allows a person with a claim against a corporation to recover from
a principal of that corporation when the principal abuses the
corporate form.6 See, e.g., Terren v. Butler, 134 N.H. 635, 638-
5 The district court also granted Petrenko summary judgment
on Martinez's intentional misrepresentation claim, holding that
Martinez had not raised an issue of fact as to whether he had
relied on any misrepresentation made by Petrenko. Martinez did
not appeal the grant of summary judgment on his intentional
misrepresentation claim.
6 Petrenko concedes that veil-piercing can apply to limited
liability companies (LLCs) under New Hampshire law. See Mbahaba
v. Morgan, 163 N.H. 561, 568 (2012) (applying the veil-piercing
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40 (1991) (affirming the lower court's decision to allow veilpiercing
upon a finding that corporate principals "divert[ed]
corporate assets to their benefit when substantial notice of claims
[against the corporation] were outstanding"). In granting
Petrenko's motion for summary judgment, the district court
rejected Martinez's veil-piercing theory on two grounds, holding
first that veil-piercing is not available to allow one company
insider to recover against another; and second, that even if veilpiercing
were potentially available, Martinez had not shown an
issue of fact as to whether Petrenko had used the LLC form to
perpetrate a fraud on him.
Defending the judgment, Petrenko presses the argument
that veil-piercing is categorically unavailable to corporate
insiders under New Hampshire law. While many states have adopted
or come close to adopting such a rule, see 2 F. Hodge O'Neal &
Robert B. Thompson, O'Neal and Thompson's Close Corporations and
LLCs: Law and Practice § 8:18 (rev. 3d ed. 2014) ("[C]ourts rarely
permit a corporation to be disregarded for the benefit of its own
shareholders."), neither party points us to any New Hampshire case
law on point.
doctrine to a claim against the principal of an LLC). Because
most of the relevant veil-piercing case law involves corporations,
in this opinion we use the term "corporate" broadly to include
LLCs.
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We see no need to decide in this case whether New
Hampshire law per se bars an insider like Martinez from
successfully piercing the corporate veil to hold another insider
liable for the corporation's debts. Rather, the record here allows
us to affirm on the district court's alternative ground that
Martinez has not made out a case for veil-piercing even if he is
not categorically barred from doing so.
We begin by observing that Martinez points to no case
from New Hampshire or elsewhere allowing the piercing of the
corporate veil for a type of wrongdoing analogous to that alleged
here.7 Under New Hampshire law, corporate owners are not
"[o]rdinarily" liable for corporate debts. Mbahaba v. Morgan, 163
N.H. 561, 568 (2012). The common law veil-piercing exception to
that rule only arises when "a shareholder suppresses the fact of
incorporation, misleads his creditors as to the corporate assets,
or otherwise uses the corporate entity to promote injustice or
fraud." Druding v. Allen, 122 N.H. 823, 827 (1982); see also
Terren, 134 N.H. at 639-40.
7 He relies on Cheney v. Moore, 193 Ga. App. 312, 312 (1989),
in which veil-piercing was used to allow a 50% shareholder to
recover her start-up capital when her former business partner shut
her out of the business and she left the company a month after its
incorporation; and Southern California Federal Savings & Loan
Association v. United States, 422 F.3d 1319, 1331-32 (Fed. Cir.
2005), where the court rejected a bid by individual shareholders
to sue the government for breach of a contract with the
corporation.
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Martinez obviously knew that Ice Code was a corporation,
and that it was Ice Code that employed him. He therefore trains
his argument on his claim that Petrenko induced him to continue
working for Ice Code by misrepresenting the value of its assets.
The alleged misrepresentation is Petrenko's statement (according
to Martinez) that the 10,000 units that Ice Code granted to
Martinez were worth "[s]omething around $2 million" even though he
knew that Ice Code was going to fail. The sequence of events,
though, was that during a board meeting, Martinez demanded 10,000
equity units as a condition of continuing to work for Ice Code,
and Petrenko balked, stating that Martinez's "request seemed very
high because the value of those equity units was very high," i.e.,
"[s]omething around $2 million."8 The board, with Petrenko in
agreement, nevertheless acceded to Martinez's demand.9 As thus
described by Martinez, his offer to continue working for 10,000
8 In his deposition testimony, Martinez characterized the
value as based on the per-unit price of a recent private placement
memorandum the board had authorized, and said that the board
members shared a general agreement about the units' value.
9 Although Martinez argues that Petrenko "authorized" the
conveyance, the facts do not seem to support this characterization.
The record shows the conveyance was discussed by the board in
November 2010 and January 2011, and formalized through a January
2011 agreement signed by Zhigalov. Whether Petrenko authorized
the conveyance is not relevant to this appeal, however, because
even if he did, this authorization does not constitute an abuse of
the corporate form for which veil-piercing is available.
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units came before Petrenko made any assertion of the units' value,
and could not have been induced by any such assertion.
