The highest court in the District of Columbia has held that piercing the corporate veil is outside the scope of the arbitration clause in Giron v. Dodds, 2012 WL 18574 (D.C. Ct. App. 2012). But the case’s reasoning may extend to all cases in which a party must bring a court case in order to collect on an arbitration award.

In Giron, property owners sued a construction company after the company abandoned a renovation project. In response to the construction company’s motion to compel, the trial court ordered arbitration. After the arbitrator awarded the owners almost $121,000 from the construction company, however, the company refused to pay.

The owners then brought a new complaint in the trial court, seeking to pierce the company’s corporate veil and hold the two shareholders individually responsible for the arbitration award. The shareholders moved to compel arbitration of the veil-piercing claim, but the trial court denied the motion. (Why would the shareholders of the construction company, who had just been roundly defeated in arbitration, want the veil-piercing claims sent back to arbitration anyway?! Must be gluttons for punishment.) The D.C. Court of Appeals affirmed that decision.

The court found that the veil-piercing claim did not fall within the scope of the parties’ arbitration agreement. The court held that the claim did not “ari[se] out of or relat[e] to [the] contract, or the breach thereof,” but arose “out of the [owners’] efforts to collect the arbitration award.” The court analyzed the issue under D.C.’s Uniform Arbitration Act, but cited supportive cases decided under the FAA.

This is a useful case for any party who must institute follow-up litigation to collect on an arbitration award. An important practice pointer here is that the lawyer for the owners wisely asked the arbitrator to clarify that she did not consider the veil-piercing claim.

Read Article—

by Liz Kramer

Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com