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The Arizona Supreme Court Issued a New Opinion on the Statute of Limitations and Calling Attention to the Underlying Claims of an Alter Ego Case in Specialty Companies Group v. Meritage Homes of Arizona

 

The Arizona Supreme Court issued a new opinion on the statute of limitations in an alter ego case. In Specialty Companies Group v. Meritage Homes of Arizona, the court called attention to the underlying claim of an alter ego case.

This case involves a dispute between multiple parties that spans many years and centers around the development and construction of a residential real estate project.i When the housing market collapsed in 2007, the developer announced it would no longer meet its financial obligation. A flurry of litigation ensued. Plaintiff, a sub-contractor, filed suit in 2015 against one of the subsidiaries of the parent company (the developer).ii

Generally, a parent corporation in Arizona is insulated from a subsidiary corporation’s liability thanks to the “veil” of the corporate form.iii The corporate veil can only be pierced, and a parent company held liable for the acts of its subsidiary, if (1) there is unity of control between parent and subsidiary such that one is the “alter ego” of the other, and (2) observing the corporate form’s privileges and protections would be unjust.iv

A cause of action to pierce the corporate veil is not itself a cause of action. Instead, it is brought as part of another cause of action, such as breach of contract. In Arizona, claims based on breach of contract have a six-year statute of limitation.v

The Arizona Supreme Court ruled that, because alter ego claims are derivative in nature, “‘a party seeking to pierce the corporate veil under an alter-ego theory is bound by the limitation period applicable to the cause of action to which the alter-ego claim is tied.’”vi As plaintiff’s claim was filed eleven years after the formation of the contract, its claim violated the six-year statute of limitations and was dismissed.vii

In reviewing alter-ego or derivative claims, it is important to check the applicable statute of limitations for the underlying claim to which the derivative claim is tied. This should be an early step in litigation, and attorneys should make sure to identify the underlying claim. It is important to be certain the statute of limitations has not lapsed on the underlying claim before pursuing an alter-ego or derivative claim.

 

 

i Specialty Cos. Group v. Meritage Homes of Arizona, Inc., No. CV-20-0086-PR., slip op. (Aug. 5, 2021).

ii Id.

iii Keg Rests. Ariz., Inc. v. Jones, 240 Ariz. 64, 73 (App. 2016).

iv Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34, 37 (1991).

v A.R.S. § 12-548(A)(1).

vi Specialty Cos. Group, No. CV-20-0086-PR, citing Specialty Cos. Grp. LLC v. Meritage Homes of Ariz. Inc., 248 Ariz. 434, 439–40 ¶ 12 (App. 2020).

vii Specialty Cos. Group, No. CV-20-0086-PR.

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