January 25, 2022

Volume XII, Number 25

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January 24, 2022

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California Court Addresses Outside Reverse Veil Piercing Of Chimeric LLC

Reverse veil piercing involves subjecting an entity to the liabilities of its owner.  See Inside and Outside Veil Piercing.   As Professor Bainbridge has noted, there are two types of reverse veil piercing:

One type might be called insider reverse veil piercing, in which a shareholder seeks to disregard the corporate entity.

The other is so-called outsider reverse piercing, in which a personal creditor of the shareholder seeks to disregard the corporation’s separate legal existence to reach assets of the corporation to satisfy its claim.

In a decision issued yesterday, the California Court of Appeal considered the second type of reverse veil piercing - outside reverse veil piercing.  Blizzard Energy, Inc. v. Bernd Schaefers,  2021 Cal. App LEXIS 968.  The plaintiff had obtained a judgment for nearly $4 million against an individual in Kansas.  When the plaintiff had the Kansas judgment entered in California, it asked the court to add two limited liability companies to the judgment based on the reverse alter ego doctrine.   The defendant's spouse, who had filed for a divorce, has a 50% interest in these LLCs.  She was not a defendant in the Kansas action.  The court added the LLCs as judgment debtors and the defendant appealed.

The Court of Appeal found that there was sufficient evidence to support the trial court's finding of alter ego but reversed and remanded so that the trial court could weigh the "competing equities" related to the wife's co-ownership of the LLCs.  While not deciding the question, noted that the wife may be an innocent member who would be adversely affected by the veil piercing.  

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 323
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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