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Sky Cable, LLC v. Directv, Inc.

United States Court of Appeals, Fourth Circuit

March 28, 2018

SKY CABLE, LLC; ROBERT SAYLOR, Plaintiffs,
v.
DIRECTV, INC. Defendant-Appellee. and MASSANUTTEN RESORT, LC; GREAT EASTERN RESORT CORPORATION; GREAT EASTERN RESORT MANAGEMENT, INCORPORATED; MICHAEL SHIFFLETT, a/k/a Mike Shifflett; KIMBERLI COLEY, a/k/a Kimberly Coly; MOUNTAINSIDE VILLAS OWNERS ASSOCIATION, INC.; WOODSTONE TIME-SHARE OWNERS ASSOCIATION; SHENANDOAH VILLAS OWNERS ASSOCIATION; SUMMIT AT MASSANUTTEN OWNERS ASSOCIATION; REGAL VISTAS AT MASSANUTTEN OWNERS ASSOCIATION; EAGLE TRACE OWNERS ASSOCIATION, Defendants, and RANDY COLEY, a/k/a Randolph Powhatan Cooley, a/k/a Randy Coly, d/b/a East Coast Sales, d/b/a East Coast Cable, d/b/a Resort Cable, d/b/a Its Thundertime, LLC, d/b/a East Coast Sales, LLC, d/b/a South Raleigh Air, LLC, Defendant-Appellant, SKY CABLE, LLC; ROBERT SAYLOR, Plaintiffs, and MASSANUTTEN RESORT, LC; GREAT EASTERN RESORT CORPORATION; GREAT EASTERN RESORT MANAGEMENT, INCORPORATED; MICHAEL SHIFFLETT, a/k/a Mike Shifflett; KIMBERLI COLEY, a/k/a Kimberly Coly; MOUNTAINSIDE VILLAS OWNERS ASSOCIATION, INC.; WOODSTONE TIME-SHARE OWNERS ASSOCIATION; SHENANDOAH VILLAS OWNERS ASSOCIATION; SUMMIT AT MASSANUTTEN OWNERS ASSOCIATION; REGAL VISTAS AT MASSANUTTEN OWNERS ASSOCIATION; EAGLE TRACE OWNERS ASSOCIATION, Defendants, and RANDY COLEY, a/k/a Randolph Powhatan Cooley, a/k/a Randy Coly, d/b/a East Coast Sales, d/b/a East Coast Cable, d/b/a Resort Cable, d/b/a Its Thundertime, LLC, d/b/a East Coast Sales, LLC, d/b/a South Raleigh Air, LLC, Defendant-Appellant,
v.
DIRECTV, INCORPORATED Defendant-Appellee. SKY CABLE, LLC; ROBERT SAYLOR, Plaintiffs, and RANDY COLEY, d/b/a East Coast Sales, d/b/a East Coast Cable, d/b/a Resort Cable, d/b/a Its Thundertime, LLC, d/b/a East Coast Sales, LLC, d/b/a South Raleigh Air, LLC; MASSANUTTEN RESORT, LC; GREAT EASTERN RESORT CORPORATION; GREAT EASTERN RESORT MANAGEMENT, INCORPORATED; MICHAEL SHIFFLETT, a/k/a Mike Shifflett; MOUNTAINSIDE VILLAS OWNERS ASSOCIATION, INC.; WOODSTONE TIME-SHARE OWNERS ASSOCIATION; SHENANDOAH VILLAS OWNERS ASSOCIATION; SUMMIT AT MASSANUTTEN OWNERS ASSOCIATION; REGAL VISTAS AT MASSANUTTEN OWNERS ASSOCIATION; EAGLE TRACE OWNERS ASSOCIATION, Defendants, and KIMBERLI COLEY, a/k/a Kimberly Coly, Defendant-Appellant,
v.
DIRECTV, INCORPORATED Defendant-Appellee. SKY CABLE, LLC; ROBERT SAYLOR, Plaintiffs, and RANDY COLEY, a/k/a Randolph Powhatan Cooley, a/k/a Randy Coly, d/b/a East Coast Sales, d/b/a East Coast Cable, d/b/a Resort Cable, d/b/a Its Thundertime, LLC, d/b/a East Coast Sales, LLC, d/b/a South Raleigh Air, LLC; MASSANUTTEN RESORT, LC; GREAT EASTERN RESORT CORPORATION; GREAT EASTERN RESORT MANAGEMENT, INCORPORATED; MICHAEL SHIFFLETT, a/k/a Mike Shifflett; KIMBERLI COLEY; MOUNTAINSIDE VILLAS OWNERS ASSOCIATION, INC.; WOODSTONE TIME-SHARE OWNERS ASSOCIATION; SHENANDOAH VILLAS OWNERS ASSOCIATION; SUMMIT AT MASSANUTTEN OWNERS ASSOCIATION; REGAL VISTAS AT MASSANUTTEN OWNERS ASSOCIATION; EAGLE TRACE OWNERS ASSOCIATION, Defendants, and ITS THUNDERTIME, LLC, Defendant - Appellant,
v.
DIRECTV, INCORPORATED Defendant -Appellee

          Argued: January 25, 2018

          Appeals from the United States District Court for the Western District of Virginia, at Harrisonburg. Michael F. Urbanski, Chief District Judge. (5:11-cv-00048-MFU)

. ARGUED:

          James J. O'Keeffe, IV, JOHNSON, ROSEN & O'KEEFFE, LLC, Roanoke, Virginia, for Appellants.

