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Law School Case Brief

Midland Interiors, Inc. v. Burleigh, Civil Action No. 18544 - 2006 Del. Ch. LEXIS 220 (Ch. Dec. 19, 2006)

Rule:

Persuading a Delaware court to pierce the corporate veil is a difficult task. Absent compelling cause, a court will not disregard the corporate form or otherwise disturb the legal attributes, such as limited liability, of a corporation. Although the legal test for doing so cannot be reduced to a single formula that is neither over- nor under-inclusive, Delaware courts have only been persuaded to pierce the corporate veil after substantial consideration of the shareholder-owner's disregard of the separate corporate fiction and the degree of injustice impressed on the litigants by recognition of the corporate entity.

Facts:

Plaintiff, Midland Interiors, Inc. (Midland), contracted with Defendant Window Treatment & Carpet, Inc. (Window Treatment) to install carpet for Window Treatment's clients. Window Treatment failed to pay Midland for many of the carpet installations. On December 9, 1997, Midland obtained a stipulated judgment against Window Treatment in the amount of $7,180.37 (the "December 9 Judgment"). Midland has not collected on this judgment, in part because Window Treatment has no assets. Therefore, Midland sought equitable relief in the form of piercing the corporate veil of Window Treatment so as to enforce the December 9 Judgment against its owner and sole stockholder, David Burleigh, personally.

Issue:

Can a judgment creditor pierce the corporate veil of the judgment debtor corporation to reach the assets of the sole stockholder-employee of the debtor?

Answer:

Yes.

Conclusion:

The court held that the corporate veil should be pierced. According to the court, the shareholder failed to adhere to formalities such as holding corporate meetings and keeping minutes of them. His operation of the corporation ensured that it never had any economic worth, insurance policy, or assets that could be attached by a judgment creditor. Furthermore, in 1996, the corporation became legally void under Del. Code Ann. tit. 8, § 510 for failing to pay its annual corporate taxes. The corporation, however, continued to order carpet from plaintiff after this date. The evidence showed that the shareholder knew that the corporation had become inoperable when he secured the last of the 1996 contracts; thus, at least some of those contracts were fraudulently negotiated. The shareholder's conduct in connection with the stipulated judgment also favored piercing the corporate veil. By stating that the corporation fully intended to pay the amount due, the shareholder intentionally misled plaintiff into believing that the corporation would be able to satisfy the judgment. In light of this false representation, to allow the shareholder to hide behind the corporate veil would encourage similar fraudulent behavior.

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