Piercing the Corporate Veil Case Studies

The Stone v. Frederick Hobby Associates II, LLC, 2001 Conn. Super Docket #CV00181620S

The court found that the “instrumentality and identity rules” could be applied, under the facts of the case, to “pierce the corporate veil” of an LLC and hold the individual members personally liable.

Opinion: Turning to the facts of the case, the court found that Hobby and Leiendecker were the sole members of Hobby II, and that Hobby II’s office located was located in Hobby’s private home (although Hobby II did not pay any rental for such space). The court found that the evidence also demonstrated probable cause for the court to apply the identity rule. This was so, the court ruled because “Frederick L. Hobby, III and Sally M Leiendecker use Hobby II interchangeably with their own personal identities and with identities of other entities under their control, and failed to observe formalities for the limited liability company. The court reasoned that because of a lack of observance of formalities between the entities the court reasoned that because there was such unity of ownership and interest, Hobby II’s existence as a separate entity had never really existed or had bee terminated, and the existence of Hobby II as an LLC with a separate identity: would serve to defeat justice and equity by permitting the individual defendants to escape liability arising out of a “shell” operation conducted for their benefit.

Proving that a corporation exists merely as a completely controlled front (alter ego) for an individual or management group, so that in a lawsuit the individual defendants can be held responsible (liable) for damages for actions of the corporation. As a result shareholders become personally liable for the corporation activities and you lose the number one benefit incorporating.

DeWitt Truck Brokers, Inc, Appellee W. Ray Flemming Fruit Company and No.75-1653, United States Court of Appeals, Fourth Circuit May 13, 1976

In this action on debt, the plaintiff seeks, by piercing the corporate veil under the law of South Carolina, to impose individual liability on the president of the indebted corporation individually.

Question: Can the debt of the corporation fall directly onto its officers and/or shareholders?

Decision: Yes

Opinion: The district court found, and there was evidence to sustain the findings, that there was evidence to sustain the findings, that there was here a complete disregard of “corporate formalities” in the operation of the corporation, which functioned, not for the benefit of the stockholders, but only for the financial advantage of Flemming, who was the sole stockholder to receive one penny of profit from the corporation in the decade or more that it operated, and who made during that period all the corporate decisions and dominated the corporation’s operations.

One fact which all authorities consider significant in the inequity, and particularly so in the case of the one-man or closely held corporation, is whether the corporation was grossly undercapitalized for the purposes of the corporate undertaking. There have been numerous cases lost for undercapitalization.

John C. CULPEPPER, Jr. and Culpepper Properties, Inc., Respondents Supreme Court of Texas Dec 12, 1990.

Mancorp, Inc. sued John C. Culpepper, Jr. and Culpepper Properties, Inc. for breach of a construction contract. Mancorp alleged that it had performed the contract by completing work on the First Bank of Galleria building in Bryan, Texas, and that is was owed $510,650, the unpaid balance under the contract.

Question: Was Culpepper Properties simply an alter ego of John C. Culpepper, Jr.

Decision: Yes

Opinion: The jury found….that Culpepper Properties, Inc. was the alter ego of John C. Culpepper , Jr…Culpepper and Culpepper Properties, Inc. moved for judgment non obstante veredicto on the jury’s alter ego finding. The trial court rendered judgment for Mancorp in the amount of $221,273.10.

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