          Robert Ward Shaw, GORDON & REES, LLP, Raleigh, North Carolina, for Appellant Randy Coley.

          John Hugo Jamnback, YARMUTH WILDSON, PLLC, Seattle, Washington, for Appellee.

         ON BRIEF:

          John W. Bryant, BRYANT & IVIE, PLLC, Raleigh, North Carolina, for Appellant Its Thundertime, LLC.

          Patrick T. Jordan, GORDON & REES, LLP, Seattle, Washington, for Appellant Randy Coley.

          Before KEENAN, WYNN, and HARRIS, Circuit Judges.

          BARBARA MILANO KEENAN, Circuit Judge

         In 2013, the district court held Randy Coley (Mr. Coley) liable for conducting a fraudulent scheme involving the unauthorized transmission of television programming provided by DIRECTV, LLC (DIRECTV). The court entered judgment against Mr. Coley in the amount of over $2.3 million. After an unsuccessful attempt to satisfy its judgment against Mr. Coley personally, DIRECTV filed a motion in the district court to "reverse pierce" the "corporate veil" of three of Mr. Coley's limited liability companies (LLCs), contending that the three entities were "alter egos" of Mr. Coley. The district court granted DIRECTV's motion, finding that the LLCs were alter egos of Mr. Coley and, thus, were subject to execution of DIRECTV's judgment against Mr. Coley.

         This appeal raises the question whether application of Delaware law in this case permits the remedy of reverse piercing a corporate veil of an LLC, when the LLC has been determined to be the alter ego of its sole member. Upon our review, we affirm the district court's decision to allow this remedy, based on our consideration of existing Delaware law and of the overwhelming evidence that the LLCs at issue were alter egos of Mr. Coley. We also affirm the balance of the district court's judgment.

         I.

         Randy Coley has operated various businesses that provide consumers access to cable television services. DIRECTV widely distributes cable television services to many entities and individuals, including services to facilities that have multiple residential rooms, such as hotels and hospitals. In 2000, Mr. Coley, through his now-defunct company East Coast Cablevision, LLC (ECC), contracted with DIRECTV to provide its programming to 168 rooms at the Massanutten Resort in Virginia. By May 2011, Mr. Coley was receiving payment for cable services provided to over 2, 500 units at Massanutten by DIRECTV. During this time, however, Mr. Coley continued to pay DIRECTV only for services provided to the original 168 units, and fraudulently retained the excess revenue received for services provided to more than 2, 300 units. Mr. Coley and ECC continued to provide unauthorized DIRECTV programming to those additional units at the Massanutten Resort until DIRECTV initiated an investigation and discovered the fraudulent scheme.

         In 2011, Sky Cable, LLC (Sky Cable), a dealer of DIRECTV's services, sued Mr. Coley, his wife, Kimberli Coley (Mrs. Coley), and DIRECTV, among others, in the district court, alleging that Sky Cable had been deprived of certain revenue as a result of Mr. Coley's unlawful distribution scheme at the Massanutten Resort. The court ultimately dismissed Sky Cable's claims against DIRECTV, but DIRECTV filed cross-claims in the case under 47 U.S.C. § 605(a) against Mr. Coley, Mrs. Coley, and ECC for unauthorized receipt and distribution of DIRECTV's programming.

         The evidence before the district court showed that in addition to ECC, Mr. Coley also managed three other LLCs, namely, Its Thundertime, LLC (ITT), East Coast Sales, LLC (East Coast), and South Raleigh Air, LLC (South Raleigh). At issue in this case is appellant ITT, an LLC in which Mr. Coley is the sole member, which was incorporated in 2008 under Delaware law. Mr. Coley stated that he created ITT to hold title to real property for various rental properties purchased by him and his wife. According to Mr. Coley, ITT collected only the profit, as opposed to the entire revenue, obtained from rentals of these properties. DIRECTV has not alleged that ITT was a part of the illegal cable television transmission scheme conducted by Mr. Coley and ECC.

         The evidence further showed that Mr. Coley is also the sole member of East Coast and South Raleigh, each of which manages and collects income on the properties owned by ITT. Mr. Coley and these three LLCs have engaged in a continuous commingling of funds. For example, on various occasions, Mr. Coley directed that one LLC transfer funds to another LLC to pay certain expenses, including mortgage payments on properties for which Mr. Coley and his wife were the mortgagors. Mr. Coley at times also admitted that he did not keep complete records of how and why funds were transferred between him and his LLCs.

