Corporate veil piercing meets the blockchain

Fibo Quantum

Quick Take

  • Breach of contract lawsuit alleges failure to delivery mining equipment
  • Plaintiff seeks refund of payment + lost profits
  • Complaint seeks to “pierce corporate veil” and hold LLC and its creator liable


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Ethereum Ventures, LLC vs Chet Mining Co, LLC and Chet Stojanovich, S.D.N.Y., 8/26/2019, Case 1:19-cv-07949 [SDP]

Complaint

Corporate entities have a bunch of advantages. They can help from a tax standpoint and they can also protect you from personal liability. In the eyes of the law, a corporation is a person — not a biological person, of course, but a corporate person. It can sue and be sued, own property, hold bank accounts, enter into contracts — just like you and me and Bob and Sue. Kinda cool, really. And because it’s a separate person you’re not liable for things that corporation does or doesn’t do as a general rule unless you both do things in a couple of particular ways.

One catch to the whole corporation being a separate person thing is that if you want your corporation to be treated as a separate person, you have to … act like it is. That means you need to maintain corporate formalities, keep separate books and records, not commingle personal funds with corporate funds — there’s a long list. The bottom line is that if you blur the lines and there is a problem that ends up in litigation, the other side will argue that you are for all intents and purposes the corporation. This is called “piercing the corporate veil” and, well, it’s Not a Good Thing if you are the defendant. It means that all of those contracts you signed in the corporation’s name without a personal guarantee may end up being your own personal obligation anyway, among other things.

Anyway, this brings us to a new lawsuit filed by Ethereum Ventures LLC against Chet Mining and Chet Stojanovich, who is allegedly the “sole member and manager of Chet Mining.” While there is nothing wrong with naming a company after yourself, the Plaintiff says Stojanovich didn’t maintain corporate formalities, commingled his finances with the LLC, allowed the company to become undercapitalized and basically did all things that you are not supposed to do if you want your LLC to be treated as someone other than you.

At issue (allegedly) was the proposed sale in April 2019 by the defendants to plaintiff of a bunch of Antminer S9 miners, to be sued for bitcoin mining. Pretty simple allegation here — plaintiff says they paid for equipment that wasn’t delivered, demanded a refund, and haven’t received it.

In addition to actual damages in the amount of their payment (less a partial refund), plaintiffs demand damages “due to lost profits caused by the absence of the purchased Bitcoin mining equipment in the amount of $277,000.” I’m not going to give a primer on recoverability of lost profits, but this is not the first case in which it has come up in connection with mining equipment. And depending on contract documents and choice of law these damages might be recoverable if within the reasonable contemplation of the parties at the time of the contract and provable with something other than wishful thinking evidence.

Disclaimer: These summaries are provided for educational purposes only by Nelson Rosarioand Stephen Palley. This is not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.