Piercing the Corporate Veil In Connecticut
By Brendan Faulkner*
From practical origins more than 4,000 years ago, the veil gradually became the most meaningful article of clothing. Badge of prestige, symbol of modesty, signifier of oppression, it has had many meanings to different cultures across the globe.
In the law, the veil is a standard metaphor for limited liability protection. In that sense, all you need to know is how and when the corporate veil may be pierced in Connecticut courts-knowledge that could mean the difference between declining a case and taking it and obtaining a recovery for your client.
I. Connecticut's Veil-Piercing Case Law
A Connecticut court "may disregard the fiction of a separate legal entity to pierce the shield of immunity afforded by the corporate structure in a situation in which the corporate entity is so controlled and dominated that justice requires liability to be imposed on the real actor."1 Put otherwise, when a corporation "is so manipulated by an individual or another corporate entity as to become a mere puppet or tool for the manipulator, justice may require ... disregard [of] the corporate fiction."2
The concept, which is equitable in nature,3 may be used equally with respect to corporations and limited liability companies,4 and in a variety of contexts. Corporate veil piercing is not an independent cause of action.5 It is parasitic. The most common causes of action asserted with a theory of veil piercing are tort6 and contract.7 The doctrine is often invoked in a subsequent action to enforce a judgment.8
The typical veil-piercing case involves a creditor suing an individual who has used the corporate entity as an instrument of fraud.9 The plaintiff seeks to pierce the protection afforded by the corporate shield and hold the shareholder liable. In the "reverse pierce" situation, the plaintiff argues the opposite: that the assets of the corporate entity should be made available to pay the personal debts of an owner.10
Both types were recently applied in McCarthy v. State Five Industrial Park, Inc.11 After a bench trial, the McCarthy Superior Court held the wife of a business owner liable for a judgment previously entered against her husband and his businesses. First, the court reverse pierced the veil of State Five-a business to which the original judgment did not apply-on the grounds that it was the alter ego of the husband, who had used it to hide assets from satisfaction of the judgment.12 The court then veil pierced to hold his wife liable because State Five was also her alter ego and she had assisted her husband in hiding assets.13
Though the facts in McCarthy were complex, and the piercing-reverse piercing combination unusual, the result is not extraordinary. It is a reminder that the "guiding concept behind . . . veil piercing cases is the need for the court to avoid an over-rigid preoccupation with questions of structure ... and apply the preexisting and overarching principle that liability is imposed to reach an equitable result."14 Though there are no hard and fast rules for determining when the corporate shield should be disregarded, a key factor is the degree of control or influence exercised over the entity. The common thread in Connecticut's case law is an intolerance of shell games.
A. The Instrumentality and Identity Rules
Connecticut law endorses two tests to determine whether to pierce the corporate veil: the identity rule and the instrumentality rule. An entity may be disregarded if the elements of either are satisfied.15 Most of the time, if one test is met, both are-"they are simply slightly different roads to the same destination."16 Whether to pierce is a fact question for which plaintiff bears the burden of proof according to the preponderance of the evidence standard.17
1. Instrumentality Rule
Courts will disregard the fiction of a separate legal entity when a corporation is a mere instrumentality or agent of another corporation or individual. The instrumentality test has three specific elements of proof:
- Control, not merely majority or complete stock control, but complete domination, not only of the finances but of policy and business in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
- that such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of the plaintiff's legal rights; and
- that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.18
In assessing whether an entity is dominated or controlled, courts have looked for the presence of a number of factors. In Connecticut Light and Power Co. v. Westview Carlton Group, LLC,19 for example, the Appellate Court affirmed veil piercing according to the instrumentality rule where the lower court had found an absence of corporate formalities, inadequate capitalization, funds deposited in and withdrawn from the corporation for personal purposes, overlapping ownership, officers, directors, and personnel, and common office space, address, and phones. The trial court had also considered the amount of business discretion by the dominated corporation, whether the corporations dealt with each other at arm's length, whether the corporations were treated as independent profit centers, the payment or guarantee of debts of the dominated corporation, and whether the corporation had property that was used by the others as if their own.20 The Appellate Court went on to note additional factors justifying veil piercing, noting that the llc lacked an agent of service as required by Connecticut law, filed no annual reports as required, lacked any of the documentation required of a limited liability corporation, failed to maintain property records for the property in question, failed to file tax returns, was undercapitalized, and that when the property in question was sold, the real actor received the net proceeds of the sale.21
Similarly, in Saphir, the corporation did not keep minutes of directors meetings, had no records of annual elections, and had never filed a business tax return. Other officers existed solely to accommodate the individual defendant, and he exclusively directed the corporation's affairs and funds. He also held the only proprietary interest in the corporation.22
In Tomasso, the individual defendants, the president and secretary-treasurer of a paving company (Armor) had guaranteed a line of credit on which the company had defaulted, and were sued as guarantors. The president and secretary-treasurer were figureheads, serving under duress with little real authority of their own. They feared that if they did not do as the man behind the business (Lemieux) instructed them, that he would shut down the corporation all together, costing them their paying jobs as estimator and office manager.
