FILED
                                                                          OCT 1 2019
                          NOT FOR PUBLICATION
                                                                     SUSAN M. SPRAUL, CLERK
                                                                        U.S. BKCY. APP. PANEL
                                                                        OF THE NINTH CIRCUIT


             UNITED STATES BANKRUPTCY APPELLATE PANEL
                       OF THE NINTH CIRCUIT

In re:                                               BAP No. MT-18-1315-BKuF

ATLANTIS WATER SOLUTIONS, LLC,                       Bk. No. 2:18-bk-60060-BPH

                    Debtor.                          Adv. No. 2:18-ap-00016

STEVEN BALDWIN; SHELLEY
BALDWIN,

                    Appellants,

v.                                                          MEMORANDUM*

ATLANTIS WATER SOLUTIONS, LLC;
IOFINA RESOURCES, INC.,

                    Appellees.

                      Argued and Submitted on May 23, 2019
                             at Pasadena, California

                                Filed – October 1, 2019

                Appeal from the United States Bankruptcy Court
                          for the District of Montana

         *
         This disposition is not appropriate for publication. Although it may be cited
 for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no
 precedential value, see 9th Cir. BAP Rule 8024-1.
      Honorable Benjamin P. Hursh, Chief Bankruptcy Judge, Presiding

Appearances:      Ben T. Sather of Sather Law, PLLC argued for Appellants
                  Steven and Shelley Baldwin; Frederick P. Landers of Axilon
                  Law Group, PLLC argued for Appellees Atlantis Water
                  Solutions, LLC and Iofina Resources, Inc.



Before:     BRAND, KURTZ and FARIS, Bankruptcy Judges.

                              INTRODUCTION

      Appellants Steven and Shelley Baldwin appeal an order granting

summary judgment to Atlantis Water Solutions, LLC ("Atlantis") and Iofina

Resources, Inc. ("Iofina") and denying the Baldwins' motion for partial

summary judgment against Atlantis and Iofina. The parties' cross-motions

sought relief on the same issue: whether the liability protection veil of

Atlantis should be pierced so that its sole member, Iofina, could be held liable

for damages resulting from Atlantis's breach of contract with the Baldwins.

The bankruptcy court determined that the Baldwins had failed to establish

that piercing the LLC veil of Atlantis was appropriate on the facts. We

AFFIRM.

      I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A.    Prepetition events

      1.    Background of the parties

      The following facts are undisputed. Iofina's primary business is the


                                        2
production of iodine. Iofina organized Atlantis, a member-managed LLC, in

Montana in 2013, to pursue the development of a fresh water depot in Eastern

Montana to serve the oil and gas industry operating in the Bakken field.

Iofina established a separate entity for this project because it was outside of

Iofina's core business, and because Iofina anticipated that a potential strategic

business partner might eventually acquire all or part of the new entity. Iofina

was the sole member of Atlantis.

      As a single-member LLC, Atlantis operated informally and without an

operating agreement. Atlantis was always in good standing in Montana, filed

its annual reports and maintained a registered agent. Atlantis had no officers,

directors or employees, but Iofina's Chief Operating Officer, Forest Dorn, was

designated as Atlantis's President and signed documents and correspondence

on behalf of Atlantis in that capacity.

      Atlantis never had its own bank account or independent source of

funds because it never generated any revenue. Iofina funded all of Atlantis's

expenses, including those incurred for developing the water depot project.

Atlantis had no credit and no balance sheets, and never applied for any loans.

Atlantis did not file its own tax returns; rather, it filed a consolidated tax

return with Iofina. Atlantis never had a website, and its phone number was

the phone number for Iofina's main office in Colorado.

      Atlantis's operations consisted mainly of its attempts to secure the

necessary resources and entitlements (water rights, right of way, and real


                                          3
property) for its depot operation. Atlantis's assets, paid for by Iofina,

included leases, right-of-way easements, engineering reports, feasibility

studies and surveys. Atlantis never transferred any of its assets to Iofina or to

any other entity or person.

      The Baldwins reside near Culbertson, Montana and own two small

businesses there: a diner and a high-end, extended stay lodge. They own and

operate these businesses through LLCs and appreciate the limited liability

benefits of LLCs. The Baldwins also own approximately 10 acres on the

Missouri River outside of Culbertson, which is what led them to do business

with Atlantis.

