January 26, 2015

In a recent case out of Wyoming involving Greenhunter Energy and Western Ecosystems Tech, the Wyoming Supreme Court rendered a decision that allowed the piercing of the limited liability veil. This modern interpretation of the law raises concerns about how the perception of veil piercing has evolved.

Approaches like the one taken in Wyoming illustrate that new interpretations diminish the importance of complying with formalities and instead evaluates the circumstances surrounding whether an LLC entity was simply used to carry out an injustice. When Western Ecosystems consulted with GreenHunter Wind Energy (the LLC in this case), the LLC never paid out for the work done. Western replied by suing for breach of contract, but Western was not able to collect the judgment they were awarded because it appeared that the LLC had no assets to pull from.

Western responded by bringing action against the sole member of the LLC: Greenhunter Energy, Inc. Since the LLC never carried a capital account balance sufficient to cover debts, Greenhunter just transferred funds in to cover accounts payable, but they skipped loading the account to pay the judgment for Western.

The Wyoming Supreme Court found the LLC could be pierced because the LLC did not have any employees of its own, Greenhunter and the LLC shared the same business address, the IRS considered the LLC a “disregarded entity”, and the employees at Greenhunter kept the books and financial records for the LLC. The final opinion references that LLCs and corporations are entities that are legally separated from their owners so long as that veil of protection doesn’t lead to injustice. Injustice, it seems, is one of the “rare circumstances” where courts will pierce the veil.

LLC structure and management is crucial for protecting assets and ensuring the meeting of objectives. To learn more about how we can help, contact us at info@lawesq.net.