Greenhunter Energy, Inc. v. Western Ecosystem Technology

Wyoming Supreme Court · Corporations

CorporationsLLC veil piercingLimited liabilityLLCveil piercingalter egolimited liabilityundercapitalization

Facts

Western contracted in 2009 with GreenHunter Wind Energy, LLC to provide consulting services for a Platte County wind farm project, but the LLC never paid Western's invoices. The LLC frequently had a zero balance, depended on periodic transfers from its sole member GreenHunter Energy, Inc., and the member decided when funds would be transferred and which LLC creditors would be paid, while Western was left unpaid. The LLC had no employees of its own, shared officers, address, accounting, and financial management with the member, and the member used the LLC's project losses and expenses on consolidated tax filings. The LLC had no assets to satisfy Western's judgment, so Western sought to hold the member liable by piercing the LLC veil.

Issue

Under Wyoming law governing limited liability companies, did the district court apply the proper veil-piercing analysis, and did the evidence support piercing the LLC's veil to hold its sole member liable for the LLC's unpaid contractual obligations to Western?

Rule

An LLC's veil may be pierced under exceptional circumstances when (1) the LLC is not only owned, influenced, and governed by its members, but the required separateness has ceased to exist due to misuse of the LLC; and (2) adherence to the fiction of separate existence would, under the particular circumstances, lead to injustice, fundamental unfairness, or inequity. In applying this flexible, fact-driven test, courts may consider factors including fraud, inadequate capitalization, and intermingling of the business and finances of the company and the member, but under the 2010 Wyoming LLC Act failure to observe company formalities is not a ground for imposing liability, and except for fraud no single factor alone is sufficient or required.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Red Mesa Analytics, LLC, a Wyoming single-member LLC based in Cheyenne, hired Tanya Brooks, an environmental consultant from Casper, for a six-month project. The LLC had almost no operating funds, its sole member Prairie Summit Holdings, Inc. decided when cash would be transferred in, Prairie Summit used its own employees and accounting staff to run the project, claimed the project's tax losses on its own return, and repeatedly funded payments to other vendors while refusing to fund payment of Tanya's invoices.

If Tanya seeks to hold Prairie Summit liable for Red Mesa's unpaid contract debt, which is the strongest argument for piercing the LLC's veil under the majority's rule?

Explanation. The majority adopted a two-part, flexible test: piercing may occur when the LLC's separateness has ceased due to misuse by the member, and respecting separateness would lead to injustice, fundamental unfairness, or inequity. These facts closely support both prongs because the member controlled capitalization and creditor payment, intermingled operations, took benefits for itself, and left the liability in the LLC. Sole ownership alone is insufficient, shared operations are not automatically enough, and fraud is not required.