      2.    The parties' agreements and events during their business
            relationship

      Atlantis decided to locate its water depot near Culbertson and began to

acquire the land and water rights it would need. On May 30, 2013, after some

negotiations between the parties, Atlantis and the Baldwins entered into an

Option Agreement. The Option Agreement, for which Atlantis paid the

Baldwins $50,000, gave Atlantis the option to enter into a 10-year Surface

Agreement to lease a portion of the Baldwins' property as a diversion point

and pump station location for $8,000 per month, beginning on January 1,

2014. Atlantis also had the option to enter into a Right of Way Agreement to

run underground pipes across the Baldwins' property from the river to the

depot site, which was located on a nearby property. The option's initial term


                                         4
was one year.1

      Atlantis's water depot project depended upon receiving a water permit

from the Montana Department of Natural Resources and Conservation

("DNRC"), which Atlantis applied for just after executing the Baldwin

agreements. The Baldwins understood that Atlantis did not yet have a water

permit and that getting the permit was critical to the project's viability. The

Baldwins knew that Atlantis, not Iofina, was the applicant for the water

permit.

      The water permitting process took much longer than expected due to

administrative issues and a third-party objection to the application. Due to

the delays, Atlantis and the Baldwins entered into a series of agreements

during 2014 to extend the Option Agreement until December 31, 2014. By the

end of 2014, Atlantis was still waiting for a final decision from the DNRC.

      Upon the expiration of the last option extension, the Baldwins told

Atlantis that they would not agree to extend the Option Agreement any

further and that Atlantis would either need to exercise the option (and pay

the required access fee of $175,000) or lose it. Atlantis exercised the option on

January 6, 2015, and paid the Baldwins $175,000.

      In June 2015, the DNRC denied Atlantis's water permit application. The



       1
         The documents signed by the parties were drafted by the Baldwins' attorney;
 Atlantis was not represented by counsel during the transaction.


                                           5
denial was based on an unforeseeable change in DNRC policy that was made

after Atlantis filed its application. Atlantis timely appealed the DNRC's

decision to the Montana state court.

     Throughout the DNRC permitting and judicial review process,

Mr. Baldwin told Dorn that the Baldwins shared Dorn's frustration with the

permitting process and appreciated Atlantis's commitment to the project

notwithstanding the difficulties it was encountering. Mr. Baldwin also

assured Dorn that the Baldwins would "work with" Atlantis and Iofina if

Atlantis was unable to get the water permit. As of December 31, 2015, the

Atlantis project was operating at a loss of $419,263, most of which was paid to

the Baldwins.

     On August 1, 2016, the state court affirmed the DNRC's denial of the

water permit. Dorn called Mr. Baldwin to inform him that the state court had

affirmed the DNRC's decision to deny the water permit and of Atlantis's

decision to abandon the project. Dorn said that Atlantis would not make any

further payments and sent the Baldwins a proposed release to sign for the

Surface Agreement and the Right of Way Agreement. Based on his previous

discussions with Mr. Baldwin, Dorn expected the Baldwins to sign the release

and not demand any additional payments. A few weeks later, Dorn received

a letter from the Baldwins' attorney, demanding that Atlantis and Iofina meet

all obligations under the agreements. Atlantis did not pay.

     In total, the Baldwins received $459,000 in option money, fees, and rents


                                       6
under the Option Agreement, Surface Agreement and Right of Way

Agreement. All of the check payments the Baldwins received originated from

Iofina. The Baldwins demanded payment of $704,000 for the 88 months

remaining on the Surface Agreement plus additional fees owing under the

Right of Way Agreement. Other than some soils testing and surveying,

Atlantis never used, took possession of, or constructed any improvements

upon the Baldwins' property.

      3.     The Baldwins' lawsuit against Atlantis and Iofina

      The Baldwins sued Atlantis and Iofina (together, "Defendants") in

Montana state court. They alleged that Atlantis had breached the contract,

and that Atlantis was the alter ego, instrumentality, and agent of Iofina. They

sought damages for breach of contract and a declaration that Iofina was liable

for any judgment entered against Atlantis.

B.    Postpetition events

      Atlantis filed a chapter 72 bankruptcy case on January 26, 2018. Shortly

thereafter, Defendants removed the Baldwins' action to the bankruptcy court.

The parties consented to the bankruptcy court's entry of a final judgment on

their claims.




