Piercing the Corporate Veil – A Concealed and Extended Liability Period
Almost all lawsuits have a period within which they must be brought known as a statute of limitations. In Arizona, the statute of limitations for most issues regarding personal injury or negligence is two years and six years for contract actions. However, if the party alleging the injury or damage does not bring the claim within that period, it is barred. This can provide certainty for a business with regard to litigation or when determining to terminate a corporation or corporate structure.
However, when seeking recovery under a theory of piercing the corporate veil, the Arizona Court of Appeals extended that period for at least ten years from the time of judgment and perhaps indefinitely.
In Arizona, to pierce the corporate veil so a parent corporation or individual would be liable for a subsidiary or the business that it owns, a plaintiff must satisfy a two-part, fact intensive inquiry: (1) substantially total control of the management and activities of the entity and (2) the observance of the corporate form would sanction a fraud or promote injustice.
Because Arizona has found that alter ego or piercing the corporate veil is not a stand-alone action, its statute of limitations is governed by the ten-year limitation on judgments. A.R.S. §12-1551(A). Additionally, the Arizona Court of Appeals explicitly made reference that judgments could be renewed every ten years when discussing the period that a judgment holder could bring an action. A.R.S. §12-1611.
The ruling on the statute of limitations regarding piercing the corporate veil and alter ego may allow creditors to lie in wait and allow an individual to amass equity in other businesses only to bring a lawsuit later to create leverage to settle an old judgment. The attorneys at Mesch Clark Rothschild who work in commercial litigation and asset protection can advise those with claims or those trying to end liability on the best approach.