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Authored - NJ Contract Law Update - New Federal Case Highlights Issue Of Elements Needed To Pierce Corporate Veil
DECEMBER 11, 2013 | Windels Marx - Commercial Litigation

Circuit Lighting Inc. v. Progressive Products, Inc. 2013 WL 4510134 (D.N.J. August 23, 2013), generally involved the sufficiency vel non of a pleading alleging fraud, somewhat tied to concepts of 'piercing the corporate veil'. The discussion of the sufficiency of that particular pleading is not particularly instructive; however, Circuit Lighting raises the interesting question of whether New Jersey applies precisely the same veil-piercing standard as that in New York.

The standard in New York (under several New York Court of Appeals cases), with possible exceptions, seems to be that piercing the corporate veil can be accomplished only if the following two elements are present: (1) improper dominance of the corporation (including but not limited to commingling, etc.) by an individual or a parent company, and (2) use/abuse of the corporate form to perpetrate a fraud, injustice or illegality.

Circuit Lighting, and the New Jersey federal cases it cites, imply that the New York test is the sole New Jersey test as well. However, other New Jersey authorities imply that there are other routes to achieve veil piercing, without the necessity for both of these elements (or arguably either as phrased). Such routes may arguably include (for example): (1) undercapitalization alone; or (2) rampant commingling; or (3) de facto merger; or (4) sufficient abuse of the corporate form, or 'balance sheet' fraudulent conveyances, that the defendant, even if innocent in his/her mind, may be held to be profiting at the expense of the creditor(s).1

The purpose of this Article is not to resolve that arguably controversy, but simply to raise it for the reader/practitioner.

Circuit Lighting also emphasizes the fact that an individual who commits a tort in the corporate context can be held personally liable for same even without any veil piercing--especially "intentional" torts (emphasis added).

The foregoing should supply ample ammunition for either plaintiff or defendant litigating a veil-piercing case.
One additional practice point: the Court criticized the practice of "lump[ing]" all defendants (or an unspecified grouping of defendants) into a Count, without naming and accusing them individually; and indicated a strong preference for a clear pleading of the facts and conclusions that supply liability for each individual defendant, each to be named separately.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education and now in its third edition. His updates on New Jersey contract law are based on recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 This is not to say that the same 'strands' of law cannot be found in New York law.

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