Reverse veil piercing involves subjecting an entity to the liabilities of its owner. See Inside and Outside Veil Piercing. As Professor Bainbridge has noted, there are two types of reverse veil piercing:
One type might be called insider reverse veil piercing, in which a shareholder seeks to disregard the corporate entity.
The other is so-called outsider reverse piercing, in which a personal creditor of the shareholder seeks to disregard the corporation's separate legal existence to reach assets of the corporation to satisfy its claim.
In a decision issued yesterday, the California Court of Appeal considered the second type of reverse veil piercing - outside reverse veil piercing. Blizzard Energy, Inc. v. Bernd Schaefers, 2021 Cal. App LEXIS 968. The plaintiff had obtained a judgment for nearly $4 million against an individual in Kansas. When the plaintiff had the Kansas judgment entered in California, it asked the court to add two limited liability companies to the judgment based on the reverse alter ego doctrine. The defendant's spouse, who had filed for a divorce, has a 50% interest in these LLCs. She was not a defendant in the Kansas action. The court added the LLCs as judgment debtors and the defendant appealed.
The Court of Appeal found that there was sufficient evidence to support the trial court's finding of alter ego but reversed and remanded so that the trial court could weigh the "competing equities" related to the wife's co-ownership of the LLCs. While not deciding the question, the Court noted that the wife may be an innocent member who would be adversely affected by the veil piercing.
The only game that matters . . .
Tomorrow, Harvard will meet Yale for the 137th time in a storied football rivalry - the two teams first met in 1875. For a history of The Game, see Bernard Corbett & Paul Simpson, The Only Game That Matters (Crown 2007). For a video of perhaps the most dramatic Harvard "win" ever, watch the video Harvard Beats Yale 29-29. Fight Fiercely Harvard!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.