“Piercing the veil” is a long accepted principle of corporate law pursuant to which, in extraordinary circumstances, the rule of shareholder limited liability may be set aside and a shareholder held personally liable for an obligation of the corporation. It can be an exceptionally difficult remedy to apply, it having been described by Steven Bainbridge, a UCLA law professor who has written extensively on the topic, as “rare, unprincipled, and arbitrary.” It has otherwise been described as “happening freakishly. Like lightning, it is rare, severe, and unprincipled.” Still, for all of its flaws it is a feature of corporate law across the states, and its very unpredictability is salutary in that it encourages actors to avoid the outer boundaries of improper conduct by leaving that border indeterminate. The test in Kentucky for piercing the corporate veil was revised and restated by the Kentucky Supreme Court in the Inter-Tel decision (2012). [1]
This is all well and good for business corporations, but it has largely left unaddressed the question of whether and how piercing may be applied with respect to limited liability companies, an important question as currently far more LLCs are created than are corporations. While there have been various references and decisions of the Kentucky Supreme Court and the Court of Appeals in which it seemed to assume that piercing principles apply to LLCs, until now the question has not been squarely addressed.
In Lummus Corporation v. Lighthouse Transportation Services, LLC, 2026 WL 1189933 (Ky. App. May 1, 2026), System Solutions of Kentucky, LLC, it wholly owned by Lummus (i.e., Lummus was System Solutions’ sole member) contracted with Lighthouse Transportation Services, ultimately running up a bill of just less than $700,000. When Lighthouse brought suit against System Solutions, the latter conceded liability. By a mechanism not detailed by the Court of Appeals, the trial court “entered judgment, imputing System Solutions’ liability to Lummus under a theory of entity veil-piercing.” The factual basis, as determined by the trial court and recited by the Court of Appeals, included that:
Notable among others are the circuit court’s findings that Lummus not only “swept” System Solutions’ accounts and sold System Solutions’ assets “for payment of Lummus creditors,” Lummus applied a payment priority system that “worked to the detriment of Lighthouse, as its invoices were classified as low priority . . .” Lummus also “caused System Solutions to continue utilizing the services of Lighthouse thereby incurring additional liabilities to that company knowing full well that they would be unable to pay them while at the same time concealing that fact from Lighthouse.” 2026 WL 1189933, *6.
On appeal, Lummus Corporation essentially argued one point, namely that LLCs, unlike corporations, are not subject to veil piercing or, more precisely, that the limited liability enjoyed by an LLC’s members is not subject to being set aside via the equitable remedy of veil piercing.
After reviewing a series of equivocal statements in various decisions of Kentucky and related courts as to applying veil piercing principles to LLCs, the Court of Appeals indicated that in its view it was writing “on a blank slate.” The substance of the opinion begins by noting that at the time the original Kentucky LLC Act was adopted there was uncertainty as to whether and how piercing principles would apply to LLCs, twice citing my 1995 co-authored article from the Kentucky Law Journal. [2] The court went on to note that as times progressed courts across the country “struggled with this veil-piercing question” even as statutory exceptions to the rule of liability were adopted including in Kentucky, citing in support an article I co-wrote with Allan Vestal, then the dean of the University of Kentucky Rosenberg College of Law. [3] It then turned its attention to the 2008 decision in Barone v. Perkins wherein the defendants relied upon a differentiation between the limited liability statutes of the LLC and business corporation acts, the latter including a carve-out from protection in corporations for actions taken by a shareholder; “Unless otherwise provided in the articles of incorporation, a shareholder of a corporation shall not be personally liable for the acts or debts of the corporation except that he or she may become personally liable by reason of his own acts or conduct.” [4] In response to this never-intended differential in treatment, the provision of the corporation act italicized above merely repeating already existing and universal agency law, the 2010 General Assembly adopted legislation drafted by this author that put that same rule into the text of the LLC Act. Quoting from my 2011 article on the 2010 amendments to Kentucky business organization statutes, the Lummus court wrote: “a series of amendments were adopted across the business entity laws in response to and for the purpose of legislatively overriding portions of the Kentucky Court of Appeal[s’] ruling in Barone v. Perkins.” and that:
In response to the Barone court’s attempts to differentiate between the limited liability provided by [Chapter 271B] and the LLC Act, and its reliance upon the express statutory language incorporating the general rule set forth in agency law, the 2010 Amendments revised the limited liability provision of the LLC Act to incorporate Section 7.01 of the Restatement (Third) of the Law of Agency, as embodied in KRS § 271B.6-220(2). 2026 WL 1189933, *4-5. [5]
From there the Lummus Court determined that Kentucky’s public policy permitted applying veil-piercing principles to LLCs, writing:
Now the issue is squarely before this Court and we hold, consistently with the intent of the General Assembly, that the equitable doctrine of “piercing the veil” and the jurisprudence articulating that doctrine is applicable to entities established under the Kentucky Limited Liability (sic – Company) Act.
Given the legislative amendment in response to Barone, the appellate courts were always right after 2010 to presume the veil-piercing doctrine applies to LLCs. However, caution must be taken when applying the doctrine to LLCs rather than corporations because certain provisions of Chapter 275 may negate factors considered part of the analysis when applied to corporations organized under KRS 271B.010 et seq. 2026 WL 1189933, *5 (footnote omitted).
As Lummus did not challenge the trial court’s finding of facts (quoted above) that justified veil piercing, and as the Court of Appeals found that the limited liability shield afforded by LLCs is subject to piercing, it saw no basis for setting aside the judgment holding Lummus liable for System Solutions’ debt to Lighthouse Transportation. 2026 WL 1189933, *6.
The Court of Appeals likewise discussed Lummus’ objection to a parallel claim for unjust enrichment, rejecting the defendant’s objections. 2026 WL 1189933, *7-8.
Whether Lummus will appeal this decision to the Kentucky Supreme Court is unknown, and whether the Supreme Court would agree to hear the case is a further unknown. The Court of Appeals in the Lummus decision acknowledged the possibility of further review; “We will get this wrong or we will get this right.” 2026 WL 1189933, *2.
Normatively, this is a good decision. Notwithstanding all of the unpredictability of piercing analysis, some of which was referenced above, a law to the effect that nefarious conduct effected through LLCs will not be policed to the same degree as would be similar nefarious conduct effected through a corporation would direct bad actors to use LLC’s rather than corporations, thereby increasing the risk of doing business with LLCs and increasing credit costs to LLCs to across-the-board. Those increased costs would help no one.
[1] Inter-Tel Technologies, Inc. v. Linn Station Properties, LLC, 360 S.W.3d 152 (Ky. 2012).
[2] Thomas E. Rutledge and Lady E. Booth, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 KENTUCKY LAW JOURNAL 1 (1994-95).
[3] Thomas E. Rutledge and Allan W. Vestal, Disappointing Diogenes: The LLC Debate That Never Was, 51 ST. LOUIS U. LAW JOURNAL 1 (2006).
[4] Barone v. Perkins, No. 2007-CA-000838-MR, 2008 WL 2468792, *2–3 (Ky. App. Jun. 20, 2008).
[5] Thomas E. Rutledge, The 2010 Amendments to Kentucky’s Business Entity Laws, 38 NORTHERN KENTUCKY LAW REVIEW 383 (2011).
