Sky Cable, LLC v. DirecTV, Inc.
886 F.3d 375
4th Cir.2018Background
- DIRECTV obtained a $2.393 million judgment against Randy Coley for unauthorized reception/distribution of DIRECTV programming; collection from Coley personally proved unsuccessful.
- Coley controlled several Delaware/NC LLCs (Its Thundertime, East Coast Sales, South Raleigh) and had previously represented under oath that his wife had no ownership interest in those entities.
- DIRECTV moved to “reverse pierce” the corporate veil to make the three LLCs co-judgment debtors, alleging they were Coley’s alter egos and that assets had been commingled to shield funds.
- The district court found (1) the LLCs were alter egos of Coley, (2) Delaware law would permit outsider reverse veil piercing where an LLC is the alter ego of its sole member, and (3) the Coleys were equitably estopped from asserting a belated membership claim by Mrs. Coley.
- The court applied reverse piercing without having served the LLCs, reasoning that jurisdiction over Coley (the sole member) extended to an LLC found to be his alter ego.
- On appeal, the Fourth Circuit affirmed: Delaware law permits outsider reverse veil piercing for a single-member LLC used as an alter ego; the factual alter-ego finding was not clearly erroneous; equitable estoppel and jurisdiction rulings were proper.
Issues
| Issue | Plaintiff's Argument (DIRECTV) | Defendant's Argument (Coley/ITT) | Held |
|---|---|---|---|
| Whether Delaware law permits outsider reverse veil piercing of an LLC that is the alter ego of its sole member | Delaware would recognize reverse piercing in narrow circumstances to prevent fraud and injustice | Delaware does not recognize reverse piercing (or 6 Del. C. § 18-703 is the exclusive remedy via charging order) | Delaware law would permit outsider reverse piercing of a single-member LLC that is an alter ego; § 18-703 does not bar the remedy |
| Whether the district court’s alter-ego finding as to ITT was clearly erroneous | LLCs and Coley commingled funds and ignored formalities; injustice exists because judgment unsatisfied | Coley argued an express fraudulent purpose must be shown and that evidence did not support alter-ego | Alter-ego finding upheld: extensive commingling, failure to observe formalities, dominance by Coley, and overall unfairness supported reverse piercing |
| Whether lack of service on ITT deprived the court of personal jurisdiction | Jurisdiction over Coley (sole member/alter ego) suffices; reverse piercing places LLC before the court | Failure to serve ITT prevents jurisdiction over nonparty LLC | Exercise of jurisdiction over ITT was proper because it was Coley’s alter ego and Coley participated in proceedings |
| Whether Mrs. Coley could assert a post-judgment membership interest in ITT | N/A (DIRECTV) | Mrs. Coley asserted 50% membership post-judgment after earlier sworn denials | Coleys equitably estopped from asserting Mrs. Coley’s membership interest; DIRECTV relied to its detriment on prior representations |
Key Cases Cited
- DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681 (4th Cir.) (corporate form shields shareholders but courts may pierce veil to prevent inequitable results)
- NetJets Aviation, Inc. v. LHC Commc’ns, LLC, 537 F.3d 168 (2d Cir.) (alter-ego analysis applies to LLCs; alter ego requires mingling of operations plus injustice)
- First Flight, Inc. v. C.F. Tr., Inc., 306 F.3d 126 (4th Cir.) (discussing reverse veil piercing and creditor-outside claims)
- Wallace ex rel. Cencom Cable Income Partners II, Inc. v. Wood, 752 A.2d 1175 (Del. Ch.) (Delaware treats veil piercing as an extraordinary equitable remedy)
- Pauley Petroleum Inc. v. Cont’l Oil Co., 239 A.2d 629 (Del.) (Delaware permits disregarding corporate form to prevent fraud or injustice)
- Salve Regina Coll. v. Russell, 499 U.S. 225 (U.S. Sup. Ct.) (federal courts sitting in diversity predict state law when unsettled)
- Zahra Spiritual Tr. v. United States, 910 F.2d 240 (5th Cir.) (recognizing courts can reverse pierce a corporation’s veil)