United States: Reverse Piercing Of The Corporate Veil: New Implications In Light Of A Fourth Circuit Decision

Last Updated: August 3 2018
Article by Alan D. Wingfield and Massie P. Cooper

Traditional Piercing of the Corporate Veil

Typically, owners or shareholders of a corporation have limited liability over the corporation's actions. In other words, there is a corporate veil that can protect owners and shareholders from liability over a corporation's actions. In some circumstances, an owner or shareholder may be made liable for the corporation's actions. Piercing the corporate veil allows a plaintiff to breach this veil of protection and implicate owners or shareholders for a corporation's actions.

When the veil is pierced, an owner of a corporation is liable on the basis that the corporation is only the "alter ego" or "instrumentality" of the owner. There are two basic requirements for piercing the corporate veil. First, the owners must have exercised domination or control over the corporation. Secondly, the actions taken must have wronged the plaintiff. Additionally, some states require further proof that the domination caused the harm.

Reverse Piercing of the Corporate Veil

Reverse piercing exists when a third party seeks to impose liability on a corporation for the actions of an individual shareholder or owner. Establishing a reverse piercing involves the same requirements as traditional piercing: domination over the corporation and harm caused to an aggrieved party. A reverse piercing typically arises when a third-party plaintiff seeks to collect on a debt or payment owed to the third party. Unlike traditional veil piercing, reverse piercing is not universally nor uniformly imposed. Some states have even rejected a reverse piercing of the corporate veil.

When a party seeks to pierce the corporate veil in reverse, the law where the corporation is incorporated typically determines whether a reverse piercing is permissible. A recent case decided in the United States Court of Appeals for the Fourth Circuit, Sky Cable, LLC v. DIRECTV, Inc., 886 F.3d 375 (4th Cir. 2018), has brought into question whether Delaware law would permit a reverse piercing. Delaware courts have not yet addressed whether a reverse piercing is permissible, but those courts have not expressly prohibited it, either. However, this Fourth Circuit decision authorized a reverse piercing of the corporate veil, and in doing so, it sets the tone for how Delaware courts may act in future reverse piercings.

Sky Cable v. DIRECTV

Randy Coley was the sole owner of three Limited Liability Companies (LLCs). Coley created the LLCs to hold title to real estate properties, and the LLCs managed and controlled Coley's finances in his investments. Coley contracted with DIRECTV, by using one of his LLCs, to provide cable programming to nearly 2,500 rooms in a Virginia resort. Coley paid for services for 168 of the rooms, but he fraudulently retained the excess revenue for over 2,300 units. Each of the three LLCs and Coley engaged in a co-mingling of funds, and Coley disregarded corporate formalities in managing his finances through the LLCs. DIRECTV investigated the matter and discovered the fraud. Sky Cable, a dealer of DIRECTV's services, sued Coley for the scheme.

Until Sky Cable, no case interpreting Delaware law had adopted the reverse piercing remedy. However, the district court held that under Delaware law, the three LLCs were "alter egos" of Coley and that Delaware would recognize reverse veil piercing under such circumstances. In context, Coley's fraudulent actions reversed the presumption of limited liability for his LLCs, which is a reverse piercing of the corporate veil; the now defunct LLCs shared liability for Coley's actions as the sole owner of the LLCs.

The Fourth Circuit affirmed the district court's holding. They did so on the basis that many courts have allowed outsider reverse piercing for creditors. Also, Delaware law does not expressly oppose a reverse piercing. However, the court acknowledged that some states have barred it because of potential harm to innocent shareholders. Before this case, Delaware courts cautioned that a traditional piercing of the corporate veil is appropriate only in exceptional circumstances. In response, the Fourth Circuit noted that reverse veil piercing is particularly appropriate when an LLC has a single member, because it alleviates the concern that reverse veil piercing may affect innocent shareholders. Thus, when an entity and its sole member are alter egos, as was the case with Coley, the argument for reverse veil piercing is strong.

In making its decision, the court was mindful that Delaware has a special interest in assuring that companies incorporated in the state are not conduits for fraudulent activity for shareholders. Piercing the corporate veil is done to promote equity and limit injustice. Coley was the sole member of each of the LLCs, he was the only person paid by the LLCs, and he did not keep complete accounting records for himself or for the LLCs. In Delaware, if legally separate entities do not follow corporate formalities with one another, there may be an inference that the owner and the corporation are alter egos. To the court, a reverse piercing in this case would not compromise Delaware's corporate form nor harm any innocent shareholders.


The Fourth Circuit acknowledged that even a traditional piercing of the corporate veil is only done in exceptional circumstances. It involves looking past a legal fiction, even though the corporation as a legal fiction with limited liability is a well-established presumption. Veil piercing is an equitable remedy extended in the interest of justice. Still, reverse piercing is not a universal practice, and in practice its application is largely a factual determination. In Sky Cable, the court analyzed the facts and law to determine whether Delaware law would permit a reverse piercing. Ultimately, the court determined that a reverse piercing of the corporate veil is permissible under Delaware law. Given Delaware's traditional and ongoing role as the site of incorporation for many companies, the Fourth Circuit's ruling in this case may have ongoing implications.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Alan D. Wingfield
Massie P. Cooper
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions