Duhaime's Law Dictionary


Piercing the Corporate Veil Definition:

To hold a corporate entity liable for the acts of a separate, related entity.

Related Terms: Lifting the Corporate Veil

Also known as lifting the corporate veil.

In Dolco, Justice Sweet of the United States District Court (New York) wrote:

"Under the doctrine of limited liability, a corporate entity is liable for the acts of a separate, related entity only under extraordinary circumstances, commonly referred to as piercing the corporate veil. Federal courts sitting in admiralty must apply federal common law when examining corporate identity. Federal common law in the Second Circuit involves a two pronged test for piercing the corporate veil: the party sought to be charged must have used its alter ego to perpetrate a fraud or have so dominated and disregarded its alter ego's corporate form that the alter ego was actually carrying on the controlling party's business instead of its own."

In Wachovia, Madam Justice Virginia Kendall of the United States District Court,(Illinois) used this example of circumstances that might justify the extraordinary equitable remedy:

"[A]n example of inequitable conduct that justifies veil piercing: a corporate owner who used his several corporations to avoid responsibilities to creditors."

In 2008, Justice Paul Maloney wrote of the distinction between asking a Court of law on the one hand to pierece a corporate veil, and on the other hand, seeking to find corporate liability through an alleged alter ego theory:

"[V]eil piercing and alter ego concepts are separate and distinct. In general, efforts to pierce a corporate veil ask a court to hold A vicariously liable for B's debts. By contrast, a contention that A is B's alter ego asserts that A and B are the same entity; liability then is not vicarious but direct." 1

REFERENCES:

  • Dolco Inv., Ltd. v. Moonriver Development, Ltd., 486 F. Supp. 2d 261 (2007)
  • Michigan Electrical Employees v. Encompass Electric, 556 F. Supp. 2d 746 (Endnote #1)
  • Wachovia Securities, LLC v. Neuhauser, 528 F. Supp. 2d 834 (2007)

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