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Sham Entities Means The Veil Gets Pierced (PA)

December 6, 2019

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<p style="text-align: justify;">A Pennsylvania Superior Court recently affirmed a trial court’s decision, in <em><a href="">Sereda v. Ctr. City Acquisitions LLC</a>, </em>imposing personal liability on the sole owner of a limited liability company which constructed a new house that had issues with respect to the floors and windows.</p>
<p style="text-align: justify;">The Serenadas purchased a new house from Ctr. City Acquisitions, LLC, which, with respect to its ownership, was owned, operated, and controlled by a single individual.  The sale of the home included a one-year warranty. Soon after the sale, the homeowners noticed substantial gaps in the wood flooring, as well as a sealant and caulking issue with respect to the windows. The sole owner of Ctr. City was the only individual the Serenadas saw, contacted, or interacted with regarding warranty repairs. Eventually, the warranty repairs stopped, and Ctr. City tendered an offer of $2,500 to resolve the floor issues, which was valued at $37,000. Plaintiff filed suit to recoup the cost of the repairs.</p>
<p style="text-align: justify;">The Court found that (a) the sole owner created the LLC as a “sham” entity, as the entity did not have employees, an operating agreement, and that he was the “sole actor to this entire transaction”; and (b) similarly, under a “participation theory”, the sole owner was personally liable as he personally entered into the transaction and was objectively aware of the faulty repairs and further refused to abide by the warranty, despite knowledge that the issues existed that warranted repairs.</p>
<p style="text-align: justify;">This decision serves as a warning to sole proprietors, as Courts have increasingly been willing to pierce the veil.</p>
<p style="text-align: justify;">Thanks to Matt Care for his contribution to this post.  Please email <a href="">Georgia Coats</a> with any questions.</p>


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