Vail Law represented a dental franchisee in a AAA arbitration against its franchisor and landlord - both of which were LLCs owned by the same individual. After a dispute developed between our client and the franchisor, the franchisor terminated franchise. The landlord (controlled by the same individual that owned the franchisor), claiming that the loss of the franchise was itself a breach of the lease agreement, sought damages under the lease.
We then instituted an arbitration proceeding for breach of the franchise agreement on behalf of our client. However, because our client had purchased the first franchise in this system, the franchisor was undercapitalized and could not have paid any judgment. Accordingly, we also argued that the franchisor's owner was the alter ego of the franchisor (and the landlord). After a two-week arbitration hearing we prevailed on all claims and successfully pierced the corporate veil to hold the owner liable for the franchisor's debts.
This case illustrates two critical principles: (1) arbitrators have the power to pierce the corporate veil and make alter ego findings, and (2) evaluating and properly asserting alter ego and veil piercing claims at the outset of litigation can be essential to obtaining true relief. A multi-million dollar judgment is nothing more than a piece of paper if it is against an entity that cannot pay.
Jeff Vail is the founder of Vail Law LLC in Greenwood Village, Colorado. He has extensive experience representing plaintiffs and defendants in all types of business litigation, including alter ego and veil-piercing claims, breach of fiduciary duty claims, breach of contract claims, fraud and fraudulent concealment claims, and fraudulent transfer claims. Contact us at (303) 600-3730 or jvail@vail-law.com.