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GREENBERG v. COMMONWEALTH OF VIRGINIA, ET AL.


GREENBERG v. COMMONWEALTH
OF VIRGINIA, ET AL.


April 17, 1998
Record No. 971472

JEROME GREENBERG

v.

COMMONWEALTH OF VIRGINIA, EX REL.
ATTORNEY GENERAL OF VIRGINIA

OPINION BY JUSTICE CYNTHIA D. KINSER
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND

Theodore J. Markow, Judge
Present: All the Justices


In this case, the Commonwealth of Virginia seeks restitution
from Jerome Greenberg, chairman of the board and majority
shareholder of Allstate Express Check Cashing, Inc. (Allstate),
of all amounts Allstate received from borrowers in connection
with its cash advancement loan program in violation of the
Consumer Finance Act (CFA). The Commonwealth proceeded on two
theories under which to hold Greenberg personally liable: (1)
actively participating in the commission of the illegal conduct;
and (2) piercing the corporate veil. The trial court refused to
pierce the corporate veil but held Greenberg personally liable by
applying an active participation theory. Because we find that
Code ? 6.1-308(B) precludes imposition of restitution on
any entity or individual other than the lender, we will reverse
the trial court’s judgment imposing liability on Greenberg.
However, we find, as a matter of law, that the evidence is
insufficient to pierce the corporate veil and will affirm the
trial court’s judgment on that issue.

We will discuss each theory relied upon by the Commonwealth
and the relevant facts seriatim.

I. ACTIVE PARTICIPATION

A. Facts

From February 10, 1992, until approximately February 1, 1993,
Allstate, a Virginia corporation doing business as Allstate
Express Checking, operated a check cashing/cash advance business
from four different locations in Hampton, Norfolk, and Virginia
Beach. Allstate provided two basic services to its customers. One
service involved cashing government, payroll, travelers,
insurance, and personal checks for individuals without checking
accounts. Allstate’s fees for this service started at 2% and
varied depending on the type of check. Only a small percentage of
Allstate’s customers utilized this service.

The second service that Allstate offered was for customers
with a checking account and involved advancing cash against
present-dated checks at a discount from the face amount of the
checks and holding the checks for a specified period of time
before cashing them. The fee Allstate charged for this service
was a fixed percentage of the amount advanced, such as 25% or
30%, depending on the amount of the advancement. The majority of
Allstate’s customers used this service.

The three major principals in Allstate were Greenberg, Loran
S. Martin, and Joseph P. Lynch. They comprised Allstate’s board
of directors, with Greenberg serving as the chairman. Martin was
Allstate’s president and chief operations officer, and Lynch was
Allstate’s secretary and treasurer. All three were also
shareholders of Allstate, with Greenberg being the majority
shareholder.

In early 1993, the Commonwealth brought suit against Allstate
alleging that it had violated the CFA by making loans in amounts
and at interest rates prohibited under Code ? 6.1-249.[1] In that suit, the Circuit Court
of the City of Richmond determined that Allstate’s cash advance
services constituted "loans" within the meaning of the
CFA and that Allstate’s fees for these services exceeded the
CFA’s statutory limits. Accordingly, the trial court enjoined
Allstate from violating the CFA and entered judgment for the
Commonwealth, "as trustee for the use and benefit of
affected borrowers," against Allstate "for restitution
of all amounts it received from borrowers in connection with its
check advancement loan program."

On January 5, 1994, the Commonwealth filed a bill of complaint
against Greenberg and alleged, inter alia, that Greenberg
actively participated in the illegal acts perpetrated by
Allstate.[2] The Commonwealth sought to hold
Greenberg individually liable for restitution to borrowers under
Code ? 6.1-308(B).

