2007 David K. Linnan VEIL PIERCING & DE FACTO MERGER II Prof David K. Linnan LAWS #600 September 5, 2007

2007 David K. Linnan DOCTRINE+ ADDRESSING TWO DIFFERENT KINDS OF PROBLEMS Traditional veil-piercing problem, involving usually a corporate structure intended specifically to limit liability based on corporate shield Pattern cases, sole shareholder corporations with individual shareholders vs conglomerate parent co & subsidiary co structure Successor liability problem, often involving a different, non-corporate structure (eg, asset sale) intended specifically to limit liability but more based on contractual approaches + corporate shield (sometimes de facto merger doctrine, sometimes seen as products liability now) Pattern case, asset purchase from company selling products with potential contingent liabilities (formerly torts mostly, now statutory too like CERCLA, usually to larger corporation that puts assets ultimately in segregated sub PRACTICALLY SPEAKING, THERE IS DOCTRINE BUT VERY FACT SPECIFIC CASES IN PRACTICE

2007 David K. Linnan THEORIES I VEIL PIERCING FLAVORS Entity & Agency Instrumentality/alter ego (fraud too, but term of art) 1.Undercapitalization 2.Corporate housekeeping issues 3.Co-mingling personal & corporate obligations 4.“Fraud, injustice or illegalities”

2007 David K. Linnan THEORIES II SUCCESSOR LIABILITY De Facto merger doctrine (shareholder votes in business combinations originally, now refers sometimes also to liability cases) Enterprise (or product) continuity Arguable 5 th addition to traditional 4 successorship exceptions, namely agmt to assume, amounts to consolidation or merger, “mere” continuation of predecessor entity, transaction fraudulent or insufficient consideration Statutory schemes How to apply control & similar tests under newer liability schemes like CERCLA?

2007 David K. Linnan THEORIES III CONTROL VS MIXED CAPACITY On “bad” intent or appearance side, issues are typically phrased at individual level in terms of mixed capacity (personal & business) and at the corporate subsidiary level in terms of control (ownership & common officers, etc.) On continuation side, issues are phrased in terms of does business look identical, and if fair value was paid is money still available in hands of sellers (or 3-Ps like escrow agents, etc.) On statutory scheme side, arguments phrased in terms of control but final reference seems to be to legislative intent (requiring clear indication to set aside corporate limited liability as traditional rule)

2007 David K. Linnan BESTFOODS CERCLA How to approach environmental clean up liabilities, lower court results mixed until Bestfoods articulated veil piercing as state law standard

2007 David K. Linnan PEPPER V LITTON EQUITABLE SUBORDINATION Applicable beyond veil-piercing, here included more for collusion reasons in trying to put insider debt ahead

2007 David K. Linnan NISSEN PRODUCTS LIABILITY Issue as whether there is a separate products liability as opposed to ? Standard (torts vs CERCLA vs contracts vs?) What do you look at according to Nissen?