United States District Court,

W.D. Pennsylvania.

BERKLEY MID–ATLANTIC GROUP, LLC, et al., Plaintiffs,

v.

G.F. HOCH COMPANY, INC., et al., Defendants.

 

Civil Action No. 13–372.

Nov. 20, 2013.

 

Matthew F. Smith, Paul S. Mazeski, Buchanan Ingersoll & Rooney PC, Pittsburgh, PA, for Plaintiffs.

 

Jacob C. McCrea, Eckert, Seamans, Cherin & Mellott, Pittsburgh, PA, Jason S. Feinstein, Marshall D. Bilder, Trenton, NJ, for Defendants.

 

MEMORANDUM AND ORDER

CATHY BISSOON, District Judge.

*1 For the reasons that follow, Defendants’ Motion to Dismiss (Doc. 9) will be denied, without prejudice to Defendants renewing their arguments on summary judgment.

 

I. MEMORANDUM

BACKGROUND

In this diversity action, Plaintiffs are a group of affiliated companies that provide insurance (at times, collectively, “the Insurer”), and Defendants are insurance agents (“the Agent”) who sold Plaintiffs’ policies. See generally Compl. (Doc. 1–1) at ¶¶ 1–17. The Complaint references, in passing, an “Agency Agreement” entered between the parties in December 2007, but the terms of the parties’ agreement(s) are not referenced in the Complaint. Compare id. at ¶ 16 with remainder of Compl.

 

Beginning in 2009, the Agent sold the Insurer’s policies to a trucking company located in Pennsylvania (“the Insured”). See id. at ¶¶ 19–20. Over the course of two-plus policy years, the Insurer provided through the Agent commercial motorist insurance for the Insured, including a “reduced underinsured motorist[, or UIM,] coverage limit” of $50,000. See generally id. at ¶¶ 20–30, 32–40. The Insurer alleges that, for each coverage period, the Agent erroneously failed to secure from the Insured (or retain) “a valid written request” for reduced UIM, as purportedly required under Pennsylvania statute. See id. at ¶¶ 31, 36, 41 & 48.

 

During the final coverage period, an employee of the Insured was injured in a motor vehicle accident involving an underinsured driver. See id. at ¶¶ 42–43. The employee made a UIM claim under the Insurer’s policy, and, according to the Complaint, the Insurer was required to provide full UIM coverage ($1 million) because it did not possess a written request for reduced coverage. See id. at ¶ 48. The Insurer settled the underlying claim for $900,000, and it now seeks recovery from the Agent under theories of professional negligence (Count I) and common law indemnity (Count II). Id.

 

In its Motion to Dismiss, the Agent argues that the Insurer’s negligence claim is barred by the economic loss doctrine, and it argues that the common law indemnity claim fails under the substantive laws of Pennsylvania. See Defs.’ Br. (Doc. 10) at 5–7; id. at 7–11.

 

ANALYSIS

As a threshold matter, the Court must determine which state’s law should apply. Regarding choice-of-law, the Agent–Defendants have presumed that either Pennsylvania or Ohio law applies, and the Insurer–Plaintiffs firmly state that Pennsylvania law controls. Compare Defs.’ Br. at 4–5 with Pls.’ Opp’n Br. (Doc. 11) at 4–5. Given the parties’ agreement regarding the potential application of Pennsylvania law, the Court will apply the law of this forum-state. See In re Columbia Gas Sys. Inc., 50 F.3d 233, 240 n. 10 (3d Cir.1995) (where “the parties do not make an issue of choice of law, [the Court has] no obligation to make an independent determination of what rule would apply if they had made an issue of the matter”) (citation to quoted source omitted).FN1

 

FN1. As referenced above, Defendants’ opening brief stated that the laws of either Pennsylvania or Ohio applied. Although their reply brief attempts to shift position, see Doc. 12 at 1 (arguing that Ohio law controls), it is inappropriate for Defendants to raise new arguments in reply, and, even more so for a litigant to abandon prior affirmative statements to the Court once they appear unfavorable. Even had Defendant consistently urged for an application of Ohio law, however, the Court agrees with the choice-of-law analyses in Plaintiffs’ briefing, and Pennsylvania law would have been applied in any event. See Pls.’ Opp’n Br. at 4–5 (applying Pennsylvania choice-of-law rules to conclude, among other things, that Pennsylvania has most significant contacts and governmental interests in this case).

