PIERCING THE CORPORATE VEIL:

When Can the Owners Be Held Liable?

Barry A. Wadler

Attorney at Law

488 Madison Avenue, 17th

Floor

New York, NY 10022

(212) 687-5911

www.barryawadler.com

Barry A. Wadler has been in private practice for forty years representing a wide range of small to

mid-size businesses.

Mr. Wadler, who is admitted to practice in New York and New Jersey, does both transactional

work and commercial litigation.

DISCLAIMER: The following materials and accompanying Access MCLE, LLC audio CLE program are for instructional purposes only. Nothing herein constitutes, is intended to constitute, or should be relied on as, legal advice. The author expressly disclaims any responsibility for any direct or consequential damages related in any way to anything contained in the materials or program, which are provided on an “as-is” basis and should be independently verified by experienced counsel before being applied to actual matter. By proceeding further you expressly accept and agree to Author’s absolute and unqualified disclaimer of liability.

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TABLE OF CONTENTS

Application to Limited Liability Companies ……………………………………… 1

General rule: Corporation is independent of its owners …………………………… 2

Domination by one shareholder ………………………………………………….. 2

Forming the corporation expressly to avoid personal liability ………….…………… 3

Corporation does not have sufficient funds to pay its debts ……………………….. 3

No one general rule ………………………………………………………………… 4

Achieving equity is the main consideration ………………………..………………. 4

General Principles …………………………………………………………………. 5

Alter Ego Theory …………………………………………………………………… 6

Factors to be considered ……………………………………………………………… 8

Abuse of the corporate form to commit some fraud or wrong …………..………….. 8

Corporate Formalities ………………………………………………………………… 10

Undercapitalization ……………………………………………………………………. 11

Failure to inquire ……………………………………………………………………… 14

Causal connection required …………………………………………………………… 14

No independent cause of action ………………………………………………………. 15

Piercing the corporate veil is a remedy ……………………………………………… 15

Sufficiency of the Complaint …………………………………………………………. 16

Statute of Limitations …………………………………………………………………. 17

Choice of Law ………………………………………………………………………… 17

Summary judgment ……………………………………………………………………. 19

State Survey ………………………………………………………………………….. 20

NOTE: Primarily these written materials draw on cases from New York although cases from

other jurisdictions are cited for specific points. Counsel should always research the law of the

applicable jurisdiction. For cases from other states citing the general rule for piercing the

corporate veil, refer to the section at the end of these materials under State Survey.

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Application to Limited Liability Companies

The doctrine of piercing the corporate veil applies to both corporations and limited liability

companies.

Williams Oil Co. v. Randy Luce E-Z Mart One, 302 A.D.2d 736, 757 N.Y.S.2d 341 (3d Dep’t

2003); Grammas v. Lockwood Associates, LLC, 95 A.D.3d 1073, 944 N.Y.S.2d 623, (2d Dep’t

2012); Retropolis, Inc. v. 14th Street Development LLC, 17 A.D.3d 209, 797 N.Y.S.2d 1 (1st

Dep’t 2005); Matias ex rel. Palma v. Mondo Properties LLC, 43 A.D.3d 367, 841 N.Y.S.2d 279

(1st Dep’t 2007).

Note, however, the adherence to corporate formalities analysis, discussed at length below, may

be different when applied to LLCs. See Mike Building & Contracting, Inc. v. Just Homes, LLC,

27 Misc.3d 833 N.Y.S.2d 458 (N.Y. Sup. Ct. 2010) (A limited liability company is not a

corporation, and the formalities required for its management, defined in an operating agreement

among the members, are far more flexible than the rules applicable to a corporation.).

Other states have also applied the doctrine to LLCs:

California: Misik v. D'Arco,197 Cal.App.4th 1065, 130 Cal.Rptr.3d 123 (Cal.App. 2 Dist.,2011)

(Reversing the denial of a motion to amend a judgment against an LLC to add the owner of the

LLC on the ground the owner was the alter ego of the judgment debtor.)

Connecticut: Morris v. Cee Dee, LLC, 90 Conn.App. 403, 414, 877 A.2d 899, 907

(Conn.App.,2005) (AThis state recognizes two theories under which it will permit the protection

of the corporate structure to be set aside. Those theories also apply to the protection afforded by a

limited liability company.)

Colorado: Sheffield Services Co. v. Trowbridge, 211 P.3d 714, 719 -720 (Colo.App.,2009)

applied Colorado statute, Section 7-80-107(1) C.R.S, that explicitly provided, AIn any case in

which a party seeks to hold the members of a limited liability company personally responsible for

the alleged improper actions of the limited liability company, the court shall apply the case law

which interprets the conditions and circumstances under which the corporate veil of a corporation

may be pierced under Colorado law.

Delaware: Trustees of Village of Arden v. Unity Const. Co. 2000 WL 130627, 3 (Del.Ch.,2000)

(A court can pierce the corporate veil of an entity where there is fraud or where a subsidiary is in

fact a mere instrumentality or alter ego of its owner.)

Florida: XL Vision, LLC. v. Holloway 856 So.2d 1063, 1066 (Fla.App. 5 Dist.,2003);

Intercoastal Realty, Inc. v. Tracy 2010 WL 2541876, 3 (S.D.Fla.,2010) (Declining to dismiss a

Complaint seeking to pierce the veil of an LLC.)

Massachusetts: Middlesex Retirement System, LLC v. Board of Assessors of Billerica, 453

Mass. 495, 504, 903 N.E.2d 210, 217 (Mass.,2009) (Although the doctrine [piercing the

corporate veil] usually applies to corporations, we see no reason why it should not also apply to

limited liability companies.)

Michigan: Lakeview Commons v. Empower Yourself, 290 Mich.App. 503, 510, 802 N.W.2d

712, 717 at fn.1 (Mich.App.,2010)

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New Jersey: Brown-Hill Morgan, LLC v. Lehrer, 2010 WL 3184340, 11 (N.J.Super.A.D.,2010)

(Defendants note that their research has not uncovered a reported case in New Jersey which has

utilized the doctrine of piercing the corporate veil, developed under the principles of corporate

law, to limited liability companies. We can perceive no reason in logic or policy why the

principle should not be fully applicable in the context of a limited liability company...)

Ohio: Ossco Properties, Ltd. v. United Commercial Property Group, L.L.C. 197 Ohio App.3d

623, 630, 968 N.E.2d 535, 540 (Ohio App. 8 Dist.,2011) (Generally, in order to disregard the

protections afforded by corporate or limited-liability business forms, one must show...)

Pennsylvania: In re LMcD, LLC, 405 B.R. 555, 560 (Bkrtcy.M.D.Pa.,2009) ( [The LLC] was

created under the Pennsylvania Limited Liability Company Law of 1994. 15 Pa.C.S.A. ' 8901 et

seq. Under that law, much like corporate stockholders, members are not typically liable for the

obligations of the company. 15 Pa.C.S.A. ' 8922. Nevertheless, the Committee Comment to 15

Pa.C.S.A. ' 8904(b) makes clear that the equitable remedy of piercing is available regarding an

LLC.)

