Twist & shout: California appellate court allows reverse veil piercing against LLC

by Thompson Coburn LLP

Thompson Coburn LLP

The California’s Fourth Appellate District has concluded that “reverse veil piercing” is possible to add a limited liability company to a judgment against the 99 percent owner of that LLC, in a decision that distinguishes itself from the 2008 appellate decision, Postal Instant Press, Inc. v. Kaswa Corp.

In Curci Investments, LLC v. Baldwin, James P. Baldwin borrowed $5.5 million from Curci’s predecessor pursuant to a promissory note. When the Curci note came due, Baldwin had not made any payments, and Curci therefore filed a lawsuit against him. After a payment plan fell through, Curci eventually obtained a judgment against Baldwin in the approximate amount of $7.2 million, including interest, attorneys’ fees, and costs.

Curci was unable to recover any part of the multi-million-dollar judgment against Baldwin. Consequently, Curci tried an enforcement procedure allowed in California – adding, by simple motion, one of Baldwin’s investment companies, JPBI Investments, LLC. JPBI, a Delaware LLC, had as its exclusive purpose to hold and invest Baldwin and his wife’s cash balances. Baldwin owned 99 percent of JPBI, and his wife owned the other 1 percent. Baldwin was the manager and the CEO of JPBI and, in these roles, Baldwin determined when, if at all, JPBI made monetary distributions to its members, i.e., Baldwin and his wife. Indeed, Baldwin caused JPBI to make distributions of approximately $178 million to himself and his wife between 2006 and 2012. 

Curci argued that JPBI should be added as a judgment debtor because JPBI was Baldwin’s alter ego: “Baldwin was using JPBI to avoid paying the judgment and that an unjust result would occur unless JPBI’s assets could be used to satisfy Baldwin’s personal debt.” In effect, Curci was arguing that the court should get to JPBI’s assets through “reverse piercing of the corporate veil.” 

The more typical version of this doctrine, “piercing the corporate veil,” occurs when a judgment is entered against a corporation or LLC and a court then finds that individuals are the alter egos of that entity. Because they are alter egos of that corporation or LLC, the Court pierce through that entity and allows the judgment creditor to recover the individuals’ assets. Claimant  → Corporation/LLC  → Shareholder/Member. In reverse veil piercing, it’s the opposite; reverse veil piercing seeks to satisfy the debt of an individual through the assets of an entity of which the individual is an insider.  Claimant  → Shareholder/Member  → Corporation/LLC. 

The concepts are the same, in that the claimant must prove that there is such a unity of interest and ownership between the corporation or LLC on the one hand and its equitable owner on the other hand, such that the separate personalities of the corporation/LLC and its shareholder/member do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation or LLC alone. 

In Postal Instant Press, another California appellate court previously held that a third party creditor may not pierce the corporate veil to reach corporate assets to satisfy a shareholder’s personal liability. In Curci, the court of appeal distinguished Postal Instant Press, because Curci involved an LLC while Postal Instant Press involved a corporation. Further, there was no potential for harm to other owners of JPBI because Baldwin owned 99 percent and his wife owned the other 1 percent. 

With Baldwin’s possession of near complete interest in JPBI, and his roles as CEO and managing member, Baldwin effectively has complete control over what JPBI does and does not do, including whether it makes any disbursements to its members (he & his wife). Since the time judgment was entered in Curci’s favor, Baldwin has used that power to extend the payback date on loans made to ultimately benefit his grandchildren (loans on which not a single cent has been repaid), and to cease making distributions to JPBI’s himself and his wife, despite having made $178 million in such distributions in the six years leading up to the judgment.

The appellate court held that “[f]or all these reasons,” reverse veil piercing may be available against JPBI. The court would not give an opinion on whether it should be, instead, sending the case back to the trial court to undertake the fact-driven analysis. Explaining that there is no “litmus test,” the appellate court held that “the key is whether the ends of justice require disregarding the separate nature of JPBI under the circumstances.”

The moral of the story? Be careful so that an appellate court won’t stretch the law “for the ends of justice."

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.

© Thompson Coburn LLP | Attorney Advertising

Written by:

Thompson Coburn LLP

Thompson Coburn LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.