The trial court found that Greenberg did actively participate
in Allstate’s illegal conduct and that the Commonwealth could,
therefore, obtain restitution from Greenberg for the benefit of
Allstate’s borrowers. In doing so, the court rejected Greenberg’s
argument that Code ? 6.1-308(B) allows for restitution only
from the "lender" for violations of the CFA. Rather, in
a letter opinion, the court reasoned:

The liability has been imposed against the corporation,
according to the statute, as a result of the illegal acts of the
corporation. Because it was actually individuals who committed
the illegal acts, the individuals can be held responsible. Mr.
Greenberg is to be held personally liable, not because he was the
"lender", but because he was a responsible actor within
the corporation which was the "lender." The statute
imposes the liability on the corporation as lender and the
doctrine of active participation extends that liability to the
individuals involved.

Subsequently, in an order dated April 15, 1997, the trial
court entered a permanent injunction against Greenberg and final
judgment in favor of the Commonwealth in the amount of $237,154,
as restitution in trust and for the benefit of Allstate’s
borrowers, and $30,000 as attorney’s fees. Greenberg appeals.

B. Analysis

Code ? 6.1-303(A)(2) of the CFA provides that
"[t]he Attorney General may seek and the circuit court may
order or decree such other relief allowed by law, including
restitution to the extent available to borrowers under subsection
B of ? 6.1-308." Code ? 6.1-308 sets forth the
penalties for CFA violations and provides as follows:

A. Any person and the several members, officers, directors,
agents, and employees thereof, who violate or participate in the
violation of any provision of ? 6.1-249 shall be guilty of
a Class 2 misdemeanor.

B. Any contract of loan in the making or collection of which
any act has been done which violates ? 6.1-249 shall be
void and the lender shall not collect, receive, or retain any
principal, interest, or charges whatsoever, and any amount paid
on account of principal or interest on any such loan shall be
recoverable by the person by or for whom payment was made.

This Court has stated that "[a] corporation can act alone
through its officers and agents, and where the business itself
involves a violation of the law, the correct rule is that all who
participate in it are liable." Crall and Ostrander v.
Commonwealth
, 103 Va. 855, 859, 49 S.E. 638, 640 (1905). See
also
Bourgeois v. Commonwealth, 217 Va. 268, 274, 227
S.E.2d 714, 718 (1976). Relying on these cases, the Commonwealth
argues that Greenberg is personally liable for Allstate’s
violations of the CFA. Greenberg, however, contends that the
trial court erred in using the active participation theory to
hold him personally liable because Code ? 6.1-308(B)
precludes the imposition of restitution on any individual or
entity other than the lender.

A resolution of this issue necessarily requires us to examine
Code ? 6.1-308(B). At the outset, we note that the CFA is a
remedial statute. Valley Acceptance Corp. v. Glasby, 230
Va. 422, 428, 337 S.E.2d 291, 295 (1985). Consequently, we
construe it liberally so as "to avoid the mischief at which
it is directed and to advance the remedy for which it was
promulgated." Id. In doing so, we cannot, however,
deviate from the language of Code ? 6.1-308, which we find
to be plain and unambiguous.

Our duty is "to construe the law as it is written." Hampton
Roads Sanitation Dist. Comm’n v. Chesapeake
, 218 Va. 696,
702, 240 S.E.2d 819, 823 (1978). We assume that "the
legislature chose, with care, the words it used when it enacted
the relevant statute, and we are bound by those words
. . . ." Barr v. Town & Country Properties,
Inc.
, 240 Va. 292, 295, 396 S.E.2d 672, 674 (1990). "To
depart from the meaning expressed by the words is to alter the
statute, to legislate and not to interpret." Faulkner v.
Town of South Boston
, 141 Va. 517, 524, 127 S.E. 380, 382
(1925).

