Disputing Limited Liability

61 Pages Posted: 6 Oct 2009 Last revised: 4 Jun 2010

Christina L. Boyd

University of Georgia - School of Public and International Affairs

David A. Hoffman

University of Pennsylvania Law School; Cultural Cognition Project at Yale Law School

Date Written: October 5, 2009

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 "fa├žade" 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.

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

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: https://ssrn.com/abstract=1483278

Christina L. Boyd

University of Georgia - School of Public and International Affairs ( email )

Athens, GA 30602-6254
United States

David A. Hoffman (Contact Author)

University of Pennsylvania Law School ( email )

3501 Samson Street
Philadelphia, PA 19104
United States

Cultural Cognition Project at Yale Law School

127 Wall St
New Haven, CT 06520
United States

Paper statistics

Downloads
587
Rank
35,116
Abstract Views
3,716