Good point. Although this particular case highlights one of the key problems in the entire system. Shell corporations with very little assets are established as the suing entity in order to shield the much larger and wealthier owners from any counter-suit liability. If that aspect of the current system were changed and you could pierce the shell corp to get at the real beneficiaries, it would alter the landscape for these cases significantly.
If you have a single product that kills people, you aren't legally allowed to put all your liabilities and none of your assets into another (non-shell, by your definition) company to get out of your liabilities. [0] What's happening here is quite similar.
[0] See, for example, the J&J case, which was an even more generous form of the same.
Small companies lose out also, because in general only large-ish companies can afford the overhead of maintaining shell companies. (Not just for this particular loophole, but for lots of loopholes involving shell companies.)
The fact that these shell companies don't actually do anything besides sue people is also a problem. It's difficult to find grounds to sue a business that doesn't have any business activities. (Except countersuits as in Newegg's case, so good on them.)
My sister also uses "shell" companies. She is a prominent ex-scientologist and scientology has an established history of using litigation to punish and silence critics and exmembers. So when her car gets rammed, and she gets sued, by being broke she can't pay damages, and the car is owned by an LLC that only owns the car, so the plaintiff is limited in the amount of money they can extort.
She has more than a dozen LLCs just to protect what little she owns.
...and the shell company that has no assets doesn't even show up in court. That's the problem I wanted to know how to fix.
Courts can't solve everything and they certainly can't prevent a great many things. Especially when there's such a simple way to avoid responsibility (shell corporations).
What if there was a law that any "company" whose incorporation cannot be demonstrated to actually satisfy certain legal guidelines could automatically lose any legal suit that it was involved in? How many of these shells would disappear?
I'm in favor of a strong legal shield. A business started in good-faith with some legal uncertainty that loses a lawsuit shouldn't cause its owners to have their wages garnished for the rest of their lives.
Shell companies whose sole purpose is to shield the owners from lawsuits that they're planning to make seem like a different matter, though. It would be dangerous to limit them while preserving the usefulness of the first case, but I was mainly asking if there was already something in the law for this. It sounds like there isn't?
Using a shell company wouldn't have helped him. What he committed was an act of fraud -- bidding on licenses which he knew he couldn't pay for -- and fraud can pierce the corporate veil. There is extensive legal precedent that a corporation created for the purpose of carrying out a fraud does not provide any protection to the individual(s) behind it.
(This is not legal advice. I am not a lawyer. Talk to a lawyer if you plan on committing acts of fraud.)
The company, any reasonably wealthy executives, and the investors all have lawyers. The rank and file largely do not. That's the only reason this works. It would never fly if challenged, but it never gets challenged.
In this specific case their shell game failed - they literally tried to bundle up all the lawsuits into a "bad" company and bankrupt it but federal judges unanimously ruled they couldn't.
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