Failure to Pierce the Corporate Veil Proves Fatal to Contract Claim Against Principal of Defendant and Related Entities

• Posted on: Jan 28 2026

By: Jeffrey M. Haber

To pierce the corporate veil under New York law, a plaintiff must satisfy a two‑part test and plead specific, non‑conclusory facts supporting each element. First, the plaintiff must show that the individual exercised complete domination and control over the corporation with respect to the specific transaction at issue. Second, even if domination exists, the plaintiff must show that the domination was used to commit a fraud, injustice, or other wrongful act that caused the plaintiff’s injury. In Borini v. Inform Studios, Inc., 2026 N.Y. Slip Op. 00309 (1st Dept. Jan 27, 2026), which we examine in today’s article, plaintiffs did not satisfy either prong of the test.

Borini concerned a written contract between Inform Studio, Inc. (“Inform”) and plaintiffs for the renovation of plaintiffs’ cooperative apartment unit (the “Project”).[1] The contract was executed on November 15, 2017, and required Inform to achieve substantial completion within one year of the January 12, 2018 commencement date of the Project.

After work began, a burst pipe elsewhere in the building caused damage to plaintiffs’ apartment, resulting in Project delays. On August 6, 2018, the cooperative board (the “Board”) directed that the Project be stopped and denied Inform further access to the premises. The Board asserted that plaintiffs had exceeded the time period permitted under an alteration agreement between plaintiffs and the Board. Inform was not a party to that agreement. Access to the unit remained restricted for more than one year while plaintiffs and the Board litigated the issue in New York County Supreme Court. On August 22, 2019, the court issued a mandatory injunction requiring the Board to allow the Project to proceed.

Following the injunction, Inform and plaintiffs discussed resuming work. Inform requested payment of its outstanding contract balance and reimbursement of certain delay-related costs, including storage fees, extended labor expenses, and subcontractor remobilization costs. The parties submitted these issues to mediation, and on November 19, 2019, executed a post‑mediation agreement (“PMA”) resolving them, including plaintiffs’ agreement to pay the identified amounts.

The PMA contemplated a March 1, 2020 restart date. Before that date, New York City suspended nonessential construction due to the Covid‑19 pandemic. Inform regained access to the apartment on July 28, 2020, and continued work until achieving substantial completion on January 28, 2021. Inform thereafter performed punch-list work and closed out the Project. On October 19, 2021, plaintiffs obtained a Department of Buildings “Letter of Completion,” based on certifications submitted by their design professionals.

Nearly two years later, plaintiffs commenced the action against Inform alleging breach of contract. Plaintiffs also named Patrick Eck, a licensed contractor and principal of Inform, and two additional entities in which Eck is a principle, Inform Studios Installer, Inc. (“Installer”) and Block-Studio, Inc. (“Block”). Neither Eck, Installer nor Block were signatories to the contract.

Defendants Eck, Installer, and Block moved to dismiss plaintiffs’ complaint. The motion court denied the motion.

The Appellate Division, First Department, unanimously reversed.

The Governing Law

It is well settled that a corporation only acts through its officers, directors and owners. Thus, these individuals are generally not liable for the debts incurred by the corporation. However, when an officer, director or owner abuses the corporate form to perpetrate a wrong or injustice against a third party, courts will intervene on behalf of the third party to hold the corporate actor personally liable.[2] 

“Generally, a plaintiff seeking to pierce the corporate veil must show that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury.”[3] 

Importantly, it is not enough for the plaintiff to demonstrate that the officer, director, or owner dominated and controlled the corporate entity.[4] The plaintiff must show that the officer, director or member used the corporation for his/her personal benefit and the corporation was nothing more than an “alter ego” or instrumentality of the officer or member.[5] Conclusory allegations of domination and control are insufficient.[6] So too are allegations asserted on information and belief which amount to nothing more than a restatement of legal elements.[7] The plaintiff must demonstrate that there was a unity of interest and control between the defendant and the entity such that they are indistinguishable.

