## Facts

- Former equity holders of SourceHOV Holdings, Inc. obtained a final statutory appraisal judgment (about $57–58 million) arising from a 2017 merger in which Exela Technologies, Inc. acquired SourceHOV Holdings.
- The appraisal judgment ran against SourceHOV Holdings, but plaintiffs alleged Exela was the practical party responsible for the merger-side defense and controlled the post-merger corporate group.
- Plaintiffs could not collect on the appraisal judgment and obtained a charging order directing that distributions attributable to SourceHOV Holdings’ interests in subsidiaries be paid to plaintiffs as judgment creditors.
- Plaintiffs alleged Exela and affiliated entities altered intra-group cash flows to avoid the charging order and frustrate collection, including implementing an accounts-receivable securitization facility through newly formed entities that acquired and pledged receivables.
- Plaintiffs filed a post-judgment enforcement action against Exela and numerous subsidiaries/affiliates, seeking to impose liability for the appraisal judgment through (i) traditional veil-piercing to reach Exela and (ii) “outsider reverse veil-piercing” to reach subsidiaries, plus an unjust enrichment claim.
- Defendants moved to dismiss, arguing Delaware law did not recognize outsider reverse veil-piercing and that the complaint failed to state unjust enrichment.

## Issues

1. Whether Delaware law recognizes outsider reverse veil-piercing as an equitable remedy allowing a judgment creditor to reach subsidiary assets to satisfy a parent’s debt.
2. If recognized, what constraints must apply to protect innocent stakeholders and avoid improper displacement of ordinary creditor remedies and priority schemes.
3. Whether plaintiffs stated a plausible unjust enrichment claim based on alleged restructuring and diversion of value within the corporate group.

## Decision

- The court granted in part and denied in part the motion to dismiss.
- The court held outsider reverse veil-piercing is viable in Delaware in appropriate circumstances and allowed that claim to proceed past the pleading stage.
- The court dismissed the unjust enrichment claim for failure to state a claim.

## Legal Principles

- Delaware equity may disregard corporate separateness where the corporate form is misused as an alter ego or to work fraud or similar injustice; veil-piercing is fact-intensive.
- Outsider reverse veil-piercing (piercing “downward” to reach controlled entities for the controller’s debt) is not categorically barred; it may be available with careful limits.
- A plaintiff pursuing outsider reverse veil-piercing must satisfy traditional veil-piercing requirements and also show the remedy will not unfairly prejudice innocent subsidiary creditors or equity holders, will not improperly circumvent other adequate remedies, and is warranted to prevent judgment evasion.
- Unjust enrichment requires a pleaded benefit to the defendant at the plaintiff’s expense and circumstances making retention unjust; conclusory allegations that mirror an unpaid judgment, without a specific unjust benefit and need for the separate remedy, are insufficient.

## Conclusion

The court permitted judgment creditors to pursue outsider reverse veil-piercing against subsidiaries where they plausibly alleged corporate-form abuse designed to defeat collection of an appraisal judgment, while rejecting unjust enrichment as inadequately pleaded.


Manichaean Cap., LLC v. Exela Techs., Inc., 251 A.3d 694 (Del. Ch. 2021)