993 N.W.2d 462
Neb.2023Background:
- 407 N 117 Street, LLC (407) leased commercial property to Planet Group; Planet Group exercised a 5-year lease option in Aug 2013 and later stopped paying rent.
- 407 obtained a default judgment against Planet Group on May 3, 2019 for roughly $714,000; Planet Group has not satisfied the judgment.
- Planet Group was majority‑owned (>90%) by West Partners, a secured creditor; Harper and McGill were nonshareholder participants in West Partners (Harper later became Planet Group president in 2017; McGill served on Planet Group’s board 2014–2018).
- 407 sued Harper and McGill (and another officer later dismissed) seeking to pierce Planet Group’s corporate veil, alleging Harper and McGill controlled Planet Group/West Partners, caused preferential payments to West Partners, authorized the lease option knowing insolvency, and diverted assets.
- Harper and McGill moved for summary judgment, producing affidavits that they lacked decisionmaking authority at formation/lease/option times and received no compensation; the district court granted summary judgment for them and dismissed 407’s claims with prejudice.
- The Nebraska Supreme Court affirmed, assuming (without deciding) veil piercing could reach nonshareholders but holding the record failed to raise genuine issues on the fraud/veil‑piercing factors.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the corporate veil can be pierced to hold Harper and McGill liable for Planet Group’s rent judgment | Harper and McGill exercised control over Planet Group and West Partners, caused preferential payments and asset diversion, and authorized the lease option despite insolvency | They were nonshareholders who lacked control at incorporation/lease/option times, received no compensation, and thus cannot be liable | Court assumed veil piercing possible as a matter of law but held record lacks evidence to pierce; summary judgment affirmed |
| Inadequate capitalization (measured at incorporation) | 407 implies undercapitalization contributed to inability to pay lease obligations | Harper/McGill were not involved at incorporation and thus cannot be responsible for capitalization | Factor does not weigh for piercing as they lacked control at incorporation |
| Insolvency when debt was incurred (exercise of lease option) | Planet Group was insolvent when it exercised the option; Harper/McGill knew or should have known | Harper/McGill produced evidence they lacked decisionmaking authority at that time | No evidence they controlled Planet Group when option was exercised; factor does not support piercing |
| Diversion of funds/preferential payments to West Partners | Harper/McGill caused liquidation/preferential repayment to West Partners, diverting assets that should have gone to 407 | They received no corporate funds/compensation; transfers reflected business operations and secured‑creditor actions by West Partners | Evidence would require speculation to infer diversion for personal benefit; no genuine factual dispute supports piercing |
| Corporation as facade / mere instrumentality | Planet Group served as conduit to benefit Harper/McGill/West Partners | Planet Group operated as a legitimate business (though now defunct) and was not a shell for personal dealings | Factor does not support piercing; Planet Group was not a mere shell |
Key Cases Cited
- Slama v. Slama, 313 Neb. 836 (2023) (summary judgment reviewed de novo; courts view record in light most favorable to nonmoving party)
- McGill Restoration v. Lion Place Condo. Assn., 313 Neb. 658 (2023) (discussion of corporate‑entity doctrines)
- Christian v. Smith, 276 Neb. 867 (2008) (sets veil‑piercing standard and fraud factors: inadequate capitalization, insolvency when debt incurred, diversion of funds, corporation as facade)
- Clark v. Scheels All Sports, 989 N.W.2d 39 (2023) (procedure for resolving summary judgment motions; prima facie burden and shifting burden rules)
- Nebraska Engineering Co. v. Gerstner, 212 Neb. 440 (1982) (example where corporate entity was disregarded because company was a mere shell)