Tuesday, January 24, 2017
Friend and co-blogger Marcia Narine Weldon sent me a news article from Alaska discussing a "piercing of the corporate veil" claim for an LLC.
The City and Borough of Juneau demolished the Gastineau Apartments and is trying to get hold members of Gastineau Apartments LLC, apparent owners of the building liable for the $1.4 million demolition costs. Demolition cost more than the land is worth, so the suit is seeking to have the owners of the LLC, Camilla and James Barrett, pay the bill because they missed deadlines to repair or demolish the property.
The article reports:
At issue before Juneau Superior Court Judge Philip Pallenberg is the legal concept of “piercing the corporate veil.” It would allow legal action against the Barretts, who controlled Gastineau Apartments LLC.
Defense Attorney Robert Spitzfaden had argued that the Barretts should remain shielded from liability. But the judge noted that the defendants had allowed their limited liability corporation to be dissolved after missing filing deadlines with the state.
“It’s clear that the Barretts were not always clear to observe the formal legal requirements of their LLC,” Judge Pallenberg said from the bench.
A quick review of Alaska LLC law did not make clear to me that LLCs in the state have formal requirements that would be implicated in this case. If the main reason that the LLC did not pay the bills was a mere lack of money, there is no reason to pierce the veil. It's just a failed venture. Sure, the Barretts should have gone followed the appropriate processes, but it cannot be that the fact that the Barretts "allowed their limited liability corporation [author's note: it's an LLC] to be dissolved after missing filing deadlines with the state" is sufficient to support veil piercing."
Imagine the same scenario, but the building had value. Would missing deadlines and allowing the land owned by LLC to be automatically transferred to the Barretts? Even if there were other creditors? I think not.
Perhaps there is more to this case than the article reveals, but this looks a lot like a lack of entity funds is the only issue, and a lack of funds (on its own) should not be sufficient for veil piercing, especially in a property case where the property can be forfeited. If the city or state wants to make a law making individuals liable, then fine, but this looks like a bad case for veil piercing and a possible summary judgment case. I look forward to seeing if Alaska analyzes this one right at trial.