On October 17, 2012 the Second Circuit Court of Appeals ruled that Emory Kertesz, who had previously defended himself against a lawsuit brought by General Video Corporation (“GVC”) can pursue both an indemnification claim against GVC and an alter-ego corporate veil-piercing claim against the only other shareholder of the now defunct company.
Kertesz, a former 31.6% shareholder in GVC, brought suit against the corporation seeking indemnification for legal fees resulting from a previous lawsuit, whereby GVC sued him in his capacity as a corporate officer of GVC. Kertesz also extended his suit to apply to Justin Korn, who was the primary shareholder in GVC, under an alter-ego veil piercing theory. Under this theory, Kertesz was required to show that the corporation owner mingled personal and corporate operations and that there was an overall element of injustice. The District Court dismissed the petitioner’s complaint noting that he could not indemnify the corporation while at the same time “seek[ing] to challenge the very existence of the corporate structure.”
The Court of Appeals ruled that the alternative theories are not mutually exclusive. The alter-ego claim relates to a corporation’s relationship to a particular victim. Yet, the corporation still exists as a legal entity and possesses a duty to other persons. The Court of Appeals went further, stating that it would be “perverse” to disallow these two alternative claims. If a veil-piercing claim prohibited the pursuit of corporate indemnification, then the former assertion would have the effect of discharging a corporation from its obligation to its officers.
The Court of Appeals restricted itself to addressing the permissibility of the alternative claims and did not rule on the factual merits of the case. They did acknowledge that veil-piercing theories of liability are fact dependent and that issues of personal jurisdiction regarding the claims of the petitioner remain to be resolved. The case has been remanded to District Court to determine the factual merits of Kertesz’s claims.
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