       2
        Unless specified otherwise, all chapter and section references are to the
 Bankruptcy Code, 11 U.S.C. §§ 101-1532, all "Rule" references are to the Federal Rules of
 Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil
 Procedure.

                                             7
      1.    The cross-motions for summary judgment

      The Baldwins moved for partial summary judgment ("PSJ"), seeking a

judgment as a matter of law that Atlantis was the alter ego of Iofina and that

the LLC entity was used as a subterfuge to justify a wrong and perpetrate

fraud. By piercing the veil of Atlantis, the Baldwins sought to hold Iofina

liable for the damages caused by Atlantis's breach of contract. The Baldwins

urged the bankruptcy court to apply the traditional, two-pronged test set

forth in Peschel Family Trust v. Colonna, 

(Mont. 2003), abrogated on

other grounds by Boyne USA, Inc. v. Lone Moose Meadows, LLC, 

,

1273 (Mont. 2010), for piercing the veil of a corporation, even though Atlantis

was an LLC.

      Defendants moved for summary judgment ("MSJ"), seeking a judgment

as a matter of law that Atlantis was not the alter ego of Iofina, that

Defendants complied with Montana law for operation of an LLC, and that

Iofina did not act in bad faith. Noting that the Montana Supreme Court has

yet to decide a case where piercing the veil of an LLC is at issue, Defendants

urged the bankruptcy court to apply Weaver v. Tri-County Implement, Inc., 

(Mont. 2013), for piercing the veil of an LLC. In Weaver, the Montana

Supreme Court stated, in dicta, that piercing the veil of an LLC may be

appropriate if the member "operates the LLC as an empty shell to perpetuate

fraud and avoid personal responsibility." 

      Defendants argued that the traditional, two-prong corporate test was


                                        8
inappropriate for LLCs, as they are fundamentally different from

corporations in both their governance and operations. However, no matter

which test the court applied, argued Defendants, the Baldwins could not

show that Iofina used Atlantis to perpetuate fraud and avoid liability. The

Baldwins admitted they had no reason to believe that Iofina used Atlantis as

a subterfuge to defeat public convenience, commit crime, justify wrong or

perpetuate a fraud. The Baldwins also admitted that Iofina was not deceitful

and that Defendants were not out to cheat them. Nonetheless, argued

Defendants, even if the court decided to pierce the veil of Atlantis and hold

Iofina liable, the Baldwins' damages as lessor should be limited to $105,000

under § 502(b)(6).3

      The parties opposed each others' motions. To establish that Iofina used

Atlantis as a subterfuge to engage in fraud or justify wrong, the Baldwins

focused on Atlantis's lack of funding, arguing that Iofina acted in bad faith by

undercapitalizing Atlantis from its inception, leaving Atlantis incapable of

ever satisfying any judgment against it. The Baldwins also disputed that

§ 502(b)(6) capped their damages. If they successfully pierced the veil of

Atlantis, their judgment for damages would be against Iofina, and Iofina was



        3
           Section 502(b)(6) sets forth a category of claims that is subject to a cap ("claim[s]
 of a lessor for damages resulting from the termination of a lease") and then defines the
 cap as the sum of all outstanding current rent and the greater of one year of remaining
 rent or 15% of the remaining term. See § 502(b)(6); Kupfer v. Salma (In re Kupfer), 

, 855 (9th Cir. 2016).

                                                9
not a debtor in bankruptcy.

      2.    The bankruptcy court's ruling on the cross-motions

      Without oral argument, the bankruptcy court issued its memorandum

decision, order and judgment granting Defendants' MSJ, denying the

Baldwins' PSJ, and dismissing the Baldwins' complaint. First, the court

posited that the two-pronged test set forth in Peschel for piercing the

corporate veil was not an appropriate test for LLCs, given the distinctions

between corporations and LLCs in their governance and operations.

However, without deciding which test should apply, the court concluded that

the Baldwins' claim failed because they had not presented "the slightest

scintilla of evidence" to satisfy the second prong of either test — under

Peschel, that Iofina used Atlantis as a "subterfuge to defeat public

convenience, justify wrong, or perpetuate fraud," or under Weaver, that

Atlantis was used to "perpetuate fraud and avoid personal responsibility."

