Court Finds Plaintiff Has Stated Claim To Pierce The Corporate Veil

In an Opinion dated June 29, 2023, in Emigrant Bus. Credit Corp. v. Hanratty, 2023 NY Slip Op 32156(U), Justice Margaret Chan denied Defendant’s motion to dismiss a corporate veil piercing claim. The Court explained:

Plaintiff sufficiently states a prima facie case for piercing the corporate veil. Defendants' argument that plaintiff has not connected the indicia of a situation warranting veil-piercing with facts showing defendants' abuse of the corporate form to harm plaintiff is unavailing given plaintiff's well-pled complaint and the standards applicable at this stage (see Cortlandt St. Recovery Corp. v Bonderman, 31 N.Y.3d 30, 47, 96 NE3d 191, 73 N.Y.S.3d 95 [2018] ["a fact-laden claim to pierce the corporate veil is unsuited for resolution on a pre-answer, pre-discovery motion to dismiss"]; see also Baby Phat Holding Co., LLC v Kellwood Co., 123 AD3d 405, 407, 997 N.Y.S.2d 67 [1st Dept 2014] [finding that wrongdoing in the veil piercing context "does not necessarily require allegations of actual fraud. While fraud certainly satisfies the wrongdoing requirement, other claims of inequity or malfeasance will also suffice"]).

Defendants' reliance on Sound Commc'ns, Inc. v Rack & Roll, Inc. is inapposite (88 AD3d 523, 930 N.Y.S.2d 577 [1st Dept 2011]). There, where the complaint merely alleged that the entity defendant "functioned as the moving defendants' alter ego," the court found the plaintiff did "not sufficiently allege El that [defendant's] status as a limited liability company was used to commit a fraud against plaintiff" (id. at 524). Here, plaintiff points out that its complaint alleges that defendants "used a web of sham corporate transactions—among companies controlled by Hanratty—to loot [plaintiff's] collateral and the loan proceeds" (NYSCEF # 48 at 10, n 6 citing NYSCEF # 1, ¶ 1). Overall, plaintiff's complaint includes the necessary allegations, as well as sufficient detail, to survive at this stage (see e.g. 2406-12 Amsterdam Assoc. LLC v Alianza LLC, 136 AD3d 512, 512, 25 N.Y.S.3d 167 [1st Dept 2016] [sustaining pleading of veil piercing, negating the necessity of particularized allegations]).

The attorneys at Schlam Stone & Dolan LLP frequently litigate corporate veil piercing claims. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.