As business people and entrepreneurs, you probably are aware that a Plaintiff can attempt to disregard the corporate entity to collect directly from the individual. Colloquially, this is known as “piercing the corporate veil.” It can also be used against limited liability companies, it applies when the defendant company and individual have failed to maintain a distinct division between corporate business and personal business. Typically, the plaintiff is successful in holding the individual liable for the obligations of the business entity if the business entity did not observe formalities, was not sufficiently solvent, or had commingled assets and money with the individual’s assets and money.
There is another use of disregarding the separateness of the individual and the business. It is typically called “reverse veil piercing.” Sounds lascivious, doesn’t it? Its application was recently discussed and applied by the California Court of Appeals for the Fourth Appellate District in Curci Investments, LLC v. Baldwin (filed Aug. 10, 2017) Case No. G052764. Curci sought to add JPB Investments, LLC, an entity formed and held by James P. Baldwin, as a judgment debtor on a multi-million dollar judgment it had against Baldwin personally. The trial court rejected the addition of JPB Investments, LLC to the judgment since, in its opinion, “reverse veil piercing” was not available in California. The Appellate Court reversed. It found that here, where the debtor used the entity to avoid paying the judgment and that an unjust result would occur unless the entity’s assets could be used to satisfy the debtor’s personal debt, the entity could be disregarded and its assets used to satisfy the judgment. Thus, in California there is the potential to pierce business entities to reach their assets where their ownership and operation are used to avoid paying personal debts. The potential also remains for disregarding the business entity to make the owner responsible for the debt.
If you are trying to collect a judgment and believe the debtor is hiding his assets in business entities to protect them from seizure, call your legal counsel. There just may be a remedy for that.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Leave a Reply