The Still-Elusive Quest to Make Sense of Veil-Piercing

Abstract:     
This paper is an invited comment on Peter Oh's article "Veil-Piercing" published in the Texas Law Review. I make two points. First, I suggest that Oh's exhaustive analysis of the factors cited by courts to justify veil-piercing, like Robert Thompson's before it, does not actually tell us much about what is going on in the cases. For reasons that I explain, the asserted rationales cannot determine the results. Instead, vaguely articulated and poorly understand notions of policy and fairness drive decision making in this area. The law will continue to be obscure and results unpredictable until courts develop a clearer sense of the appropriate limits of limited liability. Second, I comment on the relative frequency with which courts pierce the veil in contract cases in comparison to tort cases. Oh and other commentators find this puzzling because the opportunity for ex ante bargaining about risk should, in theory, obviate the need for piercing in contract cases except in cases of fraud. I suggest that a proper understanding of when veil-piercing is appropriate, based on the rationale for limited liability, may well justify piercing in a significant number of contract cases. At the same time, there may be good reasons for the relative infrequency of piercing in tort cases. The courts may be getting it right in many of the piercing cases, even if the factors they cite typically do not tell us what the real reasons are.

Number of Pages in PDF File: 16

Keywords: limited liability, piercing the corporate veil, veil piercing

JEL Classification: K10, K22

Accepted Paper Series