General rule: Corporation is independent of its owners

The general rule . . . is that a corporation exists independently of its owners, who are not

personally liable for its obligations East Hampton Union Free School Dist. v. Sandpebble Bldrs.,

Inc., 66 A.D.3d 122, 126 884 N.Y.S.2d 94; Bartle v. Home Owners Coop., 309 N.Y. 103, 127

N.E.2d 832); Transcribing Service, LLC v. Paul, 72 A.D.3d 675, 898 N.Y.S.2d 234 (2d Dep’t

2010).

Domination by one shareholder is not sufficient to justify piercing the corporate veil

A corporation, even when wholly owned by a single individual, has a separate legal existence

from its shareholders . . . and courts are loathe to disregard the corporate form for the benefit of

those who have chosen that form to conduct business. Harris v. Stony Clove Lake Acres Inc., 202

A.D.2d 745, 747, 608 N.Y.S.2d 584, 586 (3d Dep’t 1994) (internal citations omitted).

If, standing alone, domination over corporate conduct in a particular transaction were sufficient

to support the imposition of personal liability on the corporate owner, virtually every cause of

action brought against a corporation either wholly or principally owned by an individual who

conducts corporate affairs could also be asserted against that owner personally, rendering the

principle of limited liability largely illusory. East Hampton Union Free School Dist. v.

Sandpebble Builders, Inc., 66 A.D.3d 122, 126, 884 N.Y.S.2d 94, 98 (2d Dep’t 2009) aff’d 16

N.Y.3d 775 (2011).

The mere fact that the corporation's management was controlled by an officer or controlling

shareholder is, by itself, insufficient evidence to warrant piercing the corporate veil so as to

impose personal liability on the shareholder. Matter of Estate of Gifford, 144 A.D.2d 742, 535

N.Y.S.2d 154 (3d Dep’t 1988).

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See also Transcribing Service, LLC v. Paul, 72 A.D.3d 675, 898 N.Y.S.2d 234 (2d Dep’t 2010);

Island Seafood Co., Inc. v. Golub Corp., 303 A.D.2d 892, 759 N.Y.S.2d 768 (3d Dep’t 2003);

Aetna Elec. Distributing Co. v. Homestead Elec., Ltd., 279 A.D.2d 541, 719 N.Y.S2d 668 (2d

Dep’t 2001).

It is permissible for owners to form the corporation expressly to avoid personal liability

[A] corporation exists independently of its owners, who are not personally liable for its

obligations, and . . . individuals may incorporate for the express purpose of limiting their

liability. East Hampton Union Free School Dist. v. Sandpebble Bldrs., Inc., 66 A.D.3d 122, 126,

884 N.Y.S.2d 94 (2d Dep’t 2009), quoted in Transcribing Service, LLC v. Paul, 72 A.D.3d 675,

676, 898 N.Y.S.2d 234, 235 - 236 (2d Dep’t 2010).

See also Bartle v. Home Owners Coop., 309 N.Y. 103, 127 N.E.2d 832; Walkovszky v. Carlton,

18 N.Y.2d 414 (1966).

Veil will not be pierced merely because the corporation does not have sufficient funds to

pay its debts

The corporate form may not be disregarded merely because the assets of the corporation, together

with the mandatory insurance coverage of the vehicle which struck the plaintiff, are insufficient

to assure him the recovery sought. Walkovszky v. Carlton, 18 N.Y.2d 414, 419, 420, 276

N.Y.S.2d 585, 589 (1966). See also Bowles v. Errico, 163 A.D.2d 771, 558 N.Y.S.2d 734 (3d

Dep’t 1990).

Delaware: Clearly, mere insolvency is not enough to allow piercing of the corporate veil. If

creditors could enter judgments against shareholders every time that a corporation becomes

unable to pay its debts as they become due, the limited liability characteristic of the corporate

form would be meaningless. Mason v. Network of Wilmington, Inc. 2005 WL 1653954, 3

(Del.Ch.,2005)

Veil piercing is an exception to the general rule

The concept of piercing the corporate veil is an exception to this general rule, permitting, in

certain circumstances, the imposition of personal liability on owners for the obligations of their

corporation. East Hampton Union Free School Dist. v. Sandpebble Builders, Inc., 66 A.D.3d

122, 126, 884 N.Y.S.2d 94, 98 (2d Dep’t 2009) aff’d 16 N.Y.3d 775 (2011) (internal citations

omitted). See also Matter of Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135,

623 N.E.2d 1157 (1993).

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There is no one general rule for when the courts will pierce the corporate veil

Because a decision whether to pierce the corporate veil in a given instance will necessarily

depend on the attendant facts and equities, the New York cases may not be reduced to definitive

rules governing the varying circumstances when the power may be exercised. . . . See also Matter

of Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135, 623 N.E.2d 1157 (1993).

Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131 (2d Cir. 1991),

refers to the infinite variety of situations that might warrant disregarding the corporate form and

notes that it is not an easy task because disregarding corporate separateness is a remedy that

differs with the circumstances of each case.

Achieving equity is the main consideration

[P]recedent is clear that courts will pierce the corporate veil only to prevent fraud, illegality or to

achieve equity. New York Ass'n for Retarded Children, Inc., Montgomery County Chapter v.

Keator, 199 A.D.2d 921, 922-923, 606 N.Y.S.2d 784, 785 (3d Dep’t 1993).

[E]quity will intervene to pierce the corporate veil and permit the imposition of personal liability

in order to avoid fraud or injustice. Transcribing Service, LLC v. Paul, 72 A.D.3d 675, 898

N.Y.S.2d 234 (2d Dep’t 2010) citing Shkolnik v. Krutoy, 65 A.D.3d 1214, 886 N.Y.S.2d 705 (2d

Dep’t 2009).

Evidence of domination [by a shareholder] alone does not suffice without an additional showing

that it led to inequity, fraud or malfeasance." Matter of Morris v. New York State Dept. of

Taxation & Fin., 82 N.Y.2d 135, 141-142, 623 N.E.2d 1157 (1993). See also TNS Holdings, Inc.

v. MKI Securities Corp., 92 N.Y.2d 335, 680 N.Y.S.2d 891 (N.Y. 1998).

The concept [of piercing the corporate veil] is equitable in nature, and the decision whether to

pierce the corporate veil in a given instance will depend on the facts and circumstances.

Gateway I Group, Inc. v. Park Ave. Physicians, P.C., 62 A.D.3d 141, 145-146, 877 N.Y.S.2d 95,

99-100 (2d Dep’t 2009), citing Hyland Meat Co. v. Tsagarakis, 202 A.D.2d 552, 553, 609

N.Y.S.2d 625 (2d Dep’t 1994) and Weinstein v. Willow Lake Corp., 262 A.D.2d at 634, 635, 692

N.Y.S.2d 667 (2d Dep’t 1999); see also Peery v. United Capital Corp., 84 A.D.3d 1201, 924

N.Y.S.2d 470 (2d Dep’t 2011); Millennium Const., LLC v. Loupolover, 44 A.D.3d 1016, 845

N.Y.S.2d 110, (2d Dep’t 2007).

An action to pierce the corporate veil and to hold the owners liable for an underlying corporate

obligation is equitable in nature and dependent on the attendant facts and equities. Rotella v.

