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Posted: October 24, 2016

Allegations of Deceit or Wrongdoing Necessary for Veil Piercing Claim

On October 20, 2016, the First Department issued a decision in Pensmore Investments, LLC. v Gruppo, Levey & Co., 2016 NY Slip Op. 06899, holding that allegations of deceit or wrongdoing are necessary to allege a veil piercing claim, explaining:

Plaintiff established a likelihood of success on its veil piercing claim by showing that defendants used a variety of corporate entities and accounts to collect and disburse money to themselves and the various corporate entities without consideration or corporate formalities, and that they used this web of payments to keep the judgment debtor corporation in business but grossly undercapitalized by paying its debts without putting any funds into it.

Contrary to defendants’ contention, this case is not like Timur on 5th Ave. v Jim, Jack & Joe Realty Corp. In that case, there was no allegation of deceit or wrongdoing. Indeed, there, the defendants did nothing more than take out a lease through a holding company, which the plaintiff knew was an operating company with no assets. Here, in contrast, defendants are alleged to have thwarted the bargain plaintiff made with the corporate judgment debtor by consistently starving the debtor of cash and capitalization.

(Internal quotations and citations omitted).

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