cbareport-dec12 - page 6

6
l
December 2012 CBA REPORT
cover article
Court’s decision in
Danziger v. Luse
.
9
From
LeRoux’s
, the Sixth Circuit adopted
a list of seven factors that are largely
familiar to anyone who has studied the
alter ego doctrine, factors such as failure
to observe corporate formalities and di-
version of subsidiary/corporation funds
or other property for the parent’s/owner’s
use.
10
About three years before
Corrigan
,
the Ohio Supreme Court announced in
its decision in
Danziger
a partially over-
lapping list of factors that determined the
related question of whether shareholders
of a parent company should be allowed
to inspect a wholly owned subsidiary’s
books and records.
11
Belvedere:
The Second Prong
The original formulation of the
second prong of the
Belvedere
test added
two requirements to the first prong: (1)
a specific type of wrong must have been
committed — either fraud or an illegal
act — and (2) the control must have been
“exercised … to commit” the wrong, i.e.,
the wrong must have been the prod-
uct of the control.
12
Fifteen years after
Belvedere
, in
Dombroski v. Wellpoint,
Inc.
,
13
the Ohio Supreme Court modified
the test by simultaneously expanding
the language of the second prong and
restricting its meaning. After
Dombroski
,
not only fraud or an illegal act, but also
“a similarly unlawful act” could satisfy
the second prong. But this apparent
broadening belied an actual tightening,
because
Dombroski
also made it clear
that not just any wrongful act would
satisfy the second prong; rather, only
an extraordinary act such as fraud or a
crime or something similar would do so.
The Court emphasized its concern with
protecting closely held companies, which
are controlled by their owners and might
be particularly vulnerable to veil piercing
under a less restrictive standard.
14
Just what kind of extreme or egre-
gious act would satisfy
Belvedere
’s second
prong as modified by
Dombroski
is
not entirely clear. Common law fraud
would definitely qualify, but it is difficult
to prove. Most felonies would qualify
because they are clearly “illegal acts.” But
a tort such as bad faith denial of a health
insurance claim clearly would
not
qualify
because that was precisely the act at issue
in
Dombroski
.
15
Between those poles, case
law has not yet filled in all the details.
Belvedere:
The Third Prong
The third prong of the
Belvedere
test has not been as fully developed by
subsequent case law as have the first two.
The third prong requires that “injury or
unjust loss resulted to the plaintiff from
such control and wrong.”
16
So there must
have been injury or unjust loss, and that
injury must have resulted from the first
two prongs — the control and the wrong.
In
Belvedere
, the court noted that this
requirement was essentially proximate
cause: the control and the wrong must
have been the proximate cause of the
injury.
17
A pair of interesting decisions
by the Ohio appellate courts applied
this test in the context of environmental
misconduct and concluded that the third
prong could be satisfied even where the
plaintiff did not prove actual injury.
18
Minno:
A Categorical Rule
In 2009, the Ohio Supreme Court
added a categorical rule to its veil pierc-
ing jurisprudence. In
Minno v. Pro-Fab,
Inc.
,
19
the Court held that corporate veil
piercing can never be used to impose
liability between sister corporations.
So if two corporations share a common
Dedicated Fiduciary Professionals
For more information contact
|
513.932.1414 |
Bernard H. Wright, Jr., Senior Executive Vice President & Trust Officer; S. Diane Ingram, Assistant Vice President & Trust Officer; Leroy F. McKay, Executive Vice President & Trust Officer;
Melanie K. Crane, Assistant Vice President & Trust Officer; Steve P. Foster, President ; Bradley A. Ruppert, Vice President & Trust Investment Officer
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