In the recent Court of Chancery opinion of Doberstein v. G-P Industries, Inc., C.A. No. 9995-VCP (Del. Ch. Oct. 30, 2015), the Court rejected a claim for piercing the corporate veil. In analyzing defendant’s motion to dismiss such claim, the Court provided:
To state a veil-piercing claim, the plaintiff must plead facts supporting an inference that the corporation, through its alter-ego, has created a sham entity designed to defraud investors and creditors. Specific facts a court may consider when being asked to disregard the corporate form include: (1) whether the company was adequately capitalized for the undertaking; (2) whether the company was solvent; (3) whether corporate formalities were observed; (4) whether the dominant shareholder siphoned company funds; and (5) whether, in general, the company simply functioned as a facade for the dominant shareholder.
Slip op. at 9 (internal citations and footnotes omitted).
While the Court found that defendant potentially made fraudulent statements pertaining to the underlying substance of the matter, no nexus had been alleged to tie such acts to the “manipulation of the corporate form in order to make veil-piercing justifiable on grounds of equity.” Accordingly, despite the potential bad faith conduct of the defendant, the Court found that under the above-stated standard, the corporate veil piercing claim was not adequately pled, and thus the count was dismissed.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at email@example.com.