James P. Baldwin formed JPBI, LLC, for the purpose of investing Baldwin’s and his wife’s personal money in 2004. Baldwin owned a 99 percent stake in JPBI and his wife owned the remaining 1 percent. In 2006, Baldwin personally borrowed $5.5 million from Curci Investments, LLC. Baldin agreed to pay back the loan by 2009, with interest.

Baldwin ultimately failed to pay back the loan. Curci and Baldwin subsequently entered into a court-approved agreement creating a payment schedule for Baldwin. Baldwin still failed to make payments by the time the payment schedule was to be completed and Curci obtained a judgment against him for $7.2 million in 2012.

A recurring theme, Baldwin did not compensate Curci despite the judgment against him. In 2014, Curci was granted a motion for a charging order that required 36 business entities in which Baldwin had interest to pay any distributions they earned to Curci. JPBI was one of the affected business entities. Even with the charging order, Curci did not see a single cent from Baldwin or JPBI.

In 2015, Curci filed a motion to add JPBI as a judgment debtor to impose liability on the corporation itself. Curci asserted this motion on a theory of reverse piercing of the corporate veil. You learned in this chapter about the the doctrine of piercing the corporate veil, where individuals and other corporations forfeit an LLC’s shield if the LLC used to commit fraud or other misdeeds.

Based on what you know about corporate veil-piercing, what do you think happens in a reverse piercing? What did the California court state is the purpose of reverse piercing? What is outside reverse veil-piercing according to the California court and how is it differentiated from reverse piercing? What stakeholders could be unfairly harmed by allowing outside reverse veil-piercing?