 

*2 Turning to the substance of Defendants’ Motion, Pennsylvania’s economic loss doctrine (at times, “ELD”) provides that “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical or property damage.” Azur v. Chase Bank, USA, Nat’l Ass’n, 601 F.3d 212, 222 (3d Cir.2010) (citation to quoted source omitted).FN2 As often observed, the precise contours of the Pennsylvania ELD are, at times, blurry, and harmonizing the various state and federal court decisions can be challenging, if not impossible. In many instances, the doctrine’s application is strongly influenced by the context in which it is presented, and blending the various tests can easily result in apples-to-oranges comparisons. Compare, e.g., Azur at 223 (interpreting Pa. Supreme Court’s decision in Bilt–Rite Contractors, Inc. v. The Architectural Studio, 581 Pa. 454, 866 A.2d 270 (2005) as creating “narrow” exception to ELD, under Restatement (2d) Section 552, for negligent misrepresentations made by businesses providing information to non-contracting parties for pecuniary gain) with, e.g., Bilt–Rite, 866 A.2d at 288 (stating in dicta that “Pennsylvania has long recognized that purely economic losses are recoverable in a variety of tort actions including … professional malpractice actions”). The Court takes the law as it finds it, however, and the undersigned is charged with applying the doctrine in the specific context of this case.

 

FN2. Given that the Pennsylvania Supreme Court has not definitively established the parameters of the economic loss doctrine, this Court will rely on the federal and state law decisions that it believes best predict how the Supreme Court would rule in this case.

 

The Insurer characterizes its claims as sounding in “professional negligence,” and it argues that such claims categorically are exempted from the economic loss doctrine. See Pls.’ Opp’n Br. at 7–8. Although some court decisions may appear to have painted with such a broad brush (whether advertently or inadvertently), the undersigned is not convinced that the line is so clearly drawn. Cf., e.g., Rapidigm, Inc. v. ATM Mgmt. Servs., LLC, 63 Pa. D. & C.4th 234, 241–42 (Pa.Comm.Pl. Jul. 10, 2003) (noting that Pennsylvania courts have allowed professional negligence actions to be maintained only against certain licensed professionals, and opining that “[t]he decision of whether to restrict professional negligence actions to traditionally-recognized professions or to allow these actions to be brought against any providers of services requiring special skill and training depends on whether parties contracting with service providers should receive the protections of tort law or whether their rights should be governed solely by the terms of their agreement”).

 

Rather than deal in generalities, this Court will focus on the Insurer’s specific claims, namely the purported negligence of an insurance agent/broker. Under Pennsylvania law:

 

[F]or ordinary negligence purposes, the relationship between an insurance broker and client is an arm’s length relationship…. In the context of an insurance transaction, … an insurance broker is not under an affirmative duty to … advise a client regarding the extent of coverage[, but] an insurance broker may be held liable if he/it affirmatively undertakes such duties and then negligently performs, or if a special relationship is present between the parties…. Moreover, a plaintiff acquires a cause of action … where the broker neglects to procure insurance, … does not follow instructions …, or if the policy is void or materially defective through the agent’s fault.

 

*3 Allegrino v. Conway E & S, Inc., 2010 WL 3 943 939, *8 (W.D.Pa. Oct. 6, 2010) (citations, internal quotations and alterations omitted).

 

The question that remains, though, is whether the aforementioned claims, and Plaintiffs’ claims here, flow from duties imposed on insurance professionals as a matter of policy, or whether they flow from a contractual relationship between the parties. See In re Asousa P’ship, 2005 WL 775429, *4 (E.D.Pa.Bankr.Feb. 2, 2005) (allowing similar claims to survive dismissal at 12(b)(6) stage because claims “stem[med] from a duty of care imposed by law upon professionals, rather than from a contract between the parties”); see also, e.g., ITP, Inc. v. OCI Co., Ltd., 865 F.Supp.2d 672, 681–82 (E.D.Pa. Mar.26, 2012) (“special relationship” and fiduciary-type claims may proceed, independent of contractual obligations, where “the larger social policies embodied in the law of torts rather than the terms of the contract … are what underlie [the] claim”) (citing and quoting Bohler—Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 105 (3d Cir.2001)). Indeed, this inquiry would appear more appropriately framed under the “gist-of-the-action” test commonly applied in Pennsylvania. See Bohler–Uddeholm, 247 F.3d at 104 n. 11 (ELD was developed “in the context of … products liability tort claims,” and “[t]he ‘gist-of-the-action’ test is a better fit for … non-products liability case[s]”).

