An Evolving Way To Attack Assets

reverse veil piercing

Piercing the corporate veil. It sounds painful, and it is. A judgment is entered against a corporation with no assets. To collect the court allows the judgment creditor (the winner in the case) to pierce through the corporation and reach the personal assets of the shareholder.

A new twist on this method of collection has appeared. It is called reverse piercing of the corporate veil. It is reversed because instead of a judgment against a corporation there is a judgment against an individual. The individual has no assets, but their entity does. So in this case the court allows the judgment creditor to go past the individual and gain access to assets of their corporation or LLC. Graphically, the difference is:

diagram of reverse veil piercing

California has joined the list of states allowing for reverse piercing. The following goes through the Curci case in question. If you don’t have time to read the entire case write up, please know that asset protection is a constantly evolving area of law. If the following case write up interests you, you will find further information on this subject and more in my book Veil Not Fail: Protecting Your Personal Assets From Business Attacks (RDA Press, 2022).

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What is the potential impact on outside reverse veil piercing of the recent California Court of Appeal, Fourth District, decision in Curci Investments, LLC v. Baldwin, 14 Cal.App.5th 214, 221 Cal.Rptr.3d 847 (Cal.App., Aug, 10, 2017)

Applicable Law

In Curci Investments, LLC v. Baldwin, 14 Cal.App.5th 214, 221 Cal.Rptr.3d 847 (Cal.App., Aug, 10, 2017), the California Court of Appeal, Fourth District, concluded that a judgment creditor was not per se precluded from outside reverse piercing the corporate veil to add a Delaware limited liability company (LLC), and that the California statute providing for charging order levying distributions from an LLC to a debtor member did not preclude application of outside reverse veil piercing to allow a judgment creditor to add an LLC as a judgment debtor on a judgment against the holder of an LLC interest.

The Facts of Curci

In January 2004, James P. Baldwin (“Baldwin”), a prominent real estate developer, formed JPB Investments, LLC (“JPBI”), a Delaware limited liability company, for the exclusive purpose of holding and investing Baldwin and his wife’s cash balances. Over the course of his lifetime, Baldwin had formed and held interests in hundreds of corporations, partnerships, and LLCs. JPBI had two members: (1) Baldwin with a 99 percent member interest; and (2) his wife with a one percent member interest. Baldwin was a manager and the chief executive officer (“CEO”) of the company. In these roles, and given his member interest, Baldwin determined when, if at all, JPBI made monetary distributions to its members, i.e., Baldwin and his wife. Two years after forming JPBI, Baldwin, individually, borrowed $5.5 million from Curci’s predecessor in interest. The loan was memorialized in a promissory note executed by Baldwin and the managing member of Curci’s predecessor (the “Curci note”). In the Curci note, Baldwin agreed to pay back the principal amount of the loan, with interest, by January 2009. Curci was assigned the lender’s interest in the Curci note shortly after it was executed. One month after executing the Curci note, Baldwin settled eight family trusts to provide for his grandchildren during and after their college years (the “family trusts”). Baldwin’s children were the designated trustees. (At least one of his sons, however, was unaware of the family trusts despite his signature on the trust documents.) Not long after the family trusts were settled, JPBI loaned a total of approximately $42.6 million (the “family notes”) to three general partnerships (the “family partnerships”) formed by Baldwin for estate planning purposes. Because the partners of the family partnerships were various combinations of the family trusts, certain of Baldwin’s children signed the family notes in their capacity as trustees. Baldwin signed the family notes in his capacity as manager of JPBI. Each family note indicated the principal amount of the loan was to be repaid by July, 2015. Although all the family notes were in favor of JPBI, Baldwin and his wife listed them as “Notes Receivable” on their personal financial statements.

When the Curci note came due in January, 2009, Baldwin had not made any payments. Curci filed a lawsuit against him to recover the amount owed. Not long thereafter, the parties entered into a court-approved stipulation establishing a payment schedule for Baldwin to avoid entry of judgment. About a year later, the trial court approved an amended stipulation that modified the payment schedule due to Baldwin’s continued failure to make the agreed upon payments. Baldwin ultimately failed to make the agreed upon payments, so Curci sought entry of judgment against him. In October, 2012, the trial court entered judgment in favor of Curci and against Baldwin in the amount of approximately $7.2 million, including prejudgment interest and attorney’s fees and costs. In the year after entry of judgment, Curci propounded extensive post-judgment discovery requests aimed at understanding the nature, extent, and location of Baldwin’s personal assets. Baldwin did not timely respond to the discovery, and Curci filed a motion to compel. Though the motion was moot by the time it was heard, the trial court awarded sanctions against Baldwin.