More generally, there is no evidence that Martinez was
unaware of Ice Code's precarious circumstances when he sought
additional equity. At the time of the alleged fraud, Martinez
knew the company faced significant hurdles--indeed, the
underpayment of his salary is why he approached the board in
November 2010 seeking additional equity as an alternative form of
compensation. Moreover, he did so only weeks after he had voted
to approve the special board resolution describing the company's
dire financial straits. As any investor knows, the value of a
company's equity may rise or fall, or it may disappear completely
if the company fails. When Martinez agreed to keep working at Ice
Code for company equity, he was assuming a risk that the company
could fail, and he assumed that risk knowing the company's finances
were in poor shape. The equity grant agreement itself confirmed
(in rather desperate-sounding terms) that the company was, at best,
hobbling along. In short, the LLC veil had nothing to do with
impeding Martinez from knowing that which he says he did not know.
Nor, finally, does Martinez claim that Petrenko actually
misrepresented any facts concerning Ice Code's assets, or removed
any assets from the company.
Martinez's response is to point to Petrenko's failure to
disclose to Martinez the existence of so-called Plan B. Martinez
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knew that Ice Code did not own its core technology, that it owed
"[s]everal hundred thousand" dollars to the actual owner
(Dartmouth), and that it would lose its license if it did not
timely pay Dartmouth what it owed.10 However, Martinez says he did
not know that (again, according to Martinez) Petrenko had given up
on Ice Code, and was working on Plan B to form a new entity to
exploit Dartmouth's technology in the event Ice Code's license to
the technology expired.
An initial hurdle in the way of this argument is, again,
the chronology. Martinez points to two February 2011 e-mails in
which Petrenko described problems with Plan B and indicated he was
still trying to pursue "Plan A," (which Petrenko says was a plan
to attract new investment to Ice Code); and an April 2011 memo
that states that "[t]he effort to reorganize [Ice Code] began in
earnest" in January 2011, but suggests that Petrenko and others
did not "decide[] to shift to a plan-b" until mid-April. Nothing
in these documents would seem to support Martinez's assertion that
Petrenko had decided to pursue Plan B in November 2010 when
Martinez signed the equity agreement.
10 Dartmouth imposed a May 1, 2011, deadline for payment of
the debt. It is unclear exactly when it imposed this deadline,
but Martinez admits that by March 2011, he and Petrenko had already
negotiated "several extensions."
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Even if a jury could somehow interpret these documents
to support Martinez's claim that Petrenko had decided to pursue
Plan B in November 2010,11 we would see no reason to equate one
corporate insider's failure to disclose to another insider his own
plans to give up on a corporation with the misuse of the corporate
veil, at least where the plans involve no use of the corporate
form to conceal the plans and no removal of corporate assets
without reasonable consideration. Perhaps such an insider, in
appropriate circumstances, may owe a duty of disclosure directly
to another insider. Whether that is so we need not decide.
Martinez has not appealed the dismissal of his intentional
misrepresentation claim and otherwise presses no claim against
Petrenko directly, resting instead on his attempt to hold Petrenko
vicariously liable for the obligations of Ice Code.
Ultimately, Martinez's argument that the veil should be
pierced to correct an injustice fails to address the distinction
between use of the corporate form to protect the owner from
liability for an injustice perpetrated by the corporation, and an
owner's use of the corporate form to promote or perpetrate the
injustice. New Hampshire law allows veil-piercing in the case of
the latter. See Terren, 134 N.H. at 639. To allow veil-piercing
11 In granting summary judgment to Petrenko on Martinez's
intentional misrepresentation claim, the district court held they
could not.
- 24 -
in the case of the former, however, would essentially eliminate
the ordinary rule that the owner is not legally responsible for
the liabilities of the corporation. New Hampshire case law rejects
the notion of such a flimsy veil. See Druding, 122 N.H. at 827-
28 (reversing a lower court's piercing of the veil, even though a
closely held corporation had failed to observe certain
formalities, "[i]n view of the dearth of evidence that [the
corporation's president] used the corporation to promote injustice
or fraud"); Village Press, Inc. v. Stephen Edward Co., 120 N.H.
469, 471-72 (1980) (noting that veil-piercing is not allowed simply
because a corporation is a "one-man operation" if there is no
evidence of a fraudulent conveyance, of suppressing the fact of
incorporation, or of misleading the plaintiff about corporate
assets); Peter R. Previte, Inc. v. McAllister Florist, Inc., 113
N.H. 579, 582-83 (1973) (holding that creditor of insolvent family
business could not recover from defendants personally because
there was no evidence defendants had "suppressed the fact of their
incorporation or misled the plaintiff as to the corporate
assets").12

* * *

Petrenko, nor that Petrenko fraudulently transferred Ice Code
assets to himself, his relatives, or an entity he controlled.

Outcome: For the foregoing reasons, we affirm.
12 Martinez does not allege that Ice Code was an alter ego of

Plaintiff's Experts:

Defendant's Experts:

Comments: