On February 25, 2020, in a unanimous opinion the Arizona Court of Appeals ruled in favor of Davis Miles McGuire Gardner’s client, Specialty Companies Group, LLC in an ongoing lawsuit against Meritage Homes of America, Inc.  The court of appeals decision reversed dismissal of a lawsuit in the lower court and reinstated the lawsuit in favor of Specialty Companies.

The Arizona Court of Appeals clarified the law related to legal theory of alter ego liability (also known as piercing the corporate veil) where a plaintiff seeks to hold the owner liable for the torts and debts of their company in situations involving abuse of the right to do business as a company and fraud.

The Court of Appeals in its unanimous decision specifically stated that claims related to piercing the veil of a defunct company are not subject to the Arizona discovery rules or a specific statute of limitations, but instead are governed by the limitations period applicable to the cause of action to which the piercing veil applies.

The Court of Appeals recognized that where an alter ego claim for liability is attached to a tort or contract claim, an alter ego theory would be subject to those limitations.  The Court of Appeals also determined that a creditor can obtain a judgment against a defunct debtor defendant, and later bring a separate lawsuit to enforce that judgment against the parent company or owners of a defunct company.

The Court of Appeals recognized that this type of lawsuit, also known as an “action on a judgment,” has long been recognized in Arizona, and that Arizona would follow the practice of a majority of other jurisdictions in recognizing that a subsequent lawsuit can be brought against the owners of a defunct company or the parent company of a defunct company to hold those owners or parent company liable for the debts and obligations of the defunct entity when there has been fraud or other improper conduct in the operation of the defunct company.

This case law breaks new ground and clarifies the limits on alter ego theory and liability in the State of Arizona, and provides needed guidance to business owners on the issues and circumstances by which they may be determined to be an alter ego of their company in circumstances where a creditor can seek to hold the owners of a company liable for the debts of their company under an alter ego theory.

For more information about this case, including innovative legal theories related to commercial disputes or other complex commercial litigation, contact David Williams, chair of the firm’s litigation department at (480) 344-4047, or email him at dwilliams@davismiles.com