As of February, 2014, no payments had been made on the family notes. Baldwin, as manager of JPBI, and for reasons unexplained, chose to execute amendments to the family notes to extend their terms by five years, to July, 2020. No consideration was provided in exchange for the extensions. A few days later, Baldwin responded to a discovery request made by Curci one year earlier. Among the documents he produced were the family notes, including the five-year payment extensions. Based on Baldwin’s discovery responses, and Baldwin’s failure to pay any of the judgment, Curci filed a motion seeking charging orders against 36 business entities in which Baldwin had an interest. Among those entities was JPBI. The trial court granted Curci’s motion in August, 2014. From and after that date, any monetary distributions made by JPBI to Baldwin, in his capacity as a member, were ordered to be paid to Curci instead. Curci received no money as a result of the charging order.

Although Baldwin caused JPBI to distribute approximately $178 million to him and his wife, as members, between 2006 and 2012, not a single distribution had been made since the October, 2012, entry of judgment on the Curci note.

This is a key factor. When that much money has been previously distributed, courts will ask why Curci can’t be paid. As well, there had been no payments made by the family partnerships to JPBI on the family notes. In June, 2015, Curci filed a motion to add JPBI as a judgment debtor pursuant to California Code of Civil Procedure, Section 187. Curci based its motion on the outside reverse veil piercing doctrine. Curci argued that JPBI was Baldwin’s alter ego, that Baldwin was using JPBI to avoid paying the judgment, and that an unjust result would occur unless JPBI’s assets could be used to satisfy Baldwin’s personal debt. Baldwin did not initially oppose the motion. The trial court issued a tentative ruling denying Curci’s motion, based upon the earlier California Court of Appeal, Fourth District, decision in Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal.App.4th 1510, 77 Cal.Rptr. 3d 96 (Cal.App., Aug. 27, 2008). Following additional briefing from the parties on that issue, and a hearing, the trial court adopted its tentative ruling as its final decision. Because it believed outside reverse veil piercing was not viable in California, it did not make any factual findings related to Curci’s arguments thereunder. Curci timely appealed.

The Decision in Curci

Curci sought to add JPBI as a judgment debtor on the $7.2 million judgment it had against Baldwin personally. Curci asserted that Baldwin held virtually all of the interest in JPBI and controlled its actions, and that Baldwin appeared to be using JPBI as a personal bank account. Curci argued that, under these circumstances, it would be in the interest of justice to disregard the separate nature of JPBI and allow Curci to access JPBI’s assets to satisfy the judgment against Baldwin. Citing Postal Instant Press, Inc., supra, the trial court denied Curci’s motion based on its belief the relief sought by Curci, commonly known as outside reverse veil piercing, was not available in California. On appeal, Curci asserted that Postal Instant Press was distinguishable, and urged the California Court of Appeal to conclude that outside reverse veil piercing was available in California and appropriate in this case. The California Court of Appeal agreed with Curci, that Postal Instant Press was distinguishable, and concluded that outside reverse veil piercing was possible under these circumstances. Therefore, the California Court of Appeal reversed and remanded the case to the trial court to make a factual determination as to whether JPBI’s veil should be pierced.

The Rationale in Curci

In Curci, the California Court of Appeal noted that the question presented was whether outside reverse piercing of the corporate veil could be applied under the circumstances of this case, giving Curci the ability to reach JPBI’s assets by adding it as a judgment debtor. Curci contended that the facts of this case justified making such a remedy available, and argued that neither the decision in Postal Instant Press, nor state statutory law, precluded such a result. Baldwin disagreed, asserting that Postal Instant Press established a broad and all-encompassing rule of no reverse piercing in California; and, alternatively, that California Corporations Code, Section 17705.03, provided the sole remedy available to Curci with respect to JPBI. The Court agreed with Curci, and found that remand was appropriate, in order to allow the court to make the factual determination of whether the facts in this case justified piercing JPBI’s veil.

A. CCP 187.

In Curci, the Court initially noted that, pursuant to Code of Civil Procedure, Section 187, a trial court has jurisdiction to modify a judgment to add additional judgment debtors, and that granting or denying a motion to add a judgment debtor lies within the discretion of the trial court.

B. Veil Piercing and the Alter Ego Doctrine

In Curci, with respect to traditional veil piercing, the Court noted that, ordinarily a corporation is considered a separate legal entity, distinct from its stockholders, officers, and directors, with separate and distinct liabilities and obligations; and that the same was true of an LLC and its members and managers. The Court pointed out that legal separation may be disregarded by the courts when a corporation or LLC is used by one or more individuals: (1) to perpetrate a fraud; (2) to circumvent a statute; or (3) to accomplish some other wrongful or inequitable purpose. The Court observed that in those situations, the corporation’s or LLC’s actions will be deemed to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners; and that the alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. The Court stressed that, as an equitable doctrine, its essence is that justice be done. The Court stated that, before the alter ego doctrine will be invoked in California, two conditions generally must be met: (1) first, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist; and (2) there must be an inequitable result if the acts in question are treated as those of the corporation alone. The Court observed that, while courts have developed a list of factors that may be analyzed in making these determinations, there is no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case.