         During the proceedings in the district court and before entry of judgment, Mrs. Coley represented that she had not been involved in her husband's businesses and had no membership interest in ITT. Likewise, Mr. Coley testified prior to entry of judgment that Mrs. Coley had never worked outside the family home, and that Mr. Coley was the sole member of ITT.

         After years of litigation, the district court entered judgment in favor of DIRECTV against Mr. Coley and ECC for certain violations of federal communications law under 47 U.S.C. § 605(a). The court awarded damages to DIRECTV in the amount of $2, 393, 000. DIRECTV and Mrs. Coley stipulated to her dismissal from the case with prejudice, based on representations by her and Mr. Coley that she had no ownership interest in any of Mr. Coley's companies.

         DIRECTV was unable to collect any payment on the judgment from Mr. Coley, who allegedly has few personal assets. Mr. Coley apparently dissolved ECC after the district court entered its judgment. However, discovery in the case revealed that several of Mr. Coley's LLCs, including ITT, held title to or managed Mr. Coley's assets. Therefore, to enforce its judgment against Mr. Coley, DIRECTV filed a motion in the district court to reverse pierce the corporate veil of ITT, East Coast, and South Raleigh to obtain access to the LLCs' assets. These three LLCs were not parties to the case and had not been served with process.

         In response to DIRECTV's motion, Mr. Coley asserted, contrary to his earlier representations made under oath in the district court, that Mrs. Coley had a 50 percent membership interest in ITT and had been a member of ITT since "day one." At the time of DIRECTV's motion, Mrs. Coley was not a party to the lawsuit, and she had not directly asserted her alleged interest in ITT in the district court. However, Mrs. Coley filed an action in North Carolina state court, which later was dismissed, seeking a declaration that she held a 50 percent interest in ITT. See Coley v. Its Thundertime LLC, No. 16-CVS-3019, 2016 WL 3944082, at *1, *5 ( N.C. Super. Ct. July 15, 2016).

         Although Delaware has not expressly adopted the remedy of reverse piercing of a corporate veil, neither party asked the district court to certify that issue of law to the Delaware Supreme Court under that court's Rule 41. In July 2016, over two years after its initial judgment issued, the district court entered an amended judgment rendering the three LLCs co-judgment debtors with Mr. Coley. The district court held that: (1) under Delaware law, the three LLCs were alter egos of Mr. Coley, and (2) that Delaware would recognize reverse veil piercing under such circumstances.[1] The court also held that the Coleys were equitably estopped from asserting that Mrs. Coley had any membership interest in the LLCs. Finally, the court held that DIRECTV's failure to serve process on the LLCs did not prevent the court from exercising jurisdiction over them. Mr. Coley, Mrs. Coley, and ITT[2] timely appealed.[3]

         II.

         As an initial matter, DIRECTV has asked us to dismiss Mrs. Coley's appeal on the grounds that she did not participate in the post-judgment proceedings in the district court and does not qualify as a nonparty entitled to appeal. Mrs. Coley contends in response that she has established a sufficient legal interest in the judgment to file an appeal. We disagree with Mrs. Coley's position.[4]

         We review de novo Mrs. Coley's asserted right to appeal as a nonparty. See Microsystems Software, Inc. v. Scandinavia Online AB, 226 F.3d 35, 39 (1st Cir. 2000); see also David v. Alphin, 704 F.3d 327, 333 (4th Cir. 2013). Generally, nonparties to proceedings in the district court may not appeal from a district court's judgment. Kenny v. Quigg, 820 F.2d 665, 667 (4th Cir. 1987); see also Marino v. Ortiz, 484 U.S. 301, 304 (1988) (noting that the "better practice" is for nonparty to seek intervention). A limited exception arises if a nonparty has an interest in the litigation and actively participated in the particular stage of district court proceedings that is challenged on appeal. See Doe v. Pub. Citizen, 749 F.3d 246, 259-61 (4th Cir. 2014) (explaining that nonparty that did not participate generally nevertheless could appeal because it participated in matters relevant on appeal); Microsystems, 226 F.3d at 41 (noting that litigants cannot "evade" party status and later expect to be treated as parties); Dopp v. HTP Corp., 947 F.2d 506, 512 (1st Cir. 1991) (holding that party who secured dismissal prior to judgment could not appeal). This limited exception is particularly applicable when the nonparty is the only person or entity in a position to appeal a given aspect of the district court's judgment. See Kenny, 820 F.2d at 668.

         Mrs. Coley testified prior to being dismissed from the case in the pre-judgment proceedings that she had no membership interest in ITT. She now advances the contrary argument that she holds a 50 percent interest in ITT, but she did not participate in any manner in the post-judgment proceedings at issue in this appeal.[5] Additionally, we observe that Mr. Coley is in a position to represent on appeal any interest that Mrs. Coley otherwise could assert. Under these circumstances and in view of the equities of this case, we grant DIRECTV's motion to dismiss Mrs. Coley's appeal. See Hilao ...


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