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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: February 11, 2020

Veil Piercing Claim Upheld Based on Allegations of Fraudulent Inducement

On January 31, 2020, the Fourth Department issued a decision in Clark Rigging & Rental Corp. v. Liberty Mut. Ins. Co., 2020 NY Slip Op. 00760, upholding a veil piercing claim based on alleged fraudulent inducement, explaining:

Affording the allegations in the complaint every possible favorable inference, we conclude that plaintiff sufficiently alleged that Tri-Krete is an alter ego of KC Precast. It is well settled that, when a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator’s business instead of its own and can be called the other’s alter ego, the corporate form may be disregarded to achieve an equitable result. A party seeking to pierce the corporate veil must establish 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 the plaintiff’s injury. However, because a decision to pierce the corporate veil in any given instance will necessarily depend on the attendant facts and equities, there are no definitive rules governing the varying circumstances when this power may be exercised.

With respect to the first element, plaintiff alleged, inter alia, that nonparties Marc Bombini, Adam Bombini, and Tony Bombini were and/or are in exclusive control of KC Precast and are also the officers or directors of Tri-Krete; that the Bombinis intermingled the assets of Tri-Krete and KC Precast with each other and with the Bombinis’ personal assets; that KC Precast utilized its alter ego, Tri-Krete, as the subcontractor on certain paperwork connected with the construction project because KC Precast was unable to obtain workers’ compensation insurance; and that the Bombinis made clear in certain conversations with plaintiff that Tri-Krete and KC Precast are one and the same.

With respect to the second element, it is well established that wrongdoing in this context does not necessarily require allegations of actual fraud. While fraud certainly satisfies the wrongdoing requirement, other claims of inequity or malfeasance will also suffice. Plaintiff’s complaint includes a fraudulent inducement cause of action against both Tri-Krete and KC Precast in which plaintiff alleges, inter alia, that at the request of KC Precast and its alter ego, Tri-Krete, and in actual reliance upon their promise of payment, plaintiff performed work; that the promises were clear and were made in order to induce plaintiff to perform the work and to delay the filing of an action against them or the assertion of a claim under the payment bond; and that both KC Precast and Tri-Krete knew that their representations were false and never intended to pay plaintiff. We therefore conclude that, at this stage of the litigation, plaintiff sufficiently alleged that the asserted domination of KC Precast by Tri-Krete was used to commit a fraud or wrong against plaintiff which resulted in plaintiff’s injury.

(Internal quotations and citations omitted).

This decision discusses an issue that is common in complex commercial litigation: whether an individual or another company can be held liable for a company’s actions. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a third-party can be held liable for a company’s misconduct.

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