C. Outside Reverse Veil Piercing

In Curci, the Court noted that outside reverse veil piercing is similar to traditional veil piercing in that when the ends of justice so require, a court will disregard the separation between an individual and a business entity; however, the Court emphasized that the two serve unique purposes and are used in different contexts. Rather than seeking to hold an individual responsible for the acts of an entity, outside reverse veil piercing seeks to satisfy the debt of an individual through the assets of an entity of which the individual is an insider. The Court observed that outside reverse veil piercing arises when the request for piercing comes from a third party outside the targeted business entity; and that as outside reverse piercing has evolved, a growing majority of courts across the country have adopted it as a potential equitable remedy.

D. Postal Instant Press

In Curci, the Court noted that another panel had addressed outside reverse veil piercing in Postal Instant Press, supra. In that case, Postal Instant Press (“PIP”) obtained an $80,000 judgment against an individual, then sought to amend the judgment to add as a judgment debtor a corporation in which the debtor formerly held shares. The PIP court reversed the trial court’s order amending the judgment, based on the conclusion that a third party creditor may not pierce the corporate veil to reach corporate assets to satisfy a shareholder’s personal liability. In reaching its conclusion, the PIP court echoed concerns expressed by non-California courts about making outside reverse veil piercing available with respect to corporations. Among those concerns were: (1) allowing judgment creditors to bypass standard judgment collection procedures; (2) harming innocent shareholders and corporate creditors; and (3) using an equitable remedy in situations where legal theories or legal remedies are available. In Curci, the Court stated that PIP did not preclude application of outside reverse veil piercing of LLCs for several reasons: (1) Curci sought to disregard the separate status of an LLC, not a corporation, and the court’s decision in PIP was expressly limited to corporations; (2) the nature of LLCs did not present the concerns identified in PIP, because Baldwin, the judgment debtor, held a 99 percent interest in JPBI and his wife held the remaining one percent interest, but she was liable for the debt owed to Curci under California community property law, and there simply was no “innocent” member of JPBI that could be affected by reverse piercing; and (3) a creditor does not have the same options against a member of an LLC as it has against a shareholder of a corporation. The Court reasoned that, under California law, when the debtor is a shareholder, the creditor may step straight into the shoes of the debtor, and may acquire the shares and, thereafter, have whatever rights the shareholder had in the corporation, including the right to dividends, to vote, and to sell the shares; whereas, in stark contrast, if the debtor is a member of an LLC, the creditor may only obtain a charging order against distributions made to the member. Thus, the debtor remains a member of the LLC with all the same rights to manage and control the LLC, including, in Baldwin’s case, the right to decide when distributions to members are made, if ever.

In Curci, Baldwin asserted that Corporations Code, Section 17705.03, preempted the Court from making reverse piercing available with respect to an LLC, because it provides the sole remedy creditors have against a debtor who has a member interest in an LLC. However, the Court disagreed, and pointed out that Section 17705.03 was not as all-encompassing as Baldwin suggested, and that it more narrowly provided a charging order levying distributions from the LLC to the debtor member is the exclusive remedy by which a judgment creditor may satisfy the judgment from the judgment debtor’s transferable interest. The Court reasoned that, because outside reverse veil piercing was a means of reaching the LLC’s assets, and not the debtor’s transferable interest in the LLC, Section 17705.03 did not preclude outside reverse veil piercing. The Court noted that its rationale was underscored by the drafters’ comments to the Revised Uniform Limited Liability Company Act, from which Section 17705.03 was adopted without substantive change; and that those comments state the charging provisions are not intended to prevent a court from effecting a “reverse pierce” where appropriate.

Application of the Rationale in Curci to the Facts of Curci

In Curci, the Court noted that the case before it presented a situation where outside reverse veil piercing might well be appropriate, because Curci had been attempting to collect on a judgment for nearly half a decade, frustrated by Baldwin’s non-responsiveness and claimed lack of knowledge concerning his own personal assets and the web of business entities in which he had an interest. The Court pointed out that, although the formation of JPBI predated the underlying judgment, its purpose had always remained the same–to serve as a vehicle for holding and investing Baldwin’s money; and that, with Baldwin’s possession of near complete interest in JPBI, and his roles as CEO and managing member, Baldwin effectively had complete control over what JPBI did and did not do, including whether to make any disbursements to its members, i.e., to Baldwin and his wife. The Court observed that, since the time judgment was entered in Curci’s favor, Baldwin had used that power to extend the payback date on loans made to ultimately benefit his grandchildren (loans on which not a single cent had been repaid), and to cease making distributions to JPBI’s members, i.e., himself and his wife, despite having made $178 million in such distributions in the six years leading up to the judgment.