      The bankruptcy court disagreed that Iofina's undercapitalization of

Atlantis was indicative of bad faith sufficient to pierce the LLC veil. The

Baldwins had provided no evidence of self-dealing by Dorn, Atlantis or

Iofina. Further, the Baldwins received $459,000, while Defendants realized no

benefits and suffered a loss. Because the Baldwins' alter ego claim failed, the

court concluded that their claim for damages against Atlantis was limited to

$105,000 under § 502(b)(6). The Baldwins timely appealed.




                                        10
                                II. JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(O). We have jurisdiction under 28 U.S.C. § 158(b).

                                     III. ISSUE

      Did the bankruptcy court err in granting the MSJ and denying the PSJ?

                          IV. STANDARD OF REVIEW

      We review de novo the bankruptcy court's summary judgment ruling.

Salven v. Galli (In re Pass), 

, 756 (9th Cir. BAP 2016). Summary

judgment should be granted when there are no genuine issues of material fact

and when the movant is entitled to prevail as a matter of law. Civil Rule 56

(made applicable in adversary proceedings by Rule 7056); Celotex Corp. v.

Catrett, 

, 322-23 (1986). In this appeal, the facts are undisputed.

Therefore, we must determine whether the bankruptcy court correctly

applied the relevant substantive law. Odd-Bjorn Huse v. Huse-Sporsem, A.S. (In

re Birting Fisheries, Inc.), 

, 496 (9th Cir. BAP 2003).

                                 V. DISCUSSION

A.    The bankruptcy court did not err in granting the MSJ and denying
      the PSJ.

      In Montana, a member of an LLC is not personally liable for obligations

of the company solely by reason of being or acting as a member or manager.

See MCA § 35-8-304(1); White v. Longley, 

, 760 (Mont. 2010). The

Montana Supreme Court has recognized LLCs as "legal entities distinct from


                                          11
their members, with obligations separate from their members." 

(citing Ioerger v. Reiner, 

, 1032 (Mont. 2005)).

However, "this limited liability shield is not absolute and does not provide

immunity to a member for his own wrongful conduct." 

(citing 

).

      The Montana Supreme Court has yet to decide what test should apply

to determine when piercing the veil of an LLC is appropriate; specifically,

whether the test should be the same as that for corporations. The Baldwins

argue that the court should apply the traditional, two-pronged test used for

corporations as set forth in 

. This test requires, first,

that the defendant must be shown to be an alter ego, instrumentality or agent

of the corporation. Second, substantial evidence must exist that the corporate

entity was used as a "subterfuge to defeat public convenience, justify wrong

or perpetrate fraud." 

Defendants argue that the applicable standard

is whether the member or manager "operates an LLC as an empty shell to

perpetrate fraud and avoid personal responsibility." 

.

      The bankruptcy court appeared to agree with Defendants, although it

ultimately determined that whichever test was applied, the Baldwins failed to

establish that Iofina used Atlantis as a subterfuge to defeat public

convenience, commit crime, justify wrong or perpetuate fraud. We reach the

same conclusion. The Baldwins admitted they had no reason to believe Iofina

used Atlantis for these purposes. They also admitted that Iofina was not


                                         12
deceitful and that Defendants were not out to cheat them.

      Notwithstanding, the Baldwins argue that the "wrong" which occurred

here is the breach of contract itself and the creation of an undercapitalized

shell LLC whose sole purpose was avoiding liability. The Baldwins argue that

the only thing Atlantis did in this case (other than sign the agreements) was

create liability protection for its sole member — Iofina. Relying on Peschel and

E.C.A. Environmental Management Services, Inc. v. Toenyes, 

, 219

(Mont. 1984), the Baldwins argue that, while there was no evidence of intent

to avoid liability, Iofina's bad faith is demonstrated by the

undercapitalization of Atlantis from its inception and this, by itself, provides

a basis for piercing the LLC veil. In Peschel, the Montana Supreme Court

noted that it had explained in Toenyes, "the creation of an undercapitalized

shell subsidiary, that was not capable of satisfying its liability for breach of

contract, was sufficient to satisfy the requirements of the second 

(citing 

).

      We find the facts of both Toenyes and Peschel distinguishable. Toenyes

and Peschel both involved corporate veil piercing, and in each case the parent

corporation or sole shareholder engaged in bad-faith conduct. In Toenyes,

following a breach of contract, the parent corporation transferred the assets of

its subsidiary corporation, E.C.A., to its own books in partial cancellation of

debt owed to the parent. This effectively depleted E.C.A. of funds and assets

and left it without means to satisfy any judgment against it. The court


                                        13
concluded that the parent used E.C.A. to avoid liability for breaching its

contractual obligation and that such bad faith justified piercing the corporate

entity of E.C.A. and assigning liability to the 

.

