Commercial Division Blog

Posted: November 14, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz / Categories Account Stated, Corporations, Indemnification and Advancement

Owners' Domination and Abuse of Entity to Perpetrate a Wrong or Injustice on Plaintiffs Sufficient to Pierce Corporate Veil

On November 2, 2022, the Second Department issued a decision in F&R Goldfish Corp. v. Furleiter, 2022 N.Y. Slip Op. 06112, holding that plaintiffs alleged facts sufficient to pierce the corporate veil, explaining:

"Generally, a plaintiff seeking to pierce the corporate veil must show 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" (Cortlandt St. Recovery Corp., 31 NY3d at 47 [internal quotation marks omitted]; see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d135, 141). "The decision whether to pierce the corporate veil in a given instance depends on the particular facts and circumstances" (Matter of Arben Corp. v Durastone, LLC, 186 AD3d599, 600 [internal quotation marks omitted]). "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" (Sky-Track Tech. Co. Ltd.v HSS Dev., Inc., 167 AD3d 964, 965 [internal quotation marks omitted]). A cause of action under the doctrine of piercing the corporate veil is not required to meet any heightened level of particularity in its allegations (see Olivieri Constr. Corp. v WN Weaver St., LLC, 144 AD3d765, 767; cf. CPLR 3016).

Contrary to the Supreme Court's determination, considering the complaint as a whole (see Manno v Mione, 249 AD2d 372), the plaintiffs adequately pleaded allegations that Furleiter and Kaganovsky dominated Royal Baltic and NY Fish, and that they engaged in acts amounting to an abuse of the corporate form to perpetrate a wrong or injustice against the plaintiffs (see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d at 141; Baby Phat Holding Co., LLC v Kellwood Co., 123 AD3d 405; Grammas v Lockwood Assoc.,LLC, 95 AD3d 1073; Peery v United Capital Corp., 84 AD3d 1201; Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d 141).

The attorneys at Schlam Stone & Dolan regularly litigate claims involving an attempt to hold the owners of an entity liable for the entity's debts or actions, which is called piercing the corporate veil. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning piercing the corporate veil.