## Facts

- Michael and Thomas Theberge sold seven Maine rental properties to the Worden Group for $900,000; the Worden Group gave the Theberges a $180,000 promissory note secured by a mortgage on the properties.
- The Worden Group later negotiated a resale for $970,000; before closing, they were told the buyer would be Horton Street Associates, a newly formed corporation, rather than Darbro, Inc.
- Horton Street financed the deal with multiple obligations, including a $720,000 bank note secured by a first mortgage, assumption of the Theberges’ $180,000 note secured by a second mortgage, and additional notes (some co-signed by Albert Small).
- The Theberges did not release the Worden Group from liability on the $180,000 note when Horton Street assumed it.
- Economic and property-related setbacks contributed to Horton Street’s financial decline; Horton Street sold two properties and applied proceeds to reduce the note balance but later defaulted.
- Foreclosure of the remaining properties extinguished the Theberges’ mortgage security while leaving an unpaid balance on the $180,000 note.
- Plaintiffs contended Horton Street was a shell and sought to disregard its corporate separateness to hold Darbro, Albert Small, and Mitchell Small liable; the trial court found “sharp business practices” but no fraud, illegality, or personal guaranty.

## Issues

1. Whether Horton Street’s corporate veil could be pierced to hold Darbro, Inc., Albert Small, and Mitchell Small liable for the unpaid balance of the note assumed by Horton Street.
2. Whether the Worden Group was entitled to attorney’s fees after prevailing at trial.

## Decision

- The Supreme Judicial Court of Maine vacated the judgment imposing liability on Darbro and the Smalls and remanded for entry of judgment for the defendants.
- The court held plaintiffs did not prove grounds sufficient to pierce Horton Street’s corporate veil.
- The disposition eliminated any basis for the Worden Group’s request for attorney’s fees.

## Legal Principles

- Piercing the corporate veil is an extraordinary remedy applied cautiously and only when necessary to prevent fraud or comparable injustice.
- Ownership or control of a corporation, without fraud, illegality, or improper use of the corporate form, is insufficient to impose personal or affiliate liability.
- Hard bargaining or “sharp” business practices, including proceeding without a formal personal guaranty, does not by itself justify disregarding limited liability.
- Sophisticated parties who knowingly transact with a limited-liability entity and do not secure a guaranty generally cannot invoke equity to shift the risk of business loss after the fact.

## Conclusion

The court declined to disregard Horton Street’s corporate separateness because the record showed business losses and a lack of a personal guaranty, not fraud or misuse of the corporate form, and it therefore directed judgment for Darbro and the individual defendants.


Theberge v. Darbro, Inc., 684 A.2d 1298 (Me. 1996)