Toenyes involved the failure to observe corporate formalities, which led to a

finding of alter ego, as well as bad-faith conduct in addition to

undercapitalization, resulting in the piercing of the corporate veil. Toenyes did

not turn solely on the fact that E.C.A. was undercapitalized.

      Peschel also involved more egregious facts. In addition to the sole

shareholder's intentional conduct to cause the corporation to become

perpetually undercapitalized and incapable of paying a judgment, the record

was replete with suspect corporate transactions from which the shareholder

received a personal 

. No bad faith or other egregious

conduct exists in this case.4

      Notably, neither Peschel nor Toenyes addressed the issue of whether

undercapitalization alone is sufficient to pierce the LLC veil. Nor has the

Montana Supreme Court addressed this issue in this context. Nonetheless, we

do not believe that the Montana Supreme Court would conclude that

        4
          The Baldwins also cite Businger v. Storer (In re Storer), 

, 233-35
 (Bankr. D. Mont. 2007), as support for their argument. There, the bankruptcy court
 applied the traditional, two-pronged corporate test for piercing the veil of an LLC.
 Ultimately, the court concluded that the member did not use the LLC as subterfuge to
 perpetrate fraud, so it refused to pierce the LLC veil. Notably, the parties in Storer did
 not dispute which veil-piercing test should be applied. It also appears they did not
 present anything other than the corporate test for the court to consider. Further,
 undercapitalization was not an issue.

                                              14
undercapitalization alone is sufficient to establish fraud for purposes of

piercing the veil of an LLC. We reach this conclusion based on our analysis of

Montana's statutory framework which provides for the creation of alternative

business entities to the traditional corporation while maintaining liability

protection for the owners of those entities, and our review of case law from

other jurisdictions with similar statutes that have addressed this issue.5

      Montana provides for the creation of business entities that are not

required to observe corporate formalities without imposing liability on their

shareholders or members. In addition to authorizing LLCs, Montana is one of

several states that authorizes the organization of statutory close corporations

(which may have no more than 25 shareholders). See MCA § 35-9-101, et seq.

(Montana Close Corporation Act). LLCs are similar to statutory close

corporations in their governance and operations. For example, both business

forms are allowed to operate without observing the usual corporate

formalities or requirements for operations such as a board of directors,

bylaws or operating agreements and annual meetings. See MCA §§ 35-9-302,

303, 304; MCA § 35-8-109. And for both business forms, the failure to observe

corporate or company formalities is not grounds for imposing personal



        5
          See Strother v. S. Cal. Permanente Med. Grp., 

, 865 (9th Cir. 1996) ("If
 the state has not addressed the particular issue, a federal court must use its best
 judgment to predict how the highest state court would resolve it using intermediate
 appellate court decisions, decisions from other jurisdictions, statutes, treatises, and
 restatements as guidance.").

                                               15
liability on the individual shareholders or members. See MCA § 35-9-3066

(statutory close corporation); MCA § 35-8-304(2)7 (LLC).

      The Montana Supreme Court recognized the distinction between

traditional and statutory close corporations in 

, 801.

In Peschel, the issue was whether the veil of a traditional corporation should

be pierced based on the conduct of its sole shareholder. The district court

found that the shareholder was the alter ego of the corporation, primarily due

to his failure to observe corporate formalities. 

The Montana

Supreme Court affirmed. 

dissent noted that had the

corporation been a statutory close corporation, "[t]he legal analysis, and the

effect of many of the District Court's above-referenced findings of fact

regarding the absence of corporate formalities, would be much different[.]" 

(Rice, J., dissenting).

      Given the distinctions between LLCs and traditional corporations in

their governance and operations and MCA § 35-8-304(2), to impose liability

based solely on undercapitalization of the LLC, without some evidence that


        6
         MCA § 35-9-306 provides: "The failure of a statutory close corporation to
 observe the usual corporate formalities or requirements relating to the exercise of its
 corporate powers or management of its business and affairs is not a ground for
 imposing personal liability on the shareholders for liabilities of the corporation."
        7
           MCA § 35-8-304(2) provides: "The failure of a limited liability company to
 observe the usual company formalities or requirements relating to the exercise of its
 company powers or management of its business is not a ground for imposing personal
 liability on the members or managers of the limited liability company."

