PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY v. ESHAI CORPORATION

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

PENNSYLVANIA MANUFACTURERS’ :

ASSOCIATION INSURANCE :

COMPANY, et al. :

: CIVIL ACTION

v. : No. 21-1892

:

ESHAI CORPORATION, et al. :

McHUGH, J. August 5, 2025

MEMORANDUM1

This is an action to recover unpaid insurance premiums against the shareholders of Eshai

Corporation, a package delivery business. Summary judgment was entered in favor of the Plaintiff

carriers, who now seek to collect by piercing the corporate veil. In 2015, Eshai Corporation

executed a contract with Amazon, spurring rapid growth. As part of that growth, Eshai

Corporation entered into a series of retrospectively rated insurance contracts, a type of insurance

where the final premium owed is subject to adjustment based on the insured’s actual losses during

the policy period. In July 2020, Amazon terminated the contract, forcing Eshai to wind up its

affairs. Two months later, the carriers issued a $7 million retrospective adjustment. Soon

thereafter, the carriers brought a breach of contract action, alleging that Eshai Corporation failed

to pay the premiums owed. In 2022, I granted summary judgment for the carriers, who now seek

to hold the shareholders personally liable for the debt. The parties previously filed cross motions

for summary judgment, but in the presence of numerous factual disputes I denied the motions and

with the parties’ consent convened an evidentiary hearing. Following a careful review of the

1 The discussion of the evidence set forth herein and the analysis of precedent cited by the parties represents

the Court’s findings of fact and conclusions of law.

record, I am constrained to conclude that the carriers have not met the stringent standard required

to pierce the corporate veil.

I. Relevant Background

A. Eshai Corporation: A swift rise and sudden fall

Eshai Corporation was formed in July 2013 as a package delivery business. Najeeb and

Rubina Eshai and two of their children, Usman and Ali, served as shareholders.2 Usman was the

company’s dominant shareholder, owning 68.1% of Eshai Corporation’s stock. Ali owned 15.7%,

Najeeb owned 0.5%, and Rubina owned 15.7%.3 Day One Hearing Tr., ECF 93 at 18:25–19:17.

In 2015, Eshai Corporation entered into an agreement with Amazon, whereby Eshai would

provide delivery and distribution services exclusively to Amazon. Over the next few years, Eshai

Corporation formed several affiliated companies – many of which also serviced Amazon –

including Deliverol Global Inc. (“Deliverol”), Postal Mile, CDS Staffing LLC, CDS Courier

Distribution Systems LLC, CDS Transnet LLC,4 Final Mile, Final Mile Holdings LLC, Last Mile

Staffing LLC, Allpoints Trucking & Courier Service Inc. (“Allpoints”), and Endol Global

Technologies.5 See ECF 93 at 52:19-22; 54:23–55:23. Eshai Corporation and many of the

2 I will use the first names of the individual defendants (all of whom have the last name “Eshai”) to avoid

conflating them with Eshai Corporation, the corporate entity.

3 Rubina is not a defendant to this action.

4 Usman testified that CDS Transnet was a rush delivery service for “high value” pharmaceuticals and life-

saving medications. Day One Hearing Tr., ECF 93 at 65:10–66:8. CDS Transnet was formed by Usman

and Ali around 2010 in Wisconsin. Ali Dep. Tr. 30:14–31:8, ECF 70-12. In December 2019, Eshai

Corporation sold its ownership interest in CDS Transnet to Auctus, a German private equity firm. Auctus

obtained 55% of the new company while Usman retained 45%. ECF 93 at 66:9–67:1. Usman remains the

CEO of CDS Transnet. Id. at 66:13–67:9.

5 Some of the Amazon companies were wholly owned subsidiaries of Eshai Corporation, including Final

Mile, LLC. See ECF 93 at 158:2-3. Payroll companies CDS Courier Distribution Systems, LLC (id. at

107:11-13) and CDS Staffing (id. at 20:1-6) were also wholly owned by Eshai Corporation. (CDS Staffing

appears to have been a California-specific payroll company. Id. at 56:7-19). Deliverol was owned by Ali

Eshai and Postal Mile was owned by Najeeb Eshai. Id. at 158:1-3. Cartage Services (“Cartage”) contracted

with DHL and was the only affiliated entity that serviced a client other than Amazon. Id. at 130:1–132:8

affiliated entities were insured by Plaintiff Pennsylvania Manufacturers’ Association Insurance

Company (“PMA”).6

From 2015 through the middle of 2020, Eshai Corporation experienced rapid growth, with

revenue across the integrated enterprise exceeding $100 million in 2019. ECF 93 at 219:4-6.

Nonetheless, in many respects because of the rapidity of the growth, the companies faced persistent

cash flow issues due to increased payroll costs, vehicle expenses, and high interest loan

repayments.7 Id. at 208:25–212:7; 191:23–193:7.

On July 17, 2020, Amazon notified Eshai Corporation and the affiliated entities that it was

terminating their relationship.8 Id. at 100:12-20; 219:18–229:3. Having lost its sole client, Eshai

Corporation was compelled to wind up its affairs.9 Id. at 100:21–101:10. Then, on September 24,

two months into the liquidation process, PMA issued a $7.3 million retrospective premium

adjustment. See Retro Adjustment Bill, ECF 19-16 at 2. Eshai Corporation failed to render

payment.

