Although piercing the corporate veil is one of the most litigated issues in corporate law, over the past forty years Tennessee courts, litigators and law students have discussed, argued and learned the incorrect test.  In Youree v. Recovery House of East Tennessee, LLC, 705 S.W.3d 193 (Tenn. 2025), a Tennessee Supreme Court decision from January 2025, our high court straightened out the mess.

To pierce the corporate veil, Youree held that three elements must be shown:

(1) Control over the entity, not only of finances, but of policy and business practice in respect to the transaction under attack, so that the entity, as to that transaction, had no separate mind, will, or existence of its own;

(2) The control must have been used to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or to commit a dishonest and unjust act in contravention of a third party’s rights; and

(3) The control and fraud, wrong, violation, or injustice must have proximately caused the injury or unjust loss complained of.

The party attempting to pierce the corporate veil must show all three factors are present. The analysis follows a path: First, prove domination. Second, prove that domination was used to perpetuate an abuse. Third, show the plaintiff’s injury resulted from the abusive domination.

The Youree court did not invent a new test, but instead re-affirmed the original test laid out in a 1979 case, Continental Bankers. Over the years, however, Continental Bankers was diluted. Courts had, to varying degrees, also applied an 11-factor balancing test derived from a federal case, colloquially called “the Allen factors.”  In some cases, Tennessee courts wholly ignored the three-element Continental Bankers test, while others mentioned that case but proceeded to apply the 11 Allen factors.

Youree held that the three-element Continental Bankers test is the sole method to pierce the veil. The Allen factors can be helpful at varying points of the analysis, but those factors are not the test. Further, the Youree court dismissed the idea that some cases had perpetuated that the three-element Continental Bankers test only applied to parent/subsidiary corporate relationships, and did not apply to other corporation/shareholder relationships. Those cases have and always have been an incorrect interpretation of Continental Bankers. Also, there is no distinct test for finding a corporation to be a “sham,” “alter ego,” or “instrumentality” of another — those are just “rhetorical devices and picturesque terms.”

Since Youree was an appeal from a default judgment, the court was given the opportunity to determine whether the complaint’s allegations were sufficient, under Tennessee’s liberal pleading standard, to state a claim for piercing the veil.  The court discarded conclusory allegations that the defendant was a “functional alter ego[]” and “instrumentality or business conduit,” and found that allegations of shared offices, employees, and ownership were inadequate to show the domination element.  Further, the court explained that merely being unable to pay a debt does not satisfy the abuse element, because insulation from liability is a legitimate purpose for forming a corporation.

For any counsel defending or pleading a claim to pierce the corporate veil, Youree is required reading. Corporate lawyers and current law students should review it carefully as well. The opinion is full of allusions to the sort of evidence that could serve to pierce the veil but was missing in Youree. Especially when there is a complex corporate structure — where distinct corporations benefit from the reduced transaction costs of working with affiliates, while seeking to realize the benefits of limited liability — it is very likely that some of the Allen factors would be satisfied despite the absence of real abuse of the corporate form.  Adept defense counsel will ensure that if an arguable case for domination is present, potential claims will be stopped at steps two (abuse) or three (injury) of the analysis.

Naudia Gray, an associate at Chambliss, Bahner & Stophel PC, provides strategic counsel to businesses of all sizes, guiding them through various transactional matters, including business planning, corporate governance, risk management, and mergers and acquisitions.

Brock Shipe Klenk PLC is pleased to announce that Sharon Lee, former Chief Justice of the Tennessee Supreme Court, has joined the Firm as Special Counsel. With her experience as a litigator, mediator and appellate judge, Justice Lee will enhance the Firm’s broad range of services, including mediation, complex litigation and appellate advocacy. Brock Shipe Klenk is honored that Justice Lee has chosen to continue her legal career by providing her expertise to the Firm’s dynamic and fast-growing practice. For more information, read the press release from the Firm. Lee can be reached at:

Email: slee@bskplc.com          T: (865) 338-9700

BROCK • SHIPE • KLENK
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Knoxville, TN 37919

A new Marquette Law School Poll national survey shows strong support for the judiciary. The survey found that 70% of adults agreed that judges should not be impeached for ruling against elected leaders, while 83% of respondents said that presidents must obey a U.S. Supreme Court ruling. And while the Supreme Court has reached its highest approval rating in three years at 54%, many are still concerned about the influence of partisan politics, with 50% of respondents believing that the justices’ decisions are influenced by politics. Read the full survey results in a press release from the school.

