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A business injures a customer. The customer sues and seeks to pierce the corporate veil and hold the business owner personally liable.

The customer is able to present evidence of misconduct satsifying the state's test for piercing the corporate veil, but only based on actions that occured after the injury. In other words, the business was being operated up to the time of the injury, but the owner began mismanaging it some time later.

Can the customer still hold the owner personally liable? I'm looking for cases addressing this question.

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There are several concepts that are very closely related: piercing the corporate veil, the alter ego doctrine, and fraudulent transfer laws.

Lots of conduct that does not qualify for piercing the corporate veil, or the alter ego doctrine, can still be used to hold the owner liable for a fraudulent transfer.

Usually, if the owner transfers an asset from the company (even something intangible, like business prospects) without substantially equivalent value being paid in exchange, or if the owner takes actions calculated to make the entity debtor affirmatively hinder a creditor or conceal assets, there is a fraudulent transfer and the transferred asset can be recovered by the entity's creditors.

Paying bona fide valid insider debts before paying third-party creditors can also constitute a fraudulent transfer that can be recovered.

The remedies available against the business owner personally would also depend upon the precise nature of the misconduct.

Keep in mind that in an action for a tort, like negligence causing personal injury or professional malpractice, anyone who participated in the negligence that caused the personal injury has personal liability, notwithstanding the fact that this person was acting in their official capacity for the company while doing so. So, the details of who was involved in causing the injury to the customer matter. In a small closely held limited liability company, the owners is often personally involved in tortious conduct.

For example, suppose that a small closely held company makes a defective product and sells it to a customer who is injured by the defective product.

Certainly, the company that sold the product would be exposed to product liability claims from the injured customer.

But, if the small company only has one or two people who design and manufacture the product, and one can prove that they were involved in designing and manufacturing this particular product (e.g. a custom item), then the individuals involved in designing and manufacturing the defective product have personal liability in tort in a product liability suit, not just the company.

On the other hand, if the liability is purely for a breach of contract, or the company is liable vicariously for conduct of someone other than the owners or managers or officers, and if the company made no fraudulent transfers, and was operating with proper formalities at the time of the incident, piercing the corporate veil, or applying the alter ego doctrine could be much more challenging (although, of course, the law varies from jurisdiction to jurisdiction, and this is largely a matter of state law).

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  • This all sounds correct enough, but I'm not sure it answers the question. Can the veil be pierced even if the qualifying misconduct occurred after the injury?
    – bdb484
    Mar 25, 2022 at 2:14
  • @bdb484 Fair. But I'm not sure that there is a well established majority rule one way or the other in the U.S. on this question, and I think that is in part, because cases aren't litigated that way very often when there are other avenues available. The kind of veil piercing misconduct post-injury that is involved might also matter, with an analysis that doesn't formally fit in that doctrinal box but reaches the same result.
    – ohwilleke
    Mar 25, 2022 at 2:35

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