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Posted: October 21, 2019

Court Rejects Veil-Piercing Claim

On March 21, 2019, Judge Wilson of the Bergen County Superior Court (Law Division) issued a decision in Cajoeco LLC v. Bensi Enterprises, LLC, Docket No. BER-L-3477-16, rejecting veil-piercing claims, explaining:

It is well settled New Jersey law that a corporation is a separate entity from its shareholders and that a primary reason for incorporation is the insulation of shareholders from the liabilities of the corporate enterprise. The protection of limited liability applies equally to members of New Jersey limited liability companies.

However, under extraordinary circumstances, a court may pierce the corporate veil and attach liability to the members or shareholders of an entity. If a court determines that veil piercing is appropriate under the circumstances, an individual may be liable for actions of the corporate entity.

A plaintiff must allege the following elements to successfully plead a claim to pierce the corporate veil: (1) there was such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) circumstances must be such that adherence to the fiction of separate corporate existence would sanction a fraud or promote an injustice. The following factors are also considered in determining whether piercing the corporate veil is appropriate: (1) gross undercapitalization, (2) failure to observe corporate formalities, (3) nonpayment of dividends, (4) insolvency of debtor corporation, (5) siphoning of funds from debtor corporation by dominant shareholder, (6) nonfunctioning of officers and directors, (7) absence of corporate funds, and (8) whether the corporation is merely a façade for the operations of the dominant shareholder.

A fact finder must conclude that the entity was a mere instrumentality of the individual shareholder and that the shareholder so dominated the corporation that it had no separate existence but was merely a conduit to perpetrate a fraud or injustice, or otherwise to circumvent the law.

Plaintiffs have failed to demonstrate that limited liability should be set aside as to the individual Defendants under the circumstances. Specifically, Plaintiffs have failed to set forth any evidence of improper inter-business transfers, or failure to properly invest the funds of the Bensi entities on the part of Defendants. Plaintiffs have only set forth evidence of John Osso’s failures to do so. Regarding Mr. Ben-Yishay, there is no evidence that he violated any of his limited duties under the RULLCA, which would warrant the piercing of the corporate veil.

Therefore, this claim must be dismissed as to Defendants and summary judgment is granted.

(Internal quotations and citations omitted).

An issue that is not uncommon in complex business litigation is how do you collect on a judgment when the counter-party to your contract or the business that defrauded you has no assets. In certain circumstances, discussed in this decision, you can attempt to pierce the corporate veil and recover from a business’s owner or operators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding whether you can seek to hold a business’s owner or operators liable for the business’s debts.

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