We agree with Greenberg that Code ? 6.1-308(B) permits a
recovery of restitution only from the lender. In Code
? 6.1-308(A), the General Assembly prescribed misdemeanor
criminal liability for "[a]ny person and the several
members, officers, directors, agents, and employees
thereof." The CFA defines "person" to include
"individuals, copartnerships, associations, trusts,
corporations, and all other legal and commercial entities."
Code ? 6.1-245. Thus, "individuals, . . .
corporations, and all other legal . . . entities" and
their "members, officers, directors, agents, and
employees" are subject to misdemeanor penalties for
violating the CFA. The General Assembly explicitly created a
broad category of individuals and entities subject to Code
? 6.1-308(A).

In contrast to subsection (A), Code ? 6.1-308(B),
provides that only the "lender shall not collect,
receive, or retain any principal, interest, or charges
whatsoever, and any amount paid on account of principal or
interest on any such loan shall be recoverable by the person by
or for whom payment was made." (Emphasis added). Absent from
subsection (B) is the broad category of entities found in
subsection (A). In other words, subsection (B) does not include
any individual, officer, director, or entity other than the
lender.

"When the General Assembly uses two different terms in
the same act, it is presumed to mean two different things." Forst
v. Rockingham Poultry Mktg. Coop. Inc.
, 222 Va. 270, 278, 279
S.E.2d 400, 404 (1981). As evident in subsection (A), the General
Assembly knew how to broaden the range of liability, and the
absence of any such provisions in subsection (B) indicates the
General Assembly’s intent to limit those from whom borrowers may
obtain restitution. To determine otherwise would be to rewrite
the statute and to contradict the General Assembly’s express
intent. Thus, we hold that the trial court erred in using the
active participation theory to allow the Commonwealth to recover
restitution from Greenberg for Allstate’s violations of the CFA.

Our decision is not inconsistent with other cases in which we
used the active participation theory to impose individual
liability on corporate officers or directors. The distinction
between such cases and the present one lies in the language of
the relevant statutes. For example, in Bourgeois, a
corporate officer was found guilty of grand larceny by obtaining
money by false pretenses. The statute at issue provided that
"[i]f any person obtain, by any false pretense
or token, from any person, with intent to defraud, money or other
property which may be the subject of larceny, he shall be deemed
guilty of larceny thereof; . . . ." Bourgeois,
217 Va. at 269 n.1, 227 S.E.2d at 715 n.1. (Emphasis added).
Likewise, in Crall, the corporation’s vice-president was
criminally liable under a statute which provided "[a]ny
peddler who shall peddle for sale, or sell or barter, without a
license, shall pay a fine . . . ." Crall,
103 Va. at 858, 49 S.E. at 639. The statute defined
"peddler" as "[a]ny person who shall carry
from place to place any goods, wares or merchandise, and offer to
sell or barter the same, or actually sells or barters the same
. . . ." Id. at 857, 49 S.E. at 639.
(Emphasis added).

In contrast to the above two statutes, Code ? 6.1-308(B)
permits a recovery of restitution solely from the
"lender" and does not impose liability on "any
person." Therefore, to allow the Commonwealth to obtain
restitution from Greenberg would be to invade the province of the
legislature and to expand the scope of liability in Code
? 6.1-308(B).[3]

II. PIERCING THE CORPORATE VEIL

A. Facts

Greenberg first became involved in Allstate prior to its
incorporation[4] when Martin and Lynch gave
Greenberg a business prospectus and asked him to provide the
initial capitalization for Allstate.[5] After consulting about the
proposed business venture with his attorney, who did not advise
Greenberg of any potential legal problems, Greenberg agreed to
loan $60,000 to Allstate interest-free with the understanding
that Allstate would repay Greenberg in full within six months.[6]

Martin, Lynch, and Greenberg each had different
responsibilities in regard to Allstate’s business. Martin’s
responsibilities included developing Allstate’s fee schedules,
managing personnel, screening customers, and advertising. Lynch
handled all the bookkeeping, accounting, and record-keeping
functions. Greenberg was Allstate’s financial consultant for
which he received $500 a week as compensation. As the financial
consultant, Greenberg addressed start-up and expansion problems
and kept "tabs on what [Martin and Lynch] were doing to
protect his investment."

