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Court of Chancery Refuses to Pierce Corporate Veil or Impose Successor Liability to Enable a Former Employee to Recover Judgment

Posted In Business Torts
Mason v. Network of Wilmington, Inc., C.A. No. 19434-NC, 2005 WL 1653954 (Del. Ch. July 1, 2005). Plaintiff won an employment discrimination suit against Network Personnel, Inc. ("Personnel"), a Delaware corporation solely owned by defendant Barry Schlecker ("Schlecker"). But plaintiff was unable to collect on the judgment, so she sought to recover from Schlecker personally by piercing the corporate veil and recovering from his new company, Network of Wilmington ("Network"), under a theory of successor liability. The parties filed cross-motions for summary judgment. The court granted summary judgment to Schlecker, holding that plaintiff could not pierce the corporate veil merely because defendant sold Personnel and, two years later, started a similar business (focused on temporary employee placement, as compared to permanent placement services) in the same office building with the same phone number. The court also granted summary judgment to Network and refused to impose successor liability because there was a significant separation between the old company and the new company: (1) the new company did not purchase the assets of the old company, (2) the two companies performed somewhat different businesses, and (3) defendant started the new company two years after selling the old company to an unrelated corporation. However, the court denied summary judgment to Scheckler on plaintiff's fraudulent transfer of assets claim. The court held that there was a genuine issue of material fact as to whether Scheckler received assets from Personnel (that were supposed to have been transferred in the asset sale) without paying equivalent value for them when he knew of plaintiff's employment discrimination claim and that Personnel was nearly insolvent. The assets included Personnel's phone number, some company furniture, and a truck. Authored by: R. Christian Walker 302-888-6974 rwalker@morrisjames.com