Florida Court Sheds Light On Piercing The Corporate Veil

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In the case of the 3rd District Court of Appeals, 2021 Sehgal vs Forastero, Inc., an investor who bought and sold real estate, used an LLC that he had to enter into a purchase agreement and then walked away from the deal, claiming he had no personal liability because it was the LLC and that No, who signed the agreement.

His LLC had bought and sold real estate in the past, and had a bank account, and filed tax returns, but did not have a bank account or other assets or activities at the time it entered into the acquisition agreement. Except for the rights under the Acquisition Agreement and whatever initial deposit was made, if any. He did not guarantee the deal.

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At the time the takeover agreement was made, the seller was told that the company owner had significant assets, and it appeared that these assets were owned by the company or would be contributed to the company.

The purchase agreement required the LLC as the buyer to deposit a $500,000 escrow account within 3 days of signing the agreement, but the owner of the LLC, Segal, later testified that he chose not to do so because of the loss of assets. His physical inspection revealed that this would require significant work and therefore he was not a viable candidate for it.

Pursuant to the opinion of the Third District Court of Appeals, the trial court recorded a judgment against the LLC for breach of contract, known as supplementary court proceedings in Florida, to enforce the decision that individual shareholders. was responsible for the decision. , thus allowing the hooked seller to pierce the corporate veil.

The Third District Court of Appeals disagreed, finding that none of the three elements needed to show that the company was or could be pierced by Sehgal’s alter ego. Given that all three elements must be satisfied in order to pierce the corporate veil, it is important that the appeals court found that none of them would apply. The 3 requirements for piercing the corporate veil in Florida are nearly identical to those in the US, but state law should be consulted before planning or drawing conclusions about what the outcome of a particular situation will be.

The Third District Court of Appeal in this case found thus:

  1. The LLC was not a mere instrument without substance. Even though it had no assets or activities other than the subject contract at the time, the LLC had a past history that was genuine.
  2. The LLC was not used to defraud a creditor. There has never been an open communication that specifically indicated that the Company had significant assets or that promised that the individual defendant’s assets were being contributed to the Company.
  3. There was no evidence to show that the seller was hurt because of the LLC’s failure to pay. It seems that the appeals court got this proposition wrong, but it found one and two to be correct.

This case states that when a company is used to protect a person from liability, it must have at least a bank account or other lawful asset and sign of existence so as to be used only as an instrument. be avoided.

The case also shows that the judges who preside over a trial or issue a summary judgment are often biased toward enforcing a decision and find that a “void transfer” is necessary to satisfy the judge’s opinion. “Or the ego/veil piercing situation exists that will bring justice. for a particular situation.

Had Mr. Sehgal opened a bank account in the company’s name and made it more clear and actually put money in the account before signing, the money he put in would have been used to pay legal defense costs. could have been done, and the judge in the lower court could have a different opinion, saving the time and money needed for appeals. It is a reminder that advisors need to base their advice not only on the law, but also on how judges can enforce it.

There are many other piercing cases on the books, and almost all of them are on the debtor’s side, unless some horrible, illegal or outright unfair conduct has occurred. Business people and consultants should use multiple entities wisely and be aware of the principles of joint and multiple liabilities, direct partners and defendant superior when structuring contracts and arrangements with a view to limiting liability for activities and risks.

If you are interested in learning more on this topic, I invite you to read my book Gasman and Markham Florida and Federal Asset Protection Law and watch my youtube video on asset protection called Creditor Protection Part I from A to Z And Advanced Creditor Protection Plan Part II,


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