 

Whether the Insurer’s allegations sufficiently invoke “duties imposed as a matter of social policy,” as opposed to “duties imposed by mutual consensus” through contract, is one that the Court currently is not equipped to answer. See eToll, Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10, 14–15 (Pa.Super.2002).FN3 The Court cannot properly address these issues because, first, the Agent–Defendants have not framed their arguments under the gist-of-the-action test, and, second, the parties have offered little information or analysis regarding the contractual relationship(s) existing between them. In examining whether claims flow from contract as opposed to policy, for example, courts have considered: (a) whether the claims arise from a contract between the parties; (b) whether the duties allegedly breached were created and grounded in the contract itself; (c) whether the liability stems from a contract; or (d) whether the tort claim essentially duplicates a breach of contract claim or its success is wholly dependent on the terms of the contract. Morris v. Wells Fargo Bank N.A., 2012 WL 3929805, *11 (W.D.Pa. Sept.7, 2012) (citing eToll ); cf. also, e.g., Murphy Architectural Grp. v. Snyder Moore Agencies Inc., 2009 WL 7268750 (un-paginated) (Pa.Comm.Pl. Nov. 5, 2009) (dismissing claim against insurance broker because, “while the gist of [the] action could well be argued to be negligent performance of the duty imposed, such negligence would not be actionable absent the professional relationship between [the] parties arising out of the contractual relationship”).FN4

 

FN3. Cf., e.g., id. at 22–23 (rejecting claim of special relationship between “parties to an arms length business contract” based on one’s “specialized expertise, skill and experience in the field”; “[i]f parties to routine arms length commercial contracts … were held to have a ‘special relationship,’ virtually every breach of such a contract would support a tort claim”) (citation to quoted source and other sources omitted); cf. also id. (noting that “[m]ost commercial contracts for professional services involve one party relying on the other party’s superior skill or expertise in providing that particular service,” and requiring, for purposes of fiduciary duty claim, that “the relationship go [ ] beyond mere reliance on superior skill, and into a relationship characterized by overmastering influence[,] … weakness, dependence, or trust, justifiably reposed”) (citation and internal quotations omitted).

 

FN4. Defendants appear to have attached to their Motion papers a nearly illegible copy of the 2007 Agency Agreement. See Doc. 9–2 at pgs. 19 through 33. Neither side clarifies or meaningfully analyzes its contents, however, nor does either party contemplate whether there may (or may not) exist other sources of mutual consensus. Even were the Court able to read the parties’ 2007 written agreement, it will not attempt to analyze their contractual relationship(s) in a vacuum.

 

*4 Given that the Court has been provided little understanding regarding the parties’ contractual relationship(s), and given that the Agent–Defendants have not demonstrated that the Insurer–Plaintiffs’ cannot, under any plausible reading of the Complaint, assert claims based on policy rather than contract, Defendants’ request for dismissal cannot be granted at this time. Denial of the Motion, however, is made without prejudice to renewal of Defendants’ arguments on summary judgment, when a fuller picture is presented.

 

Next is Defendants’ request for dismissal of Plaintiffs’ common law indemnity claim.FN5 Under Pennsylvania law:

 

FN5. At the onset, the Court notes that a ruling in Defendants’ favor under the ELD or gist-of-theaction test would extend to Plaintiffs’ indemnity claim. See Waynesborough Country Club of Chester County v. Diedrich Niles Bolton Architects, Inc., 2008 WL 687485, *8 (E.D.Pa. Mar.11, 2008) (extending ELD to claim for common law indemnity); see also Longport Ocean Plaza Condo., Inc. v. Robert Cato & Assocs., Inc., 2002 WL 436742, *7 (E.D.Pa. Mar.18, 2002) (holding same because common law indemnity is “a right that depends on [the charged] party’s status as a tortfeasor”).

 

[Common law] indemnity … [is an] equitable remedy that shifts the entire responsibility for damages from a party who, without any fault, has been required to pay because of a legal relationship to the party at fault…. Common law indemnity is not a fault-sharing mechanism that allows a party, whose negligence was minor, to recover from the tortfeasor whose negligence was dominant. It is a fault-shifting mechanism that comes into play [only] when a defendant held liable by operation of law seeks to recover from a defendant whose conduct actually caused the loss.

