[No. 151] US Data on Veil Piercing [Updated]

In posts No. 130 and  No. 119 I said a few things about veil piercing under Dutch corporate law.

As to the US, Christy Boyd and Dave Hoffman offer interesting data on veil piercing litigation. For a teaser, go here. They:

find that plaintiffs succeed quite often in veil piercing litigation, if success is defined as winning on motions that do not terminate a case. A variety of legal and extra-legal factors predict such interstitial veil piercing successes. Voluntary creditor causes of action promote veil piercing: LLCs are in very limited circumstances better insulated from veil piercing than other corporations; undercapitalization is strongly associated with success while conclusory grounds like 'facade' and 'sham' are not; and defendants' legal sophistication is predictive of plaintiff failure. Extra-legal factors play a more striking and counterintuitive role. Plaintiffs suing companies with few employees are much more likely to win veil piercing motions, and obtain relief in cases, than plaintiffs suing companies employing many workers. This result holds even when controlling legally-relevant variables. Contrary to both theory and previous empirical work, we also find that judicial liberalism is inversely related to the likelihood of plaintiff success. Our results call into question existing normative and descriptive approaches to the disputation of limited liability and contribute to more general scholarship about selection effects and judicial behavior. They do not provide any easy answers to the question of what defendants can do to insulate themselves from veil piercing. Our analysis suggests: Very little, apart from being very big.

I'm not so sure the methodology used here is directly relevant for analyzing Dutch veil piercing litigation. For example, Dutch procedural law doesn't know the various forms of motions that are common in US litigation. Although veil piercing litigation is still 'work in progress' under Dutch law (for a nice example go here), I do believe it would be rather interesting to conduct a sortlike analysis - with tailor made methodology - in the Dutch realm, as veil piercing litigation in a broad sense (i.e., claims in tort against directors and/or shareholders by third parties, typically company creditors) is a pretty dominant factor in liability litigation under Dutch law. I am not aware of any such data to date. As to what defendants can do to insulate themselves from veil piercing, I guess the short answer would be to make sure that one doesn't engage in activities that will foreseeably result in damage to a third party (creditor). If that foreseeability element is lacking, a veil piercing case will generally be an uphill battle for the plaintiff.

UPDATE

More teasing going on here.

Comments

[Cartilage Piercing]

In my own point of view common decree of countries usually support this principle of separate personhood, but in unique circumstances may "pierce" or "lift" the corporate veil. It is likely a court would say that the new company was just a "sham", a "fraud" or some other phrase or to sue a breach of contract.