For all of these reasons, the Court concluded that outside reverse veil piercing might well be available in this case; however, the Court expressed no opinion as to whether JPBI’s veil should actually be pierced. Instead, the Court remanded the matter for the trial court to engage in the required fact-driven analysis in the first instance. The Court stated that, as with traditional veil piercing, there is no precise litmus test; rather, the key was whether the ends of justice required disregarding the separate nature of JPBI under the circumstances. In making that determination, the trial court should, at minimum, evaluate the same factors as are employed in a traditional veil piercing case, as well as whether Curci had any plain, speedy, and adequate remedy at law.

Brief Discussion

The following observations may be noted with respect to Curci:

1. To date, it does not appear that Baldwin has filed an appeal with the California Supreme Court; after all, the case was remanded to the trial court for further evaluation.

2. The decision in Curci applies only to LLCs, and it does not apply to corporations. Conversely, the court’s decision in PIP was expressly limited to corporations, and it did not preclude application of outside reverse veil piercing to LLCs.

3. In Curci, the California Court of Appeal did not even mention the internal affairs doctrine, even though JPBI was a Delaware LLC. This is just more evidence that courts in general, and California courts in particular, apply local law to determine judgment enforcement issues.

4. In Curci, the Court recognized that JPBI was, in effect, a single-member LLC with no non-debtor members. The Court could have rested its decision upon the alternate ground that JPBI was akin to a predominantly single-member LLC, and that limiting judgment creditors of members of predominantly single-member LLCs to a charging order would run afoul of the California Corporations Code relating to LLCs by creating in essence an exempt personal piggy bank.

5. Outside reverse veil piercing always is easier, where, as here, the judgment debtor rather clearly was attempting to conceal assets from his judgment creditor. In Curci, the facts were fairly extreme.

6. In Curci, the Court concluded that, although a charging order was the exclusive remedy for reaching a judgment debtor’s “transferrable assets,” it was not the exclusive remedy for reaching an LLC’s assets. In reaching this conclusion, the Court relied in part upon the Revised Uniform Limited Liability Company Act, which included comments that the charging provisions “were not intended to prevent a court from effecting reverse veil piercing where appropriate.”

7. The Curci decision makes it easier for a creditor to reach an individual LLC member’s assets when they use a predominantly single-member LLC to avoid paying a judgment.

8. In Curci, it is arguable that Baldwin blatantly misused the LLC, acted arbitrarily and capriciously, and that he got precisely what he deserved in the end.

9. In Curci, the Court instructed the trial court on remand that, in making its determination as to whether outside reverse veil piercing was appropriate with respect to JPBI, the trial court should, at a minimum, evaluate the same factors as are employed in a traditional veil piercing case, including presumably such factors as: (a) commingling of funds and other assets of the two entities; (b) the holding out by one entity that it is liable for the debts of the other; (c) identical equitable ownership in the two entities; (d) use of the same offices and employees; (e) use of one entity as a mere shell or conduit for the affairs of the other; (f) inadequate capitalization; (g) disregard of corporate formalities; (h) lack of segregation of corporate records; and (i) identical directors and officers. However, it should be noted that California Corporations Code, Section 17703.04(b), explicitly provides that “the failure to hold meetings of members or managers or the failure to observe formalities pertaining to the calling or conduct of meetings shall not be considered a factor tending to establish that a member or the members have alter ego or personal liability for any debt, obligation, or liability of the limited liability company where the articles of organization or operating agreement do not expressly require the holding of meetings of members or managers.” (Emphasis added.)


On the one hand, the decision in Curci highlights the fact that asset protection is never a sure thing. It is, as previously noted, an evolving area of the law.

On the other hand, members of a predominantly single-member LLC, who are using the LLC as their personal piggy bank, cannot reasonably expect for the LLC to be respected, when they deliberately are using the LLC to take advantage of their judgment debtor. As we have said before, bad facts make bad law. Still, Nevada and Wyoming continue to protect single member LLCs. In traditional cases absent the extreme facts of the Curci case they will serve you well. But again, the law does evolve and it is important to stay updated on it.

Win, lose, or draw, it should be anticipated that the decision by the trial court on remand in Curci will once again be appealed to the California Court of Appeal and then to the California Supreme Court. We will keep you informed.