Co-authored by Dean N. Razavi.
The US Court of Appeals for the Second Circuit reversed a district court decision holding that a plaintiff could not simultaneously seek indemnification from his corporate employer and also seek to pierce that corporation’s veil. Plaintiff Emery Kertesz successfully defended a Delaware Court of Chancery suit brought by General Video Corporation (GVC), a corporation of which Kertesz previously was a minority shareholder and officer. Kertesz then sought indemnification in the US District Court for the Southern District of New York from GVC for costs incurred in the prior Delaware action, as well as piercing claims against Korn, the majority shareholder of GVC, should GVC not be able to satisfy the indemnification claim. The District Court held that Kertesz could not maintain that he was entitled to corporate indemnification while at the same time challenging the existence of the corporate structure.
The Second Circuit reversed. The court noted that a successful piercing claim does not affect the corporation’s legal structure or existence, but merely establishes that a majority shareholder is liable for some specific act of the corporation. The Second Circuit further noted that the District Court’s rule would have the effect of allowing an abuse of the corporate form to exempt that corporation from its obligations to its officers. Kertesz v. Korn, No. 11-3685-cv (2d Cir. Oct. 17, 2012).