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Current Developments in the Commercial Divisions of the
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Posted: June 2, 2016

Corporate Veil Pierced Only Where Owner’s Complete Domination Used to Commit Fraud or Wrong

On May 31, 2016, the First Department issued a decision in JTS Trading Ltd. v. Trinity White City Ventures Ltd., 2016 NY Slip Op. 04138, holding that a plaintiff had failed adequately to plead a basis for piercing the corporate veil, explaining:

The court properly declined to pierce the corporate veil to attach the properties of nonparties Sahara Plaza LLC and Sahara Dreams LLC. The corporate veil of a business entity may be pierced where a plaintiff sufficiently states 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 plaintiff’s injury.

Here, [the plaintiff] demonstrated that defendant Aamby Valley (Mauritius) Ltd. (Aamby Mauritius) dominated and controlled Sahara Plaza LLC and Sahara Dreams LLC (collectively Sahara LLCs) by submitting proof showing absence of corporate formalities between these entities. . . . .

Nevertheless, [the plaintiff] has not shown that Aamby Mauritius used its domination of the Sahara LLCs to commit a fraud or a wrong against [it]. [The plaintiff] argues that Aamby Mauritius abetted TWCV’s breaches of fiduciary duty while dominating the Sahara LLCs and that such domination enabled Aamby Mauritius to negotiate a financing transaction with TWCV concerning the properties, causing TWCV to breach a joint venture agreement between TWCV and [the plaintiff]. However, [the plaintiff] has not shown that Aamby Mauritius entered into negotiations with TWCV for the purpose of causing TWCV to breach its fiduciary duty to [the plaintiff]. Rather, Aamby Mauritius and TWCV were engaged in an arms-length transaction and, even though TWCV breached it fiduciary duty to [the plaintiff], nothing shows that Aamby Mauritius entered into the transaction for the purpose of harming the plaintiff.

(Internal quotations and citations omitted) (emphasis added).

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