In Webmediabrands, Inc. v. Latinvision, Inc., No. 601048/2010, the Supreme Court (J. Friedman) pierced the corporate veil at the summary judgment stage.
Under New York law, the factors used to determine whether a court should allow plaintiffs to pierce the corporate veil include “a failure to adhere to corporate formalities, inadequate capitalization, commingling of assets, use of corporate funds for personal use,” an “overlap in ownership and directorship,” and “common use of office space and equipment.” For this reason, corporate veil piercing or alter ego claims of liability are fact-laden and, typically, are not considered well suited for resolution at the summary judgment stage.
Here, plaintiffs Webmediabrands, Inc., Internet.com Venture Fund II, LLC and I-Venture Management LLC (“Plaintiffs”) moved to pierce the corporate veil of Defendant Latinvision, Inc. (LVI) and enforce a judgment, awarded in favor of Plaintiffs against LVI, against LVI’s corporate officer and principal shareholder Carlos Vassallo and another of Vassallo’s businesses, Latinvision Media, Inc. (LVM). LVI, LVM, and Vassallo are collectively referred to as the “Defendants.”
LVI is a New York corporation formed by Vassallo in 1998 as a media company and digital platform to provide international companies access to Latin American audiences. In December 1999, Plaintiffs purchased 681,818 shares of preferred stock issued by LVI. Although LVI is still listed as “active” by the state of New York, on September 11, 2001, LVI’s office space at the World Trade Center was destroyed. Further, LVI’s domain name is now being used by Vassallo and another entity that he created, LVM.
Vassallo formed LVM in Delaware in 2005 for the similar purpose of facilitating marketers’ entry to the Hispanic market and organizing events for the Hispanic and Latin American communities in the United States. Vassallo is the principal shareholder, officer, and director of both LVI and LVM. In 2011, the Delaware Secretary of State declared LVM “void” and LVM’s authority to do business in New York was revoked based on its failure to file the requisite federal and Delaware tax reports.
In 2010, Plaintiffs demanded redemption of their preferred stock from LVI, but LVI (and Vassallo) refused. In December 2011, Plaintiffs obtained a judgment against LVI for $1.18 million, representing the original purchase price of $750,000 plus interest. When the judgment remained unsatisfied, Plaintiffs filed the instant action seeking to enforce the judgment against LVM and Vassallo as alter egos of LVI.
In support of their alter ego claims, Plaintiffs submitted evidence that Defendants “completely failed to respect the separate legal existence of LVM and LVI” by commingling assets among the companies’ separate bank accounts and Vassallo’s personal bank account and using corporate funds for Vasallo’s personal use—over $120,000 in total. The court rejected Vassallo’s argument that these transactions were simply frequent “loans” or “shareholder distributions.” To further bolster their claims, Plaintiffs highlighted the defendants’ failure to produce any documents “showing the existence of corporate governance mechanisms,” the suspension of LVM’s corporate status based on its failure to observe corporate formalities, and Vassallo’s deposition testimony that LVM was “basically me.”
While acknowledging the general rule that claims involving alter ego liability are “not well suited for summary judgment resolution,” the court nonetheless found that “the undisputed facts” establish that “both Vassallo and LVM are liable as alter egos for the judgment against LVI.” Specifically, the court cited the evidence that “LVI and LVM had overlapping directors; LVI, LVM and Vassallo commingled assets; Vassallo used corporate funds for personal purposes; LVM used LVI’s domain name; and LVM and Vassallo held no corporate meetings and kept no corporate records.” Despite the heavy burden that plaintiffs when asserting alter ego claims, particularly when moving for summary judgment, in this instance, a New York court resolved corporate veil piercing claims at the summary judgment stage.