BLOOMEKATZ, Circuit Judge. Allen Walker filed a motion seeking habeas relief under 28 U.S.C. § 2255. The government opposed his motion but did not raise the statute of limitations as a defense. The district court, however, denied the motion as untimely. Walker appealed, and we remanded so the district court could determine whether the government’s failure to raise the statute of limitations defense amounted to forfeiture or waiver. We cautioned that the district court could not resurrect a waived limitations defense but could potentially consider a forfeited one. On remand, the district court decided that the government forfeited the defense, considered it despite the forfeiture, and again denied Walker’s motion as time-barred. Walker now appeals that forfeiture determination, arguing that because the government waived the statute of limitations defense, the district court should not have considered it. We agree. We reverse and remand so the district court can proceed to the merits of Walker’s § 2255 motion.

THAPAR, Circuit Judge. Patrick Reed is in prison for drug trafficking, drug possession, firearm possession, and evidence tampering. Reed claims the state trial court violated his Confrontation Clause rights when it admitted an out-of-court statement. The Ohio courts and the federal district court rejected this claim, and we affirm.

In this case involving termination of a mother’s parental rights to her minor child, the trial court found that three statutory grounds for termination had been proven by clear and convincing evidence. The trial court further found that clear and convincing evidence demonstrated that termination of the mother’s parental rights was in the child’s best interest. The mother has appealed. Discerning no reversible error, we affirm.

In this appeal, the employee claims he is permanently and totally disabled due to a work incident that caused physical and mental injuries. The employer initially authorized medical treatment but later disputed compensability based primarily on the employee’s preexisting physical and mental conditions. Following the trial, the court concluded that the employee had not met his burden of proof in establishing a compensable physical or mental injury. Specifically, the court determined that because the employee failed to meet his burden of proving a compensable physical injury, he also could not prove that he sustained a compensable mental injury pursuant to Tennessee Code Annotated section 50- 6-102(15). The employee has appealed. Upon careful consideration, we conclude the preponderance of the evidence supports a finding that the employee suffered a compensable temporary aggravation of a preexisting condition, and we therefore reverse the trial court’s finding that the employee did not prove a compensable physical injury. We remand the case for the trial court to address whether, in light of our holding with respect to the employee’s physical injuries, he suffered a compensable mental injury and if so, the extent of the employee’s psychiatric impairment and resulting permanent disability, if any.

The latest episode of the TBA Legislative Updates podcast features TBA lobbyists Berkley Schwarz of Pier Strategies LLC and Ashley Harbin of Adams and Reese. They discussed several key bills, including HB1131/SB1331, known as the Equal Parenting Bill; HB492/SB540, the TBA Family Law Bill; and HB1355/SB1052, the TBA Adoption Law Bill. They also cover updates on the upcoming state budget vote. For more on the progress of TBA-supported legislation, visit the TBA website. Tune in to the podcast on the TBA website or through this link.

Tennessee Gov. Bill Lee signed a bill into law on March 25 changing the statute of limitations for voyeurism crimes in the state, WBIR reports. The Voyeurism Victims Act (HB0602) gives survivors more time to press charges against individuals caught illegally observing others in places where they have a reasonable expectation of privacy. The legislation passed the House nearly unanimously, and an amended version passed the Senate. The law, which takes effect July 1, follows the case of a Nashville man charged with eight counts of unlawful photography after allegedly recording sexual partners without their consent. Authorities discovered approximately 25,000 sexually explicit files, but many of the women involved were unable to press charges due to the statute of limitations. State Sen. Jeff Yarbro, D-Nashville, introduced an amendment allowing victims of voyeurism to petition for an order of protection, which was not permitted under previous law.

A bill now heading to the governor’s desk could soon allow Tennessee physicians and insurance companies to deny patients certain medical treatments. HB1044/SB955 would permit doctors, nurses and insurance companies to refuse procedures that conflict with their moral or religious beliefs, according to WPLN News. The legislation, backed by the lobbying group Alliance Defending Freedom, mirrors similar proposals in Colorado, Idaho, Iowa and other states. However, Tennessee’s bill differs in that it does not require patients to be notified if their doctor or insurance provider no longer offers a service. Two Senate amendments clarified that the provisions do not apply when health care professionals perform procedures for individuals in imminent danger of harming themselves or others.