Piercing the Corporate Veil Ohio Supreme Court Oral Argument
From the comfort and convenience of my office computer this morning, I watched the oral argument before the Ohio Supreme Court in Dombroski v. Wellpoint, Case No. 2007-2162. In this case. the Court was asked to answer the question "when may a tort plaintiff pierce the corporate veil to pursue recovery from a "parent" corporation". The Court allowed both sides substantially more than the allotted 15 minutes each, asking both attorneys numerous questions.
- As an aside I want to mention how wonderful it is to be able to see Ohio Supreme Court oral argument without the hassles of parking and transportation. The Ohio Supreme Court has been doing this since early 2004. but this was my first experience utilizing the option. Not only did I save the time coming and going (in pouring rain today I might add), I tuned in a little early and was able to work on other matters right up to the minute oral argument began. The picture is clear and shows close-ups of the attorneys and Justices as they speak. The sound quality is terrific. In many respects, this was actually better than going in person. You can still see the oral argument by going to the video archives.
- I have a case coming up shortly before the Ohio Supreme Court which does involve the corporate veil piercing issue. So I suppose I'm just a little more interested than I otherwise would be, even though at the moment we're only up on a preliminary procedural issue. (If I don't win on that, we'll be back on the corporate veil piercing issue later.)
Suzanne Richards of Vorys, Sater, Seymore & Pease argued on behalf of the defendant-appellant "parent" company shareholder against which plaintiff-appellee Dombroski seeks recovery. Robert Palmer appeared on behalf of Ms. Dombroski. Both attorneys were extremely well prepared. Although the Ohio Council of Retail Merchants, Ohio Chamber of Commerce, the Ohio Chapter of the National Federation of Independent Business, and the Ohio Farm Bureau Federation jointly submitted an amici curaie brief in support of the defendant parent company, they did not participate in the oral argument.
Factual and Procedural Background. In a nutshell, the most salient facts are that Ms. Dombroski was denied insurance coverage for a procedure deemed "experimental". Ms. Dombroski had a health insurance policy issued by defendant Community Insurance Company ("CIC") which utilized Anthem UM Services, Inc. ("AUMS") to administer its policies and process claims. Still another company, Anthem Insurance Companies, Inc. ("AICI") defined the scope of the coverages under CIC policies. CIC, AUMS, and AICI were all subsidiaries of defendant Wellpoint, Inc. ("Wellpoint"). Coverage was apparently denied as a result of a blanket policy by defendant AICI. Dombroski sued everyone for bad faith denial of her claim. Counsel for Ms. Dombroski conceded that undercapitalization was not an issue.
AICI and Wellpoint filed motions to dismiss each of them as a party defendant on the grounds that the contract was with CIC and not with them and there was no grounds for bypassing the corporate entities. The trial court agreed, but the Seventh Appellate District Court of Appeals reversed, holding that the second prong of the Belvedere test could be satisfied through the showing of an "unjust" or "inequitable" act even if it did not rise to level of fraud or illegality On appeal, the proper interpretation of Belvedere for determining when it is appropriate to pierce the corporate veil was certified because of a conflict among the Courts of Appeal.
Oral Argument Synopsis. All of this is a very long introduction to the oral argument itself. Counsel for Wellpoint emphasized that the second prong of Belvedere required the parent company/shareholder to have "perpetrated a second wrong" by deliberately destroying the ability of the defendant subsidiary to satisfy any judgment against it. Counsel for Ms. Dombroski emphasized that "piercing the corporate veil" is an "equitable argument" and that insurance bad faith claims are "fairness torts". He also emphasized thhat Wellpoint set corporate policy for the subsidiaries. Several of the Justices seemed to have difficulty understanding the complete corporate structure and a couple asked if perhaps the case was not yet ripe for determination.
Justice Pfeifer suggested that perhaps the Court didn't think all that carefully about the test formulated in Belvedere because the veil piercing was a relatively small part of that case and that the whole test should be re-evaluated. Later in the oral argument, he posed the question of what would happen if and when the plaintiff tried to depose the nonparty parent regarding the establishment of the policy leading to the denial of coverage.
Chief Justice Moyer suggested that, although the question certified was the proper interpretation of Belvedere, the case could actually be decided on much narrower grounds. He posited that if a medical insurance company sets up a subsidiary with the purpose of hindering recovery by plaintiffs, that would be "illegal" and easily fall within all interpretations of Belvedere's second prong. Justice Lanzinger later asked a similar question.
Justice Stratton seemed to think (and I tend to agree) that Dombroski should have an adequate direct claim against CIC and consequently no veil piercing argument was necessary. Justice O'Connor was concerned that focusing on whether an "unjust" or "inequitable" act might "open the floodgates" for litigation in this area; she indicated that she felt that there had to be "some level of dishonesty" before recovery could be had.
My Thoughts. I tend to agree that more must be proven than just that there was an "unjust" or "inequitable" act perpetrated on the plaintiff to justify piercing the corporate value. Otherwise the three prong test of Belvedere is really collapsed into a single inquiry. I also think that sometimes the world is not fair and people who really don't deserve it suffer misfortune; I don't think that someone else should be held responsible for this occurrence in every case.
At the same time, I am not altogether sure that the more stringent test really helps the defendant "parent" company in this particular instance. It does seem to me that the multiplicity of subsidiaries may well have been set up to thwart policyholders seeking to challenge denial of coverage. To the extent that is true, I think the parent company may have abused the underlying conceptual policies of limited liability and should be denied the benefits of that legal doctrine as a consequence.
I am also concerned, however, as to what effect a more "flexible" standard for determining when piercing the corporate veil is permissible would have on closely held companies with a limited number of individuals as equity owners. Here, especially, something more sinister than suffering by the plaintiff ought to be required. If that is all that is necessary, then every complaint should include a count seeking the piercing of the corporate veil. Almost by definition, if there is any actionable claim at all, it is because something "unjust" or "inequitable" happened to the plaintiff.
Perhaps the answer is to introduce further confusion by bifurcating the standards for piercing the corporate veil, having one applicable only to closely held entities, or at least to imposing personal liability against individuals, while the other is applicable only to more sophisticated transactions.
Oh yeah - how do I want it to come out to help my case? I like the Belvedere standard just as it is, thank you, and wouldn't mind if you made it even more restrictive.
For more on the piercing the corporate veil concept and Belvedere, read my previous post on Piercing the Corporate Veil- What It Means and How to Avoid It.
