North Carolina Supreme Court Addresses Nature of Piercing the Veil

North Carolina Supreme Court Addresses Nature of Piercing the Veil

      A recent decision from the Supreme Court of North Carolina is notable in every jurisdiction for the clear guidance it has provided with respect to piercing the veil.  Green v. Freeman, No. 424A12 (N.C. Nov. 8, 2013).

      Most of this decision is spent addressing whether or not there existed a valid evidentiary basis for holding a particular individual liable for an alleged breach of fiduciary duty.  Ultimately, the Court found that evidence to be lacking.  In the course thereof, the Court also set aside an earlier determination to pierce the veil in order to hold that individual liable for the alleged breach.  In this case, the Court noted that, even where the elements of piercing itself, mainly domination and control, are established, the task is only half done.  “There must also be an underlying legal claim to which liability may attach.”  As such:

The doctrine of piercing the corporate veil is not a theory of liability.  Rather, it provides an avenue to pursue legal claims against corporate officers or directors who would otherwise be shielded by the corporate form.

      This is important guidance that apparently must be oft repeated.  Piercing the veil is not a legal theory of liability, but rather a remedy.  If and only if the plaintiff has a claim against the legal organization that is not satisfied from corporate assets does piercing become an issue.  Like negligence in the air resulting in no injury to anyone giving rise to a claim, domination and control of a corporation is of itself not actionable unless and until, on some other basis, a plaintiff is both injured and unable to recover.