When sued on the guarantee, the president and secretary-treasurer in turn made third party veil-piercing claims against Lemieux, that Armor was actually a sole proprietorship. They claimed Lemieux should be made to indemnify them since they were merely acting as his agents.
The Appellate Court recited rather extensive evidence that Lemieux exercised near-total control of Armor-even though, on paper, he was not an owner, officer, or director-but nonetheless affirmed the trial referee's dismissal of the claims against Lemieux because he had not been involved with the transaction attacked (the guarantee).23 The majority therefore found that the instrumentality rule had not been satisfied. Lemieux created the corporation, capitalized it, arranged for bonding it would not have otherwise been able to obtain, determined corporate policy and salaries, and held an option to purchase 55% of the corporation as a term to the loans he had made in order to prop up the president and secretary-treasurer. He had access to the corporation's checkbook and financial records and required its officers to report to him periodically, but the president signed all the corporate checks, customer contracts and bid estimates. When the company hit hard times though, Lemieux took over control of the checkbook and then ordered the company to shut down. The corporation had outstanding debts of approximately $200,000. The president and secretary-treasurer never received anything other than their weekly salary for their other roles.24 Additional evidence further led to at least a permissible inference, according to the dissent, of total control: "From its cradle, to its grave Armor was under the total control of Lemieux ...."25 On a motion to dismiss, of course, all permissible inferences are supposed to be drawn in favor of the party opposing the motion. Nonetheless, the Appellate Court affirmed the trial referee's dismissal of their third party veil-piercing claims in part since the president "was never told by Lemieux that there were certain decisions he could or could not make,"26 and, while "Lemieux did indeed exercise a considerable amount of control (although he was not a director, officer, or shareholder) over the business affairs of Armor," with respect to the specific transaction attacked, there was insufficient evidence of his dominance and/or influence as is required to disregard the corporate entity.27
Justice Borden's persuasive dissent noted the obvious fact that a business just starting out, with no visible assets or history, would be required to have loans personally guaranteed by those apparently in charge. The guarantees were executed near in time to Armor's conception in connection with a line of credit pursuant to which Armor ordered and received (but never paid for) concrete and stone. Lemieux was an experienced businessman with full access to, and control of Armor's books and records. He had undercapitalized the business. He would have known such guarantees were likely at the very least. Moreover, because the president and secretary never received anything other than their weekly salary, the line of credit and materials received inured directly to Lemieux's benefit.28
The dissent also argued the inference of "complete domination not only of finances but of policy and business practice" could-and therefore had to be-drawn instead of the majority's understated characterization, "a considerable amount of control."29 The dissent argued that a trier of fact could reasonably infer that, where someone unconnected on paper to the corporation nonetheless exerts control over the corporation "that control must, by virtue of some undisclosed reasons, be more than 'considerable'; otherwise how would one explain the stranger's control at all?"30
The second element of the instrumentality rule merely requires a finding that the defendant committed an unjust act in contravention of the plaintiff's legal rights.31 The unjust acts in the case law typically relate to the improper disposition or hiding of assets, which is also therefore the proximate cause of plaintiff's injury (satisfying the instrumentality rule's third element). For instance, in Litchfield Asset Management, the Appellate Court found these requirements satisfied because the individual had known that plaintiff was pursuing a claim against her but chose not to defend against it and transferred personal assets to the company, preventing the plaintiff from securing collection of its judgment.32
