It is understood that a business entity, such as a corporation or a limited liability company, is directed and controlled by the officers and members thereof. These are real people making real decisions guiding the entity’s actions. Yet, the individuals themselves enjoy the corporate protections afforded to them by virtue of acting through the corporate form and not individually.
Why is this important to understand? Because if an individual acts, in the name of the corporation or company, the decisions and actions made by the individual for the sake of the entity are protected – until they are not.
When are they no longer protected? The Courts have settled and reiterated certain premises and factors that must exist in order to be successful (or successfully pleading) in piercing the corporate veil of protections and attaching liability upon the individual officers, directors, and members.
A party seeking to pierce the corporate veil must allege facts that establish that the other party: (1) exercised complete domination over the corporation with respect to the transaction at issue, and (2) through such domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against the plaintiff such that a court in equity will intervene. Olivieri Construction Corp. v. WN Weaver Street, LLC, 144 A.D.3d 765, 766-67 (2d Dept. 2016). Factors to be considered in determining whether an individual has abused the privilege of doing business in the corporate or LLC form include the failure to adhere to [corporate or] LLC formalities, inadequate capitalization, commingling of assets, and the personal use of [corporate or] LLC funds. Id. at 767. Additionally, the corporate veil will be pierced to achieve equity, even absent fraud, 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. Id.
There is no independent cause of action for piercing the corporate veil – however, the party asserting the doctrine must properly plead facts consistent with the foregoing principles and factors. Id.; see also DiMauro v. United, LLC, 122 A.D.3d 568 (2d Dept. 2014). Just last week, the Appellate Division – Second Department reaffirmed that the Courts do not recognize an independent cause of action to pierce the corporate veil. Arco Acquisitions, LLC v. Tiffany Plaza, LLC, 2021-08509 (2d Dept. 2024).
Our litigation team at Catina & Mara, PLLC is familiar with this doctrine, and it is certainly considered when we are confronted with actions sounding in breach of contract or fraud between one party and another party in the corporate form. It is imperative to allege the facts necessary to establish the doctrine and the factors that are considered by the Court in order to seek the proper redress against the actor abusing the protections of the business entity.
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.