Charles Youree, Jr. v. Recovery House of East Tennessee, LLC et al.

Charles Youree, Jr. filed a lawsuit against two business entities seeking to hold them liable, under the theory of piercing the corporate veil, for a judgment he previously had obtained against another business entity. When the two entities did not answer, he was awarded a default judgment. The entities moved to vacate the default judgment before it became final. They argued that the trial court should not have entered judgment in the first place because the complaint did not plead the elements required for piercing the corporate veil. They also argued that their failure to respond was due to excusable neglect, but they later withdrew that argument. The trial court denied the motion to vacate. In determining that the complaint stated a claim for piercing the corporate veil, the trial court evaluated the factual allegations under the so-called Allen factors. See Fed. Deposit Ins. Corp. v. Allen, 584 F. Supp. 386 (E.D. Tenn. 1984). On appeal as of right, the Court of Appeals reversed. The court looked not to the Allen factors, but rather to a three-element standard set forth in Continental Bankers Life Insurance Co. of the South v. Bank of Alamo, 578 S.W.2d 625 (Tenn. 1979). We granted permission to appeal. Based on our review of the applicable law, we hold that it was proper in this case to address whether the complaint pleaded the elements for piercing the corporate veil even absent a claim of excusable neglect. We further hold that the Continental Bankers elements provide the correct framework for piercing the corporate veil and that the complaint failed to plead the elements sufficiently. Accordingly, we affirm the judgment of the Court of Appeals that the trial court erred in denying the motion to vacate the default judgment. We remand this case to the trial court for further proceedings consistent with this opinion.