Likewise, in McCarthy, the second and third elements of the instrumentality test were satisfied by the fact that the husband had attempted to convey the non-judgment-bound corporation to a close friend, for no consideration, and he and his wife otherwise
tried to frustrate the plaintiff's efforts to collect the judgment.33
Any unfair conduct will qualify though. In Saphir, the individual defendant had unjustly used his dominant control of the corporation to divert his contractual duty to construct and maintain a sub-development's roads.34 In Zaist, the individual defendant had unfairly received the benefit of services and material furnished by the plaintiffs for which his alter ego corporation had inadequate resources to pay.35
No matter what the form of the conduct, "[w]hen the statutory privilege of doing business in the corporate form is employed as a cloak for the evasion of obligations, as a mask behind which to do injustice, or invoked to subvert equity, the separate personality of the corporation will be disregarded."36
2. Identity Rule
Generally, the identity rule imposes liability when a corporate entity and an individual or multiple corporations should properly be considered one and the same. Also referred to as the "alter ego" rule, it provides:
If a plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise.37
In Toshiba, for example, the Appellate Court affirmed a judgment against a shareholder for his company's debt applying the identity rule because the defendant company operated on the same premises of the other company owned by the shareholder and had no employees and no equipment or property other than a vehicle for the shareholder's use. The stockholder had used the corporation's funds to pay his federal personal income tax and to make payments to his other corporation. He had also permitted his son to write checks on the corporate account.38 Very similar conduct was found by the Appellate Court to satisfy the identity rule in Davenport v. Quinn.39
In Stone, a Superior Court considered an application for prejudgment remedy, applied the identity rule, and found the veil-piercing claim would probably succeed because the individual defendants had " used [the llc] interchangeably with their own personal identities and with identities of other entities under their control, and failed to observe formalities for the limited liability company."40 The corporation's attorney's statement-"Go ahead and sue us. There is no money [in the llc]. Why do you think we set it up as an llc in the first place?"41-undermined the defense of the claim, to be sure.
In McCarthy, another Superior Court surveyed 40 years of Connecticut precedent concerning piercing the corporate veil and determined that the identity rule was satisfied (twice) because personal and business funds had been commingled, corporate funds had been used to pay personal expenses and the debts of the real actors' other corporations, and to make interest-free loans to family members, among other irregularities. The company had also assumed thousands of dollars of debt personally guaranteed by the husband-and-wife real actors.42
In Tomasso, the Supreme Court ducked the identity rule analysis on a bogus technicality. Noting that the identity rule "primarily" applies to prevent injustice where two corporations are controlled as one enterprise, Tomasso then proceeds as if it may only be applied in such circumstances.43 Because there was no evidence linking Armor and Lemieux's other corporation in a common enterprise, the rule did not apply according to the majority opinion.44 In his dissent, Justice Borden explained that this silent slide from "primarily" to "exclusively" belied the leading precedent of Zaist (in which judgment was rendered against the individual who controlled the corporation and against another corporation he controlled) and Saphir (where the corporate structure could have been disregarded to hold the controlling individual liable under either rule).45 The dissent considered the factual allegations at least as equal justification for veil piercing as the conduct at issue in Saphir and Zaist.46
Stone and McCarthy are reminders of Justice Borden's dissenting point in Tomasso that the identity rule may be applied to hold an individual liable,47 equally as it may be employed to preventing injustice where two corporate entities are, in reality, controlled as one enterprise.48
II. Plead Facts to Support a Veil-Piercing Claim, Not Just Legal Conclusions
Though piercing the corporate veil is not a separate cause of action,49 facts satisfying each element of either the instrumentality or identity rule must nonetheless be specifically pleaded.