While application of the doctrine depends on the facts and circumstances of each case,[8] several factors have emerged in determining whether the plaintiff has made the requisite showing. These factors include, among others: (1) the failure to adhere to corporate formalities; (2) inadequate capitalization (that is, the corporation or LLC does not have sufficient funds to operate); (3) a commingling of assets; (4) one person or a small group of closely related people were in complete control of the corporation or LLC; and (5) use of corporate funds for personal benefit.[9] No one factor controls the consideration.[10] 

Courts recognize, however, “that with respect to small, privately-held corporations, ‘the trappings of sophisticated corporate life are rarely present,’” and, therefore, they “must avoid an over-rigid ‘preoccupation with questions of structure, financial and accounting sophistication or dividend policy or history.’”[11] 

In addition to the foregoing factors, a plaintiff must establish a causal connection between the domination and control of the corporate entity and the injury complained of.[12]The injury complained of must lead to inequity, fraud or malfeasance.[13] It does not include a simple breach of contract claim.[14]

The First Department’s Decision

The Court held that plaintiffs failed “to allege that Eck ‘exercised complete domination’ [over the] defendant corporations with respect to the transactions at issue and that ‘such domination was used to commit a fraud or wrong against [plaintiffs] which resulted in [their] injury.’”[15] The Court found that the “complaint contain[ed] only conclusory allegations, reciting several factors supporting veil piercing, made solely upon plaintiffs’ ‘information and belief.’”[16]

In so holding, the Court noted that “[a]lthough the record show[ed] that the corporate defendants [were] connected” because “they share[d] a common address and a common principal,” plaintiffs nevertheless “failed to show complete domination and control.”[17] “Plaintiffs’ proffered evidence,” said the Court, “demonstrated that Eck was a licensed contractor who acted on behalf of the corporate defendants” and “‘by definition, a corporation acts through its officers and directors.’”[18] “Thus,” concluded the Court, “allegations and proof that Eck, a principal for all the corporate defendants, dealt with plaintiffs and represented the corporations are insufficient to pierce Inform’s corporate veil.”[19]

“Moreover,” the Court held that “the complaint lack[ed] any allegations that Eck perpetrated ‘a wrong or injustice’ against plaintiffs.”[20] “Therefore,” concluded the Court, “plaintiffs’ breach of contract claim, without more, [did] not warrant piercing the corporate veil.”[21]

To underscore its holding, the Court explained that plaintiffs did “not raise[ ] claims for fraud or similar wrongdoing, nor [did] plaintiffs allege[ ] that Installer and Block were not legitimate subcontractor businesses, that they were created for the improper purpose of preventing plaintiffs from enforcing the contract, or that corporate funds were diverted to those entities to render Inform judgment proof.”[22] “Under these circumstances,” concluded the Court, “plaintiffs failed to state a claim for breach of contract as against Installer, Block, and Eck,” and “‘the hope that something will turn up in discovery [was] an insufficient basis to deny the motion to dismiss.’”[23]

Takeaway

In Borini, plaintiffs sued Inform for delays and alleged defects in a renovation project. Plaintiffs also tried to sue Inform’s owner and two related companies, even though none of them signed the renovation contract. To do that, plaintiffs attempted to pierce the corporate veil.

As discussed, Borini shows how difficult it is under New York law to hold a business owner personally liable for their company’s obligations.

The First Department rejected plaintiffs’ claims and dismissed the case against all non‑contracting defendants. The Court held that plaintiffs failed to allege any facts showing that the owner misused the corporation or engaged in wrongdoing that would justify personal liability. Simply alleging that the owner managed the companies, shared an address among them, or communicated directly with plaintiffs was not enough. Corporations act through their officers and directors; however, that alone does not create personal exposure.

Most importantly, plaintiffs alleged only a simple breach of contract, nothing more. The Court made clear that a contract dispute, without more, is not grounds for piercing the corporate veil. There must be evidence of fraud, misuse of corporate assets, or other inequitable conduct. None was present in Borini. The Court also rejected the notion that plaintiffs could proceed to discovery “just to see what turns up,” reiterating that specific allegations of wrongdoing must be made at the outset.

_______________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] The background facts come from the briefing on appeal.

[2] TNS Holdings v. MKI Sec. Corp., 92 N.Y.2d 335, 340 (1998) (the corporate veil may be pierced to impose liability for corporate wrongs upon persons who have “misused the corporate form for [their] personal ends.”); Matter of Morris v. New York State Dept. of Taxation & Fin., 82 N.Y.2d 135, 142 (1993) (the corporate veil may be pierced where the owners have “abused the privilege of doing business in the corporate form” by “perpetrat[ing] a wrong or injustice . . . such that a court in equity will intervene.”); Tap Holdings, LLC v. Orix Fin. Corp., 109 A.D.3d 167, 174 (1st Dept. 2013) (citation omitted).

