John Hildreth was the sole shareholder, director, and officer HCE, Inc, a corporation in New Jersey. HCE-NJ began to do business in Maryland in early 1997. According to the Maryland code, it is required for foreign corporations to register with the Maryland Department of Assessments and Taxation before doing intrastate business in Maryland, and it is required to have a resident agent in Maryland. In February 1998, HCE-NJ rented equipment from Tidewater Equipment Company, Inc. and again in September 1998. Tidewater and HCE-NJ signed a series of contracts, none of which were signed by Hildreth. When payments ceased after February 1999 repossessed the equipment and sued Hildreth holding him personally liable for the debts by HCE-NJ. Issue
Is there a basis for piercing the veil of HCE-NJ and imposing personal liability for the corporate obligation on Hildreth? Rule
In order for a court to pierce the corporate veil, two requirements must exist: (1) domination of a corporation by its shareholders; and (2) use of that domination for an improper purpose (defrauding creditors, circumventing a statute, or evading an existing obligation. Application
In order for us to prove that Hildreth be held personally liable for the corporation’s obligation, we must consider various factors that can show if Hildreth practiced domination on the corporation and if that domination was used for an improper purpose. Hildreth was the sole shareholder and was personally involved in the management of the business. He was a “sole shareholder, director and officer” to this New Jersey corporation. Although HCE-NJ contracted with Tidewater, Hildreth, as a shareholder, was personally involved in the business transactions between HCE-NJ and Tidewater in agreement for renting construction equipment. Hildreth also failed to follow Maryland law by registering HCE-NJ with the Maryland Department of Assessments and Taxation before doing intrastate...