B. The Insurance Contracts

The insurance policies that form the basis for this action were issued to Eshai Corporation

and several of its affiliated entities in 2018. They include two workers’ compensation policies, a

(Ali testimony). Cartage was owned by Deliverol. Id. at 158:10-12. Usman testified that “nothing ever

happened” with Endol Global Technologies. Id. at 55:12-13.

6 PMA insured CDS Staffing, Courier Distribution Systems, Deliverol, Postal Mile, Endol, Allpoints, Final

Mile LLC, Final Mile Holdings, and Last Mile Staffing. Defs. Trial Ex. 1.

7 For instance, in 2019, Eshai Corporation obtained a $1 million loan from Georgia United, on which the

company paid 33% ($28,000 a month) in interest. ECF 93 at 78:10–79:18.

8 In their motion for summary judgment, Defendants stated that Amazon terminated the relationship in

August. ECF 70-2 at 6. But at the hearing, Usman testified that he received notice of the termination on

July 17. ECF 93 at 100:12-20.

9 Usman testified that Eshai Corporation resolved its obligations with every creditor except for PMA. ECF

93 at 104:6-19.

commercial auto insurance policy, and a comprehensive general liability policy. The parties also

entered into an agreement for third party claims handling services.

Workers’ Compensation Policies. On October 15, 2018, PMA issued two Workers’

Compensation and Employers’ Liability Insurance policies for the period of October 15, 2018 to

October 15, 2019 (“Policy A” and “Policy B”).10 ECF 19-4 (Policy A); ECF 19-5 (Policy B). The

two policies had total estimated annual premiums at inception of $2,192,823.00 and $518,840.00,

respectively. ECF 19-4 at 10; ECF 19-5 at 6. Eshai Corporation selected the Retrospective Rating

Plan for the two policies, authorizing PMA to adjust the premium based on the actual losses

incurred during the policy term. See ECF 19-5 at 30-33; Plan Selection Form, ECF 19-15.

In accordance with the policies, PMA conducted an audit of Eshai Corporation’s records.

The final audit on Policy A determined an additional premium of $2,114,563.00, and the final

audit on Policy B determined an additional premium of $510,311.00. Audit Summary, ECF 19-

17. PMA also calculated a Retrospective Adjustment for the combined A and B Policies based

upon the incurred losses on claims filed by Eshai Corporation’s injured workers and determined

that the company owed PMA an additional retrospective premium in the amount of $4,709.061.00.

ECF 19-16 at 3.

In sum, following the audits, Eshai Corporation owed PMA $7,333,935.00 for the

retrospective adjustment.11 Id. at 2.

Auto and General Liability Policies. On November 1, 2018, PMA issued a Commercial

Auto Insurance policy for the period of November 1, 2018 to November 1, 2019. Auto Policy,

10 At the end of the policy term, PMA decided not to renew, so Defendants obtained insurance from a

different carrier. See Day Two Hearing Tr., ECF 96 at 10:19-23.

11 Eshai Corporation also owed $434,769 for failure to pay in full the mid-term endorsement issued under

Policy A. See Mid-Term Endorsement, ECF 19-11.

ECF 19-6. The premium for the Auto Policy was $2,315,183.24. Id. Eshai Corporation failed to

render payments on the policy in the amount of $378,613.55.

On November 15, 2018, PMA issued a Comprehensive General Liability policy for the

period of November 15, 2018 to November 15, 2019. CGL Policy, ECF 19-7. The premium for

the CGL Policy was $14,549.00. Id. at 5. Following an audit, PMA determined that an additional

$22,601.46 was due.

Third Party Handling. On October 15, 2018, the parties entered into an Agreement for

Third Party Claims Handling Services. TPA Agreement, ECF 19-8. Eshai Corporation failed to

pay $447,315.73 of the total amount reflected on the Statement for TPA Services. See ECF 19-19

at 1.

In total, Eshai Corporation owed PMA over $8.6 million for (1) failure to pay premiums

under the four insurance contracts, and (2) failure to pay fees owed under the Third Party Handling

Agreement.

C. Procedural History

On May 3, 2022, I granted summary judgment for PMA on their breach of contract claims

in the amount of $8,617,234.74 and ordered a period of “further discovery relevant to whether

Plaintiffs can meet the stringent standard for piercing the corporate veil.” ECF 37, 38. In July

2024, the parties filed cross motions for summary judgment as to whether it was appropriate to

hold the company’s shareholders personally liable for the PMA debt. I denied the motions,

concluding that dueling expert reports and ambiguous financial documents gave rise to material

factual disputes. To clarify the record, I scheduled a two-day evidentiary hearing. Because

piercing the corporate veil is a form of equitable relief, the parties have agreed that resolution of

this issue is a matter for the Court, not a jury. Following presentation of lay and expert testimony,

at the request of the parties I heard closing arguments on May 2, 2025.

