Expert: Morgan Smith - 10/24/2011

Question
I reviewed a similar question you answered regarding a defendant who closed one LLC and opened another to avoid paying a debt.  I have a similar case with a bit of a twist.

LLC-A owes me money for services rendered.  I have already brought and won a suit against LLC-A in CT small claims court.  While the suit was pending the owner of LLC-A started LLC-B to continue doing business while avoiding paying past debts.  LLC-B is located at the same address, providing the same service and with only a sightly different name.  Based on my research this leads me to believe I have a good case to pierce the corporate veil and go after assets of LLC-B and the owner himself.

My question is what is the next logical step seeing how I already have a judgement against LLC-A.  Is it best to bring a new suit to small claims court against LLC-B and owner and just use the original judgement as evidence or is their another type of filing that would be more effective?

Any information would be greatly appreciated.

Answer
Dear Bryan,

Before I respond further to your question, I must make clear that I do not represent you, and cannot give you individual particularized legal advice. No attorney client relationship is created by this email. For legal advice, you should hire your own attorney, and follow their advice. My role with AllExperts is limited to providing general information and suggestions for educational or general knowledge purposes.

Before you take any action, consult with your own attorney. Speak to an attorney licensed to practice law in your state about the strengths, weaknesses, and likely outcomes of any contemplated cause of action or defense.

Your question is about piercing the corporate veil.

Courts will ignore a baloney business entity and allow a claimant like you to get through the illusion of a company under some circumstances.  In my state, the conditions for doing so are generally understood to be insufficient capitalization, failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of the transaction in question, siphoning of funds by dominant shareholder/principal, nonfunctioning of other officers and directors, absence of corporate records, and the existence of corporation as merely facade for individual dealings.  Courts will also examine the relationship of the plaintiff to the business in deciding whether to pierce. A showing of injustice or fundamental unfairness is sought, althoug proof of strictfraud is not required, but, evidence that the corporate entity has been operated as a sort of fraud must be presented, like the owner used the LLC-B as his alter ego and dominated and controlled the business and treated it as his own for naughty purposes.

I recommend that you bring your information to an attorney licensed to practice in your state right away to discuss local rules and laws.  Your next logical step would be to sue LLC-B and the owner personally for breach of contract, unjust enrichment, fraud (if you can plead that out properly) and any other causes of actions appropriate, and specifically pled out the elements required in your state for piercing.  

The original judgment against LLC-A is one piece of your evidentiary puzzle.

I hope this helps, good luck to you.

Morgan Smith
SMITH & RAVER LLP
Minneapolis, Minnesota
smith-and-raver-llp.biz
Conciliation Court * Civil Litigation * Forfeitures * Construction * Family Law