Delaware law permits a court to pierce the corporate veil of a company and hold its owners personally liable “where there is fraud or where [the corporation] is in fact a mere instrumentality or alter ego of its owner.” See, e.g., Geyer v. Ingersoll Publ'ns Co., 621 A.2d 784, 793 (Del.Ch.1992). In order to state a claim for piercing the corporate veil under the “alter ego” theory, a party must show (1) that the corporation and its principals sought to be held liable operated as a single economic entity, and (2) that an overall element of injustice or unfairness is present. See, e.g., Trevino v. Merscorp, Inc., 583 F.Supp.2d 521, 528 (D. Del. 2008) (applying Delaware law). The fraud or injustice that must be demonstrated in order to pierce the corporate veil must be found in the principal’s use of the corporate form. See Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 267 (1989); Blair v. Infineon Technologies AG, 720 F. Supp. 2d 462, 473 (D. Del. 2010).
Generally, it is the rule that a corporate director is not personally liable for the misconduct of co-directors where he or she has not participated in the misconduct. See, e.g., Seale v. Citizens Sav. & Loan Ass’n, 806 F.2d 99 (6th Cir. 1986). Corporate officers and directors can only become personally liable if they directly authorize or actively participate in the wrongful or tortious conduct complained of by a third party. See, e.g., Taylor-Rush v. Multitech Corp., 217 Cal. App. 3d 103 (1990). In other words, directors ordinarily will not be held liable for wrongdoing over which they have no practical control. See, e.g., Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 89 N.C. App. 41 (1988).
File your tax returns. A week from now will be too late. It can be cumbersome, stressful and certainly annoying. But it’s one of those things in life. Do it and be done with it. Some added incentives to filing:
Politics aside (because, let’s face it, it’s all about our own, bottom-line individual/household budgets), let’s look at the impact of yesterday’s tax legislation.
United States citizens have an obligation to report to the IRS on Schedule B of their U.S. Individual Income Tax Return, Form 1040, whether they had a financial interest in, or signature authority over, a financial account in a foreign county in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account was maintained. They further have an obligation to report all income earned from foreign financial accounts on the tax return and to pay the taxes due on that income.
In this economy, many small businesses continue to struggle just to stay afloat and, out of desperation, find means of shuffling business funds around to pay immediately due bills and put off paying others. Some business owners have used employment tax withholding to use the government as a bank to 'borrow the money for a short while' during financially difficult times with good intentions to pay it back later. Others have been prosecuted for collecting employment taxes from their employees and willfully failing to pay them to the IRS. Former IRS Commissioner Mark W. Everson has stated that the “failure to pay employment taxes is stealing from the employees of the business.”
As tax defense attorneys and former IRS prosecutors, we are very experienced in resolving Maryland and federal tax problems. One of the common issues we encounter involve the failure to pay Maryland sales and use tax.
I. Applicable Statutes and Case-Law
Section 11-102(a) of the Tax-General Article, Annotated Code of Maryland, imposes a sales and use tax on a retail sale in Maryland, or a use of tangible personal property or a taxable service in Maryland, unless otherwise provided. See MD. CODE ANN., TAX-GEN. § 11-102(a)(1)-(2). Section 11-601 of the Tax-General Article, Annotated Code of Maryland, provides for the payment of sale and use tax to the Comptroller of Maryland by buyers or vendors. See MD. CODE ANN., TAX-GEN., § 11-601(b)-(c) (West 2010).
If a vendor that is liable for the payment of sales and use tax, including interest and penalties, is a limited liability company (hereinafter, “LLC”), then personal liability for the same extends to all members of the LLC if there is no operating agreement, or to those individual who manage the business and affairs of the LLC if there is an operating agreement. Id. at § 11-601(d)(2). Under Tax-Gen. § 11-601(e), a member of an LLC is not considered to be managing the business and affairs of the company solely by doing one or more of the following: (a) consulting with or advising the individuals who manage the business and affairs of the company; (b) directing the management of the company in the same manner as a director of a corporation directs the management of a corporation; or (c) voting on any matter required to be voted on by the members of the company. See id. at § 11-601(e).
As a lawyer who has successfully defended many types of insider trading allegations by both the SEC and CFTC, I am often asked to explain what type of insider trading is prohibited by the CFTC within the commodities and futures markets?
