Court Dismisses Claims Against Corporate Owner after Dismissal of Claims against Corporation

In an Decision, dated September 29, 2023, in NW Media Holdings Corp, Newsweek LLC, et al. v. IBT Media Inc., Index No. 652344/2022, Justice Melissa A. Crane granted individual defendant David Jang’s motion to dismiss in their entirety claims made against him under a theory of “alter ego” liability. The Court held that the earlier dismissal of claims against the corporate entity made it impossible to maintain such claims against the entity’s owner. The Court explained:

Plaintiffs' argument that the dismissal ofIBT is not dispositive as against Jang because the court only dismissed IBT because the Plaintiffs lacked the authority to sue (Opposition, NYSCEF Doc. No. 147, pp. 15-16) is not persuasive. Alter ego liability, rather than an independent cause of action, is a "theory of recovery" (see 2406-12 Amsterdam Associates LLC v Alianza LLC, 136 AD3d 512, 513 [1st Dept 2016] [emphasis added]). A cause of action for piercing the corporate veil, therefore, requires allegations of wrongdoing by the corporation which form the basis for recovery from individual defendants (Tap Holdings, LLC v Orix Finance Corp., 109 AD3d 167, 174 [1st Dept 2013] ["Piercing of the corporate veil is not a cause of action independent of that against the corporation; it is established when the facts and circumstances compel a court to impose the corporate obligation on its owners, who are otherwise shielded from liability."]).

Here, there are no actionable allegations left in the complaint against IBT because IBT has been dismissed. Therefore, there is no IBT misconduct for which Jang can be held personally liable. Plaintiffs' distinction between dismissal for lack of authority to sue and dismissal for failure to state a cause of action is irrelevant. For the purposes of this motion, it does not matter why the court dismissed the causes of action against IBT. All that matters is that IBT is no longer party to this action. Therefore, Jang cannot be held to answer for IBT' s alleged conduct as an alter ego.

Corporate owners can find themselves facing possible personal liability for actions of their corporation under theories of “alter ego” and piecing the corporate veil. When facing such allegations, owners should be sure they understand the scope of possible liability and their available defenses.

The attorneys at Schlam Stone & Dolan frequently litigate disputes over personal liability for corporate actions. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.