                                             16
the member was acting to perpetrate a fraud, appears to be contrary to the

intent of the liability limitations of the statute.

      Case law from other jurisdictions addressing this issue also supports

our conclusion. The Wyoming Supreme Court has held that

undercapitalization by itself is not grounds to pierce the veil of an LLC.

Gasstop Two, LLC v. Seatwo, LLC, 

, 1078 (Wyo. 2010); see also

GreenHunter Energy, Inc. v. W. Ecosystems Tech., Inc., 

, 463 (Wyo.

2014) (while undercapitalization can be considered for piercing the LLC veil,

"undercapitalization alone will not suffice to pierce the veil.").8 Other courts

have held the same. See Frazier v. Sikeston Bd. of Mun. Utils. (In re Liberty Coal

Co., LLC), No. 09-CV-0371-MJR, 

, at *9 (S.D. Ill. Mar. 31,

2010) (applying Colorado law to LLC veil-piercing claim, finding no evidence

of fraud or wrongdoing required to pierce the LLC's veil, stating that

        8
            In fact, that rule has now been codified in Wyoming:

        (c) For purposes of imposing liability on any member or manager of a limited
        liability company for the debts, obligations or other liabilities of the
        company, a court shall consider only the following factors no one (1) of
        which, except fraud, is sufficient to impose liability:
                (I) Fraud;
                (ii) Inadequate capitalization;
                (iii) Failure to observe company formalities as required by law; and
                (iv) Intermingling of assets, business operations and finances of the
                company and the members to such an extent that there is no
                distinction between them.

 Wyo. Stat. Ann. § 17-29-304(c)(I)-(iv) (2016).


                                              17
undercapitalization without associated fraud or wrongdoing is insufficient to

pierce the veil, and rejecting argument that LLC's inability to satisfy

obligations alone constitutes fraud or wrongdoing because legitimate

purpose of limited liability is to shield members from individual liability

when LLC cannot satisfy its obligations to creditors); Milk v. Total Pay & HR

Sols., Inc., 

, 212 (Ga. 2006) ("For undercapitalization to justify

piercing the veil [of an LLC], it must be coupled with evidence of an intent at

the time of the capitalization to improperly avoid future debts of the LLC.")

(internal quotation marks and citation omitted).

      Finally, our conclusion is buttressed by the well-reasoned comment of

Justice Rice in the Peschel dissent, who cautioned that undercapitalization

alone should never equate to bad faith:

      If 'bad faith' means that a corporation undercapitalized from its
      inception has incurred debt which it may not be able to repay, then
      I suggest that the owners of countless start-up and young
      enterprises are acting in 'bad faith' and will be surprised to learn
      that these circumstances could expose them to personal liability.
      Being 'undercapitalized from its inception' is a common business
      problem and does not necessarily infer improper motives on the
      part of the corporation's 

(Rice, J., dissenting). In our view, the rationale of the Peschel

dissent demonstrates why undercapitalization should not be the sole

requirement for liability for members of LLCs. As noted by Justice Rice, start-

ups are often undercapitalized. The LLC framework provides a basis for the


                                         18
germination of young enterprises without the burden of observing corporate

formalities. The fact they are undercapitalized, without more, does not

necessarily imply improper motives. For these reasons, we decline to hold

that undercapitalization alone creates liability for the LLC member.

      The Baldwins point to no evidence that there was any self-dealing by

Atlantis or Iofina. Atlantis's reliance on Iofina's funds and personnel does not

equate to the improper "self-dealing" necessary to pierce the LLC veil. And

the mere fact of Iofina's use of Atlantis to pursue the water depot project and

enter into the agreements with the Baldwins is not indicative of a scheme to

avoid personal responsibility. In reality, the Baldwins were the only ones who

realized any benefit from the project; neither Iofina nor Atlantis realized any

financial gain, only losses.

      In addition to the Baldwins' concessions, the undisputed facts showed

that Atlantis was a start-up company formed by Iofina to develop a fresh

water depot. Atlantis complied with Montana law governing LLCs. Atlantis's

business model was dependent upon receiving a water permit. Iofina infused

adequate capital into Atlantis for it to satisfy its obligations for three years.