City of Wilkes–Barre v. Kaminski Bros., Inc., 804 A.2d 89, 92 (Pa.Commw.2002) (internal citations and footnotes omitted).

 

In seeking dismissal, Defendants argue that the Plaintiff–Insurers misread the Pennsylvania Motor Vehicle statute that the Insurers believe required them to provide coverage in the absence of a “valid written request” for reduced UIM coverage. See Defs.’ Br. at 8–10. Plaintiffs have made colorable arguments to the contrary, and, in any event, the Court does not believe that this issue properly should be resolved under Rule 12(b) (6). All that is required of Plaintiffs at this stage is to state plausible claims for relief, and, for the reasons stated in their opposition brief, the Court finds that they survive this low threshold. Defendants’ Motion, therefore, is denied without prejudice to renewal on summary judgment.

 

The Court must note, however, that Pennsylvania law will not permit common law indemnification if Plaintiffs are found to have been even the slightest bit negligent regarding the procurement of written request(s) for reduced UIM coverage. See legal standards cited above. Although it seems questionable whether the Plaintiff–Insurers can convince the Court or a factfinder that it had no duty in this regard, and that they are completely innocent of even the slightest breach, these observations do not form a basis for dismissal under Rule 12(b)(6).

 

Consistent with the discussions above, the Court hereby enters the following:

 

II. ORDER

Defendants’ Motion to Dismiss (Doc.9) is DENIED without prejudice to the renewal of their arguments on summary judgment.

 

IT IS SO ORDERED.

Supreme Court of Kentucky.

Coy TURNER, Jr. and M & W Milling Co., Inc., Appellants,

v.

Billy ANDREW, Jr., Appellee.

 

John William Walters, Langdon Stites Ryan, Lexington, Counsel for Appellants.

 

Danny Butler, Greensburg, Counsel for Appellee.

 

Opinion of the Court by Justice ABRAMSON.

*1 Coy Turner, Jr. and M & W Milling Co., Inc. (collectively “M & W), appeal from a Court of Appeals decision reversing a judgment of the Adair Circuit Court granting them a “judgment on the pleadings.” The judgment dismissed the underlying action brought by Billy Andrew, Jr., seeking personal property damages and lost business income resulting from a vehicle collision. The vehicle damaged in the collision was a truck owned by Andrew individually and used in a trucking business operated by the limited liability company “Billy Andrew, Jr. Trucking, LLC.” The trial court’s dismissal of Andrew’s suit was a direct consequence of Andrew’s repeated failure to comply with discovery orders. On appeal, M & W contends that (1) the Court of Appeals erred by concluding that the lawsuit was properly brought by Andrew in his individual capacity, despite the fact that the trucking business was operated by the LLC; and (2) the Court of Appeals erred in reversing the trial court’s orders excluding Andrew’s damages evidence and dismissing his claim. We conclude the Court of Appeals erred in determining that Andrew was entitled to bring a claim in his own name for any trucking business lost by the LLC. Therefore, we reverse that portion of the decision. We further conclude that the discovery sanction imposed on Andrew, specifically the exclusion of all evidence relating to Andrew’s damages, was the functional equivalent of an order dismissing both claims. As such, findings of fact and conclusions of law were required pursuant to Greathouse v. American Nat. Bank and Trust Co., 796 S.W.2d 868, 870 (Ky.App.1990). Accordingly, we vacate the remainder of the Court of Appeals Opinion and remand this matter to the trial court for further proceedings consistent with this Opinion.

 

RELEVANT FACTS

On April 16, 2007, Coy Turner was driving a feed-truck owned by his employer, M & W Milling, when a movable auger mounted on the vehicle swung loose into oncoming traffic, striking and seriously damaging a dump truck owned by Billy Andrew. The damaged truck was one of seven dump trucks owned by Andrew and operated by “Billy Andrew, Jr. Trucking, LLC.” The LLC, of which Andrew was the sole member, was formed in January 2006, fifteen months prior to the accident. Andrew filed suit against Turner and M & W Milling in January 2008 claiming personal property damage to the truck as well as the loss of “income derived from the use of said motor vehicle owned by [Andrew] and used in the conduct of [Andrew’s] business.” The LLC was not named as a plaintiff in the lawsuit.

