Iceland Telecom, Ltd. v. Info. Sys. & Networks Corp. - 268 F. Supp. 2d 585 (D. Md. 2003)

Rule:

Under Maryland law, while it is clear that a showing of fraud will often suffice to pierce the corporate veil, it is less clear what other situations give rise to the liability of individual stockholders. Despite the proclamation that a court may pierce the corporate veil to enforce a paramount equity, arguments that have urged the piercing of the corporate veil for reasons other than fraud have failed in Maryland courts. Notwithstanding its hint that enforcing a paramount equity might suffice as a reason for piercing the corporate veil, the Maryland Court of Appeals to date has not elaborated upon the meaning of this phrase or applied it in any case of which the court of appeals is aware.

Facts:

Iceland Telecom, Ltd. entered into a contract with the subsidiary, SN Global Communications, Inc. ("ISNGC"), after believing during negotiations that it was dealing with the parent, Information Systems and Networks Corporation ("ISN"). A dispute arose over payment. ISNGC subsequently ceased to exist. Iceland Telecom sought either to pierce the corporate veil to hold ISN and the shareholder liable or to hold them liable under an agency theory. 

Issue:

Did any ground exist that would warrant the piercing of the corporate veil of ISN holding them liable for the debts and obligations of ISNGC?

Answer:

No

Conclusion:

The court found that Maryland took a restrictive approach to piercing the corporate veil. Although ISNGC disregarded corporate formalities, failed to register to do business, and was grossly undercapitalized, among other factors found relevant in other jurisdictions, the court declined to pierce the veil absent a showing of fraud. With respect to agency, there was no evidence that ISN had established a principal-agent relationship with ISNGC. There also was no evidence that ISN took any action that would warrant a finding of apparent authority or agency by estoppel.