II. Standard of Review

Under Pennsylvania law, courts consider the following factors in determining whether to

pierce the corporate veil: “undercapitalization, failure to adhere to corporate formalities,

substantial intermingling of corporate and personal affairs[,] and use of the corporate form to

perpetrate a fraud.” Lumax Industries, Inc. v. Aultman, 669 A.2d 893, 895 (Pa. 1995).12 The

Pennsylvania Supreme Court recently distilled the inquiry as follows: “[f]irst, there must be such

unity of interest and ownership that the separate personalities of the corporation and the individual

no longer exist, and second, adherence to the corporate fiction under the circumstances would

sanction fraud or promote injustice.” Mortimer v. McCool, 255 A.3d 261, 286-87 (Pa. 2021)

(Wecht, J.). I agree with the Superior Court’s well-reasoned decision in In re Dravo LLC, 307

A.3d 146 (Pa. Super. Ct. 2023), concluding that the Lumax factors continue to be relevant

following the Mortimer decision: that “[a]lthough all Lumax factors may not be needed or relevant

in each piercing the veil case, courts may still look to those factors, and the cases that applied them,

for guidance when determining whether the Mortimer inquiry is met.” Id. at 156. No single factor

is dispositive, and courts must assess the totality of the circumstances. Trinity Indus., Inc. v.

Greenlease Holding Co., 903 F.3d 333, 365 (3d Cir. 2018); Advanced Tel. Sys., Inc. v. Com-Net

Prof’l Mobile Radio, LLC, 846 A.2d 1264, 1281 (Pa. Super. Ct. 2004). The Pennsylvania Superior

12 While Pennsylvania law controls this action, I will at times draw upon federal common law principles,

because the Court of Appeals has recognized that they are “substantially similar to the principles set forth

in Pennsylvania case law.” Trinity Indus., Inc. v. Greenlease Holding Co., 903 F.3d 333, 365 (3d Cir.

2018). The Third Circuit has identified the relevant factors as “gross undercapitalization, failure to observe

corporate formalities, nonpayment of dividends, insolvency of [the] debtor corporation, siphoning of funds

from the debtor corporation by the dominant stockholder, nonfunctioning of officers and directors, absence

of corporate records, and whether the corporation is merely a facade for the operations of the dominant

stockholder.” Pearson v. Component Tech. Corp., 247 F.3d 471, 484-85 (3d Cir. 2001).

Court has observed on several occasions that “there appears to be no clear test or well settled rule

in Pennsylvania as to exactly when the corporate veil can be pierced and when it may not be

pierced.” See Fletcher-Harlee Corp. v. Szymanski, 936 A.2d 87, 95 (Pa. Super. Ct. 2007) (quoting

Adv. Tele. Sys, Inc. v. Com-Net Prof’l Mobile Radio, LLC, 846 A.2d 1264, 1278 (Pa. Super. Ct.

2004)).13 Justice Wecht cogently reframed the issue in Mortimer, observing that “equitable

doctrines [] resist reduction to prescriptive tests, tending by historical design toward holistic, case-

by-case analyses,” such that “[t]he issue isn’t that there is no settled rule, it’s that the rule is difficult

to generalize.” Mortimer, 255 A.3d at 268, 286 n.95.

There is a strong presumption against piercing the corporate veil. Lumax, 669 A.2d at 895.

Courts “must start from the general rule that the corporate entity should be recognized and upheld,

unless specific, unusual circumstances call for an exception.” Mortimer, 255 A.3d at 278 (quoting

Wedner v. Unemployment Comp. Bd. of Review, 296 A.2d 792, 795 (Pa. 1972)). “[L]imiting

liability through incorporation is not a bug of corporate law but its defining feature.” Id. at 277.

Thus, “[c]are should be taken on all occasions to avoid making the entire theory of the corporate

entity useless.” Id. at 278; Zubik v. Zubik, 384 F.2d 267, 273 (3d Cir. 1967); Ashley v. Ashley, 393

A.2d 637, 641 (Pa. 1978). Pennsylvania courts have not clearly articulated the burden of proof

required to pierce the veil. At least one district court in the Third Circuit has applied a

preponderance standard, see Wheeling-Pittsburgh Steel Corp. v. Intersteel, Inc., 758 F. Supp. 1054,

1058 (W.D. Pa. 1990), but it is not clear to me that such a standard can be reconciled with

Pennsylvania’s “strong presumption” against piercing the veil. In applying federal common law,

the Third Circuit has concluded that because veil piercing has “elements of fraud theory,” it “must

13 The Pennsylvania Supreme Court first noted this lack of clarity in 1954. See Barium Steel Corp. v. Wiley,

108 A.2d 336, 341 (Pa. 1954).

be shown by clear and convincing evidence.” See Trs. of the Nat’l Elevator Indus. Pension, Health

Benefit, and Educ. Funds v. Lutyk, 332 F.3d 188, 192 (3d Cir. 2003) (citation omitted); accord

Trinity, 903 F.3d at 366. I will therefore apply the clear and convincing standard.

III. Discussion

A. Plaintiffs have not established by clear and convincing evidence that piercing the

corporate veil is justified under the circumstances.

By way of initial observation, it should be noted that Plaintiffs’ case principally relies on

the opinions of their forensic accountant, James Stavros. Although certainly qualified, Mr. Stavros

made some significant errors in his analysis and completely dropped one of the principal criticisms

of the Defendants in his report. ECF 69-2 (the “Stavros Report”). And while the forensic

accountant called by the defense equivocated on some points and did not testify for long, it is

Plaintiffs who carry the burden of proof, so the deficits in their expert presentation loom larger.

1. Plaintiffs’ expert abandoned his contention that Eshai Corporation diverted

Covid relief funds to shareholders.

