Tag Archives: oderah nwaeze

Does Delaware law support reverse veil-piercing? The Fourth Circuit says: YES!

By: Oderah C. Nwaeze & Mackenzie M. Wrobel

Although Delaware has not expressly adopted the remedy of reverse piercing of a corporate veil, the United States Court of Appeals for the Fourth Circuit believes that Delaware LLCs may be deemed the alter ego of their sole or controlling equity-holder and held jointly liable for that individual’s (or entity’s) liabilities. Indeed, in Sky Cable, LLC v. DIRECTV, Inc., 886 F.3d 375 (4th Cir. 2018), the Court of Appeals applied reverse veil-piercing to conclude that the LLCs at issue were properly co-debtors to a $2.3 million judgment against the LLCs’ sole member, Randy Coley.

At the trial level, the Western District of Virginia entered a $2.3 million judgment for DirecTV, after finding that Mr. Coley was liable for a fraud scheme involving the unauthorized transmission of DIRECTV’s programming. See Sky Cable, LLC, 886 F.3d at 377. When DIRECTV could not enforce the judgment against Mr. Coley, DIRECTV moved the district court to pierce the corporate veil of three of Mr. Coley’s LLCs, arguing that the LLCs were Mr. Coley’s alter egos. Id. The district court agreed and granted DIRECTV’s motion. Id. Among the reasons for that holding was that: (1) the LLCs were controlled solely by Mr. Coley; (2) Mr. Coley failed to observe corporate formalities and maintain proper accounting records; and (3) Mr. Coley engaged in significant commingling of assets between the LLCs and his personal finances.  Id. at 390. Continue reading Does Delaware law support reverse veil-piercing? The Fourth Circuit says: YES!

Citing “Issue Preclusion,” the Delaware Court of Chancery Denies Advancement to a Company’s Vice President

The Delaware Court of Chancery typically holds that a corporation must advance the fees and expenses of an executive or officer-level employee who is required to defend a civil, criminal, administrative or investigative action by virtue of his or her employment with the company. Recently, however, Vice Chancellor J. Travis Laster held that a plaintiff was not entitled to advancement because he did not prove that someone with the bare title of “Vice President,” without any managerial or supervisory responsibilities, fit within the definition of “officer” found in the relevant bylaws.

The Court of Chancery’s holding in Aleynikov v. The Goldman Sachs Group, Inc., C.A. No. 10636-VCL (Del. Ch., July 13, 2016) was based, in large part, on its conclusion that it was bound by an incorrect finding by the Third Circuit in a related action because the doctrine of “issue preclusion prevent[ed] relitigation of wrong decisions just as much as right ones.”

To read the full text of the Alert, please visit www.duanemorris.com.