Derner, 283 A.D.2d 1026, 1026, 723 N.Y.S.2d 801, 802-803 (4th Dep’t 2001), citing Matter of

Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135, 141-142, 623 N.E.2d 1157

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(1993).

Piercing the corporate veil is an equitable concept that allows a creditor to disregard a

corporation and hold its controlling shareholders personally liable for the corporate debt.

Sweeney, Cohn, Stahl & Vaccaro v. Kane, 6 A.D.3d 72, 75-76, 773 N.Y.S.2d 420, 423-424 (2

Dep’t 2004).

A plaintiff seeking to pierce the corporate veil must demonstrate that a court in equity should

intervene because the owners of the corporation exercised complete domination over it in the

transaction at issue and, in doing so, abused the privilege of doing business in the corporate form,

thereby perpetrating a wrong that resulted in injury to the plaintiff. East Hampton Union Free

School Dist. v. Sandpebble Builders, Inc., 66 A.D.3d 122, 126, 884 N.Y.S.2d 94, 98 (2d Dep’t

2009) aff’d 16 N.Y.3d 775 (2011) citing Love v. Rebecca Dev., Inc., 56 A.D.3d 733, 868

N.Y.S.2d 125 (2d Dep’t 2008); Millennium Constr., LLC v. Loupolover, 44 A.D.3d 1016, 845

N.Y.S.2d 110 (2d Dep’t 2007).

Where a court of equity is seeking to adjust rights between parties it looks at the merits rather

than at form and to that end will disregard the fiction of a separate corporate entity where justice

requires that it should be done. Bartle v. Finkelstein 19 A.D.2d 256, 241 N.Y.S.2d 655 (4th

Dep’t 1963).

Delaware jurisdictional note: As actions to pierce the corporate veil are equitable in nature, in

Delaware, only the Court of Chancery has jurisdiction over such actions, Sonne v. Sacks 314

A.2d 194, 197 (Del. 1973); Edelstein v Achaian 2014 WL 4935799.

General principles of piercing the corporate veil1

1 Most states recognize the doctrine of piercing the corporate veil although the weight and

consideration of the factors to be considered may vary. For case citations of the general rule from

other states, see at the end of these materials under AState Survey.

[A] party seeking to pierce the corporate veil must establish that (1) the owners exercised

complete domination of the corporation in respect to the transaction attacked; and (2) that such

domination was used to commit a fraud or wrong against the plaintiff which resulted in the

plaintiff's injury Transcribing Service, LLC v. Paul, 72 A.D.3d 675, 676, 898 N.Y.S.2d 234, 235-

236 (2d Dep’t 2010). See also Nassau County v. Richard Dattner Architect, P.C., 57 A.D.3d 494,

495, 868 N.Y.S.2d 727 (2d Dep’t 2008); Morris v. New York State Dept. of Taxation and

Finance, 82 N.Y.2d 135, 603 N.Y.S.2d 807 (1993).

The party seeking to pierce the corporate veil must further establish that the controlling

corporation abused the privilege of doing business in the corporate form to perpetrate a wrong or

injustice against that party such that a court in equity will intervene. Gateway I Group, Inc. v.

Park Ave. Physicians, P.C., 62 A.D.3d 141, 145-146, 877 N.Y.S.2d 95, 99-100 (2d Dep’t 2009).

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See also East Hampton Union Free School Dist. v. Sandpebble Builders, Inc., 66 A.D.3d 122,

126, 884 N.Y.S.2d 94, 98 (2d Dep’t 2009) aff’d 16 N.Y.3d 775 (2011).

Courts seek to prevent fraud and achieve equity

Broadly speaking, the courts will ... pierce the corporate veil[ ] whenever necessary to prevent

fraud or to achieve equity. In re Oko, 395 B.R. 559, 563-564 (Bankr. E.D.N.Y. 2008); see also

Matter of Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135, 623 N.E.2d 1157

(1993); Intl Aircraft Trading Co. v. Manufacturers Trust Co., 297 N.Y. 285, 79 N.E.2d 249

(1948); Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131 (2d Cir.

1991).

[P]recedent is clear that courts will pierce the corporate veil only to prevent fraud, illegality or to

achieve equity. New York Assn for Retarded Children, Inc., Montgomery County Chapter v.

Keator, 199 A.D.2d 921, 922-923, 606 N.Y.S.2d 784, 785 (3d Dept1993).

[E]quity will intervene to pierce the corporate veil and permit the imposition of personal liability

in order to avoid fraud or injustice. Transcribing Service, LLC v. Paul, 72 A.D.3d 675, 676, 898

N.Y.S.2d 234, 235-236 (2d Dep’t 2010).

Alter Ego Theory

Generally, a plaintiff seeking to pierce the corporate veil must show that complete domination

was exercised over a corporation with respect to the transactions attacked, and that such

domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's

injury. In addition, the corporate veil will be pierced to achieve equity, even absent fraud, when a

corporation has been so dominated by an individual or another corporation and its separate entity

so ignored that it primarily transacts the dominator's business instead of its own and can be called

the other's alter ego. Fernbach, LLC v. Calleo, 92 A.D.3d 831, 832, 939 N.Y.S.2d 501, 503 (2d

Dep’t 2012) (internal citations and emendations omitted).

Apart from the legal concept of piercing the corporate veil, separate corporations and business

entities may be held to constitute a single unit in legal contemplation where each business is so

related to, or organized or controlled by, the other as to be its mere agent, instrumentality, or alter

ego. Southern Associates, Inc. v. United Brands Co., 67 A.D.2d 199, 208, 414 N.Y.S.2d 560, 565

(1st Dep’t 1979).

Although often used interchangeably, the terms alter ego and piercing the corporate veil are not

one and the same. Whereas alter ego describes a theory of procedural relief, piercing the

corporate veil refers to the relief itself. See 1 William Meade Fletcher et al., Fletcher Cyclopedia

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of the Law of Private Corporations ' 41.10 (per. ed., rev. vol. 2006). In other words, [t]he alter

ego doctrine is merely a means of piercing the corporate veil. 18 C.J.S. Corporations ' 23

(2008). Drury Development Corp. v. Foundation Ins. Co. 380 S.C. 97, 101, 668 S.E.2d 798, 800

(S.C.,2008)

Where alter ago is found, plaintiff need not show that the domination was used to commit a

wrong against plaintiff

Under New York law, the corporate veil will be pierced to achieve equity, even absent fraud,

when a corporation has been so dominated by an individual or another corporation and its

separate entity so ignored that it primarily transacts the dominator's business instead of its own

and can be called the other’s alter ego. Island Seafood Co., Inc. v. Golub Corp. 303 A.D.2d 892,

893, 759 N.Y.S.2d 768, 769 - 770 (3d Dep’t 2003) (internal citations omitted).See also Williams

v. Lovell Safety Management Co., LLC, 71 A.D.3d 671, 896 N.Y.S.2d 150 (2d Dep’t 2010);

Pebble Cove Homeowners Assn, Inc. v. Fidelity New York FSB, 153 A.D.2d 843, 545 N.Y.S.2d

362 (2d Dep’t 1989).