Mountview Plaza Associates, Inc. v. World Wide Pet Supply, Inc.,50 is a good example to show this point. There, the Appellate Court observed that the instrumentality rule was satisfied where the complaint alleged that the majority shareholder "used corporate funds for her own, failed to keep accurate corporate financial records ... disregarded the formalities of the corporate form," "took control of [the entity's] assets and property, and transferred them to [another entity] with the intent to avoid [the entity's] debt to the plaintiff," and that these actions were the proximate cause of plaintiff's damages.51 Because these allegations were established as true on default, the lower court should have pierced the corporate veil.52
Fishman v. L & M Development, Inc.53 also demonstrates how fact-pleading requirements with respect to a veil-piercing claim may be satisfied. There, a Superior Court denied a motion to strike counts against the individual defendant on an instrumentality theory. Plaintiff alleged the individual defendant dominated transactions involving the purchase and sale of property so that corporation had no separate existence, and that he used his control to breach the parties' contract and to divest the corporation of assets. The individual defendant's faulty construction and rendering the corporation insolvent was alleged to have caused the plaintiff's injury.
In Greene v. HMP Industries, Inc.,54 the plaintiff alleged he had been wrongfully induced to sell his shares to the corporation in return for continued employment, and then terminated. The complaint stated that "[e]ach of the individual Defendants, in addition to conspiring with each of the other individual Defendants . . . aided and abetted the wrongful acts of each of the other individual Defendants by giving one another substantial encouragement and assistance in acting unlawfully vis-a-vis Plaintiff." The Greene Superior Court found these allegations sufficient to meet the requirements of either the instrumentality or the identity rule, allowing the claim to be made in connection with a breach of contract count.55
By contrast, in Emma Rosina llc v. Bilides Building & Excavating, llc56 a Superior Court granted a motion to strike because simply stating there was a unity of interest, without allegations concerning conduct claimed to create such unity, was insufficient. A Superior Court in Regulbuto v. General Health Management, Inc.,57 likewise granted a motion to strike for failure to allege sufficient facts to satisfy the first element of the instrumentality rule (control). In Weinberg v. Isom,58 another Superior Court granted a motion to strike a veil-piercing claim that expressed legal conclusions only-"completely control the finances and business practices" and "there is such a unity of interest"-without any factual support.
The lesson is: unsupported legal conclusions are insufficient (as always), but "the plaintiff need not resort to the incantation of magic words."59
III. Other Considerations
In some cases it may be more efficient to wait until after a judgment is obtained to start a separate action seeking to pierce the corporate veil in order to enforce the judgment, but given the occasionally rapid evanescence of documentary evidence in shadow enterprises, and the natural waning of memory, there are risks inherent in waiting. A statute of limitations is not one of them,60 but you should nonetheless assess the viability of a veil-piercing claim as early as possible so you can tailor discovery accordingly.
Consider applying for a prejudgment remedy. Obtaining one is not difficult, and could significantly alter the settlement leverage.61 Otherwise, because a veil-piercing claim is fact-intensive, it will not typically be resolved until trial.
Also keep in mind the Connecticut Uniform Fraudulent Transfer Act, essentially "an adoption and clarification of the common law [of fraudulent conveyances]."62
Finally, do not overlook direct claims against individuals where merited.63
Connecticut courts apply the doctrine of piercing the corporate veil flexibly in order to achieve equity. The veil-piercing inquiry is fact-intensive. Assess the viability of a claim early, plead specific facts, and tailor discovery efforts to determine control. Be creative, exhaustive, and tireless-your efforts to lift up, pull down, unravel, pierce, or otherwise set aside the corporate veil will be rewarded.
 See Toshiba America Medical Systems v. Mobile Medical Systems, 53 Conn. App. 484, 492 cert. denied, 249 Conn. 930 (1999) (affirming the trial court's disregard of corporation that was an alter ego of sole stockholder).
 Zaist v. Olson, 154 Conn. 563, 574-75 (1967) (seminal case discussing veil piercing and affirming liability of controlling stockholder and related corporation that used the corporate defendant for their benefit). On the other hand, when the entity functions in the normal manner contemplated and permitted by law, there is nothing insidious in stockholder control, interlocking directorates or identity of officers. Id. at 574.