Plaintiffs’ most dramatic claim was that Defendants diverted $2 million of the pandemic-

related Paycheck Protection Program loan to shareholders, rather than paying the liabilities and

expenses of the company. See Stavros Report at 11; id. at 10-11 (“Despite Eshai’s poor financial

condition in 2020, they received a PPP loan for $7,084,300 in May 2020 which was immediately

used to pay $763,016 in insurance premiums to a subsequent insurer, $2,128,120 of distributions

went to shareholders with the balance transferred among Eshai accounts or to other related or third

parties, none went to PMA.”). But Stavros unequivocally withdrew this opinion during the

hearing, testifying that:

I traced the PPP loan of $7 million and it came into a Region bank account. And I

was able to trace some of those payments directly into the distributions account . .

. But what I didn’t do, and I should have done, and I stand corrected in the G&S

report and the testimony today, or yesterday, is they immediately backed that out.

They immediately subtracted out the amounts that I had traced in from the PPP loan

in the distribution account. So I would agree that the PPP loan, none of that directly

went to the shareholders. And I should have done a better job in telling that in my

report. So that was – that was – I could have done a better job.

Day Two Hearing Tr., ECF 96 at 51:5-18.

This accusation figured prominently in Plaintiffs’ initial submissions to the Court, and this

concession of such a fundamental error by Plaintiffs’ expert substantially erodes their position.

2. Eshai was not undercapitalized considering the nature of its business and rapid

expansion.

In determining whether a company is undercapitalized, courts assess the “adequacy of

available capital ‘measured by the nature and magnitude of the corporate undertaking.’” Mortimer,

255 A.3d at 269 n.17 (quoting Anderson v. Abbott, 321 U.S. 349, 362 (1944)). Notably, evidence

of insolvency is of “little relevance” in assessing whether an entity is undercapitalized. As the

Third Circuit has explained, “[c]ompanies commonly become insolvent, then bankrupt; piercing

the corporate veil is an exception reserved for extreme situations, rather than the rule.” Lutyk, 332

F.3d at 197. Instead, “the inquiry into corporate capitalization is most relevant for the inference it

provides into whether the corporation was established to defraud its creditors or other improper

purpose such as avoiding the risks known to be attendant to a type of business.” Id. For example,

diversion of corporate assets to shareholders while a corporation is in financial distress may

warrant piercing the corporate veil. See United States v. Pisani, 646 F.2d 83, 88 (3d Cir. 1981)

(piercing the corporate veil justified where sole stockholder “loaned large sums to the corporation

and then repaid the loans to himself with corporate funds while the corporation was failing”);

Crane v. Green & Freedman Baking Co., 134 F.3d 17, 23 (1st Cir. 1998) (“wrongful diversion of

corporate assets to or for controlling individuals at a time when the corporation is in financial

distress . . . can justify[] piercing the corporate veil.”).

Plaintiffs contend that Eshai Corporation issued excessive shareholder distributions in

2019 and 2020, rendering the company unprepared to manage its rapid growth and the financial

risk inherent to servicing a single client. Specifically, Plaintiffs assert that Eshai Corporation

experienced net income losses of $1,841,081 in 2019, and $3,613,147 in 2020, but nonetheless

paid substantial cash distributions to shareholders over the same period – $2,144,898 in 2019 and

$3,637,454 in 2020. Put simply, Plaintiffs maintain that over a two-year period in which Eshai

Corporation sustained $5.4 million in losses, the company disbursed $5.7 million to its

shareholders.14

Upon careful review of the testimony and underlying financial records, Plaintiffs have not

met their burden in establishing that Eshai Corporation issued excessive distributions in 2019 or

2020. As for 2019, the distributions were not excessive; as for 2020, the record does not clearly

establish that transactions categorized as “distributions” represent payouts to shareholders.

a. The 2019 distributions were not excessive.

In 2019, following the sale of CDS Transnet, Eshai Corporation issued approximately $2.1

million in distributions to its shareholders. That year, the company reported a capital gain of $3.8

million (from the sale of CDS Transnet), a book income of $2.1 million, and a business income

loss of $1.8 million. See ECF 96 at 66:21–68:13. On this issue, the Stavros Report focused solely

on the company’s $1.8 million business income loss, neglecting the nearly $6 million in liquid

assets when book income and capital gains were combined. See Stavros Report at 3. Mr. Stavros

testified that, in evaluating the 2019 distributions, he decided not to consider the capital gains

because the sale of CDS Transnet was a “one-time thing” and “not in the operations.” ECF 96 at

14 Usman, Najeeb and Ali also reported W-2 income through Eshai Corporation. Usman received $206,179

in 2019 and $65,914 in 2020; Najeeb received $220,971 in 2019 and $74,800 in 2020; Ali received

$208,714 in 2019 and $66,000 in 2020. See Stavros Report, Ex. 3, ECF 69-2.

68:10–70:2. But he failed to take into consideration the fact that this was a closely held family

business that had been operating over a period of years. He provided no explanation for his

decision to omit the company’s book income. Id. at 67:25–68:6.

