Legal Memorandum: "Reverse" Alter Ego Liability in WI

Issue: What are the elements under ‘reverse’ alter ego liability in a civil conspiracy claim in Wisconsin?

Generally, the alter ego doctrine enables a court to disregard the corporate form when it is used to accomplish an improper [or unlawful] purpose."  Olen v. Phelps, 200 Wis. 2d 155, 163 (Wis. Ct. App. 1996) (citing Select Creations, Inc. v. Paliafito America, Inc., 852 F. Supp. 740, 773 (E.D. Wis. 1994)).  Typically, the alter ego doctrine is “employed to pierce the corporate veil of a controlled entity to reach the assets of the controlling party.”  Olen v. Phelps,200 Wis. 2d 155, 163 (Wis. Ct. App. 1996).  However, Wisconsin recognizes the flip side of the alter ego doctrine—a “reverse” alter ego doctrine –in certain cases:

[T]he doctrine can also be applied in reverse to reach the assets of a controlled entity.  It is particularly appropriate to apply the alter ego doctrine in “reverse” when the controlling party uses the controlled entity to hide assets or secretly to conduct business to avoid the pre-existing liability of the controlling party.

200 Wis. 2d at 163.

The elements of the alter ego or instrumentality doctrine which must be proven include:

(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and

(2) Such control must have been used by the defendant to commit fraud or […]