Only two months into 2025, and the Business Court has already denied two motions for leave to add claims to pierce the corporate veil. My fellow-Foxer, Brad Risinger reported here on the first opinion from Judge Earp in MD Claims Grp., LLC v. Bagley, 2025 NCBC 2. The very next day, in CTS Metrolina, LLC v. Barastain, 2025 NCBC Order 4, Judge Earp denied a motion for leave to amend in a different case for the same reason, futility: the proposed pleading alleged only conclusions, not facts.
Although they seem like facts, the factors relevant to a veil-piercing claim (e.g., inadequate capitalization, lack of corporate formality, powerless directors, siphoning, etc.) are conclusions, not facts. The lesson, of course, is that if you are going to try to pierce the corporate veil, plead the elements, plead the factors and definitely plead the supporting facts.
CTS Metrolina, LLC v. Berastain involves a business purchase gone wrong. Messrs. Berastain and Moreau sold their business to a buyer (for ease, “Continuum”) but stayed on to run it. They claim that Continuum breached obligations to infuse cash to grow the business. Instead, Continuum took the cash out. Berastain and Moreau allegedly got sellers’ remorse and slowed their work. Eventually, Continuum fired the two, who then quickly formed a competing business, allegedly with the help of Continuum’s customers, data and trade secrets. Litigation ensued.
In a proposed amended pleading, Berastain and Moreau sought leave to add new claims and new parties, including Continuum’s alleged parent and human owner under a veil-pierce theory. They claimed that Continuum’s ultimate, human owner orchestrated everything. Continuum opposed the amendment on futility grounds.
To start, Judge Earp (again) made clear that the standard of review for an opposition to a motion for leave to amend based on futility is essentially the same as a motion to dismiss under Rule 12(b)(6). A motion to amend is not futile when “the allegations of the [amendment], treated as true, are sufficient to state a claim.”
To pierce the veil, a party must show that the owners or operators treated the entity as its “mere instrumentality” or “alter ego” of the dominant entity (or person), and there are three basic elements:
- Control and domination to the point that the entity had no separate mind, will or existence;
- That control and dominion was used to commit fraud or wrong, violate the law, or breach a positive legal duty; and
- That control and dominion caused the plaintiff damages.
Courts look to myriad factors in deciding whether these elements are met. These factors include things like capitalization, corporate formality, separate identities, siphoning of funds, and power and independence of officers and directors.
But, as this ruling makes clear, factors are not facts, and pleadings must include facts. So, an allegation that an entity didn’t follow corporate formality is not enough. An allegation like this would needs to be supported by facts. Maybe the entity never holds meetings, or maybe the meetings are perfunctory or not properly noticed. These facts (and more) should be alleged. Although leave to amend is “freely given,” Judge Earp made clear that stating the elements and parroting factors is not enough.
Takeaway: Although unstated, this practitioner sees a heightened pleading standard when it comes to veil-pierce claims. This would be consistent with the broader and well-established sentiment (cited by Judge Earp in both of her rulings) that “piercing the corporate veil ‘is a strong step: Like lightning, it is rare and severe.’” (citing State ex re. Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431, 439 (2008)).