Liability therefore may be predicated either upon a showing of fraud or upon complete control by

the dominating corporation that leads to a wrong against third parties. Wm. Passalacqua

Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 138 (2d Cir. 1991).

New York law allows the corporate veil to be pierced either when there is fraud or when the

corporation has been used as an alter ego. Itel Containers Intl Corp. v. Atlanttrafik Exp. Serv.

Ltd., 909 F.2d 698, 703 (2d Cir.1990).

Because New York courts disregard corporate form reluctantly, they do so only when the form

has been used to achieve fraud, or when the corporation has been so dominated by an individual

or another corporation ..., and its separate identity so disregarded, that it primarily transacted the

dominator's business rather than its own and can be called the other's alter ego. Gartner v.

Snyder, 607 F.2d 582, 586 (2d Cir.1979).

Factors to be considered

Factors to be considered by a court in determining whether to pierce the corporate veil include

failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and

use of corporate funds for personal use. Transcribing Service, LLC v. Paul 72 A.D.3d 675, 676,

898 N.Y.S.2d 234, 235-236 (2d Dep’t 2010)

See Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc. 933 F.2d 131 (2d Cir,

1991) a case which is often cited. In Passalacqua, 933 F.2d at 139, the court lists ten common

factors to weigh under New York law when considering whether or not to pierce the corporate

veil. The court noted:

Indicia of a situation warranting veil-piercing include: (1) the absence of the formalities and

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paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election

of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether

funds are put in and taken out of the corporation for personal rather than corporate purposes, (4)

overlap in ownership, officers, directors, and personnel, (5) common office space, address and

telephone numbers of corporate entities, (6) the amount of business discretion displayed by the

allegedly dominated corporation, (7) whether the related corporations deal with the dominated

corporation at arms length, (8) whether the corporations are treated as independent profit centers,

(9) the payment or guarantee of debts of the dominated corporation by other corporations in the

group, and (10) whether the corporation in question had property that was used by other of the

corporations as if it were its own’

No one factor is dispositive

Fantazia Intern. Corp. v. CPL Furs New York, Inc. 67 A.D.3d 511, 512, 889 N.Y.S.2d 28, 29 (1st

Dept. 2009)

The courts look at the totality of the evidence Wm. Passalacqua Builders, Inc. v. Resnick

Developers South, Inc. 933 F.2d 131, 137 -139 (C.A.2 (N.Y.),1991)

Comparison of two cases applying various factors in deciding whether or not to pierce the

corporate veil

Austin Powder Co. v. McCullough 216 A.D.2d 825, 628 N.Y.S.2d 855 (3rd

Dept.1995)

Island Seafood Co., Inc. v. Golub Corp. 303 A.D.2d 892, 759 N.Y.S.2d 768 (3rd

Dept. 2003)

Abuse of the corporate form must be used to commit some fraud or wrong that results in

plaintiff’s injury

The party seeking to pierce the corporate veil must establish that the owners, through their

domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or

injustice against that party such that a court in equity will intervene.

In the following cases, no wrong shown resulting from domination of corporation:

Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135, 603 N.Y.S.2d 807

(1993)

New York Ass'n for Retarded Children, Inc., Montgomery County Chapter v. Keator, 199 A.D.2d

921, 606 N.Y.S.2d 784 (3d Dep’t 1993) (Even assuming, arguendo, the lack of corporate

formalities, nothing fraudulent or illegal was alleged or shown that defendant used his asserted

control to commit any wrongdoing.)

Island Seafood Co., Inc. v. Golub Corp., 303 A.D.2d 892, 759 N.Y.S.2d 768 (3d Dep’t 2003)

(Court properly determined that petitioner failed to meet its burden of demonstrating that

defendant, through his domination, abused his power over both corporations to commit a wrong

or injustice to the detriment of petitioner.)

TNS Holdings, Inc. v. MKI Securities Corp., 92 N.Y.2d 335, 703 N.E.2d 749, 680 N.Y.S.2d 891

(1998) (Veil not pierced where, even if one corporate defendant dominated another corporate

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defendant, there was no showing that through its domination MKI misused the corporate form for

its personal ends so as to commit a fraud or wrongdoing or avoid any of its obligations.)

Brunswick Corp. v. Waxman, 459 F.Supp. 1222, 1230 (D.C.N.Y. 1978), aff’d, 599 F.2d 34 (2d

Cir. 1979) (Attempt to pierce corporate veil denied where the evidence before us shows ... there

was no causal connection between the fact that the Waxmans conducted business individually

and the contract losses suffered by Brunswick. Absent such a causal link, no principle of honesty,

equity or fairness would justify shifting those losses to the Waxmans by withdrawing the veil

from their corporations.)

In the following cases, a resulting wrong was shown:

Rotella v. Derner, 283 A.D.2d 1026, 723 N.Y.S.2d 801 (4th Dep’t 2001) (undercapitalized

corporation unable to pay a judgment debt and there has been a disregard of corporate formalities

and personal use of corporate funds was sufficient evidence of wrongdoing to justify piercing the

corporate veil.)

Austin Powder Co. v. McCullough 216 A.D.2d 825, 628 N.Y.S.2d 855 (3d Dep’t 1995)

(Undercapitalized corporation is unable to pay a judgment debt and there has been disregard of

corporate formalities and personal use of corporate funds.)

Hyland Meat Co. v. Tsagarakis, 202 A.D.2d 552, 609 N.Y.S.2d 625 (2d Dep’t 1994) (Wrong to

plaintiff was shown where individual owners of defendant corporation induced plaintiff to

advance credit to sister corporation by using their control of sister corporation to induce the

plaintiff to continue making deliveries of meat for which it was not paid.)

Teachers Ins. Annuity Ass'n of America v. Cohen's Fashion Optical of 485 Lexington Ave. Inc.,

45 A.D.3d 317, 847 N.Y.S.2d 2 (1st Dep’t 2007) (Claim was stated against corporate parent for

lease obligation of subsidiary tenant where parent negotiated lease and held itself out as real

tenant and then substituted its subsidiary, a judgment-proof shell, as tenant).

Corporate Formalities

McMullin v. Pelham Bay Riding, Inc., 190 A.D.2d 529, 593 N.Y.S.2d 27 (1st Dep’t 1993)

(negligence case not dismissed against individual shareholder due to failure to adhere to

corporate record keeping).

Wanich v. Bitter, 12 Misc. 3d 1165(A), 820 N.Y.S.2d 847 (Sup. Ct. 2006) (. . .consider such

factors as the existence of corporate minutes, the existence of a board of directors, the actual

issuance of shares, the existence of corporate records or bank accounts and the extent to which

corporate formalities were observed.).

Austin Powder Co. v. McCullough, 216 A.D.2d 825, 628 N.Y.S.2d 855 (3d Dep’t 1995) (liability

against individual shareholder upheld in part because corporation had no board of directors or

corporate officers other than the individual shareholder, held no corporate meetings, and kept no

corporate records).

11

In re Oko, 395 B.R. 559 (Bankr. E.D.N.Y. 2008) (Trustee pierced the corporate veil against

corporations sole shareholder where individual shareholder was also the sole director and officer

of the corporation and did not bother with corporate formalities).

