## Facts

- Panam Management Group, Inc. (Panam), a New York real-estate marketing company, entered into a contract with Yuma Bay Development Corporation (Yuma Bay), a corporation incorporated in Panama.
- The contract concerned the marketing and sale of residential units in a planned development, “Yuma Bay Resort Village,” to be built in the Dominican Republic.
- The contract contained a choice-of-law clause selecting Dominican law for the agreement.
- Yuma Bay had not paid its annual corporate registration fee in Panama for three years; under Panamanian law, it nonetheless remained an incorporated entity.
- Panam brokered 59 unit-sale contracts in New York, but the resort project never materialized.
- Panam alleged Yuma Bay failed to disclose to investors that (1) the development could not obtain necessary Dominican governmental approvals and (2) Yuma Bay was not registered to do business in the Dominican Republic.
- Panam sued Yuma Bay for breach of contract and unjust enrichment and also sued Yuma Bay’s directors and officers individually—Raymond Peña, Doris Peña, Eladio Sanchez, and Juan Carlos Lopez—seeking to hold them personally liable by piercing Yuma Bay’s corporate veil.
- Panam’s complaint did not plead a separate fraud claim against the individual defendants and did not allege traditional alter-ego facts (e.g., domination, disregard of formalities, or undercapitalization).
- The individual defendants moved to dismiss and submitted affidavits describing (1) Panamanian law on veil-piercing as an exceptional remedy limited to cases where a corporation is used for the sole purpose of fraud or illegality, and (2) Dominican veil-piercing as a recently enacted remedy that could not be applied retroactively to the events at issue.
- Panam argued that New York law should govern veil-piercing because the relevant transactions occurred in New York and that its allegations would support veil-piercing under New York standards.

## Issues

1. Which jurisdiction’s law governed Panam’s attempt to pierce the veil of a Panamanian corporation and impose personal liability on its directors and officers: New York, Panama, or the Dominican Republic?
2. Under the governing law, did Panam plead facts sufficient to support veil-piercing and individual liability at the motion-to-dismiss stage?
3. If Dominican veil-piercing law were considered, could it apply to conduct occurring before the Dominican remedy was enacted?

## Decision

- The court granted the individual defendants’ motion to dismiss the claims against them.
- The court held that veil-piercing and related director/officer liability implicated Yuma Bay’s internal corporate affairs and were governed by the law of the place of incorporation, Panama.
- The court treated the dispute as a false conflict for veil-piercing purposes because Panama had the primary interest in setting standards for disregarding the separate existence of a Panamanian corporation, while Dominican veil-piercing was a newly adopted remedy not applicable to earlier conduct.
- Accepting the unrefuted submissions on Panamanian law, the court determined that veil-piercing in Panama is available only in exceptional circumstances—generally when the corporation is used solely to commit fraud or violate the law.
- Because Panam did not plead that Yuma Bay was created or used solely for fraud or illegality (and did not plead other facts that would satisfy the strict Panamanian standard), Panam failed to state a basis to hold the directors and officers personally liable.
- The ruling addressed only the claims against the individual defendants; Panam’s claims against Yuma Bay as the corporate entity were not dismissed on this motion.

## Legal Principles

- Under New York choice-of-law rules, matters involving a corporation’s internal affairs—such as whether to disregard the corporate form and impose personal liability on directors or officers—are generally governed by the law of the state (or country) of incorporation.
- A contractual choice-of-law clause governs the contract’s obligations and interpretation but does not automatically control corporate-law questions like veil-piercing against non-party insiders.
- In a false-conflict setting, the court applies the law of the jurisdiction with the dominant interest in the particular issue; for veil-piercing of a foreign corporation, that is ordinarily the place of incorporation.
- Under Panamanian law as presented to the court, veil-piercing is an extraordinary remedy, typically limited to situations where the corporation is used for the sole purpose of fraud or illegality; allegations of nonperformance or business failure, without more, do not meet that threshold.
- A newly enacted foreign veil-piercing remedy generally cannot be used to impose liability for conduct that occurred before the remedy existed, absent a basis for retroactive application.

## Conclusion

The court dismissed Panam’s claims against Yuma Bay’s directors and officers because, applying New York’s internal-affairs choice-of-law rules, Panamanian law governed veil-piercing, and Panam’s complaint did not allege the exceptional, fraud-only use of the corporation required to disregard Yuma Bay’s separate existence; Dominican veil-piercing principles, in any event, were not available retroactively on the alleged facts.


Panam Management Group, Inc. v. Peña, 2011 WL 3423338 (2011)