Lesson. A veil-piercing claim is a post-judgment collection tool, not a separate cause of action in a lawsuit.
Legal issue. Whether a plaintiff in a breach of contract action against a company could simultaneously sue the individual owners of the company for the alleged breach.
Vital facts. This federal court action relates to a state court case about which I wrote in August of 2022. Here is a link to that post, which provides some background about the dispute. In this matter, a plaintiff sued a number of parties for money damages based on several causes of action, one of which was against individuals for their corporate entity’s breach of contract.
Procedural history. The individual defendants filed a motion for judgment on the pleadings seeking dismissal of the case.
Key rules.
To “prevent fraud or unfairness to third parties,” Indiana may allow the corporate veil to be pierced so as to impose liability for a corporation’s acts and omissions beyond the corporation itself.
However, “piercing the corporate veil is not a separate cause of action but rather a means of imposing liability for an underlying cause of action, such as breach of contract.”
The Piercing Corporate Veil category on this blog has a couple dozen posts identifying the various rules and tests applicable to Indiana’s veil piercing doctrine.
Holding. The Court dismissed the veil piercing count in the complaint.
Policy/rationale. In its complaint, plaintiff argued that it stated “a coherent case for piercing of the corporate veil — including by serious undercapitalization, the failure to keep corporate records and follow other formalities, fraudulent representation by unelected controlling persons, the commingling of assets, and other manipulations of the corporate form to achieve personal ends.” While those allegations may have been valid, the Court concluded that the cause of action was premature. If the plaintiff later obtained a judgment, the plaintiff could then seek to pierce the corporate veil, assuming “it has a good faith basis to assert that theory in proceedings supplemental.” In short, the plaintiff in Conroad had the cart before the horse.
Related post. Veil-Piercing Claim Better Left For Proceedings Supplemental
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Part of my practice involves representing parties in post-judgment collection matters. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.