In an granting a motion to dismiss a counterclaim for veil-piercing, Chancellor McCormick recently reminded litigators that “veil piercing is a tough thing to plead and a tougher thing to get.”
In Verdantus Advisors, LLC v. Parker Infrastructure Partners, LLC, C.A. No. 2020-0194-KSJM, Order (Del. Ch. Mar. 2, 2022), the Court of Chancery evaluated a counterclaim to pierce the corporate veil of Verdantus Advisors LLC and recover against its owner, Michael G. Phillips.
In assessing whether veil-piercing was appropriate, the Court identified five factors that it considers: “(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 façade for the dominant shareholder.” The Court further noted that it requires a veil-piercing claim to demonstrate “an overall element of injustice or unfairness.”
Here, the Court found that counterclaim-plaintiffs did “not come close to adequately alleging a claim for veil-piercing.” Specifically, the Court rejected counterclaim-plaintiffs’ arguments that veil-piercing was appropriate because Phillips was the sole owner of Verdantus and he observed few (if any) corporate formalities, and that Verdantus was inadequately capitalized.
The Court’s full Order is available here.
Kasey is a commercial litigator in Fox Rothschild’s Delaware office and can be reached at Kasey DeSantis or (302) 622-4205.