Maggio v. Becca Const. Co., Inc., 229 A.D.2d 426, 644 N.Y.S.2d 802 (2d Dep’t 1996) (affirming

dismissal of breach of contract case against individual owners of corporation where plaintiffs

failed to provide evidence that there were no corporate minutes, no board of directors, no

shareholders, and no corporate books, records, or bank accounts).

Fantazia Intern. Corp. v. CPL Furs New York, Inc., 67 A.D.3d 511, 889 N.Y.S.2d 28 (1st Dep’t

2009) (Veil not pierced where corporations kept separate bank accounts, books and records, were

incorporated at different times for legitimate business purposes, filed separate tax returns, there

was substantial compliance with corporate formalities, transactions between the two companies

were conducted at arms length, and there was no evidence that the corporation in question was

undercapitalized).

In most jurisdictions, disregard of corporate formalities is typically one of the factors considered

by the court in determining whether to pierce the corporate veil:

California: Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. 217 Cal.App.4th 1096,

1108-1109 (Cal.App. 2 Dist.2013)

Delaware: MacQueen v. Union Carbide Corporation 2014 WL 6809811, 6 (D.Del.2014)

Indiana: Community Care Centers, Inc. v. Hamilton 774 N.E.2d 559, 569 (Ind.App.,2002)

Louisiana: Collins v. State Farm Ins. Co. 2015 WL 468970, 9 -10 (La.App. 4 Cir.,2015)

New Jersey: Indagro S.A. v. Nilva 2015 WL 71166, 4 -5 (D.N.J., 2015)

Ohio: Bash v. Textron Financial Corp. 2015 WL 224968, 5 -6 (N.D.Ohio, 2015)

LLC Formalities

Limited liability company is not a corporation, and the formalities required for the management

of an LLC, defined in operating agreement among the members, are far more flexible than the

rules applicable to a corporation. Mike Building & Contracting, Inc. v. Just Homes, LLC, 27

Misc.3d 833, 901 N.Y.S.2d 458 (Sup. Ct. 2010).

Undercapitalization

Undercapitalization means capitalization very small in relation to the nature of the business of

the corporation and the risks ... attendant to such businesses. The adequacy of capital is to be

measured as of the time of formation of the corporation. A corporation that was adequately

capitalized when formed, but which subsequently suffers financial reverse is not

12

undercapitalized.... Adequate capitalization is a question of fact that turns on the nature of the

business of the particular corporation.... Canter v. Lakewood of Voorhees 420 N.J.Super. 508,

520-521, 22 A.3d 68, 75 - 76 (N.J.Super.A.D.,2011) citing Verni ex rel. Burstein v. Harry M.

Stevens, Inc. 387 N.J.Super. 160, 199-203, 903 A.2d 475, 498 - 500 (N.J.Super.A.D.,2006).

Cases in which the courts rejected piercing the corporate veil noting, among other things, that

there was no showing the corporation was undercapitalized:

Fantazia Intern. Corp. v. CPL Furs New York, Inc., 67 A.D.3d 511, 889 N.Y.S.2d 28 (1st Dep’t

2009) (Court rejected piercing the corporate veil where there was no showing of

undercapitalization)

East Hampton Union Free School Dist. v. Sandpebble Builders, Inc., 66 A.D.3d 122, 884

N.Y.S.2d 94 (2d Dep’t 2009) aff’d 16 N.Y.3d 775 (2011)

Island Seafood Co., Inc. v. Golub Corp., 303 A.D.2d 892, 759 N.Y.S.2d 768 (3d Dep’t 2003).

Cases in which the courts upheld piercing the corporate veil noting, among other things, that the

corporation was undercapitalized:

Austin Powder Co. v. McCullough, 216 A.D.2d 825, 628 N.Y.S.2d 855 (3d Dep’t 1995) (Where .

. . an undercapitalized corporation is unable to pay a judgment debt and there has been disregard

of corporate formalities and personal use of corporate funds, . . . [there is] sufficient evidence of

wrongdoing to justify piercing the corporate veil.)

Rotella v. Derner, 283 A.D.2d 1026, 723 N.Y.S.2d 801 (4th Dep’t 2001)

In re Oko 395 B.R. 559 (Bankr. E.D.N.Y. 2008) (With regards to capitalization, the record shows

that the defendant failed to properly capitalize his business when it was formed.)

Pacer's Bar & Grill, Inc. v. Weinsons Inc., 46 A.D.3d 1473, 849 N.Y.S.2d 147 (4th Dep’t 2007).

BUT NOTE: Corporate veil will not be pierced merely because the assets of the corporation are

insufficient to assure the recovery sought. See Walkovszky v. Carlton, 18 N.Y.2d 414, 276

N.Y.S.2d 585 (1966); Gartner v. Snyder, 607 F.2d 582 (2d Cir.1979), quoting ABN AMRO Bank,

N.V. v. MBIA Inc., 17 N.Y.3d 208, 952 N.E.2d 463, 928 N.Y.S.2d 647 (2011) ( [N]o New York

authority . . . disregards corporate form solely because of inadequate capitalization);

See also Casa de Meadows Inc. (Cayman Islands) v. Zaman, 76 A.D.3d 917, 908 N.Y.S.2d 628

(1st Dep’t 2010); Bowles v. Errico 163 A.D.2d 771, 558 N.Y.S.2d 734 (3d Dep’t 1990)

At what point is the adequacy of the corporations capitalization to be measured?

When the corporation was first formed, when the corporation entered into a contract with

plaintiff, at the time of trial, or at all times? The courts differ.

At the time of incorporation:

See, Erickson v. Leonard, WL 706278 (N.J. Super.A.D. 2008), a New Jersey case explaining

undercapitalization: [T]he determination that a corporation was inadequately capitalized may

result in the piercing of the corporate veil and individual shareholder liability. A party entering

into a business relationship with a corporation does not assume the risk of grossly inadequate

13

capitalization. . . . Inadequate capitalization has been defined as capitalization very small in

relation to the nature of the business of the corporation and the risks ... attendant to such

business. Generally, [t]he adequacy of capital is to be measured as of the time of formation

of the corporation. However, we are satisfied that one may not sufficiently capitalize a

corporation, later withdraw most of its capitalization, and then continue to enter into contracts

with third parties who are relying on the corporation being adequately capitalized. It is

inequitable to allow the shareholders to escape personal liability where a corporation carries on a

business without substantial capital and is likely to have insufficient assets available to meet its

debts [internal citations omitted].

Canter v. Lakewood of Voorhees 420 N.J.Super. 508, 520, 22 A.3d 68, 76 (N.J.Super.A.D.,2011)

(A corporation that was adequately capitalized when formed, but which subsequently suffers

financial reverse is not undercapitalized.... Adequate capitalization is a question of fact that turns

on the nature of the business of the particular corporation....)

Christian v. Smith 276 Neb. 867, 884, 759 N.W.2d 447, 462 (Neb.,2008) (...inadequate

capitalization, means capitalization very small in relation to the nature of the business of the

corporation and the risks entailed. Inadequate capitalization is measured at the time of

incorporation. A corporation which was adequately capitalized when formed but which has

suffered losses is not necessarily undercapitalized. Undercapitalization presents a question of fact

that turns on the nature of the business of the particular corporation.)

