Federal Court Allows Reverse Veil Piercing Of Unincorporated Association

Allen Matkins

Last August, I published this post about the Fourth District Court of Appeal's decision allowing reverse veil piercing in the case of a Delaware limited liability company even though the court had refused to allow it in the case of a corporation.  Now, U.S. District Court Judge Yvonne Gonzalez Rogers has ruled that reverse veil piercing can be extended to unincorporated associatons.  In her ruling, Judge Rogers considered both of the Fourth District Court of Appeal's earlier decisions:

"Recent California law permits a court to amend a judgment to add a third party entity as an alter ego of a natural person judgment debtor. Curci Investments, LLC v. Baldwin, 14 Cal. App. 5th 214, 222-24, 221 Cal. Rptr. 3d 847 (2017). Amendment to name CJT, an unincorporated association, is distinguishable from an amendment to name a corporation as an alter ego entity for an individual judgment debtor, which earlier California authority rejected as abuse of the corporate form. Cf. Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal. App. 4th 1510, 1520-24, 77 Cal. Rptr. 3d 96 (2008). Moreover, because CJT Financial Group was named as a defendant in this action, was served with process, and was defaulted, the Court finds that amending the judgment to add CJT Financial Group as an alter ego of Castle comports with due process considerations. Accordingly, the Court Grants the motion to amend the judgment to name CJT Financial Group as a judgment debtor alter ego of defendant James C. Castle, aka J. Christopher Castle.

Fid. Nat'l Title Ins. Co. v. Castle, 2018 U.S. Dist. LEXIS 10892 (Jan. 22, 2018).  Note that Corporations Code § 18270 prohibits a judgment creditor of a member, director, officer, or agent of an unincorporated association from levying execution against the assets of the member, director, officer, or agent to satisfy a judgment based on a claim against the unincorporated association unless a judgment based on the same claim has been obtained against the unincorporated association and certain specified conditions are satisfied.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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