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Shandong Yinguang Chemical Industries Joint Stock Co., Ltd. v. Potter

Appellant sold explosive chemicals to a company wholly-owned by appellee. The company failed to make payments on two contracts and subsequently declared bankruptcy. In an effort to recover its losses, appellant sued appellee personally for common law fraud and fraudulent inducement, and sought to impose personal liability by piercing the corporate veil. Appellant's allegations fail to meet the pleading requirements of Federal Rules of Civil Procedure as to several of the fraud elements, and therefore fails to sustain a basis for holding appellee personally liable. Because the veil piercing claim may be dismissed for this reason, the court did not address whether appellant or the company estate owned the right to pierce the corporate veil. 5th U.S. Circuit Court of Appeals, No. 09-20268, 06-01-2010

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Before JONES, Chief Judge, and SMITH and ELROD, Circuit Judges.

Appellant Shandong Yinguang Chemical Industries Joint Stock Co., Ltd., (“Yinguang”) sold explosive chemicals to Beston Chemical Corporation (“Beston”), a company wholly-owned by Appellee Michael Potter. Beston failed to make payments on two contracts and subsequently declared bankruptcy. In an effort to recover its losses, Yinguang sued Potter personally for common law fraud and fraudulent inducement, and sought to impose personal liability by piercing Beston’s corporate veil. The district court dismissed the case, finding that Yinguang failed to meet the pleading requirements of Fed. R. Civ. P. 9(b) on the fraud claims. The district court also held that Yinguang did not have standing to pursue the veil-piercing claim. For the reasons that follow, we conclude that Yinguang did not adequately plead fraud and affirm the district court’s dismissal pursuant to Rule 12(b)(6).

I. Background

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