The failure of the Stavros report to reflect both the sale of CDS Transnet and the company’s

book income conveys a misleading picture of Eshai Corporation’s financial condition in 2019,

rendering his analysis on the issue unreliable. As a preliminary matter, businesses often reflect

paper losses, something that is advantageous for tax purposes, while having a healthy income

stream as Eshai did in 2019. Admittedly, given the company’s rapid growth, and the precarity of

servicing a single client, Eshai Corporation faced a constant degree of risk, raising a question as

to whether a large distribution was prudent. But that falls well short of showing an intent to defraud

creditors, particularly when the 2019 distributions are viewed in context. The record reflects that

Eshai Corporation’s shareholders had not taken significant distributions over the first few years of

the company’s operations. The company disbursed $162,672 to shareholders in 2016, $211,251

in 2017, and $0 in 2018. See Stavros Report, Ex. 3; see also ECF 93 at 70:11–71:4 (Usman

testimony). James Blanchard, Eshai Corporation’s Chief Operating Officer, testified that the

decision to issue distributions in 2019 was “all due to the sale of CDS Transnet.” ECF 93 at 185:6-

7. Blanchard asserted that CDS Transnet was a “separate company with a separate history” and

that distributions were justified for “something [Usman and Ali] put ten years of work into.” Id.

at 184:22–185:21. Additionally, Defendants used a portion of the proceeds from the sale of CDS

Transnet to pay off the Georgia United loan. Id. at 80:9-15 (Usman testimony); 68:3-9 (same).

The disbursement of $2 million – following the $3.8 million sale of a successful company that

Usman and Ali had operated for nearly a decade – cannot be viewed as improper diversion when

the remainder of the funds and the net book income of $2.1 million either paid down debt or

remained in the company. Moreover, the record contains no evidence that Defendants had reason

at that point to believe Amazon was planning to terminate the contracts.

It should also be noted that during his testimony Usman repeatedly referred to Mr.

Blanchard as the individual informing key business and fiscal decisions, who is neither a family

member nor a shareholder. At the evidentiary hearing, it was striking the degree to which Mr.

Blanchard could answer questions about the business in far greater detail and with far greater

business sophistication than members of the Eshai family. To the extent that his business

judgments were driving decisions – whether they were sound or not – his role as an advisor weighs

against a finding of improper self-dealing.15

b. The record is insufficient to support a finding that transactions in Eshai

Corporation’s 2020 distributions account represent cash payments to

shareholders.

Eshai Corporation’s 2020 books – which were prepared “after the fact” in 2022 by an

outside accounting firm – include a “distributions account” containing transactions totaling

approximately $3.6 million. The parties submitted conflicting expert reports on the significance

of this account.

The Stavros report submitted by Plaintiffs concluded that Eshai Corporation issued $3.6

million to shareholders in 2020, including in the months after Amazon terminated the contract.

See Stavros Report at 13. On direct examination, Stavros testified that Eshai Corporation “decided

15 Plaintiffs assert that Mr. Blanchard knew Eshai Corporation would have difficulty paying the unadjusted

PMA premium in December 2019 and made a conscious decision to ignore the obligation. The record is

more nuanced than that. Blanchard acknowledged that his plan was to “slow pay” the PMA premium based

on the company’s cash flow issues. ECF 93 at 187:2-18; ECF 96 at 10:13–12:14. But that decision

followed from PMA’s decision not to renew, and Eshai needed a large deposit to replace the coverage on

relatively short notice. Blanchard prioritized securing new coverage, which Eshai needed to operate. This

sheds some light on Eshai’s capitalization, but once again it was Blanchard rather than a member of the

Eshai family making the decision, and the decision reflects business necessity far more than diversion of

assets.

to pay $3.6 million of distributions in 2020 . . . irrespective of the fact that they lost their biggest

client in July of 2020.” ECF 96 at 47:10-13. According to Stavros, it was clear from the

distributions account that Defendants “continued to pay distributions to themselves” following

notice from Amazon. Id. at 47:14-16.

Defendants maintain that Wilson Lewis, the accounting firm, used the distributions account

as a catch-all for ambiguous or improperly coded journal entries. Craig Pate, an accountant with

Wilson Lewis who supervised the after-the-fact reconciliation, testified at his deposition that the

firm used “distribution” as a default categorization, explaining that if an entry is “not an expense,

not a reduction of liability, and [] not an asset, then it has nowhere else to go but distributions.”

Id. at 161:22-24. James Blanchard, Eshai Corporation’s COO, testified to this process as well,

asserting that ambiguous transactions “default[ed] to distributions.” ECF 93 at 203:1-6; 196:9-14

(same). And Stavros’ testimony acknowledged that the Eshai accounts were structured in an

unconventional way, noting that that the distributions account included both debits and credits, see

ECF 96 at 43:3-4; 51:23–52:12, and that, in his professional experience, “distributions accounts []

have always been one way. It’s money out; it’s never money in.” Id. at 52:2-4. It should be noted

that the second half of 2020 consisted of the winding down of operations for all the entities, and

that the 2020 statements were prepared well after.

On cross-examination, Mr. Stavros then retreated from his assessment that the transactions

in the distributions account definitively represented payouts to shareholders. Some of these

entries, he explained, may have represented payments issued “on behalf of the shareholders,”

which, he conceded, could plausibly encompass payments to third parties or payment of company

debt. Id. at 85:16-24 (emphasis added).

Following two days of testimony, I remained concerned by a lack of clarity on the issue,

and instructed counsel to focus particular attention in closing argument on how to interpret the

2020 distributions account. Counsel on both sides acknowledged the obscurity in the record.

