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Smith Duggan Stops Landlord From Piercing Corporate Veil

Smith Duggan successfully defeated a landlord’s attempt to hold an out-of-state corporation liable for the back rent owed by its Massachusetts tenant. The Massachusetts Superior Court (Middlesex County) awarded summary judgment in favor of Smith Duggan’s client, a Kentucky oil and gas business.

The dispute concerned the efforts of a Harvard Square landlord to collect rent from its tenant, a computer startup founded by Harvard Ph.D. candidates. The startup had exhausted funds provided by investors before being able to perfect its new software. When the startup shut down and vacated the premises with six months remaining on its commercial lease, the landlord looked for other potential defendants to pay the bill. The startup’s founders had refused to personally guaranty the lease.

The landlord alleged that the Kentucky corporation should pay the rent owed by the Massachusetts startup because executives who worked for the Kentucky corporation had invested in the startup, had provided some services to it, and had facilitated a loan by the Kentucky corporation.

The landlord tried to persuade the court that the Kentucky corporation had control over the tenant, such that the court should “pierce the corporate veil” and “disregard the corporate entity” to hold the Kentucky corporation liable under a lease it did not sign or guaranty.

Of the $500,000 line of credit extended, about $270,000 remained at the time of the startup’s shutdown. The landlord’s counsel argued that the unused portion of the credit line showed manipulation of lease payments.

Smith Duggan attorneys persuasively demonstrated that there was no evidence to causally link allegations of outside control to the landlord’s injury. The Superior Court agreed that there was no evidence to prove that the Kentucky corporation took funds from the tenant, no evidence that it wrongly used its influence to cause the tenant to default on the lease, and no evidence that the landlord had been harmed by its alleged confusion over which company was paying the rent. The Court held that since there was no guaranty of the lease, it was inequitable to require the Kentucky corporation to pay the startup’s missed rent merely because previously it had decided to pay a few months’ rent. For the Court’s opinion, see: John P. DiGiovanni, as Trustee of the 50 Church Street Realty Trust v. Peerium, Inc. and Blue Ridge Group, Inc., No. MICV2010-2936-F (Mass. Superior Ct. Nov. 27, 2013).

Should you have any questions about the potential liability of investors or shareholders for corporate debts, or litigation involving business, please feel free to contact Paul Alan Rufo, Esq. at prufo@smithduggan.com, 1-617-228-4401, or Matthew J. Walko, Esq. at mjwalko@smithduggan.com, 1-617-228-4403.

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