Sep 7, 2013

Ford Marrin Obtains Dismissal of Alter Ego and “Piercing The Corporate Veil” Claims in Royalty Dispute

MPEG LA v. GXI International, Inc., (N.Y. Supreme Court, New York County).

The firm successfully obtained dismissal of alter ego and “piercing the corporate veil” claims in a royalty dispute involving digital converter boxes.

The plaintiff joined into the action for royalties the principal of the limited liability company that entered into the royalty contract, as well as other entities in which he was a principal. Those companies conduct different business and were not parties to the royalty contract. The contract provided for no personal indemnity.

The Court held that, accepting all of the plaintiff’s factual allegations regarding control and domination of the contracting company as true, the plaintiff’s claims were still “fatally deficient” under New York law. The Court noted that under New York law, claimants bear a heavy burden in pursuing such claims. As recently reaffirmed by the New York Court of Appeals in James v. Loran Realty V Corp., 20 N.Y.3d 918, 919 (2012), a key factor in such allegations is whether the claimant can point to facts demonstrating the element of fraud in the use of the corporate structure.

Judge Melvin L. Schweitzer, of the Commercial Part of New York Supreme Court, New York County, agreed with the defendants that none of the plaintiff’s allegations would establish that any domination of the contracting company was for the purpose of using the company as an instrument of fraud or injustice against the plaintiff.

Partner Elizabeth DeCristofaro and Associate Jon R. Grabowski represented the moving defendants in this action.