Commercial Division Blog
Domination, Without Fraud or Bad Act, Insufficient to Prove Veil Piercing Claim
On December 14, 2016, the Second Department issued a decision in Vivir of L I, Inc. v. Ehrenkranz, 2016 NY Slip Op. 08393, affirming a holding that defendants had failed to prove their entitlement to pierce the corporate veil so as to hold a party's principal personally liable, explaining:
The general rule is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability. 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. 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. While complete domination of the corporation is the key to piercing the corporate veil, especially when the owners use the corporation as a mere device to further their personal rather than the corporate business, such domination, standing alone, is not enough; some showing of a wrongful or unjust act toward plaintiff is required. Factors to be considered in determining whether the owner has abused the privilege of doing business in the corporate form' include whether there was a failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and use of corporate funds for personal use.
Here, upon our independent review of the evidence presented at trial, we find that the Supreme Court properly held that the defendants failed to establish their entitlement to pierce the corporate veil and hold Boylan personally liable for Opus's breach of contract. Although, as the court found, Boylan exercised domination over Opus, domination, standing alone, is not enough. The defendants failed to establish that Boylan abused the privilege of doing business in the corporate form so as to perpetrate a wrong or fraud.
(Internal quotations and citations omitted) (emphasis added).