Law School Case Brief
GreenHunter Energy, Inc. v. W. Ecosystems Tech., Inc. - 2014 WY 144, 337 P.3d 454
A third factor to consider in determining whether to pierce the veil of a limited liability company (LLC) is the degree to which the business and finances of the company and the member are intermingled. This factor may have numerous aspects which must be analyzed. Funds and assets should be separated and not commingled. Failure to maintain an arm's-length relationship between the member and company, as by not keeping separate bank accounts and bookkeeping records, may be weighed along with other factors. If the member treats limited liability company property as if it were that person's or company's personal property, a court should consider also this fact. Manipulation of assets and liabilities between the member and company so as to concentrate the assets in the former and the liabilities in the latter can be suggestive of improper use of the LLC as well.
Appellee-plaintiff Western Echosystems Technology, Inc. ("Western") and GreenHunter Wind Energy, LLC ("the LLC") entered into a contract whereby Western undertook to provide the LLC with consulting services related to the potential development of a wind turbine farm in Wyoming. While Western performed under the contract, the LLC paid nothing for Western's services. Western consequently brought a breach of contract action against the LLC and obtained a judgment in the amount of $43,646. The judgment could not be satisfied because the LLC had no assets upon which Western can execute. After learning that it could not collect on its judgments against the LLC, Western brought this action against appellant-defendant GreenHunter Energy, Inc., as the sole member of the LLC, seeking to pierce the LLC's veil and hold GreenHunter Energy, Inc. liable for the LLC's contractual obligations. The district court pierced the LLC's veil and awarded a judgment of $45,807 against GreenHunter Energy, Inc. for the amount the LLC had not paid under its contract with Western and for the sanctions incurred during the underlying action. GreenHunter Energy, Inc. appealed.
Was it proper for the district court to pierce GreenHunter Wind Energy, LLC's veil to hold its sole member GreenHunter Energy, Inc. liable for the LLC's contractual obligations for unpaid consulting services?
The Supreme Court of Wyoming concluded that under the specific circumstances of this case, the evidence supported the use of the extraordinary equitable remedy of piercing the corporate veil. The veil of an LLC could have been pierced under exceptional circumstances when the LLC was not only owned, influenced, and governed by its members, but the required separateness ceased to exist due to the misuse of the LLC and the factors were such that an adherence of the fiction of its separate existence would, under particular circumstances, lead to injustice, fundamental unfairness, or inequity. The district court looked at the undercapitalization and the intermingling of business and finances. Even though there was no classic fraud, the decision to pierce the veil and hold the member responsible for a debt for services which benefited it was not clearly erroneous. The district court had found that appellant-defendant GreenHunter Energy Inc.'s course of conduct, which was executed in the name of the LLC, wherein it engaged and contracted with Western for valuable services knowing that it could not or would not pay, constituted a fraud that should not enjoy protection behind the veil of limited liability. Accordingly, the Court affirmed the district court's judgment.
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