The Baldwins were paid $459,000 while Atlantis pursued its water permit.

Only after it was clear that the water permit could not be obtained, Atlantis

stopped paying the Baldwins and breached the contract. Atlantis never

progressed beyond the start-up phase because, despite its best efforts, the

DNRC denied its water permit application and the state court affirmed that


                                         19
denial. In other words, the failure of Atlantis was not due to intentional

undercapitalization; it was due to its inability to obtain the necessary water

permit. Had Atlantis obtained the permit, the parties would likely not be

here. Compare Gasstop Two, 

(undercapitalization due

only to lack of success of the business) with GreenHunter Energy, 

(affirming district court's finding that LLC was intentionally

undercapitalized due to member manipulation, which was unlike Gasstop

Two, LLC, where LLC's undercapitalization was due to external forces). The

Baldwins failed to show that any wrongful act or omission by Atlantis and

Iofina caused them damages. Things simply did not go as planned or as

everyone had hoped. These undisputed facts could not establish that Atlantis

was used as a subterfuge to defeat public convenience, commit crime, justify

wrong, perpetrate fraud or avoid personal responsibility.

      Further, the equities do not favor the Baldwins. As the Montana

Supreme Court explained in Hando v. PPG Industries, Inc., 

, 960

(Mont. 1989):

      Piercing the corporate veil is an equitable remedy used to curb
      injustices resulting from the improper use of a corporate entity.
      Because the remedy is equitable, no concrete formula exists under
      which a court will disregard the separate identity of the corporate
      entity. Use of this remedy depends entirely upon the circumstances
      of each case.

As noted, the only party to realize any gain from Atlantis's activities and the


                                       20
parties' agreements was the Baldwins. They are sophisticated business

owners, who were actively fielding business offers from others besides

Atlantis for use of their river access. They were represented by counsel

during the transaction with Atlantis, and she drafted the agreements signed

by the parties. The Baldwins knew they were contracting with Atlantis, a

start-up company whose operations were contingent upon getting a water

permit from the DNRC, rather than Iofina.9 While they expressed concern

about doing business with a start-up like Atlantis, the Baldwins did not

require Iofina to be a party to the agreements or to guarantee Atlantis's

performance of the agreements. The Baldwins, through their counsel,

pressured Atlantis into taking the option to enter into the Surface Agreement

and the Right of Way Agreement, knowing that Atlantis still did not have the

necessary water permit. Due to circumstances largely beyond Iofina's and

Atlantis's control, the water permit was denied and the Atlantis business plan

       9
          Although the Baldwins claimed they did not know they were contracting with
 Atlantis, the record belies this. The Option Agreement, Surface Agreement and Right of
 Way Agreement, which were drafted by the Baldwins' attorney, all reflect the name
 "Atlantis." The Option Agreement was first executed by Atlantis (with the Baldwins
 signing thereafter) and was sent to the Baldwins' attorney along with an enclosed letter
 reflecting the name "Atlantis" on the letterhead. The enclosed letter also states that
 "AWS" would be paying the Baldwins the Option fee of $50,000. Finally, while all emails
 and correspondence from Atlantis to Mr. Baldwin were sent on Iofina letterhead,
 several emails and correspondence from Atlantis to the Baldwins' attorney were sent on
 Atlantis letterhead. "[K]nowledge of facts by an attorney is knowledge by the client,
 regardless of whether the attorney actually communicated the information to the client."
 Kaeding v. W.R. Grace & Co.-Conn., 

, 1261 (Mont. 1998). Thus, this is not a
 disputed material fact precluding summary judgment.

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failed.

      The Baldwins failed to produce evidence that Iofina used Atlantis as a

subterfuge to defeat public convenience, commit crime, justify wrong,

perpetuate fraud or avoid personal responsibility and, ultimately, that the

LLC veil should be pierced. Because the Baldwins could not establish an

essential element of their case on which they bore the burden of proof at trial,

Defendants were entitled to judgment as a matter of law. Accordingly, the

bankruptcy court did not err in granting the MSJ and denying the PSJ.

                                VI. CONCLUSION

      For the reasons stated above, we AFFIRM. Because we have concluded

that the Baldwins do not have a claim against Iofina, we need not address the

applicability of § 502(b)(6) to Iofina's liability.




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