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WHETHER THE CORPORATE VEIL SHOULD BE PIERCED IS A FACT-BASED DETERMINATION GENERALLY NOT SUITED FOR SUMMARY JUDGMENT; THE FINDINGS BY THE MOTION COURT WERE NOT SUPPORTED BY UNDISPUTED FACTS; SUMMARY JUDGMENT ALLOWING THE CORPORTE VEIL TO BE PIERCED REVERSED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the motion court should not have granted summary judgment allowing the corporate veil to be pierced and holding the defendants liable for a judgment against the corporation (DJJMS). The appellate division noted that a determination the corporate veil should be pierced is a fact-based analysis not suited to summary judgment:

The elements of veil piercing are that (1) the owners exercised complete domination and control of the corporation with respect to the transaction attacked; and (2) such domination was used to commit a fraud or wrong against the plaintiff, resulting in the plaintiff’s injury … . Plaintiffs who seek to pierce the corporate veil bear a heavy burden … .

“[C]omplete domination of the corporation is the key to piercing the corporate veil” … , but the motion court did not cite sufficient, undisputed facts to show that defendants exercised complete domination of DJJMS. It noted that veil piercing occurs “when the principals are using the corporation ‘as their personal piggy-bank'” but cited no facts to support its apparent determination that defendants so used DJJMS … . The motion court did not adequately detail relevant, undisputed facts to show that defendants have “abused the privilege of doing business in the corporate form,” including facts showing that, as a matter of law “there was a failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, and use of corporate funds for personal use” … . … The motion court apparently presumed that the transfer at issue …  caused DJJMS to be judgment proof, but the court does not cite any undisputed fact, other than the fact of the transfer itself, to support its conclusion. Etage Real Estate LLC v Stern, 2022 NY Slip Op 07499, First Dept 12-29-22

Practice Point: Whether the corporate veil should be pierced is a fact-laden inquiry which is not suited for summary judgment.

 

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