 

About eight weeks after the complaint was served, M & W filed interrogatories and requests for production seeking information from Andrew relating to his claim. Although responses to those requests were due within thirty days, Andrew failed to respond. Sixty-six days after the discovery requests were served, M & W filed a motion to compel Andrew to respond. A second motion to compel was filed eighteen months later. In that motion, M & W asserted that Andrew had failed to produce tax records for a five-year period; financial documents and calculations pertaining to the earnings derived from the use of the truck involved in the accident; and all documents showing customers of the trucking business from 2005 through 2007. Following a hearing, the trial court granted the motion and ordered Andrew to produce the requested documents by September 17, 2009. The records were not produced. On September 24th, M & W filed a motion to dismiss Andrew’s claim pursuant to Civil Rule (“CR”) 37.02(2)(c) on the basis that Andrew failed to comply with discovery requests and the order to compel. No ruling was made on the motion.

 

*2 On October 5, 2009, M & W made two motions for summary judgment, one relating to the property damage, and the other relating to lost business income. The motion for summary judgment on the lost income claim focused on Andrew’s repeated failure to respond to discovery requests as to lost business and the fact that any lost business claim belonged to the LLC and not Andrew individually. In the motion seeking summary judgment on the property damage claim, M & W asserted that Andrew had failed to produce any evidence concerning the amount of damage to the truck. The motion further stated that if the court did not grant summary judgment on the property damage claim, then it should enter an order limiting the amount that Andrew was entitled to recover to $22,820.41, an amount that M & W claimed was the cost of repair of Andrew’s truck based on an estimate prepared at the behest of M & W’s insurer. The trial court entered an order granting the motion for summary judgment as to the lost business income and capping Andrew’s claim for property damages at $22,820.41. Thereafter, Andrew filed a motion to alter, amend or vacate the order. Although the trial court’s ruling on this motion does not appear in the record, it is apparent that the motion was granted as litigation continued.

 

On October 22, 2009, M & W made an Offer of Judgment in the amount of $22,820.41, pursuant to CR 68 FN1 on Andrew’s property damage claim. There is no evidence of record that Andrew responded to that offer. About a month later, M & W filed a motion in limine to exclude any evidence of lost business income attributable to the out-of-service truck as well as any evidence of property damage to the truck. M & W contended that Andrew failed to comply with the trial court’s discovery order and produced no tax or business records pertaining to the relevant time period. They further asserted that the LLC was the only party that could pursue the lost income claim as the real party in interest. The trial court granted the motion. Thereafter, M & W moved for a judgment on the pleadings pursuant to CR 12.03 FN2 arguing that “no evidence can be introduced at the trial of this matter to support the entry of a judgment for monetary damages” against M & W. The trial court granted final judgment in favor of M & W on December 7, 2009.

 

The Court of Appeals reversed the trial court’s judgment, concluding that Andrew could properly pursue the lost business claim in his own name because he is the sole owner of the LLC. The Court of Appeals also concluded that the trial court erred in excluding all evidence of property damages and lost business income, and that Andrew had presented sufficient evidence to overcome the motion for summary judgment. The Court of Appeals reasoned that Andrew could establish the lost business income through his own testimony and that of his wife, who assisted with bookkeeping. As to the property damage claim, the Court of Appeals held that Andrew’s twenty-one years in the trucking business along with his performance of “routine maintenance on his vehicles” and his observation of the damaged vehicle “may qualify [him] as an expert on property damage to the dump truck.” The court also noted that Andrew’s exhibit list included a defense witness, the man who had prepared the damage estimate for M & W, which would be sufficient evidence to meet the plaintiff’s burden of proof. We granted discretionary review.

 

ANALYSIS

I. For Lost Business Income to the Trucking Business Operated by the LLC, the Only Proper Party to Bring Suit is the LLC.

*3 [1][2][3] A limited liability company is a “hybrid business entity having attributes of both a corporation and a partnership.” Patmon v. Hobbs, 280 S.W.3d 589, 593 (Ky.App.2009). As this Court stated in Spurlock v. Begley, 308 S.W.3d 657, 659 (Ky.2010), “limited liability companies are creatures of statute” controlled by Kentucky Revised Statutes (KRS) Chapter 275. KRS 275.010(2) states unequivocally that “a limited liability company is a legal entity distinct from its members.” Moreover, KRS 275.155, entitled “Proper parties to proceedings,” states:

 

A member of a limited liability company shall not be a proper party to a proceeding by or against a limited liability company, solely by reason of being a member of the limited liability company, except if the object of the proceeding is to enforce a member’s right against or liability to the limited liability company or as otherwise provided in an operating agreement.

