Abstract

http://ssrn.com/abstract=1483278
 
 

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Disputing Limited Liability


Christina L. Boyd


University of Georgia - School of Public and International Affairs

David A. Hoffman


Temple University - James E. Beasley School of Law; Cultural Cognition Project at Yale Law School

October 5, 2009

Northwestern University Law Review, Vol. 104
Temple University Legal Studies Research Paper No. 2009-38

Abstract:     
This project presents six years of hand-collected federal district court data to analyze the first representative sample of veil piercing litigation. Our method identifies veil piercing complaints through Westlaw's trial pleadings database and codes each case through a detailed examination of PACER records. We test a variety of hypotheses to understand how such litigations are resolved.

We find that plaintiffs succeed quite often in veil piercing litigation, if success is defined as winning on motions that do not terminate a case. A variety of legal and extra-legal factors predict such interstitial veil piercing successes. Voluntary creditor causes of action promote veil piercing; LLCs are in very limited circumstances better insulated from veil piercing claims than corporations; undercapitalization is strongly associated with success while conclusory grounds like "façade" and "sham" are not; and defendants' legal sophistication is predictive of plaintiff failure. Extra-legal factors play a more striking and counterintuitive role. Plaintiffs suing companies with few employees are much more likely to win veil piercing motions, and obtain relief in cases, than plaintiffs suing companies employing many workers. This results holds even when controlling for legally-relevant variables. Contrary to both theory and previous empirical work, we also find that judicial liberalism is inversely related to the likelihood of plaintiff success.

Our results call into question existing normative and descriptive approaches to the disputation of limited liability and contribute to more general scholarship about selection effects and judicial behavior. They do not provide any easy answers to the question of what defendants can do to insulate themselves from veil piercing. Our analysis suggests: Very little, apart from being very big.

Number of Pages in PDF File: 61

Keywords: veil piercing, docketology, selection effects, priest-klein, undercapitalization, ideology, cultural cognition, LLCs, limited liability, empirical analysis, settlement

JEL Classification: C12, C15, C5, K12, K13, K22, K41, L2

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Date posted: October 6, 2009 ; Last revised: June 4, 2010

Suggested Citation

Boyd, Christina L. and Hoffman, David A., Disputing Limited Liability (October 5, 2009). Northwestern University Law Review, Vol. 104; Temple University Legal Studies Research Paper No. 2009-38. Available at SSRN: http://ssrn.com/abstract=1483278

Contact Information

Christina L. Boyd
University of Georgia - School of Public and International Affairs ( email )
Athens, GA 30602-6254
United States
David A. Hoffman (Contact Author)
Temple University - James E. Beasley School of Law ( email )
1719 N. Broad Street
Philadelphia, PA 19122
United States
215-204-0612 (Phone)
Cultural Cognition Project at Yale Law School
127 Wall St
New Haven, CT 06520
United States
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