A new decision of the New York Appellate Division, Second Department, reversed a decision after a bench trial in which the judge pierced the corporate veil of the defendants, but affirmed its setting aside certain preferential transfers made to a corporate insider–Parabit Realty, LLC v Levine, 2026 NY Slip Op 02663 (2d Dep’t Decided Apr. 29, 2026).
The Corporate Veil
As I explained in Piercing Corporate Veil Without Establishing Fraudulent Conduct, the “corporate veil” refers to how doing business through a legal entity, such as a corporation, limited liability company or limited partnership can limit the legal obligations and debts to the entity itself rather than imposed upon its owners or affiliated companies. Courts “pierce” that corporate veil, however, and extend liability to owners or affiliated entities where the formalities of the entity are not followed and the result effectuates some fraud or other unfair wrongdoing to those with whom the entity has dealt.
Veil piercing can also be imposed under what is known as the “alter ego” theory where the legal status and separate existence of an entity is disregarded so as to really amount to the same entity or person.
Levine Case
This area of the law arises principally when creditors, and particularly judgment creditors, are seeking to recover assets or funds to satisfy judgments. In the Second Department’s decision in Levine, the judgment creditors were seeking to rely upon various debt-collection legal tools to satisfy their judgment against others beyond the actual judgment debtors.
After a bench trial, the court below essentially through the book at all defendants—ruling that the corporate veil should be pierced and all transfers by the judgment debtors set aside to satisfy the subject judgment.
The basic underlying facts stemmed from a judgment obtained in an action in which the plaintiffs sought damages against an entity (Judgment Debtor) that damaged plaintiffs’ property as a result of work on an adjacent property. The Judgment Debtor, a business corporation, was dissolved and defaulted in the underlying action, resulting in the judgment that plaintiffs (the Judgment Creditors) were seeking to enforce. The Judgment Creditors sought to recover under their judgment by suing others connected with the Judgment Debtor in various respects. The key connector was an individual (Levine) who formed and owned some of the subject entities and operated another entity formed by his wife—all after the Judgment Debtor dissolved.
As noted above, after a nonjury trial, the Supreme Court determined that the corporate veil should be pierced and also directed that all transfers made between the defendants be set aside to the extent necessary to satisfy the judgment. The defendants appealed.
The Second Department first laid out the governing law on piercing the corporate veil and the alter ego doctrine, in a series of quotations and citations:
“‘The general rule . . . is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability'” (Bonanni v Horizons Invs. Corp., 179 AD3d 995, 1001 [internal quotation marks omitted], quoting Sky-Track Tech. Co. Ltd. v HSS Dev., Inc., 167 AD3d 964, 964; see Sterling Park Devs., LLC v China Perfect Constr. Corp., 185 AD3d 1082, 1083). “The concept of piercing the corporate veil is an exception to this general rule, permitting, in certain circumstances, the imposition of personal liability on owners for the obligations of their corporation” (Sterling Park Devs., LLC v China Perfect Constr. Corp., 185 AD3d at 1084 [internal quotation marks omitted]; see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 140-141). “Broadly speaking, the courts will disregard the corporate form, or, to use accepted terminology, pierce the corporate veil, whenever necessary to prevent fraud or to achieve equity” (Cortlandt St. Recovery Corp. v Bonderman, 31 NY3d 30, 47 [internal quotation marks omitted]; see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d at 140). “While the ‘decision whether to pierce the corporate veil in a given instance will necessarily depend on the attendant facts and equities . . . [g]enerally . . . piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation [or LLC] in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the [party seeking to pierce the corporate veil] which resulted in [the party’s] injury'” (Matter of DePetris v Traina, 211 AD3d 939, 941, quoting Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d at 141). “‘Additionally, the corporate veil will be pierced to achieve equity, even absent fraud, when a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator’s business instead of its own and can be called the other’s alter ego'” (Americore Drilling & Cutting, Inc. v EMB Contr. Corp., 198 AD3d at 946, quoting Olivieri Constr. Corp. v WN Weaver St., LLC, 144 AD3d 765, 767).
In reversing the lower court, the Second Department focused on key facts that showed the legitimacy and legal distinctness of the subsequently formed entities:
Although Levine was the sole shareholder and/or operator of all three corporations, which also shared a common workspace owned by Levine and employees, the evidence at trial established that he ran real businesses with employees and customers, and the plaintiff presented no evidence demonstrating that Levine used corporate funds for personal use (see Matter of DePetris v Traina, 211 AD3d at 942). Additionally, the corporations kept separate bank accounts and books and records, were incorporated at different times for legitimate business purposes, and filed separate tax returns (see Fantazia Intl. Corp. v CPL Furs N.Y., Inc., 67 AD3d 511, 512-513). Moreover, the plaintiffs failed to show that Levine’s actions, including dissolving B & A Demo and forming King Metal, were for the purpose of perpetrating a wrong against the plaintiffs (see Matter of DePetris v Traina, 211 AD3d at 942; Americore Drilling & Cutting, Inc. v EMB Contr. Corp., 198 AD3d at 947).
These are important factors to be followed and adhered to when new entities are seeking to avoid liability for the debts of a prior entity with common ownership and/or control—(1) running real businesses with employees and customers, (2) refraining from using corporate funds for personal use, (3) maintaining distinct bank accounts and books and records for each entity, (4) legitimately forming of the entities, (5) filing tax returns for each entity, and (6) refraining from any otherwise fraudulent or wrongful conduct or motivation.
Preferential Transfers
While the Second Department rejected the lower court’s setting aside all transfers made between and among the Judgment Debtor and related companies/Levine, it did approve and affirm setting aside of the transfers of two trucks from the Judgment Debtor to Levine and then to another related defendant. Levine claimed that he received the trucks to offset officer loans he made to the Judgment Debtor. The Second Department rejected that claim for two basic reasons: One, it found the evidence at trial failed to establish the fair market value of the trucks and that the value offset against the claimed officer loans.
Two, the Second Department found that even if the value of the trucks was commensurate with the alleged loans and therefore payment for an antecedent debt, “preferential repayment of debt to Levine, its sole shareholder, did not fulfill the obligation of good faith and, thus, did not constitute fair consideration” The Second Department also recognized the presence of the classic “badges of fraud” in connection with the transfers—”that Levine was the sole shareholder of [the Judgment Debtor, which] was aware of the underlying action when it made the transfers, and that Levine retained control of the trucks after the transfer.” The Court relied principally upon the instructive case of American Panel Tec v Hyrise, Inc., 31 AD3d 586 (2d Dep’t 2006).
Commentary
As I outlined in Piercing Corporate Veil Without Establishing Fraudulent Conduct, maintaining separate, legitimate purposes, books and records, and fair consideration of all transactions between and among affiliated entities and individuals are all keys to mitigating against the piercing of the corporate veil. Of course, transfers to insiders in the face of existing debts, especially an existing judgment, are sharply scrutinized by the courts.