Commercial Division Rejects Piercing the Corporate Veil and Claims of Fraud and Unjust Enrichment Against the Sole Principal
In Salesmark Ventures, LLC v. Jay Singh, JJHM Trading Corp., Justice Joel M. Cohen dismissed, inter alia, the plaintiff’s claim to pierce the corporate veil of the defendant and impose personal liability on the defendant’s sole principal. Underlying the dispute is a contract to purchase millions of synthetic nitrile gloves during the outbreak of COVID-19.
Plaintiff paid the defendant the contracted purchase price, but the gloves were never delivered. Afterwards, the defendant only refunded a portion of the purchase price. To recover the remainder of the purchase price, the plaintiff sought to pierce the corporate veil of the defendant. Additionally, the plaintiff asserted the following claims against both the defendant and its sole principal: breach of contract, unjust enrichment for only refunding a portion of the purchase price, and fraud for representing that the defendants “could deliver a substantial supply of Nitrile Gloves.”
As to the veil-piercing claim, the Court explained that “New York law disfavors disregard of the corporate form” and the party seeking to pierce the corporate veil “bear[s] a heavy burden.” To meet that burden, a party must demonstrate that the individual dominated the corporate form for personal use and that a wrongful or unjust act was conducted toward the plaintiff.
Here, the Court found that the plaintiff’s allegations—that the company has no assets and its website has minimal information about the company—do not meet the heavy burden or provide “specific factual assertion[s] to substantiate” piercing the corporate veil. Therefore, Justice Cohen dismissed the Plaintiff’s veil-piercing claim. Likewise, the Court dismissed the breach of contract claim against the principal because, without veil-piercing, the principal cannot be held liable for liabilities incurred by the corporate defendant.
The Court also dismissed the unjust enrichment and fraud claims. Since there was a valid contract, Justice Cohen held that the plaintiff could not recover from the defendant’s sole principal without a showing that the services were performed for the principal and that those services resulted in the alleged unjust enrichment, which was lacking. Moreover, since there was a valid contract between the plaintiff and defendant, Justice Cohen explained that the plaintiff could not recover from the defendant for a quasi-contract claim – i.e., unjust enrichment – where a valid contract for the same subject matter exists. Finally, the Court found that the fraud claim fails because it essentially restates the breach of contract claim. Justice Cohen noted that a fraud claim cannot be maintained where the misrepresentation is only one of “intent or ability to perform under the contract.”