Plaintiffs’ counsel stated that, “[w]e don’t know whether it represented cash, and [] we haven’t

been able to ascertain [] whether it represented cash. We know it represented either cash or a

benefit to the shareholders.” ECF 99 at 7:9-12. Defense counsel reiterated that the decision to

classify ambiguous transactions as “distributions” was an artifact of the after-the-fact accounting

process and maintained that there was no evidence in the record reflecting cash payments to

shareholders in 2020. Id. at 39:13–41:9.

The murkiness of the record is fatal to Plaintiffs’ claim. There is little doubt that

Defendants’ after-the-fact bookkeeping was imprecise, but ambiguity alone does not justify

piercing the corporate veil, particularly where, as here, Plaintiffs had access to pertinent financial

documents from the relevant time period, including bank statements and account statements for

Usman, Ali, and Najeeb regarding “any and all payments, disbursements or distributions from

Eshai Corporation.”16 Mot. to Compel, ECF 45-1 at ¶ 4; Order on Mot. to Compel, ECF 48 at ¶

16 During closing argument, Plaintiffs’ counsel asserted that Defendants had not produced the financial

records of the affiliated entities. See ECF 99 at 51:13–52:3; see also ECF 96 at 93:15-20 (Stavros

testimony); 61:2-11 (same). If Defendants failed to turn over responsive documents, Plaintiffs had ample

opportunity to raise this issue with the Court prior to the evidentiary hearing. This Court ruled on numerous

motions to compel throughout this case, almost universally in Plaintiffs’ favor. In September 2022, I

granted Plaintiffs’ motion to compel production of “[a]ny and all bank statements or account statements

from all financial institutions for Usman Eshai a/k/a Uthman Eshai, Ali Eshai, and Najeeb Eshai where any

and all payments, disbursements or distributions from Eshai Corporation, Eshai Corporation d/b/a Courier

Distribution Systems LLC and/or Courier Distribution Systems LLC were made, transferred, or deposited

for years 2017-2020, inclusive.” ECF 45-1 at ¶ 4 (motion); ECF 48 at ¶ 3 (order). In March 2023, I ruled

that Plaintiffs may inquire about “closely affiliated” entities including “CDS Staffing, LLC, Courier

Distribution Systems, LLC, Deliverol Global, Inc., Postal Mile, and Endol Global Technologies, Inc.” –

specifically as to these companies’ “financial dealings as related to Eshai” – and that “neither [Craig Pate]

nor Wilson Lewis may refuse to answer on grounds of confidentiality or privilege.” ECF 59 at 2 (order);

ECF 54-7 (motion). In March 2022, I granted Plaintiffs’ first motion to compel, ordering that, “[t]o the

extent not previously produced, Defendants shall produce all responsive documents. If there are no other

3. Given that this was a closely held family business, as discussed below, there is some plausibility

to the distributions account serving as a catch-all category encompassing, among other things,

payment of company debts. Most importantly, evidence is lacking that cash flowed to members

of the Eshai family after Amazon pulled out.17

As noted at the outset, failure of a business does not by itself establish that it was

undercapitalized at inception. Defendants are correct that Eshai’s business model was inherently

tenuous because of its reliance on a single client, and that this created challenges securing financing

and resulted in its payment of high interest rates. Mr. Blanchard freely acknowledged that during

his testimony. But a high-risk business can also seek the protection that comes from incorporation,

and there is no evidence that Eshai misrepresented its business in applying for coverage. PMA is

a sophisticated business enterprise that routinely assesses risk, and the vulnerability of Eshai’s

business model would have been self-evident. Eshai’s push to expand may not have been prudent,

but there are no indices of fraudulent intent. Eshai Corporation was unquestionably a legitimate

business, and the mere fact that the company became insolvent has little relevance to the

capitalization inquiry in the absence of evidence that distributions were used to defraud creditors.18

responsive documents, Defendants shall attest to this under oath.” ECF 28 at ¶ 3 (order); ECF 22-2

(motion).

17 Plaintiffs point to Usman’s 2021 purchase of a $2 million house in cash (ECF 93 at 15:11-22), Ali’s 2022

purchase of a $2.3 million house (with a mortgage) (id. at 118:13–119:15), and Najeeb’s 2024 purchase of

a $3 million house (id. at 136:2-8) as further evidence of self-dealing. Those are certainly facts of interest,

but aside from identifying these purchases, Plaintiffs have presented no evidence linking them to wrongly

diverted corporate funds. The record is insufficient to support a conclusion that “adherence to the corporate

fiction under the circumstances would sanction fraud or promote injustice.” Mortimer, 255 A.3d at 287.

18 Plaintiffs also asserts that Eshai Corporation’s failure to reflect its $8.6 million liability to PMA on its

balance sheet was relevant to establish the company’s undercapitalization. The Stavros report stated that,

“if Eshai’s balance sheet had included PMA’s entire $8.6 million premium liability [], their financial

condition would have looked worse to anyone relying on their financial statements, including the

subsequent insurer for policies that began in November 2019.” See Stavros Report at 10. But the balance

sheet was not prepared until a year later, in October 2020, by which time Eshai Corporation was in the

process of winding up its affairs. It is difficult to discern how this is relevant to the time frame that is the

3. Eshai Corporation failed to adhere to corporate formalities, but the lack of

observance did not contribute to abuse of the corporate form.