Bradstreet v. Wong 161 Cal.App.4th 1440, 1447-1448, 75 Cal.Rptr.3d 253, 259 (Cal.App. 1

Dist.,2008) (...the mere fact that the Wins Corporations ultimately went broke did not establish

that the corporations were undercapitalized.... Having operated as successful corporations for

well over a decade, meeting the substantive requirements of corporations, the Wins Corporations

cannot justly be stripped of corporate status and the principals made personally liable because

they failed to survive a hostile business climate.)

Haynes v. Edgerson 240 S.W.3d 189, 197 (Mo.App. W.D.,2007) (Inadequate capitalization is

generally measured at the time of incorporation.) At the time the corporation entered into the

transaction at issue:

Do Gooder Productions, Inc. v. American Jewish Theatre, Inc., 66 A.D.3d 527, 887 N.Y.S.2d 72

(1st Dep’t 2009) declining to pierce corporate veil and the undercapitalization was measured

from the time of the underlying breach ( [t]here was no evidence that the corporation was

undercapitalized at the time of the license agreement or that it failed to utilize the requisite

corporate form).

ACE Elec. Co. Inc. v. Advance Technologies, Inc. 2011 WL 8964931, 2 (Va.Cir.Ct.)

(Va.Cir.Ct.,2011) (Because Advance was so grossly undercapitalized at the time it entered into

the Richmond Boiler Contract with ACE, it would work a profound injustice to allow Mr. Butler

to escape liability for repaying this debt.).

At all times:

14

Hunting v. Elders 359 S.C. 217, 227, 597 S.E.2d 803, 808 (S.C.App.,2004) (One fact which all

the authorities consider significant in the inquiry, and particularly so in the case of the one-man

or closely-held corporation, is whether the corporation was grossly undercapitalized for the

purposes of the corporate undertaking. See DeWitt Truck Brokers v. W. Ray Flemming Fruit Co.,

540 F.2d 681, 685 (4th Cir.1976). The Fourth Circuit Court of Appeals continued: (t)he

obligation to provide adequate capital begins with incorporation and is a continuing

obligation thereafter * * * during the corporations operations.

See, also, Jablonsky v. Klemm 377 N.W.2d 560 (N.D.,1985)

At the time of trial:

State v. Weinschenk 868 A.2d 200, 207 (Me.,2005) (The court properly disregarded RWB as a

separate legal entity and found Weinschenk personally liable for his corporation's actions

because: .... [among other factors] RWB was thinly capitalized and insolvent at the time of

trial...)

Transferring assets from a corporation to render it judgment proof weighs in favor of

piercing the corporate veil

See Peery v. United Capital Corp., 84 A.D.3d 1201, 924 N.Y.S.2d 470 (2d Dep’t 2011)

(weighing the sufficiency of the allegations against the defendant)

Azte Inc. v. The Auto Collection, Inc. 2012 WL 3887671 (N.Y. Sup. Ct. 2012) (Upon learning

that it was likely that the Auto Collection was going to be named as defendant in a number of

lawsuits from customers that did not receive their automobiles or refunds, Steven transferred

most of the Auto Collection's remaining funds to his personal account and left the Auto

Collection undercapitalized and virtually judgment proof. This court finds that Steven used his

complete domination over the Auto Collection to prevent AZTE and ABR from receiving either

automobiles in exchange for their payments or a refund and, as a proximate result, AZTE and

ABR were damaged, justifying the piercing of the corporate veil to hold him liable for the

corporation's debt. Accordingly, Steven abused the privilege of doing business in the corporate

form to perpetrate a wrong and thus it is appropriate for this court to intervene in equity and

pierce the corporate veil.) (internal citations omitted).

Plaintiffs failure to inquire about or knowledge the corporations lack of assets weighs

against piercing the corporate veil

Pointer (U.S.A.), Inc. v. H & D Foods Corp., 60 F.Supp.2d 282 (S.D.N.Y.,1999) (applying

Massachusetts law, plaintiff knew that corporation lacked sufficient assets to obtain a bank line

of credit but extended credit anyway).

Alfred P. Sloan Foundation, Inc. v. Atlas, 42 Misc.2d 603, 248 N.Y.S.2d 524 (N.Y. Sup. Ct.

1964) aff’d 23 A.D.2d 820 (2d Dept, 1965) (Plaintiff has not proved that the contract was entered

into upon the credit of any person or corporation other than Atex or that it was misled into

believing that Atex had assets or that it even asked for a financial statement. The use of straw

men, corporate or individual, is a practice long known to the law and a seller who without inquiry

15

accepts a corporate purchaser with whom he could, absent the guarantee of a person or

corporation of substance, have refused to contract, cannot claim to have been defrauded if the

corporate purchaser has no substance [internal citations omitted].)

Brunswick Corp. v. Waxman, 459 F.Supp. 1222, 1322 (D.C.N.Y. 1978), affd, 599 F.2d 34 (2d

Cir. 1979) (Brunswick had full knowledge of the lack of capitalization, and consented to it.

Brunswick was not misled into doing business with a no-asset corporation and is hardly in a

position now to complain that in the absence of any additional assets in that corporation its

liability should be shifted to the Waxmans.)

Causal connection is required between the corporate wrong and the injury to plaintiff

New York Assn for Retarded Children, Inc., Montgomery County Chapter v. Keator, 199 A.D.2d

921, 606 N.Y.S.2d 784 (N.Y.A.D. 3 Dept.,1993); Island Seafood Co., Inc. v. Golub Corp., 303

A.D.2d 892, 759 N.Y.S.2d 768 (3d Dep’t 2003); Brunswick Corp. v. Waxman, 459 F.Supp. 1222

(E.D.N.Y. 1978), affd, 599 F.2d 34 (2d Cir. 1979) ( [F]ailure to observe corporate formalities

coupled with inadequate capitalization has frequently been cited as a basis for disregarding the

corporate entity and imposing individual liability where such facts are causally connected with

the injury.).

No independent cause of action to pierce the corporate veil

Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135, 603 N.Y.S.2d 807,

(1993) ( [A]n attempt of a third party to pierce the corporate veil does not constitute a cause of

action independent of that against the corporation; rather it is an assertion of facts and

circumstances which will persuade the court to impose the corporate obligation on its owners.).

Davis v. Corner Stone Telephone Co., LLC, 2008 WL 2329176 (N.Y. Sup. Ct. 2008) (These are

not causes of action at all; rather, they are legal theories under which, in certain circumstances,

personal liability may be found despite the erection of corporate or similar barriers by a debtor.

As they do not state causes of action, they are dismissed.) (internal citations omitted).

Illinois case: Peetoom v. Swanson, 334 Ill. App.3d 523, 778 N.E.2d 291 (Ill. App. Ct. 2d Dist.

2002) (The doctrine of piercing the corporate veil is an equitable remedy; it is not itself a cause

of action but rather is a means of imposing liability on an underlying cause of action, such as a

tort or breach of contract.).

