It's Time for a Facelift: A Suggested Makeover for the Piercing Doctrine

Abstract

Limited liability is the touchstone of the corporate form and aims to protect individual and corporate investors in the name of societal growth and economic prosperity. However, sometimes corporate actors stretch limited liability beyond its intended form and exploit their limited liability status to conduct shady or illigitimate business practices in an effort to make a quick buck or evade repaying corporate debts. In such instances, courts may invoke the doctrine of piercing the corporate veil to hold corporate actors liable for the debts of the enterprise. Unfortunately, the piercing doctrine remains one of the most muddled and incalculable doctrines in corporate law and is a topic of great unrest in legal scholarship. This Comment aims to add some structure to the unstable piercing doctrine by offering a seemingly new way to categorize victims. Specifically, this Comment argues that courts should go beyond separating plaintiffs who are voluntary contract creditors from those who are involuntary tort creditors, and should also break down the traditional category of “contract creditors” into “ordinary creditors” and “sophisticated creditors” to further account for their ability to protect themselves from risk prior to forming a relationship with the corporation at all, and offers an alternate route of recovery for such creditors that avoids invoking the piercing doctrine altogether.