Piercing the Corporate Veil - Contracts

Question 1

A court ( may / may not ) pierce the corporate veil if it finds that a shareholder dominated and __________ a corporation in the absence of a showing that the shareholder control was used to commit a _____ or other _____.

Answer 1

A court MAY NOT pierce the corporate veil if it finds that a shareholder dominated and CONTROLLED a corporation in the absence of a showing that the shareholder control was used to commit a FRAUD or other WRONG.

Question 2

May a court pierce the corporate veil if it finds that a shareholder dominated and controlled a corporation, even in the absence of a showing that the shareholder control was used to commit a fraud or other wrong?

Answer 2

No. To pierce the corporate veil under New York law, one must prove that shareholder dominated and controlled the corporation and that the control was used to commit a fraud or other wrong. New York has recognized the equitable ownership doctrine for veil-piercing purposes. Under this doctrine, a non-shareholder defendant who exercises sufficient control over a corporation may be deemed an “equitable owner” of the corporation. However, domination and control alone are not sufficient to pierce the corporate veil. New York law only allows veil-piercing when the control was used to commit a fraud or other wrong.

Question 3

If a plaintiff enters into a contractual agreement with a corporation, courts apply a __________ standard before agreeing to pierce the corporate veil.

Answer 3

If a plaintiff enters into a contractual agreement with a corporation, courts apply a HEIGHTENED standard before agreeing to pierce the corporate veil.

Question 4

If a plaintiff enters into a contractual agreement with a corporation, do courts apply a heightened standard before agreeing to pierce the corporate veil?

Answer 4

• Yes. If a plaintiff enters into a contractual agreement with a corporation, courts apply a heightened standard before agreeing to pierce the corporate veil. Corporations are distinct legal entities with limited liability. The corporate veil may be disregarded only under circumstances in which it is necessary in the interest of justice, such as if the corporation is the alter ego of its owner. If a party enters into a contractual agreement with a corporation, the party is presumed to know and accept that the corporation has limited liability. Accordingly, a higher standard will apply before a court will pierce the corporation’s corporate veil.