Originally Posted by TheRusty
I am not a lawyer so I do appreciate having some real expertise here. I am enjoying this drama as an excuse to learn about law as a side benefit. I see it as an extension of a math exercise of the type "if this true, then this also must be true". I don't see how the alter ego concept is going to come into play for two reasons:
1) the attempted fraud caused no damage
2) the 2 circumstances and 8 factors don't apply here
Can you lawyers find flaws in this argument?
I may not enjoy the highly charged speculation about what the future holds, but I do like poking around in legal details and facts to figure out what fits there, so I'm back.
So far as I can tell, the presence (or absence) of damages isn't what determines whether you can pierce the corporate veil; it just goes to what kind of money judgment or other compensation is ordered by the court, just as in criminal law it would go to the sentence and judgment.
With regards to the 8 factors, it seems only the last one (the use of the corporate entity in promoting injustice or fraud.) has any potential relevance. Here's where I'd like a real legal opinion. Is the use of the corporate entity in promoting fraud different than some member of the corporate entity committing fraud on behalf of the corporation? If the person committing the fraud is an employee but not an owner does the factor still apply? Again, the primary argument here is that since it does not matter whether the lease was to an individual or a corporation, the entity was not used to promote the fraud.
'Promoting injustice and fraud' doesn't mean engaging in a single fraudulant transaction; 'injustice and fraud' has to be an ongoing purpose and practice of the corporation. One common (and usually successful) example among little S-corps is transferring personal assets to the corporation before declaring personal bankruptcy, a divorce, or when creditors are about to come knocking on the door. Another is the sleazy telemarketing operation that signs you up for a pamphlet about how to get rich quick, then bills your credit card monthly for some 'subscription' service doesn't actually exist.
This brings us to the issue of Snowbird. Buying a business when another may be at risk, but isn't under imminent threat of insolvency, doesn't by itself mean the owner's purpose is to put his money out of the reach of the opposing party. I also don't see how the owner buying a the same kind of business as another he owns is even relevant. So long as Cummings bought Snowbird with his own money and isn't using Pwder's personnel or assets to operate it, Snowbird's only relevant because Cummings' interest in it is an asset to be exploited by any creditor who comes a-knocking.
I strongly believe, but am too lazy to confirm, that an owner isn't automatically responsible for fraud committed in the course of a corporation's business. You have to be able to connect him to the misconduct. Generally that requires proving his personal responsibility for the illegal act, such as performing the act himself, directing subordinates to perform the act, or failing to satisfy an affirmative duty to ensure the act doesn't
happen. An example of the latter would be CPA owners of accounting firms, who are responsible under SEC regulations to supervise all of the work of the firm to ensure it meets standards of practice, and who get in trouble with the PCAOB and SEC for either encouraging or turning a blind eye to tax fraud perpetrated by their employees in exchange for fat contracts.