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The doctrine of piercing the corporate veil, developed under the principles of corporate law, may be applied to limited liability companies

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August 12, 2010 at 11:51 am


Law Lessons from BROWN-HILL MORGAN, LLC V. ROBERT LEHRER, ET AL.; J.C. MORGAN REALTY, LLC, ET AL. V. BROWN-HILL MORGAN, LLC, ET AL., App. Div., A-1069-08T3, August 12, 2010:

N.J.S.A. 42:2B-23 provides:

Except as otherwise provided by this act, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company; and no member, manager, employee or agent of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company, or for any debt, obligation or liability of any other member, manager, employee or agent of the limited liability company, by reason of being a member, or acting as a manager, employee or agent of the limited liability company.

The doctrine of piercing the corporate veil, developed under the principles of corporate law, may be applied to limited liability companies.

“[P]iercing the corporate veil is not technically a mechanism for imposing legal liability, but for remedying the fundamental unfairness that will result from a failure to disregard the corporate form.” Verni ex rel. Burstein v. Stevens, 387 N.J. Super. 160, 199 (App. Div. 2006), certif. denied, 189 N.J. 429 (2007).

A party is entitled to structure a transaction in a manner to maximize his own return, but he cannot, in a court of equity, be permitted to walk away from the reality of the transaction. “[E]quity [regards] substance[,] rather than form.” Assocs. Home Equity Servs. Inc. v. Troup, 343 N.J. Super. 254, 276 (App. Div. 2001); Fortugno v. Hudson Manure Co., 51 N.J. Super. 482, 500-01 (App. Div. 1958); Ardito v. Bd. of Trs., Our Lady of Fatima Chapel, 281 N.J. Super. 459, 468 (Ch. Div. 1995).

New Jersey courts will pierce the corporate veil when necessary “to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate a fraud, to accomplish a crime, or otherwise to evade the law.” Tung v. Briant Park Homes, Inc., 287 N.J. Super. 232, 239-40 (App. Div. 1996).

A corporate subsidiary’s veil may be pierced “on a finding that the parent so dominated the subsidiary that it had no separate existence but was merely a conduit for the parent[,]” and that the piercing is necessary to avoid an injustice. State, Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 501 (1983).

A party seeking to pierce the corporate veil bears the burden of establishing that the corporate form should be disregarded. Richard A. Pulaski Constr. Co. v. Air Frame Hangars, Inc., 195 N.J. 457, 472 (2008).

A court will look to various factors, including “whether the subsidiary was grossly undercapitalized, the day-to-day involvement of the parent’s directors, officers and personnel, and whether the subsidiary fails to observe corporate formalities, pays no dividends, is insolvent, lacks corporate records, or is merely a facade.” Verni, supra, 387 N.J. Super. at 200. The inquiry is factspecific. Ibid.






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