 See Hershey v. Lonrho, 73 Conn. App. 78, 87 (2002) (piercing the corporate veil is equitable; courts should apply the doctrine only under exceptional circumstances); SPA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 230, cert. denied, 501 U.S. 1223, 111 S. Ct. 2839, 115 L.Ed.2d 1008 (1991) (exceptional circumstances include "where the corporation is a mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice.") (Internal quotation and citation omitted.).
 See Litchfield Asset Management Corp. v. Howell, 70 Conn. App. 133, 147, cert. denied, 261 Conn. 911 (2002). For ease of reference, the terms "corporation," "llc," and "entity" are used interchangeably, as are "stockholder" and "shareholder."
 See Turner Murphy Co. v. Specialty Constructors, 659 So. 2d 1242, 1245 (Fla. Dist. Ct. App. 1995) ("[p]iercing a corporate veil is not itself a cause of action any more than the doctrine of respondeat superior is.").
 E.g. Davenport v. Quinn, 53 Conn. App. 282 (1999) (sole shareholder liable for tort judgment against his alter ego corporation according to the identity rule); Donarumo v. Rappe, 1994 WL 228572, *2-3 (Conn. Super.) (DeMayo, J.T.R.) (imposing personal liability for contract breach and CUTPA violations on majority stockholder and sole corporate representative); see also McCarthy v. State Five Industrial Park, Inc., 2009 WL 104287 (Conn. Super.) (Bentivegna, J.) (disregard of corporate shield to enforce judgment stemming from environmental contamination liability).
 E.g., Toshiba, 53 Conn. App. 484 (shareholder liable for corporation's breach of contract); Greene v. HMP Industries, Inc., 2001 WL 950979, *4 (Conn. Super.) (Nadeau, J.) (breach of contract veil-piercing allegations sufficient to withstand motion to strike).
 See, e.g., Utzler v. Braca, 2008 WL 2068200, *15-18 (Conn. Super.) (Tyma, J.) (developer personally responsible for his actions because he used his corporate entities as a conduit to receive funds used in his sole discretion for business and personal reasons).
It is not necessary to prove actual fraud however. Nor does it matter whether the plaintiff was aware of the circumstances justifying application of the doctrine. See Zaist, 154 Conn. at 572-73 (1967) ("The facts indicate that [plaintiffs] were unaware of, and probably indifferent to, the identity of the owners of the property, who were to receive the actual benefit of [plaintiffs'] work," holding individual defendant and the other corporation he completely dominated and controlled).
See, e.g., Saphir v. Neustadt, 177 Conn. 191, 209-12 (1979) (no error in referee's conclusion that entity was a corporation in name only such that corporate structure was properly disregarded under either rule); Zaist, 154 Conn. at 573 (both rules satisfied); Litchfield Asset Management Corp. v. Howell, 70 Conn. App. 133, 148, n. 11, cert. denied, 261 Conn. 911 (2002) (trial court properly concluded both rules were satisfied, but meeting either is sufficient); Toshiba, 53 Conn. App. at 489-92 (same); Stone v. Frederick Hobby Assocs. II, llc, 2001 WL 861822, *5-8 (Conn. Super. July 10, 2001) (Mintz, J.) (ordering prejudgment remedy on likelihood of veil-piercing claim's success under both rules).
 Old Farms Associates v. Commissioner of Revenue Services, 279 Conn. 465, 488-89 (2006); Season-All Industries, Inc. v. R.J. Grosso, Inc., 213 Conn. 486, 490 (1990). Note that because of the fact determinative nature of the inquiry, the appellate decisions discussing veil piercing have typically applied the highly deferential "clearly erroneous" standard of review. See, e.g., Falcone v. Night Watchman, Inc., 11 Conn. App. 218, 223 (1987).
 Thus, "[t]here was ample evidence that [the llc] had no separate existence, that [the individual defendant] treated it as such and that [he] used it to perpetrate an unjust act in contravention of the plaintiff's legal rights." Id. at 641.