 

Not surprisingly, courts across the country addressing limited liability statutes similar to our own have uniformly recognized the separateness of a limited liability company from its members even where there is only one member. See, e.g., O’Reilly v. Valletta, 139 Conn.App. 208, 55 A.3d 583 (2012) (sole member of LLC lacked standing to bring suit personally where LLC was party to lease and operated the restaurant at issue); Krueger v. Zeman Construction Co., 758 N.W.2d 881 (Minn.App.2008) (individual who was sole member of LLC had no standing to bring business discrimination suit in her own name where relevant contract was between LLC and corporation engaged in construction business); Bankston v. Tasch, LLC, 40 So.3d 495 (La.App.2010) (even where LLC has sole member it is entity separate and distinct from that member in terms of procedural capacity); FTC v. Payday Financial, LLC, 935 F.Supp.2d 926 (D.S.D.2013) (limited liability companies organized under South Dakota law are separate and distinct legal entities from their sole member). It is indisputable that KRS 275.010(2) and .155 similarly mandate that Billy Andrew, Jr. Trucking, LLC be the named plaintiff in any suit asserting a lost business income claim rightfully belonging to the LLC.FN3

 

The Court of Appeals reasoned that because Andrew was the sole owner of the business he was necessarily the real party in interest, a status that allowed him to properly advance the lost profits claim in his own name rather than in the name of the LLC. The theory of interchangeability underpinning this position was explicitly rejected by this Court in Miller v. Paducah Airport Corp., 551 S.W.2d 241 (Ky.1977) in the context of a solely-owned corporation. In Miller, the president of a corporation that operated a cab service brought suit in his individual capacity against an airport challenging the legality of a lease. Id. at 242. The Court held that the corporation was “an entity, separate, apart and distinct from [Mr. Miller] himself,” despite the fact that Mr. Miller owned the entirety of the corporation’s stock. Id. This Court concluded that the corporation, and not Mr. Miller in his personal capacity as the corporation’s president, was the real party in interest to the claim, declaring that such a distinction “is not trivial nor supertechnical.”   Id. at 243. The same conclusion is mandated here. The LLC and its solitary member, Andrew, are not legally interchangeable. Moreover, an LLC is not a legal coat that one slips on to protect the owner from liability but then discards or ignores altogether when it is time to pursue a damage claim. The law pertaining to limited liability companies simply does not work that way.

 

*4 [4][5][6] Andrew argued, and the Court of Appeals accepted, that because Andrew is the sole owner of the LLC and the business operated from his residence the LLC can be disregarded. While it is true that there are limited instances where an LLC’s separate entity status may be disregarded in the interest of equity, this is not one of those cases. “Piercing the corporate veil is an equitable doctrine invoked by courts to allow a creditor recourse against the shareholders of a corporation.” Inter–Tel Technologies, Inc. v. Linn Station Properties, LLC, 360 S.W.3d 152, 155 (Ky.2012). The doctrine can also apply to limited liability companies. In Howell Contractors, Inc. v. Berling, 383 S.W.3d 465 (Ky.App.2012), our Court of Appeals considered whether the veil of an Ohio limited liability company could be pierced to hold members liable for LLC debt under Ohio law, and, for good measure, the court also considered Kentucky law as articulated in Inter–Tel Technologies. The facts in Howell Contractors were insufficient to justify piercing the LLC veil in favor of the creditor regardless of which state’s law applied. 383 S.W.3d at 469–70. However, other states have similarly recognized that, on proper facts, a plaintiff may seek to pierce the defendant-LLC’s veil. See, e.g., Insituform Technologies LLC v. Cosmic Tophat, LLC, ––– F.Supp.2d ––––, 2013 WL 4038722 (N.D.Ga.2013) (LLC veil can be pierced to hold member personally liable for LLC debt); Edmunds v. Delta Partners, LLC, 403 S.W.3d 812 (Tenn.App.2012) (same).