However, unlike Martin and Lynch, Greenberg, according to
Martin, did not participate in the daily operations of Allstate
in any substantial way. Greenberg occasionally visited the four
stores, and an Allstate employee testified that during one such
visit, Greenberg instructed her not to use the terms
"loan," "interest," and "advance"
when speaking to customers.[7] At times, Greenberg would also
make bank deposits for Allstate and transfer cash between
offices. However, these activities were not part of his regular
responsibilities and were considered a "rare event."
Greenberg did attend meetings of the directors and, occasionally,
those of the managers. However, his participation at the meetings
with the managers was minimal, and he was considered a
"spectator."

In late November or early December 1992, Greenberg learned
that the Commonwealth had filed suits alleging violations of the
CFA by other companies similar to Allstate. After discovering
that other "cash-advance" companies had, in response to
the suits, initiated a "gift certificate catalogue
business," Greenberg, Martin, and Lynch concluded that
Allstate should do the same.[8] At this point, however,
Greenberg decided that he "want[ed] to get out of the
business" and asked for a return of his money.[9] Allstate
then began "winding down" its business and paid its
trade debts and withholding taxes.

After considering the testimony and exhibits, the trial court
concluded that the evidence was insufficient to pierce the
corporate veil. In its letter opinion, the court stated that the
evidence failed to show "that Greenberg incorporated
[Allstate] for the purpose of disguising his wrongful actions and
evading liability."

B. Analysis

In its assignment of cross-error, the Commonwealth argues that
sufficient evidence exists to justify piercing the corporate veil
to impose personal liability on Greenberg. The Commonwealth
contends, and we agree, that the trial court’s analysis focused
only on Greenberg’s intent in incorporating Allstate and failed
to address his subsequent use of the corporation. Nevertheless,
based upon our review of the record, we conclude that, as a
matter of law, the evidence is insufficient to disregard the
corporate structure and impose personal liability on Greenberg.

We have recognized that "no single rule or criterion
. . . can be applied to determine whether piercing the
corporate veil is justified." O’Hazza v. Executive Credit
Corp.
, 246 Va. 111, 115, 431 S.E.2d 318, 320 (1993).
Disregarding the corporate entity is usually warranted if:

[T]he shareholder sought to be held personally liable has
controlled or used the corporation to evade a personal
obligation, to perpetrate fraud or a crime, to commit an
injustice, or to gain an unfair advantage. . . .
Piercing the corporate veil is justified when the unity of
interest and ownership is such that the separate personalities of
the corporation and the individual no longer exist and to adhere
to that separateness would work an injustice.

Id., 431 S.E.2d at 320-21. Ultimately, a decision
whether to disregard the corporate structure to impose personal
liability is a fact-specific determination, and each case
requires a close examination of the factual circumstances
surrounding the corporation and the questioned acts. Id.,
431 S.E.2d at 321.

Only "an extraordinary exception" will justify
disregarding the corporate entity, and no such exception is
present here. Cheatle v. Rudd’s Swimming Pool Supply Co., Inc.,
234 Va. 207, 212, 360 S.E.2d 828, 831 (1987) (quoting Beale v.
Kappa Alpha Order and Kappa Alpha Alumni Found.
, 192 Va. 382,
397, 64 S.E.2d 789, 797 (1951)). The evidence showed that
Greenberg did not develop Allstate’s policy or procedure; rather,
Martin and Lynch approached Greenberg with a business plan
detailing Allstate’s operation. Further, Greenberg, before
becoming Allstate’s majority shareholder, sought advice from his
counsel regarding the legality of the proposed business. Thus,
the trial court correctly concluded that Greenberg did not
incorporate Allstate for the purpose of disguising wrongful
actions or concealing a crime.