 177 Conn. at 211; see also Tomasso, 187 Conn. at 555-57 (cautioning that ownership, while important, is not a prerequisite to piercing the corporate veil but is merely one factor to be considered in evaluating the entire situation, observing that "the element of control or influence exercised" is the "key factor").
 2009 WL 104287, *28-29, *30; see also Fishman v. L & M Development, Inc., 2009 WL 104287, *3-4 (Conn. Super.) (Pickett, J.) (denying motion to strike where complaint alleged wrongful divestiture of assets).
 Id. at 574-81. Justice Borden also considered the case for veil piercing even more persuasive under the identity rule than pursuant to the instrumentality rule. Id. at 574-75; see pp. 7-10, infra.
 See Zaist, 154 Conn. at 578 (controlling stockholder and a related corporation liable for another corporation's debt; corporate structure could have been disregarded under either rule despite the fact that debtor corporation maintained an office and checking account, kept corporate and financial records, filed corporate returns and had employees); Saphir, 177 Conn. at 209-10 (affirming where trial court had concluded that individual and corporation were alter egos and holding both liable); Miller v. Guimaraes, 78 Conn. App. 760, 772 (2003) (two companies properly treated as if the same).
 See Turner Murphy Co. v. Specialty Constructors, 659 So. 2d 1242, 1245 (Fla. Dist. Ct. App. 1995) (applying statute of limitations to action to enforce a judgment against alleged alter ego of the judgment debtor).
 2001 WL 950979, *4 (Conn. Super.) (Nadeau, J.) (denying portion of motion to strike directed at breach of contract / veil-piercing count but sustaining it as to misrepresentation / veil-piercing count since it merely alleged individual was acting as corporate representative).
 O'Connell v. Bridgeport Hospital, 2000 WL 728819, *5 (Conn. Super.) (Skolnick, J.) (a "pleading must be held to satisfy the requirement of the Practice Book if the facts set forth therein, including all facts necessarily to be implied therefrom, support the essential elements....") (Internal citation omitted.).
 See CHRO v. Travel & Tour Services, Inc., 1994 WL 386082 (Conn. Super.) (Hennessey, J.) (rejecting defendant's argument that tort statute of limitations should apply to veil-piercing claim, agreeing with plaintiff that claim was an action to enforce a prior judgment governed by 20-year statute of limitations in Conn. Gen. Stat. 52-598).
 An excellent resource on this topic is Frederick S. Gold, Connecticut's Prejudgment Remedy Statute, 230 New York L. J. 94 (Nov. 12, 2003) ("The probable cause burden of proof is extremely low, substantially lower than the familiar 'likelihood of success' showing commonly required of injunction applicants); see also Stone, 2001 WL 861822, at *6, *24 n. 17 (noting that court would not ordinarily need to specifically address the request to pierce the corporate veil, but "[t]he issue of whether the assets of [individual members] may be reached upon the theory of piercing the entity's corporate veil is critical to the plaintiffs' application, especially in light of [one of the member's] testimony at the prejudgment application hearing indicating that [the entity] currently has no assets.")
 Conn. Gen. Stat. 52-552 et seq.; Shawmut Bank v. Brooks Development Corp., 46 Conn. App. 399, 407 (1997) (Internal quotation and citation omitted.). A party claiming a conveyance is fraudulent must prove so by clear and convincing evidence. Tessitore v. Tessitore, 31 Conn. App. 40, 43 (1993). For a detailed discussion of this subject see Edward A. Weiss, Connecticut Fraudulent Conveyance Law, 11 Bridgeport L. Rev. 3 (1991).
 See, e.g., Kilduff v. Adams, Inc., 219 Conn. 314, 331-332 (1991) (holding that corporate officers "were personally liable for their participation in the fraud, regardless of whether the corporate veil should have been pierced."); Scribner v. O'Brien, Inc., 169 Conn. 389, 404 (1975) ("...[w]here, however, an agent or officer commits ... a tort, whether or not he acts on behalf of his corporation, he is liable to third persons injured thereby").