Brief Fact Summary. DeWitt Truck Brokers (P) sought to impose individual liability on Flemming (D) by piercing the corporate veil of his company, Ray Flemming Fruit Co. (D).
Synopsis of Rule of Law. A court will pierce the corporate veil to eliminate injustices or inequitable consequences.
But when substantial ownership of all the stock of a corporation in a single individual is combined with other factors clearly supporting disregard of the corporate fiction on grounds of fundamental equity and fairness, courts have experienced little difficulty and have shown no hesitancy in applying what is described as the alter ego or instrumentality theory in order to cast aside the corporate shield and to fasten liability on the individual stockholder.View Full Point of Law
Issue. Will a court â€œpierce the corporate veilâ€ to eliminate injustices or inequitable consequences?
Held. (Russell, J.) Yes. A court will pierce the corporate veil to eliminate injustices or inequitable consequences. Significant to the decision (particularly in the case of a one-man or closely held corporation) is whether the corporation was grossly undercapitalized in corporate operation. Here, the combination of factors diminishing the corporate image of the entity allowed it be dismissed as a separate legal entity. Affirmed.
Discussion. Courts will enthusiastically â€œpierce the corporate veilâ€ to hold a parent corporation responsible for the debt of a subsidiary it holds stock in, more so than holding the individual responsible when piercing the veil. Not creating a separation between the business of parent and subsidiary is a definitive way to ensure the veil will be pierced.