The Content of Veil Piercing Complaints
Over the last two years, Christy Boyd and I have been working to collect and analyze a representative sample of federal district court veil piercing cases. (Previous blogging: here on ERISA and here on weird complaints.) We now are ready to circulate the first paper arising from the data — there will be at least two others. That paper, Disputing Limited Liability, is now up on SSRN and is forthcoming in the Northwestern Law Review. I figured that having spent so much time collecting the data, I might as well get a few blog posts out of talking about our findings! I’m going to start today with some information about the kinds of complaints that plaintiffs file. In future posts, I’ll talk about who gets sued, how to model litigation in light of selection effects, the kinds of factors that influence plaintiffs’ success, and the larger implications of our findings for lawyers and scholars.
Briefly, we collected a representative sample of veil piercing complaints filed in federal court from 2000-2006, and then coded information about the important motions in such cases through PACER, together with their resolution. Our goal was to get a complete picture of how veil piercing cases are litigated.
I’ll start with a sense of our expectations about the kinds of causes of actions in plaintiffs’ complaints. Based on previous work, we expected to find that most veil piercing complaints contained a claim sounding in contract. Not only were such causes of action reported to be successful in reported opinions, but they were the most common claims in such datasets to boot. The data bore out our hypothesis:
Here’s the problem with this chart: it suggests that there’s such a thing as a “contract” case or a “tort” case. Parties can – and are encouraged– to bring multiple causes of action in each complaint. Only as litigation develops, and the various causes of action are tested against the facts (was there really a manufacturing defect) or the law (did the contract satisfy the statute of frauds) can both sides decide which causes of action are worthy of a fact-finder’s adjudication. Litigation winnows initial clusters of causes of action to manageable contract, tort, and fraud “cases.” Thus, contrary to the conventional wisdom, many plaintiffs can assert claims as both involuntary and voluntary creditors, at least in their first-filed complaint. The figure below illustrates the effect. In it, we’ve combined various different causes of action into “voluntary” and “involuntary” creditor groupings (i.e., tort plus regulatory actions plus statutory actions where the individual had know potential warning of the defendants’ creditworthiness).
To those familiar with the debate about veil piercing, this overlap is pretty interesting. A very hot focus on that debate is whether voluntary creditors (in general) should be less likely to win veil piercing cases, because they’ve assume the risk that they won’t get paid. Our data suggests that distinguishing between voluntary and involuntary creditors isn’t as easy as previous work assumed.
As separate question discussed in the literature is which kinds of veil piercing grounds ought to and do matter to plaintiffs’ success. The figure below describes the incidence of such grounds in complaints:
What’s interesting about this figure is that it matches very well with the incidence of such veil piercing grounds in published opinions, the advice given lawyers in form complaints, but it is quite unlike the results from studies on the grounds successfully used in opinions piercing the veil. (See manuscript at page 33 for the details). This suggests that the grounds for piercing asserted in complaints reflect the underlying facts of the case – – enough so that they remain in cases throughout their disposition. It also suggests that lawyers are more likely to rely on form complaint books that law professors. [Duh!] Whether the use of popular grounds promote (or retard) veil piercing success is obviously a question that these descriptive statistics can’t answer. For more, you’ll have to check out the paper, or wait for the later posts in this series!