Nor did Greenberg use the company to "evade a personal
obligation, to perpetrate fraud or a crime, to commit an
injustice, or to gain an unfair advantage." O’Hazza,
246 Va. at 115, 431 S.E.2d at 320. He did not determine the
amount of or collect Allstate’s fees, solicit customers, or
handle employment matters. At most, as Allstate’s financial
consultant, he addressed start-up and expansion issues. When
Greenberg instructed an employee not to use the words
"loan" or "interest," he did so because of
advice he had received from his attorney. He also sought legal
advice before Allstate implemented the gift certificate program.
Finally, in recouping his loan to Allstate, Greenberg received
interest only after Allstate could not abide by its initial
agreement to repay the loan in six months and increased the
amount of the interest only after other investors started
receiving the higher rate. Thus, the evidence, as a matter of
law, establishes that Greenberg, like any other shareholder, used
the corporate structure to limit his liability to his initial
investment and not to perpetrate or disguise illegal activities.[10] In
other words, Greenberg did not use the corporate structure
"to mask wrongs" or to facilitate the commission of
illegal acts. Bogese, Inc. v. State Highway and Transp. Comm’r,
250 Va. 226, 231, 462 S.E.2d 345, 348 (1995).

Therefore, for the reasons stated, we will affirm in part and
reverse in part the circuit court’s judgment, and enter final
judgment in favor of Greenberg.

Affirmed in part, reversed in part,

and final judgment.

 

 

 

FOOTNOTES:

[1] The version of Code
? 6.1-249 in effect in 1993 provided in pertinent part:

No person shall engage in the business of lending in amounts
of the then established size of loan ceiling or less, and charge,
contract for, or receive, directly or indirectly, on or in
connection with any loan, any interest, charges, compensation,
consideration or expense which in the aggregate are greater than
the rate otherwise permitted by law except as provided in and
authorized by this chapter and without first having obtained a
license from the Commission.

The General Assembly amended this section in 1995.

[2] The Commonwealth also included
Martin and Lynch in its suit. However, the claims against them
were resolved and are not before this Court.

[3] The Commonwealth summarily
argued in its brief that, under Code ? 6.1-303(A)(1), the
Attorney General may sue "any person" who has violated
the CFA for monetary relief. However, the Commonwealth did not
bring this suit under Code ? 6.1-303(A)(1). Rather, it
asked to be trustee for the benefit of the borrowers under Code
? 6.1-303(A)(2). Therefore, we will not address this
argument.

[4] Allstate was incorporated on
January 22, 1992.

[5] Lynch, a CPA, had prepared the
prospectus. Martin had experience working in another check
cashing/cash advance company.

[6] During the course of Allstate’s
business, Greenberg actually loaned more than $60,000 to
Allstate. When it became apparent that Allstate could not repay
Greenberg during the first six months of its operation, Allstate
began paying interest to him at a rate of 4% per month, which was
later increased to 5% after other individuals made similar
investments in Allstate and received the higher interest rate.

[7] Martin testified that
Greenberg’s attorney had advised against using these terms to
avoid the implication that Allstate was a licensed lending
institution.

[8] Prior to making this change,
Greenberg consulted with his attorney to ascertain if the gift
certificate program posed any legal problems or issues.
Greenberg’s attorney assured him that the program was
"perfectly fine." However, a former Allstate employee
did testify that Martin referred to the gift certificates as a
"front."

Under the gift certificate program, Allstate gave its
customers a gift certificate in the amount of Allstate’s fee. The
customers could then use the certificates to offset the price of
furniture that they bought at a furniture retail store owned by
Greenberg.

[9] Allstate’s bank records show
that Greenberg received a total of $183,163.04 from Allstate. Of
that amount, $126,462.01 was paid between November 25, 1992 and
February 19, 1993.

[10]
The Commonwealth also claims that the trial court erred by
failing to consider whether Allstate was the alter ego of
Greenberg. Because we have determined, as a matter of law, that
the evidence is insufficient to pierce the corporate veil, we do
not address this argument.

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