 

The facts before us bear no resemblance to the traditional veil-piercing scenario. This is not a situation where an unpaid LLC creditor seeks to pierce the veil of an LLC to reach the personal assets of its member. This is not even what is sometimes referred to as an “outsider reverse” piercing case where the creditor of an individual who is the sole member of an LLC seeks to pierce the veil to get at LLC assets to satisfy the member’s personal debt. See, e.g., Insituform Technologies, LLC, ––– F.Supp.2d at –––– – ––––, 2013 WL 4038722 at *7–8 (discussing doctrine but noting that Georgia does not recognize reverse veil piercing whereby creditor of an individual member pierces LLC veil to use LLC assets as satisfaction of individual’s debt.) There is an “insider reverse” piercing theory, adopted by a very few states, but it is employed in that rare instance where equity is perceived to require disregard of the entity. Thus, the estate of a sole corporate shareholder/LLC member may be allowed to recover as an “insured” under a policy issued to the entity, Roepke v. Western Nat’l Mutual Ins. Co., 302 N.W.2d 350 (Minn.1981), or a sole shareholder or LLC member may be allowed to claim the protection of a usury statute even though the loan was to the entity, Gelber v. Kugel’s Tavern, 10 N.J. 191, 89 A.2d 654 (1952). See generally Gregory Crespi, “The Reverse–Pierce Doctrine: Applying Appropriate Standards,” 16 J. Corp. L. 33 (Fall 1990). In all of the limited number of insider reverse piercing cases, strong public policy considerations have been at the heart of the court’s decision.FN4

 

*5 Here, Andrew created an LLC and it appears that it was conducting the trucking business at issue. By law, the only appropriate plaintiff to assert the lost business damages claim was the LLC, a point that was raised in M & W’s answer in February, 2008, and then made repeatedly and explicitly throughout the litigation. Nevertheless, Andrew’s counsel never moved to amend the complaint to add the LLC as plaintiff. At the eleventh hour, counsel did produce an Internal Revenue Service Form 1099 showing that Gaddie–Shamrock, LLC, the trucking business’s largest customer, had paid Billy Andrew individually in 2007. Significantly, Andrew himself never supplied the relevant tax returns for 2002–2007, as requested, so it is unclear whether that amount really was paid to Andrew individually or whether there was an amended 1099 reflecting payment to the LLC. Also, there are no contracts or other documents that establish exactly who the various customers were contracting with for their hauling jobs.FN5

 

On remand, if the lost business damage claim survives the trial court’s decision regarding discovery sanctions, as discussed infra, the trial court should determine if the LCC was conducting the trucking business on April 16, 2007. If it was, M & W are entitled to summary judgment as a matter of law because Andrew personally had no standing to bring the business loss claim in his own name.

 

II. The Trial Judge Erred in Dismissing Andrew’s Claims as a Discovery Sanction Without Entering Findings of Fact and Conclusions of Law.

[7] The trial court’s entry of judgment in favor of M & W was the final stop on a long road that began with M & W trying to obtain discovery from Andrew through interrogatories and requests for production served some eight weeks after the complaint was filed in January, 2008. Those requests were followed by: first, letters from M & W’s counsel seeking documentation and full interrogatory responses; then, two motions to compel, filed approximately two months and then six months after the discovery requests were served; a motion to dismiss as a discovery sanction pursuant to CR 37.02(2)(c) in September, 2009; and the previously-discussed summary judgment motions in October 2009. Eventually a motion in limine seeking to preclude Andrew from introducing any damage evidence was filed by M & W just after the second trial date, November 2, 2009, was continued on Andrew’s motion (the first continuance having been at M & W’s request). Finally, a motion for judgment on the pleadings pursuant to CR 12.03 was filed on November 30, 2009. On December 7, 2009, the trial court granted that last motion which was in essence a CR 56 summary judgment since it required reference to “matters outside the pleadings.” Prior to that time, the trial court had entered at least two orders compelling discovery, a summary judgment in favor of M 85 W on the lost business income claim and an order limiting recovery of property damage to the $22,820.41 estimate prepared at the request of M 85 W’s insurance company. As noted above, the October 13, 2009 summary judgment was apparently set aside although the record does not reflect as much. However, when the in limine motion was granted on November 25, 2009 and Andrew was precluded from introducing damage proof, the stage was set for dismissal of the entire lawsuit. From a review of the record, it is apparent that the dismissal was, in essence, a sanction for Andrew’s repeated failure to provide discovery as ordered by the trial court.FN6

 

*6 It is, of course, within a trial court’s discretion to impose sanctions, even severe ones, against a party for failing to comply with discovery orders. Specifically, CR 37.02(2) provides that:

 

If a party … fails to obey an order to provide or permit discovery, including an order made under Rule 37.01 or Rule 35, the court in which the action is pending may make such orders in regard to the failure as are just, and among others the following:

 

(a) An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order;

 

(b) An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting him from introducing designated matters in evidence;

 

(c) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party;

 