[3] Conason v. Megan Holding, LLC, 25 N.Y.3d 1, 18 (2015) (internal quotation marks omitted); TNS Holdings, 92 N.Y.2d at 339.

[4] Matter of Morris, 82 N.Y.2d at 141-142; TNS Holdings, 92 N.Y.2d at 339.

[5] TNS Holdings, 92 N.Y.2d at 339.

[6] East Hampton Union Free School Dist. v. Sandpebble Bldrs., Inc., 16 N.Y.3d 775, 776 (2011) (noting that at the pleading stage, “a plaintiff must do more than merely allege that [the defendant] engaged in improper acts or acted in ‘bad faith’ while representing the corporation”).

[7] See 501 Fifth Ave. Co. LLC v. Alvona LLC., 110 A.D.3d 494 (1st Dept. 2013); see also Cortlandt St. Recovery Corp. v. Bonderman, 226 A.D.3d 103, 104 [(1st Dept. 2024), aff’d,  — N.Y.3d —, 2025 N.Y. Slip Op. 07078 (2025); Albstein v. Elany Contracting Corp., 30 A.D.3d 210, 210 (1st Dept. 2006).

[8] Ledy v. Wilson, 38 A.D.3d 214, 214 (1st Dept. 2007).

[9] Shisgal v. Brown, 21 A.D.3d 845, 848 (1st Dept. 2005) (internal citation omitted).

[10] Tap Holdings, 109 A.D.3d at 174 (citation omitted).

[11] Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 18 (2d Cir. 1996) (quoting Wm. Wrigley Jr. Co. v. Waters, 890 F.2d 594, 601 (2d Cir. 1989) (applying New York law)). Accord, Leslie, Semple & Garrison, Inc. v. Gavit & Co., Inc., 81 A.D.2d 950, 951 (3d Dept. 1981) (recognizing that it is often difficult and impractical for small closely-held corporations to comport with the typical corporate formalities). See also Bahar v. Schwartzreich, 204 A.D.2d 441, 443 (2d Dept. 1994); Bullard v. Bullard, 185 A.D.2d 411, 413 (3d Dept. 1992).

[12] Matter of Morris, 82 N.Y.2d at 141; Guptill Holding Corp. v. State of N.Y., 33 A.D.2d 362, 365 (3d Dept. 1970) (noting that an element of veil piercing is “an injury proximately caused by said wrong”) (citation omitted); East Hampton Union Free School Dist., 66 A.D.3d at 132 (noting that the plaintiff must articulate conduct by the individual that creates a nexus between it and the “transactions or occurrences” alleged in the complaint).

[13] TNS Holdings, 92 N.Y.2d 339.

[14] Brandsway Hosp., LLC. v. Delshah Cap. LLC, 216 A.D.3d 486, 487 (1st Dept. 2023); Kahan Jewelry Corp. v. Coin Dealer of 47th St. Inc., 173 A.D.3d 568, 569 (1st Dept. 2019); Skanska USA Bldg. Inc. v. Atl. Yards B2 Owner, LLC, 146 A.D.3d 1, 12 (1st Dept. 2016), aff’d, 31 N.Y.3d 1002 (2018).

[15] Slip Op. at *1 (quoting Matter of Morris, 82 N.Y.2d at 141).

[16] Id. (citations omitted).

[17] Id. (citing Sass v. TMT Restoration Consultants Ltd., 100 A.D.3d 443, 443 (1st Dept. 2012); Fantazia Intl. Corp. v. CPL Furs N.Y., Inc., 67 A.D.3d 511, 512 (1st Dept. 2009)).

[18] Id. (citing East Hampton Union Free School Dist., 16 N.Y.3d at 776).

[19] Id. (citing J. Carey Smith 2019 Irrevocable Trust v. 11 W. 12 Realty LLC, 240 A.D.3d 432, 433 (1st Dept. 2025); Springut Law PC v. Rates Tech. Inc., 157 A.D.3d 645, 646 (1st Dept. 2018)).

[20] Id. (citing Matter of Morris, 82 N.Y.2d at 142).

[21] Id. (citing Skanska, 146 A.D.3d at 12).

[22] Id. (citing World Wide Packaging, LLC v. Cargo Cosmetics, LLC, 193 A.D.3d 442, 442-443 (1st Dept. 2021)).

[23] Id. (citations omitted).

Tagged with: Alter Ego, Breach of Contract, Commercial Litigation, domination and control, Pierce the Corporate Veil