I. General Overview and Background of CFTC
Generally, regulation of the U.S. financial markets is divided between the Securities and Exchange Commission (“SEC”), with authority over securities, and the Commodity and Futures Trading Commission (“CFTC”), with authority over futures/derivatives. See Gary Rubin, CFTC Regulation 1.59 Fails to Adequately Regulate Insider Trading, Note, 53 N.Y.L. SCH. L. REV. 599, 606 (2008-09). The Commodity Exchange Act (“CEA”) of 1936 was the first major congressional initiative aimed at regulating derivatives. See Commodity Exchange Act of 1936, ch. 545, 49 Stat. 1491 (1936) (codified as amended at 7 U.S.C. § 1 (2006)); see also id. at 604. Generally, the CEA expanded upon prior acts by increasing the Secretary of Agriculture’s authority and making it “unlawful to engage in commodity brokering without first registering with the secretary.” Rubin, supra, 53 N.Y.L. SCH. L. REV. at 605 (citing CEA § 5, 49 Stat. at 1492-97).
The CFTC was established by the Commodity Futures Trading Commission Act (“CFTCA”) of 1974, which granted the CFTC the exclusive authority to regulate futures contracts. See 7 U.S.C. § 2(a)(2). The CFTC is a federal regulatory body that regulates the entire commodities futures industry. In its mission statement, the CFTC describes its main purposes as preventing fraud and promoting competition, stating, “[t]he CFTC’s mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.” CFTC, About the CFTC, http://www.cftc.gov/About/MissionResponsibilities/index.htm.
Prior to the enactment of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act” or “the Act”), the CFTC was viewed as “a regulatory agency with a small bark and even less bite.” Peter J. Henning, C.F.T.C. Is Set to Get Tougher on Fraud, New York Times, Dealbook, available at http://dealbook.nytimes.com/2010/11/01/c-f-t-c-is-set-to-get-tougher-on-fraud/. However, with the enactment of the Dodd-Frank Act, the CFTC has gained new authority to regulate derivatives, credit default swaps and the exchanges that will trade these contracts.
Generally speaking, a Maryland corporation provides protection to individuals from personal liability associated with debts of the corporate entity. When a plaintiff or creditor is able to go after an owner's personal assets, it is commonly called "piercing the corporate veil".
Maryland law is crystalline that the corporate entity will be disregarded only when necessary to prevent fraud or to enforce a paramount equity. The mere fact that all or almost all of the corporate stock is owned by one individual or a few individuals will not afford sufficient grounds for disregarding corporateness
Simply put, an insurance agent has no general duty to advise its insureds, with regard to essentially anything after the issuance of the policy. In Maryland, as well as other jurisdictions, the basis for not holding agents to a standard of care stems from a fear that to do so would create a situation where the tort floodgates would open to allow claims against brokers whenever an incident surrounding the policy occurs. While the question of duty can become more complex when the agent is acting on behalf of the insured, as opposed to the insurance company, the question is not affected in a relevant way.
Regardless of the status of the agent, when viewed exclusively in the insurance context, once the policy is issued, the insured is responsible for noticing any problems with the policy and bringing them to the attention of the agent immediately. With regard to administration of the policy following issuance, the basis for not requiring a duty of care stems from a belief that such would require an agent to continuously monitor a clients assets and adjust coverage accordingly. Since agents are generally in a position where they must rely on the information given to them by the insured, imposing a duty of care is unreasonable.
On of the most common dispute between businesses involves a tort know as tortious Interference of contract. Maryland recognizes two types of tortious interference claims: “inducing the breach of an existing contract and, more broadly, maliciously or wrongfully interfering with economic relationships in the absence of a breach of contract.” Kaser v. Fin. Prot. Mktg., Inc., 376 Md. 621, 628 (2003).
The two claims share the same elements – intentional acts done with the unlawful or wrongful purpose to cause damage to plaintiff’s lawful business with actual damage resulting – and can arise only out of the relationship between three parties, the two parties to the contract and a separate interferer. The three-party relationship applies equally in the instance of a business relationship where no express contract exists; however, in such situations, the right of an individual to interfere is treated more broadly.
To the surprise of many commercial litigators, Maryland does not recognize an independent breach of fiduciary duty claim. The Court of Special Appeals recently stated “In a claim for monetary damages at law … an alleged breach of fiduciary duty may give rise to a cause of action, but it does not, standing alone, constitute a cause of action.” Wasserman v. Kay, 197 Md. App. 586, 631 (2011).
In other words the proper count is a breach of contract or negligence claim which follows what is commonly referred to as a breach of fiduciary duty. For additional information, please contact the commercial litigation practice group of Silverman, Thompson, Slutkin & White, LLC for more information.