(d) In lieu of any of the foregoing orders or in addition thereto, an order treating as a contempt of court the failure to obey any orders except an order to submit to a physical or mental examination;

 

[8] Here, the contentious course of discovery prompted at least two orders compelling discovery from Andrew but the final order dismissing was not denominated as a discovery sanction. Eventually, the trial court granted a motion in limine which prohibited Andrew from presenting any evidence concerning the damages to his truck and the alleged lost profits. The in limine motion was plainly premised on Andrew’s repeated failure to abide by the trial court’s earlier discovery orders. It is thus clear from our review that the final judgment was in reality a discovery sanction. In that circumstance, the trial court was required under Greathouse v. Am. Nat. Bank and Trust Co., 796 S.W.2d at 868 to render findings of fact to support the dismissal. As stated in Greathouse, “[t]he reasons for desiring some articulation of the bases for decision have special importance in this context. When such a severe sanction is imposed, values of consistency and predictability, reviewability, and deterrence, outweigh the values of economy and efficiency that may be promoted by allowing inarticulate decisions.” 796 S.W.2d at 870 (quoting Quality Prefabrication, Inc. v. Daniel J. Keating Company, 675 F.2d 77, 81 (3d Cir.1982)).

 

[9] A trial court “has broad discretion in addressing a violation of its order[s]” regarding discovery, and this Court reviews the trial court’s determination of the appropriate sanction for abuse of that discretion.   Wilson v. Commonwealth, 381 S.W.3d 180, 191 (Ky.2012). Without findings of fact, a meaningful appellate review of the propriety of discovery sanctions is seriously constrained, if not impossible. See Nowicke v. Central Bank & Trust Co., 551 S.W.2d 809 (Ky.App.1977) (discussing the trial court’s fact-intensive inquiry supporting the imposition of CR 37 sanctions against a litigant who willfully disregarded discovery procedures). We must therefore remand the matter to the trial court for reconsideration of the appropriate sanctions for Andrew’s discovery violations, and for entry of findings of fact to support the imposition of those sanctions. On remand, the trial court may appropriately reach the same result or a different result.FN7

 

CONCLUSION

*7 For the reasons explained herein, the decision of the Court of Appeals is reversed in part, vacated in part, and the matter is remanded to the Adair Circuit Court for additional proceedings consistent with this Opinion.

 

All sitting. All concur.

 

FN1. CR 68(1) provides: “At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against him for the money or property, or to the effect specified in his offer, with costs then accrued. The offer may be conditioned upon the party’s failure in his defense. If within 10 days after service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance, together with the proof of service thereof, and thereupon judgment shall be rendered accordingly, except when the offer is one conditioned upon failure in defense, in which case the judgment shall be rendered when the defense has failed.”

 

FN2. CR 12.03 provides: “After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on such motion, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided for in Rule 56, and all parties shall be given reasonable opportunity to present all materials made pertinent to such a motion by Rule 56.”

 

FN3. By contrast, the damaged truck was owned by Billy Andrew personally and he could individually assert the property damage claim.

 

FN4. Kentucky courts have never addressed reverse piercing. However, at least one commentator, Crespi, 16 J. Corp. L. at 48, has concluded that Kentucky would probably not recognize reverse piercing given the Sixth Circuit Court of Appeals decision in Boggs v. Blue Diamond Coal Co., 590 F.2d 655 (6th Cir.1979). There the Court stated unequivocally that the piercing doctrine was an equitable doctrine to be employed by outsiders who would be wronged by the court’s failure to acknowledge the realities of a fraudulent corporate structure and it should not be available to the corporate entities to “undo” what they themselves created, i.e., to reverse pierce.

 

FN5. Notably, the contractual relationship between the corporate entity and other parties was an important factual inquiry in Miller v. Paducah Airport Corp., 551 S.W.2d at 243.

 

FN6. The Court of Appeals treated the final order as a summary judgment and proceeded to determine whether there was a disputed issue of material fact. This narrow focus ignores the record. Andrew had no damage proof to introduce because of the November 29 in limine order which was premised on Andrew’s flagrant disregard of the trial court’s discovery orders. The trial court’s decision to disallow Andrew’s damage proof was a discovery sanction.

 

FN7. We recognize that due to Judge Weddle’s death, the decision on remand will be made by a different judge. The record, based on our review, sufficiently documents the course of discovery to allow for a careful review and appropriate ruling, with findings and conclusions, by the current judge.