Piercing the corporate veil is a remedy

State v. Easton 169 Misc.2d 282, 647 N.Y.S.2d 904 (N.Y. Sup. Ct. 1995) ( [P]iercing of the

16

corporate veil is not an independent action but a procedural device to secure separately existing

substantive rights owing to the plaintiff.).

Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc. 933 F.2d 131, 139 (C.A.2

(N.Y.),1991) (disregarding corporate separateness is a remedy that differs with the circumstances

of each case. )

In re Cabrini Medical Center, 2012 WL 2254386 (Bankr. S.D.N.Y 2012) (The remedy of

piercing the corporate veil is equitable in nature.)

Brown-Hill Morgan, LLC v. Lehrer 2010 WL 3184340, 11 (N.J.Super.A.D., 2010) ( [P]iercing

the corporate veil is not technically a mechanism for imposing legal liability, but for remedying

the fundamental unfairness that will result from a failure to disregard the corporate form.)

Peetoom v. Swanson 334 Ill.App.3d 523, 526, 778 N.E.2d 291, 294-295, 268 Ill.Dec. 305, 308 -

309 (Ill.App. 2 Dist.,2002) (The doctrine of piercing the corporate veil is an equitable remedy; it

is not itself a cause of action but rather is a means of imposing liability on an underlying cause of

action, such as a tort or breach of contract.)

Sufficiency of the Complaint

Complaint dismissed: East Hampton Union Free School Dist. v. Sandpebble Builders, Inc., 66

A.D.3d 122 884 N.Y.S.2d 94 (2d Dep’t 2009) aff’d 16 N.Y.3d 775 (2011); Sound

Communications, Inc. v. Rack and Roll, Inc. 930 N.Y.S.2d 577 (1st Dep’t 2011); New York Ass'n

for Retarded Children, Inc., Montgomery County Chapter v. Keator 199 A.D.2d 921, 606

N.Y.S.2d 784 (3d Dep’t 1993).

Complaint upheld: Love v. Rebecca Development, Inc., 56 A.D.3d 733, 868 N.Y.S.2d 125 (2d

Dep’t 2008); In re InSITE Services Corp., LLC, 287 B.R. 79 (Bankr. S.D.N.Y. 2002).

Complaint should have sufficiently particular(ized) statements of wrongdoing. See Walkovszky v.

Carlton, 18 N.Y.2d 414, 420, 276 N.Y.S.2d 585, 590 (1966).

Mere conclusory statements that a corporation is dominated or controlled by a shareholder are

insufficient to sustain a cause of action against a shareholder in his individual capacity, AHA

Sales, Inc. v. Creative Bath Products, Inc., 58 A.D.3d 6, 867 N.Y.S.2d 169 (2d Dep’t 2008);

Itamari v. Giordan Dev. Corp., 298 A.D.2d 559, 748 N.Y.S.2d 678 (2d Dep’t 2002); Andejo

Corp. v. South St. Seaport Ltd. Partnership, 40 A.D.3d 407, 836 N.Y.S.2d 571 (1st Dep’t 2008).

Plaintiff Bears Heavy Burden

TNS Holdings, Inc. v. MKI Securities Corp., 92 N.Y.2d 335, 680 N.Y.S. 2d 891, 893, 703 N.E.2d

17

749 (1998) (Those seeking to pierce a corporate veil of course bear a heavy burden of showing

that the corporation was dominated as to the transaction attacked and that such domination was

the instrument of fraud or otherwise resulted in wrongful or inequitable consequences.)

Veil can be pierced in a later action or proceeding after a judgment was obtained in a prior

action or proceeding

Austin Powder Co. v. McCullough, 216 A.D.2d 825, 628 N.Y.S.2d 855 (3d Dep’t 1995)

Island Seafood Co., Inc. v. Golub Corp. 303 A.D.2d 892, 759 N.Y.S.2d 768 (3d Dep’t 2003)

Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc. 933 F.2d 131, (2d Cir. 1991).

It is not necessary that plaintiff must first obtain an unsatisfied judgment in order to pierce the

corporate veil. Island Seafood Co., Inc. v. Golub Corp., 303 A.D.2d 892, 759 N.Y.S.2d 768 (3d

Dep’t 2003); ABN AMRO Bank, N.V. v. MBIA Inc. 81 A.D.3d 237, 254, 916 N.Y.S.2d 12, 24 - 25

(1st Dept. 2011).

Statute of Limitations

In New York, the 20 years limitations period for enforcement of judgments applies if a judgment

was obtained against the corporation. See County of Suffolk v. LoveM Sheltering, Inc., 27

Misc.3d 1127, 899 N.Y.S.2d 809 (Sup. Ct. 2010) (Actions for enforcement of a judgment against

those charged with control and domination of a corporate judgment debtor under corporate veil

piercing theories are governed by the twenty year statute of limitations set forth in CPLR 211(b)

that runs from the docketing of the judgment.)

Illinois: Peetoom v. Swanson 334 Ill. App.3d 523, 778 N.E.2d 291 (Ill. App. Ct. 2d Dist. 2002).

The seven-year limitations period for enforcing judgments would ordinarily govern actions of

this type. However, because the corporation had been dissolved, the five year limitations period

against dissolved corporations applied.

New Hampshire: Norwood Group, Inc. v. Phillips, 149 N.H. 722, 828 A.2d 300 (2003). (...

where, as here, a party first obtains a judgment against a corporation and later sues corporate

stockholders to cast them in judgment under the doctrine of piercing the corporate veil, the suit

against the stockholders is an action on a judgment....the plaintiffs' equitable petition to pierce the

corporate veil is governed by the twenty-year statute of limitations for actions to enforce a

judgment.)

Michigan: Belleville v. Hanby, 152 Mich. App. 548, 394 N.W.2d 412 (1986). (... having already

obtained a judgment against the corporation on their personal injury claim, plaintiffs sought,

through the lawsuit at issue here, to establish that the judgment obtained against the corporation

was also a judgment against the defendants in their individual capacities. ... the applicable statute

18

of limitation is ... ten years from the time of rendition of the judgment.)

Connecticut: Chro ex rel. Doe v. Travel and Tour Services, Inc., 1994 WL 386082 (Conn.

Super. 1994) (The court finds that Doe's attempt to pierce the corporate veil to collect on the

judgment rendered against Travel and Tour is governed by the twenty year statute of limitations

for enforcing judgments.)

Choice of Law

Under the law of New York and most other jurisdictions, the law of the state of incorporation

governs the piercing the corporate veil analysis. This follows Restatement (Second) of Conflict

of Laws (1971) Section 307 which states: The local law of the state of incorporation will be

applied to determine the existence and extent of a shareholder's liability to the corporation for

assessments or contributions and to its creditors for corporate debts.

Sweeney, Cohn, Stahl & Vaccaro v. Kane 6 A.D.3d 72, 75, 773 N.Y.S.2d 420, 423 (2d Dept.

2004) (Ordinarily, the State of incorporation has the greatest interest in determining the extent of

insulation that will be afforded to shareholders of corporations incorporated under its laws

[citations omitted])

Pointer (U.S.A.), Inc. v. H & D Foods Corp. 60 F.Supp.2d 282, 287 (S.D.N.Y.,1999) (The parties

agree that because H & D is a Massachusetts corporation, under New York choice of law

principles, the question of whether to pierce the corporate veil is governed by Massachusetts

law.)

