NYLJ725202457760Lambert

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July 24, 2024

v. Small, 19 A.D.3d 331, 798 N.Y.S.2d 45 (1st

Dep’t 2005). The cases are dependent “on the

attendant facts and circumstances” and “may

not be reduced to definitive rules….” Id.

Generally, the plaintiff must prove 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.” Morris, supra.

Such broad language appears throughout the

case law. And yet, when we read the recent

cases with a focus on the underlying attendant

facts, we discovered that there actually appears

to be one simple fact in common in nearly all the

recent cases, a critical fact which determined,

one way or the other, whether to pierce the veil.

That fact, or its absence, is the owners’ tak-

ing from the corporation, not in pursuit of the

corporation’s purpose and without return consid-

eration. If that taking results in the corporation’s

failure to pay a legitimate obligee, that obligee

has a case to pierce the veil. The other facts

appear to be secondary.

Many decisions focus on whether the for-

mal requirements applicable to the entity were

followed. Did the officers of the corporation

cause it to keep proper books and records? Did

the board of directors hold semi-annual meet-

ings as required? Were corporate and personal

assets comingled? Certainly, the failure to follow

required formalities may indicate domination of

the corporation by certain individuals.

But at the same time, there are many small

companies where the owners fail to follow for-

malities. There are many small companies, such

as family-owned corporations, where the owners

dominate the company and regularly treat it as

an alter-ego. That in and of itself does not give

rise to a claim to pierce the corporate veil. East

Hampton Union Free School Dist. v Sandpebble

Bldrs., Inc., 66 A.D.3d 122, 884 N.Y.S.2d 94 (2d

Dept. 2009) (“But, if, standing alone, domination

over corporate conduct in a particular transac-

tion were sufficient to support the imposition of

personal liability on the corporate owner, virtually

every cause of action brought against a corpora-

tion could also be asserted against that owner

personally, rendering the principle of limited

liability largely illusory.”).

A failure to hold board meetings may constitute

a “wrong” in that it violates requirements under

corporate by-laws and governing statutes, but

that wrong does not necessarily injure the corpo-

ration’s creditor. While in many cases where the

veil is pierced there is failure to follow formali-

ties, it is merely an indicator. No such single fact

controls, either by its presence or its absence.

Shisgal v. Brown, 21 A.D.3d 845 (1st Dep’t 2005).

Domination and failure to follow rules may

facilitate the looting and may constitute

evidence consistent with looting. But it is

the looting itself which is typically necessary

before the veil will be pierced. The key, the

factor present in nearly all recent cases where

the veil is pierced, is the individuals’ use of

their control to take money or benefits from

the company’s “coffers” for their own personal

benefit, while failing to see to it that the

company receives consideration in return.

In Etage Real Estate LLC v. Stern, 211 A.D.3d

632, 182 N.Y.S.3d 47 (1st Dep’t 2022) the First

Department, quoting Morris, stated, “complete

domination of the corporation is the key to pierc-

ing the corporate veil.” But quite often there is

“complete domination” without there being aba-

sis to pierce the veil. Many small corporations

have a single shareholder and officer; each and

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