Federal District Court in Virginia Reverse Pierces Delaware LLC

Federal District Court in Virginia Reverse Pierces Delaware LLC

 

Based if nothing else upon the outrageous facts of the case, a recent decision from the Federal District Court in Virginia is worth rending. Substantively, reverse pierced three Delaware LLCs in order to access their respective assets to satisfy a judgment debt of the sole member. Sky Cable, LLC v. Coley, Civ. Act. No. 5:11cv00048, 2016 U.S. Dist. LEXIS 93537 (W.D. Va. July 18, 2016).

A judgment had been entered in favor of DirectTV, LLC against Coley and East Coast Cable Vision in the amount of $2,393,000. In post-judgment collection actions, in language detailed by the court, Coley engaged in a pattern of recalcitrance including failing to produce documents by set deadlines, the apparent submission of fraudulent documents, and giving inconsistent answers with respect to a number of matters, including whether he is the sole member, or in contrast is a member with his wife, of three Delaware LLCs, they being Its Thundertime, LLC, East Coast Sales, LLC and South Raleigh Air, LLC. There was in addition comingling of funds between Coley and these three LLCs. In depositions, he was either unable or unwilling to explain how the money moved between these three companies and his personal account. Also, his personal residences were held by one of these LLCs, even as Coley and his family lived in them rent-free. DirectTV, in order to collect on a judgment, petitioned the court to reverse pierce the three LLCs.

Finding that Delaware law is controlling as to whether these three LLCs may be pierced, it collected and reviewed the laws with respect to whether or not outsider reverse piercing would be permissible under Delaware law. Ultimately concluding that outsider reverse piercing would be permissible, that determination being based upon hints in certain Delaware decisions as well as the long list of other states that have allowed outsider reverse piercing on appropriate facts, reverse piercing was ordered. In addition, the court pointed a receiver for each of the LLCs, finding this to be a “extraordinary case.” Specifically:

Randy Coley’s deception and efforts to evade judgment have plagued this litigation. Based on this history, there is a probability that Coley’s deceitful tactics will continue in an effort to frustrate DirectTV’s valid claim as a judgment creditor in this case, and that the corporate assets are in imminent danger of being “concealed, lost, or diminished in value.

For that reason, the receiver was justified.