Court Applies Tennessee Law to Question of Piercing the Corporate Veil of a Foreign Defendant
In Boles v. National Develop. Co., Inc., the Court of Appeals again stated that Tennessee law determines whether to pierce the corporate veil of a foreign corporation. Once a defendant has submitted to the laws of the State of Tennessee and engaged in conduct that results in a judgment against the defendant by a Tennessee court, the only remaining question is how to enforce that judgment. Thus, the question centers on enforcing a Tennessee judgment, not the ordinary structure or governance of a foreign corporation.
A plaintiff must marshal some strong facts before a court will pierce the corporate veil. In Boles, the Court of Appeals emphasized the significant presumption against piercing the corporate veil. Nonetheless, the Court looked to non-exclusive factors from Federal Deposit Ins. Corp. v. Allen, and determined it appropriate to pierce the corporate veil in Boles.
Significantly, the evidence in favor of piercing the corporate veil was largely uncontroverted at trial because of sanctions against the defendant. The defendant apparently refused to respond to written discovery despite two prior court orders by the trial judge compelling him to do so. In the end, the trial court used its power under TRCP 37.02 to prohibit the defendant from arguing against the facts that the plaintiff had developed.
This illustrates the importance of complying reasonably in discovery. Assume the defendant had even minimal contrary evidence – just enough to preserve the presumption against piercing the corporate veil. The refusal to cooperate with discovery, and worse, to comply with court orders, cost the defendant more than $2.5 million.