Veil-Piercing Can Apply to Limited Partnerships

Canter v. Lakewood of Voorhees, 420 N.J. Super. 508 (App. Div. 2011).  Under cases such as State v. Ventron, 94 N.J. 473 (1983), a court may, in proper circumstances, “pierce the veil” of a corporation and hold owners of that corporation liable for wrongdoing.  The question in this case was whether such piercing can occur when the allegedly offending entity is a limited partnership, or whether the New Jersey Uniform Limited Partnership Law, N.J.S.A. 42:2A-1 to -73 (“NJULPL”), which severely restricts the liability of limited partners for the activities of the limited partnership, prevents piercing as a matter of law.  In an opinion by Judge Simonelli, the Appellate Division held that the veil of a limited partnership can be pierced in circumstances comparable to those involving corporate veil-piercing, but that the facts of this case did not justify piercing.

Plaintiff sustained injuries at a nursing home, allegedly due to negligence.  The nursing home was owned by Lakewood at Voorhees LP (“Lakewood”), a limited partnership.  Plaintiff sued not only Lakewood, but its general partner, limited partners, and others.  Plaintiff asserted, through expert testimony, that all of those defendants “operated as one seamless long[-]term care organization.”

Defendants moved for summary judgment.  No prior case had pierced the veil of  a limited partnership, and defendants argued that the NJULPL forbade that.  Alternatively, summary judgment was sought on the basis that even if the veil could be pierced, there was no evidence that Lakewood was used by anyone else to perpetrate a fraud or injustice or to circumvent the law.

The Law Division held that the veil of a limited partnership could be pierced, and that there were disputes of material fact as to whether piercing could occur on these facts.  Accordingly, the judge denied summary judgment.  One defendant, SHI, a major limited partner of Lakewood, sought and was granted leave to appeal.

The Appellate Division agreed that the veil of a limited partnership can be pierced, and that the NJULPL did not prevent that.  Judge Simonelli observed that “New Jersey has not addressed whether corporate veil-piercing principles can apply to a limited partnership.”  Accordingly, she looked to the law of Delaware, which had adopted the Revised Uniform Partnership Law on which the NJULPL is based.  A Delaware had found “nothing about the nature of a limited liability partnership” that would preclude recourse to veil-piercing against a limited partner in “appropriate circumstances.”  The Appellate Division found that persuasive.

The “appropriate circumstances,” however, were not present as to SHI, as a matter of law.  “[T]o pierce the veil there must be evidence that the limited partner participated in the control of the limited partnership’s business by taking or attempting action not within the safe harbor of N.J.S.A. 42:2A-27b or dominated the limited partnership and used the limited partnership to perpetrate a fraud or injustice, or otherwise circumvent the law.”  Judge Simonelli cited Ventron and Verni v. Harry M. Stevens, Inc., 387 N.J. Super. 160 (App. Div. 2006), both of which involved piercing the veil of corporations.  Thus, the test for veil-piercing in the limited partnership context is comparable to that applicable to corporations.  The Law Division had not made any findings as to domination, perpetration of fraud or injustice, or circumvention of the law by SHI, and the Appellate Division found no evidence of any of that, let alone the “clear and convincing evidence” required for piercing.  Accordingly, the panel reversed the decision below and granted summary judgment to SHI.

The panel’s ruling on the availability of piercing was correct.  There is no rational basis to distinguish among business forms in deciding whether to permit piercing.  The court rightly applied the same test for piercing that applies to corporations.  Piercing is not routine, and will not be routine under this decision, especially given the “clear and convincing evidence” requirement.  But parties should have the right to seek piercing, under uniform standards, regardless of the business form used by the defendant.

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