Under Pennsylvania piercing law, “corporate formalities are relevant only where the lack

of observance is associated with abuse of the corporate form.” Mortimer, 255 A.3d at 276. This

is particularly true with respect to closely held corporations, which are “not held to the strict

formalities that are applicable to large corporations.” Chambers v. Beaver-Advance Corp., 140

A.2d 808, 814 (Pa. 1958); see also Zubik, 384 F.2d at 271 n.4 (“In the context of an attempt by an

outside party to pierce the corporate veil of [] a closely-held corporation, the informalities are

considered of little consequence”); Lutyk, 332 F.3d at 196 (a lack of formalities in closely-held

corporations is “not a strong factor in favor of piercing the corporate veil”). Pennsylvania’s

Corporations Code specifically provides that “[t]he failure of a . . . limited liability company to

observe formalities relating to the exercise of its powers or management of its activities and affairs

is not a ground for imposing liability on a partner, member or manager of the entity for a debt,

obligation or other liability of the entity.” 15 Pa. C.S.A. § 8106.

Plaintiffs are correct that Eshai Corporation adhered to few (if any) corporate formalities.

Eshai could not point to records of shareholder or board meetings, formal titles or bylaws, or

policies as to the distribution of profits to shareholders. Formal loan documents were few. The

most Defendants could argue was that Eshai Corporation held regular operational and planning

meetings and were organized into multiple “departments” – Finance, Risk, and Fleet. But given

that “Pennsylvania law imposes very few requirements upon limited liability companies” to

observe corporate formalities, Mortimer, 255 A.3d at 276, and the Third Circuit’s allowances for

focus here. And once again, Mr. Stavros conceded during the hearing that he “should correct the timing”

of his report. Id. at 80:20–82:3.

family businesses, I cannot place significant weight on this factor in determining whether to pierce

the veil.

4. Eshai Corporation did not substantially commingle corporate funds.

Plaintiffs contend that Eshai Corporation commingled funds between and among Eshai

Corporation and other entities owned by members of the Eshai family, often without formal

documentation.19 According to Mr. Stavros, this practice placed shareholders at risk, as the

company “pa[id] money on behalf of these other entities with no loans, with no payback, with no

interest.” ECF 96 at 98:7-8. Defendants concede that funds flowed between Eshai Corporation

and the related entities but contend that it did so because they were related companies engaged in

the same business and serving the same customer, Amazon, or supporting the other Eshai entities

also serving Amazon. And all the transfers were documented on a general ledger and reviewed by

outside accountants who reconciled the books. Some of the transfers reflected Eshai Corporation’s

payments for vehicles, equipment, and insurance premiums on behalf of the related entities with

minimal credit history – and the affiliated companies reimbursed Eshai Corporation for those

payments. ECF 93 at 57:14–59:21; 157:2-6 (Blanchard testimony). Eshai would compile

consolidated financial statements precisely because of the unified operation of the affiliated

companies, but all the entities maintained their own books and records. Id. at 214:1–215:10.

Mr. Stavros testified that he was concerned by the transfer of funds between entities that

“don’t have the same ownership.” ECF 96 at 71:6-9. During the hearing, the parties quarreled

over the meaning of “common ownership” and whether the concept has application in the context

of an integrated family enterprise with affiliated companies engaged in the same business for the

19 For example, Eshai Corporation loaned Deliverol $150,000 in January 2018 as an initial line of credit,

but Ali testified that he didn’t remember whether there was any documentation of the loan and could not

recall whether Deliverol paid interest. ECF 93 at 123:18–125:13.

same client. The Stavros report stated that “the only entity having common ownership with Eshai

is CDS, LLC, the payroll company.”20 See Stavros Report at 8 (emphasis in original). But Mr.

Blanchard identified Eshai family members or Eshai entities as the owners of all the companies

involved. ECF 93 at 238:4-21. He further testified that this was of direct benefit to Eshai

Corporation itself, because Eshai “became a further flagship and deeper embedded into the

Amazon world because of it.” Id. at 240:16-23. And at the hearing, Stavros appeared to focus

only on Deliverol, Postal Mile, and Cartage as companies with materially different ownership

structures for purposes of the commingling analysis. ECF 96 at 77:13–78:3. But Deliverol and

Postal Mile were owned by family members and the companies were engaged in the same business.

ECF 93 at 242:10-25. More importantly, they were formed as different entities with different

ownership structures at the behest of Amazon, id. at 237:8-23, because, somewhat ironically,

Amazon did not want to concentrate too much of its package delivery with any one company.21

Id. at 235:12-16. I view the transfers of funds between these entities to be of little consequence,

as I find Mr. Blanchard’s explanation to be persuasive and credible: they were operating in unison.

Cartage is in a different posture, as it serviced DHL, another parcel delivery company –

not Amazon. That relationship was sparked by Mr. Blanchard, and DHL, like Amazon, required

the existence of a separate corporate entity. Id. at 130:1–132:8; ECF 96 at 101:1-13. But nothing

20 It appears that “CDS, LLC” refers to CDS Courier Distribution Systems, LLC (and not to CDS Staffing).

See ECF 96 at 141:8-12.

