In Robles v. Copstat Security, Inc., the plaintiffs brought a proposed class action on behalf of a class of all security guards employed by Copstat Security Inc. (Copstat Inc.), Copstat Security LLC, and Andrews International Inc. after the defendants allegedly failed to pay the plaintiffs’ earned overtime pay in violation of the Fair Labor Standards Act (FLSA) and New York’s Minimum Wage Act.

Although the Court noted that the plaintiffs’ allegations in support of their claim that the corporate veil should be pierced were rather “general and vague” (suggesting that these claims may later be dismissed unless additional facts are fleshed out), the Court also refused to dismiss the claims against the individual defendant Bellistri at the initial pleading stage. The Court cited plaintiffs’ claim that the defendants’ corporate veil should be pierced because Bellistri, as the lone shareholder of Copstat, exercised complete domination and control over Copstat, and in that role, Bellistri left the company terribly undercapitalized when he unilaterally took nearly all of Copstat’s assets, and thereby left the corporate defendants unable to satisfy any adverse judgment.

From a practical standpoint, it remains to be seen what the plaintiffs gain by the denial of the individual defendant’s motion to dismiss, because unless the plaintiffs have, or later uncover, facts that support their contention that the corporate veil should be pierced, they may be merely prolonging the ultimate dismissal of these claims.

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In Interstate Foods, Inc. v. Lehmann, a decision that was recently published in the New York Law Journal, the president of wholesaler Lehmann Meats, Inc. was sued in his individual capacity for fraud because his company – which ceased doing business – issued several checks bearing his purported signature that were invalid.

In dismissing the plaintiff’s business fraud claims and rejecting the plaintiff’s attempt to pierce the veil of the defendant’s corporation, the Court noted that the plaintiff failed to adduce any competent proof that the president of the company was personally involved in the issuance of the checks. Therefore, the Court held, this case fell squarely within the ambit of the general rule that a corporate officer cannot be personally liable for alleged corporate fraud without the corporate officer’s personal involvement.

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In this case, Oltchin SA v. Zebulon Industries, et al., the defendant manufacturers failed to pay for the materials that were furnished to them by the plaintiff, a Romanian corporation. At the binding arbitration that was held before an international tribunal of the ICC, plaintiff was awarded damages of over $1.5 million. Thereafter, the plaintiff corporation had the award confirmed by a New York State court, and the award became a collectible judgment. Or so the plaintiff thought.

When the plaintiff went to enforce the judgment, it learned that the defendants had divested their corporation of all its assets. Consequently, they brought this case seeking to set aside those transactions as fraudulent and to pierce the defendants’ corporate veil(s).

Although the Court’s opinion was rendered in a very matter-of-fact manner, you can’t help but sense that the following sentiment underlies the Court’s opinion: there is absolutely no way I’m going to let these defendants get away with this charade on some procedural technicality.

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When P confronts D about all that has transpired, D looks P right in the eye, and says “Go right ahead and sue me if you like; I’m judgment-proof. Even if you win, your award will be worthless, because I’ve set up more shell corporations than you can count, and you’ll never get through them to me.” So, here’s the big question: Is D right, or is there something that can be done to effectively fight D?

As suggested by the title of this article, the answer is yes, under certain circumstances, you can pursue D individually by “piercing the corporate veil.” This is no simple task, however, for in order to prevail on such a claim, the plaintiff will be required to prove not only that D individually exercised total control over the company to the extent that he was effectively the alter ego of the company, but that he did not maintain corporate formalities. A practical example of this would be where he commingled funds, treating the company’s money as his own personal funds and vice versa, or the failure to maintain separate corporate accounts or file corporate tax returns.

Importantly, in a cautionary opinion that was handed down by New York’s Appellate Division, Second Department on Juy 28, blanket allegations that the individual defendant and his company are one and the same will not suffice; the party seeking to pierce the corporate veil must also allege specific facts demonstrating that the defendant had misused the special protections afforded by the corporate form (i.e., showing how these companies were really a sham), and thereby he should be deemed to have forfeited those privileges.

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