Piercing the Corporate Veil

Topics: Corporation, Business, Corporations Pages: 6 (1516 words) Published: October 29, 2011
Your honors and may it please the court, I alongside co-counsel,represent small businesswoman Paula Keene. I will explain why it is important to uphold West Virginia Statute 31d-6-622 to maintain the corporate veil and to show that Ms. Keene is not personally responsible for corporate debts accrued by Main Event. My co-counsel will explain why punitive damages should not be awarded against Ms. Keene. Your honor, I respectfully request 2 minutes for rebuttal.

Your honors, this case is about the fundamental right of shareholder protection. The right of a small businesswoman to pursue her goals and not be punished for her initiative and contribution that is so essential to American business. That is the right Quik Food attempts to take away and is forcing this court to once again protect.

Your honors, the court should reverse the circuit court’s ruling for 3 reasons. First Ms. Keene maintained a separation of interest, Second Main Event was properly capitalized, and third Quik Food was a sophisticated creditor who assumed the risk.

General Rule:
W. Va. Code § 31D-6-622 (2011). In WV, Corporate shareholders are not liable for the acts or debts of the corporation but may become liable by reason of own conduct. The court in Laya v. Erin Homes structured a format for analyzing this liability in applying a two prong test. The first prong (a corporate formalities requirement) ensures corporations follow corporate formalities and a unity of interest. Nineteen factors are used to analyze a corporation. Prong two (fairness requirement), requires a corporation not be grossly undercapitalized or commit wrongdoings. A debt/equity ratio is used to identify capitalization. Both prong 1 and 2 must be violated in order to hold the shareholder liable. A Third prong exists which classifies corporations who possess the ability to run a reasonable credit check. Sophisticated entities assume the risk and are responsible for the knowledge a reasonable credit investigation would provide. These three prongs are taken in a totality of the circumstances to ensure corporate shareholders are not running a corporate fiction or abusing the integrity of a corporation.

Ms. Keene maintained a proper separation of interest b/t herself and Main Event The two following cases will demonstrate situations and reasoning that will prohibit a plaintiff from piercing
Prong 1
No Pierce In, Mills v. USA Mobile Communications, the Court of Appeals of West Virginia denied the plaintiff’s attempt to pierce the corporate veil because the corporation maintained key corporate formalities requirements.

-plaintiff contracted with the corporation and not the individual shareholders.
(demonstrates corporate liability from the president and not personal liability)
-plaintiff was paid directly from the corporation’s account, and not from an account of an individual shareholder. (demonstrates a disparity of funds)
No Pierce In, T&R Trucking, Inc. v. Maynard, the Court of Appeals of West Virginia awarded protection over the corporation’s president because he adhered to additional key formalities.
-President never commingled personal with corporate funds, or
-failed to maintain proper insurance or
-failed to maintain adequate records.
In Contrast, courts have designated piercing to cases such as follow:
Yes Pierce In Rudd Equip. Co. v. Terry Raines Contracting (2010), The District Court of West Virginia allowed the plaintiff to pierce the corporate veil because the defendant failed to adhere to proper formalities.

-commingled personal and corporate funds
-grossly undercapitalized the corporation in order to defraud and harm creditors
-abandoned company to avoid responsibility for their debt
-court reasoned their actions were to use the corporate shield as a shell (abused)---this is the standard for piercing the veil

Keene Pros
-majority of...
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