21 Ali testified that he continues to run Deliverol, which has evolved into a “managed staffing company”

for Walmart. He also continues to receive a salary from CDS Transnet. ECF 93 at 119:16–120:25.

in the record indicates that Defendants transferred funds from the Amazon entities to Cartage for

a fraudulent purpose.22

Plaintiffs also contend that Eshai Corporation deposited corporate funds into Usman’s

personal bank account. Specifically, Plaintiffs point to Eshai Corporation’s $28,000 monthly

interest payments on the Georgia United loan, whereby the company first transferred the funds to

Usman, who then wired the money to the lender. ECF 96 at 31:11–33:2; see also ECF 93 at 78:10–

80:8 (Usman testimony). But once again context is important. Eshai is organized as an S

Corporation for tax purposes, ECF 93 at 207:20-25, and it relied on unconventional lenders

because its dependence on a single client made it unattractive to most banks. Id. at 190:18–191:4.

I view this atypical repayment process and poor documentation as weak accounting practice, but

not as evidence of commingling.

Eshai Corporation and its affiliated companies plainly fell short of best practices in

managing and tracking financial transfers between companies. But I cannot conclude based on the

record that the intercompany transfers constitute “substantial commingling.”23 And any

commingling of corporate and personal affairs cannot reasonably be characterized as having

meaningfully contributed to a “unity of interest and ownership” between Eshai Corporation and

Usman Eshai such that their “separate personalities . . . no longer exist.” Mortimer, 255 A.3d at

286-87.

22 The Stavros report also stated that Deliverol’s pursuit of the DHL contract “removed all revenues

generated [] that may have flowed to Eshai.” See Stavros Report at 10. But on cross examination, Mr.

Stavros admitted that Eshai Corporation was not itself permitted to seek the contract, rendering Deliverol’s

pursuit of the contract entirely appropriate. ECF 96 at 82:15–83:8; see also ECF 93 at 130:4-8 (Ali

testimony).

23 On cross, Mr. Stavros acknowledged that intercompany transfers are not always subject to loan

documentation, stating that, while “it’s not necessarily best practices not to have documentation,” it was

something that he had seen “lots of times” in his professional experience. ECF 96 at 72:18–73:3.

5. Usman Eshai’s purchase of high-end vehicles reflects a lack of foresight and

sound judgment but does not by itself rise to a level that would justify

disregarding the corporate entity.

From 2017 to 2020, Usman used corporate funds to purchase twelve luxury vehicles,

including a Lamborghini, a Rolls-Royce, and two Ferraris. The Stavros report stated that

Defendants purchased two of these cars – a McClaren and a Mercedes Maybach – “after being

told they lost the Amazon contract and at the same time as receiving PMA’s premium audit

invoice.” See Stavros Report at 11 (emphasis in original). But purchasing agreements introduced

during the hearing demonstrate that the McClaren was purchased in January 2020 and the Maybach

was purchased on July 16, 2020, one day prior to receiving notice from Amazon. Defs. Trial Exs.

9, 10; see also ECF 93 at 91:10–93:25 (Usman testimony). Plaintiffs have done nothing to rebut

this evidence, so I reject Mr. Stavros’ theory as to when they were acquired. Moreover, Usman

testified that the company owned only three to four of these vehicles at any given time for

“marketing purposes” – to impress Amazon representatives, ECF 93 at 112:13-21; 95:9-20, and

stated that the cars were never purchased outright, but rather were financed and then traded-in or

sold, albeit often at a loss. Id. at 94:8–95:1. All the vehicles were liquidated following the

termination of the Amazon contract. Id. at 86:10-21.

Nonetheless, the vehicles represent one of the more compelling of Plaintiffs’ arguments. I

reject Usman’s testimony that the vehicles were needed to impress Amazon. Moreover, I am

particularly troubled by Eshai Corporation’s purchase of a Rolls Royce (and before that, a Bentley)

for Najeeb, Usman’s father, who had no involvement in the current operation of the business and

who admitted that the cars were for his personal use. Id. at 144:16–146:25; 43:17–44:3 (Usman

testimony). But the economic impact of these extravagances was comparatively minimal, and the

record is now clear that the vehicles were not acquired when the business was in extremis, which

would have far more significance had that been proven. As to the vehicle for Najeeb, once again

the family nature of the business explains, but does not necessarily excuse, his being provided that

luxury, as he was the original founder of the business in which his children were (for a time)

thriving. And the closeness of the Eshai family was certainly reflected by the record. But that

comparatively minimal misuse of corporate assets by itself does not suffice to meet Plaintiffs’

burden.

IV. Conclusion

Eshai was a niche business that sought to capitalize on the rise of online commerce and

growing market demand for prompt delivery. Its dependence on a single client created inherent

risks, as shown by the challenges it had securing traditional financing and its rapid demise when

Amazon ruthlessly decided to take what it had learned and establish its own delivery network. The

lure of rapid growth inured it to growing risk. But it never misrepresented its business, the risks

of which would have been apparent to Plaintiffs. And its largest obligation to Plaintiffs – the $7

million retrospective surcharge – was first presented after Amazon gave notice of its intent to

terminate.

Plaintiffs’ forensic economist dropped one of his principal criticisms of Eshai’s practices,

and substantially retreated from others. The issues on which Eshai can most be faulted are more

peripheral, and the record falls well short of establishing improper diversion of corporate assets.

In the final analysis, the corporate veil in this case has some ragged edges, but it is not irreparably

torn. There is an insufficient basis on which to enter judgment against Eshai shareholders

personally.

/s/ Gerald Austin McHugh

United States District Judge