Tuesday, September 11, 2007

Piercing the Corporate Veil of a Real Estate Investor

The Housing Court just came down with a troubling decision, piercing the corporate veil of a real estate investor: City of Springfield Code Enforcement v. Concerned Citizens for Springfield, Inc., et al., (Lawyers Weekly No. 17-005-07). It is only a Housing Court decision so it is not binding law in the Commonwealth.

According the article in Massachusetts Lawyers Weekly (sub reqd.), Housing Court Judge William H. Abrashkin ordered the individual manager of the property owning limited liability company to pay $1.3 million in relocation costs for the tenants in the sub-standard apartment complex.

This is a horrific case from a human perspective and a legal perspective. The property manager, Shalom Segelman, is being charged with failing to maintain the property forcing his tenants to live in sub-standard conditions. Since he owned 192 of the 211 units in the Longhill Gardens Condominium complex, his failure to fund common repairs also forced the tenants in the other 19 units to live in sub-standard conditions. Mr. Segelman served jail time for civil contempt for failing to set aside funds for repairs.

From the legal perspective, I hate to hear that the liability shield of a limited liability company has been pierced. Massachusetts has an old and slightly out of date limited liability company statute. [It was one of the last states to allow for a single member limited liability company.] I would hate to find out that our courts are trashing the entity liability shield offered by them.

I will find out more when a copy of the case shows up.

UPDATE: Mr. Segelman's lawyer pointed out that he was not found criminally neglect. He was found to be in civil contempt. I have edited the third paragraph from the original post.

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