Kalb, Voorhis & Co. v. American Financial Corp. 8 F.3d 130, 132 -133 (C.A.2 (N.Y.),1993)

(The law of the state of incorporation determines when the corporate form will be disregarded

and liability will be imposed on shareholders: Because a corporation is a creature of state law

whose primary purpose is to insulate shareholders from legal liability, the state of incorporation

has the greater interest in determining when and if that insulation is to be stripped away. Soviet

Pan Am Travel Effort v. Travel Committee, Inc., 756 F.Supp. 126, 131 (S.D.N.Y.1991) (applying

New York choice of law principles).)

Accord:

Illinois: Kellers Systems, Inc. v. Transport Intern. Pool, Inc. 172 F.Supp.2d 992, 999

(N.D.Ill.,2001)

Kentucky: Howell Contractors, Inc. v. Berling 383 S.W.3d 465, 467 -468 (Ky.App.,2012)

Nebraska: Johnson v. Johnson 272 Neb. 263, 275, 720 N.W.2d 20, 30 (Neb.,2006)

Texas: Phillips v. United Heritage Corp., 319 S.W.3d 156, 162 (Tex.App.B Waco, 2010)

But some states do not follow this choice of law rule:

19

Massachusetts:

Supply Chain Associates, LLC v. ACT Electronics, Inc. 2012 WL 2381908, 8 -9 (Mass.Super.,

2012) (The local law of the state of incorporation will be applied to determine the existence and

extent of a shareholder's liability to the corporation for assessments or contributions and to its

creditors for corporate debts. Lily Transp. Corp. v. Royal Inst. Servs., Inc., 64 Mass.App.Ct. 179,

188 n. 15 (2005), quoting Restatement (Second) Conflict of Laws ' 307 (1971). However, where

the place of contracting, the place of contract negotiation, the place of performance, and the

location of the contract subject matter were in Massachusetts, the Appeals Court has applied

Massachusetts law. See Evans v. Multicon Const. Corp., 30 Mass.App.Ct. 728, 737 n. 7 (1991)

(applying Massachusetts law where alleged shell company was incorporated in Ohio and

companies to be pierced were incorporated in Ohio).)

Tennessee:

Boles v. National Development Co., Inc. 175 S.W.3d 226, 238 (Tenn.Ct.App.,2005) (The

contention that the trial court erred by applying Tennessee law, instead of the law of Texas and

Delaware, to determine whether to pierce the corporate veil is without merit. This court

previously applied Tennessee law to pierce the corporate veil of a foreign corporation and to hold

its principal liable for the debts of the corporation ....)

Summary judgment

Damianos Realty Group, LLC v. Fracchia 35 A.D.3d 344, 344, 825 N.Y.S.2d 274, 276 (2d Dept.

2006) (Veil-piercing is a fact-laden claim that is not well suited for summary judgment resolution

(First Bank of Americas v. Motor Car Funding, 257 A.D.2d 287, 294, 690 N.Y.S.2d 17).)

Pebble Cove Homeowners' Ass'n, Inc. v. Fidelity New York FSB 153 A.D.2d 843, 843, 545

N.Y.S.2d 362, 363 (2d Dept. 1989) (Generally, whether a principal-agent relationship exists

between two corporations is a question of fact to be decided at trial, rather than on a motion for

summary judgment ( see, Key Intl. Mfg. v. Morse/Diesel Inc., 142 A.D.2d 448, 455, 536

N.Y.S.2d 792).)

Dromgoole v. T-Foots, Inc. 309 A.D.2d 1186, 1187, 764 N.Y.S.2d 900, 2003 N.Y. Slip Op.

17074 (4th

Dept. 2003) (A decision to pierce the corporate veil is a fact-laden decision ( see

Matter of Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135, 141 [603 N.Y.S.2d

807, 623 N.E.2d 1157]), that is not well suited for summary judgment resolution ( see Forum Ins.

Co. v. Texarkoma Transp. Co., 229 A.D.2d 341, 342 [645 N.Y.S.2d 786]) ( Giarguaro S.p.A. v.

Amko Intl. Trading, 300 A.D.2d 349, 350, 751 N.Y.S.2d 772).)

20

STATE SURVEY

The cases cited below will give counsel a start in finding authority addressing the doctrine of

piercing the corporate veil as applied in the respective states.

Federal Rule: U.S. v. Pisani 646 F.2d 83, 88 (C.A.N.J., 1981)

Arizona: Employer's Liab. Assurance Corp. v. Lunt, 82 Ariz. 320, 313 P.2d 393, 395

(Ariz.1957).

California: Mid-Century Ins. Co. v. Gardner 9 Cal.App.4th 1205, 1212-1213, 11 Cal.Rptr.2d

918, 922 (Cal.App. 3 Dist.,1992); Greenspan v. LADT, LLC 191 Cal.App.4th 486, 511, 121

Cal.Rptr.3d 118, 137 (Cal.App. 2 Dist.,2010)

Colorado: In re Phillips, 139 P.3d 639, 644 (Colo.2006); Sheffield Services Co. v. Trowbridge,

211 P.3d 714, 725B26 (Colo.App.2009).

Connecticut: Naples v. Keystone Bldg. and Development Corp. 295 Conn. 214, 231-235, 990

A.2d 326, 339 - 341 (Conn.,2010)

Delaware: Pauley Petroleum Inc. v. Continental Oil Co., 239 A.2d 629, 633 (Del.1968); Trevino

v. Merscorp, Inc., 583 F.Supp.2d 521, 528 (D.Del.2008); see, generally In re BH S & B Holdings

LLC 420 B.R. 112, 133 -134 (Bkrtcy.S.D.N.Y.,2009)

Florida: Dania Jai-Alai Palace, Inc. v. Sykes, 450 So.2d 1114 (Fla.1984)

Illinois: Peetoom v. Swanson 334 Ill.App.3d 523, 526, 778 N.E.2d 291, 294-295, 268 Ill.Dec.

305, 308 - 309 (Ill.App. 2 Dist.,2002)

Michigan: Florence Cement Co. v. Vittraino 2011 WL 1681414, 3 (Mich.App.,2011)

New Jersey: Sean Wood, L.L.C. v. Hegarty Group, Inc. 422 N.J.Super. 500, 517-518, 29 A.3d

1066, 1076 - 1077 (N.J.Super.A.D.,2011);

North Carolina: Strategic Outsourcing, Inc. v. Stacks 176 N.C.App. 247, 253, 625 S.E.2d 800,

804 (N.C.App.,2006)

Ohio: State ex rel. Petro v. Mercomp, Inc. 167 Ohio App.3d 64, 70, 853 N.E.2d 1193, 1197

(Ohio App. 8 Dist.,2006)

Pennsylvania: Advanced Telephone Systems, Inc. v. Com-Net Professional Mobile Radio, LLC

846 A.2d 1264, 1277 -1278 (Pa.Super.,2004)

Wisconsin: Consumer's Co-op. of Walworth County v. Olsen 142 Wis.2d 465, 484, 419 N.W.2d

211, 217 - 218 (Wis.,1988)

Barry A. Wadler

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