LLF's Alexander Passo and Avery Buffa Defeat Attempt to Pierce Client's Corporate Veil, Sparing It and Its Owners From Significant Liability

The legal theory of “piercing the corporate veil” can be wielded as a powerful weapon by creditors that seek to impose liability on the owner of a judgment debtor corporation or LLC, on the grounds that the owner either engaged in fraud or operated the entity merely as its “alter ego.” If successful, a piercing claim can threaten the personal assets of business owners who counted on their entities to shield them from any company-related liabilities.

As with all legal weapons, however, an effort to pierce the corporate veil can be disarmed by a powerful defense deployed before and during trial. Latimer LeVay Fyock’s Alexander Passo and Avery Buffa recently illustrated this fact with their victory over a large judgment creditor that sought to impose liability on their client for the obligations of a completely separate entity. 

The plaintiff in the case was a publicly traded REIT that entered into a sale-leaseback transaction with a corporate tenant. In 2021, a private equity group (“New Co.”) purchased all the assets of a 50-year-old separate corporation (“Old Co.”) and its real estate when the principals of Old Co. wanted to retire. While Old Co. retained a minority interest in New Co. after the asset sale, Old Co.’s principals were neither officers nor board members of New Co. Shortly afterwards, New Co. entered into a sale-leaseback agreement with the plaintiff, whereby the plaintiff sold the real estate to New Co. in exchange for compensation for the sale of the property, along with the right to remain at the property as a tenant. New Co. used some of the sale proceeds to satisfy an insider loan to Old Co.’s principals that was part of their transaction.

New Co. fell upon hard times and eventually defaulted on its lease. The plaintiff/landlord REIT sued Old Co. for breach of the lease under an alter ego theory. The REIT asserted that Old Co. was merely the alter ego of New Co. because Old Co.’s principals had a controlling interest in New Co., the transaction was a scheme to pay off Old Co.’s principals, the corporations’ funds were intermingled, and the sale was not an arm's-length transaction. The REIT also asserted that it believed these companies were one and the same, based on representations and documents submitted to it, and that it was defrauded as a result. Specifically, the plaintiff alleged that during due diligence, New Co. had submitted financial statements for the past three years, even though the company had been formed for only a month.

Representing Old Co., Passo and Buffa engaged in extensive discovery and motion practice before the matter went to trial in December 2025. During the trial, Passo and Buffa methodically dismantled the plaintiff’s piercing efforts, refuting each of the many elements that the plaintiff needed to prove in order to succeed on its claims. During cross-examination of the REIT’s corporate officer, they conceded that New Co.’s real estate broker who introduced the deal had disclosed via e-mail that: (1) a private equity group recently acquired the business; and (2) the proceeds, in part, would be paying off Old Co.’s loan. That e-mail was not produced by the REIT during discovery and was only obtained through a subpoena.

After the close of the plaintiff’s case, but before presenting their case on behalf of Old Co., Passo and Buffa moved for a directed finding of judgment in Old Co.’s favor because, as part of their alter ego claim, the REIT had to prove fraud had occurred. That burden could not be satisfied because of the disclosure. In non-jury trials, such as this case, a defendant can ask the judge for a directed finding that the plaintiff has failed to prove essential elements of their case, thereby eliminating the need for the defense to present its case.

Two days after the conclusion of the trial, the judge granted Old Co.’s motion and entered judgment in its favor on plaintiff’s piercing claim.

Because of Passo’s and Buffa’s efforts, LLF’s client was spared from over $3,000,000.00 in potential liability. Moreover, the case remains pending post-trial on the issue of fee shifting and possible sanctions. The firm congratulates Passo and Buffa on obtaining this excellent result.