Alaska’s Interests-Based Choice-of-Law Rule for Corporate Veil-Piercing

Introduction

Kaiser-Francis Oil Company and Aurora-KF, LLC (collectively “KFOC”) sued Rieck Oil, Inc., Deutsche Oel & Gas, S.A., and Kay Rieck to recover remediation costs for Alaska oil and gas wells and to pierce the corporate veil of Rieck Oil. Rieck Oil is a Delaware corporation controlled by Kay Rieck. The Superior Court applied Delaware law under the internal affairs doctrine and refused to pierce the veil for lack of “injustice.” On appeal, the Alaska Supreme Court addressed whether Alaska or Delaware law governs veil-piercing claims against a foreign corporation and held that traditional choice-of-law principles—balancing state interests—apply. Because Alaska’s interest in enforcing cleanup obligations outweighs Delaware’s limited interest as the state of incorporation, the Court ruled that Alaska law governs the veil-piercing question.

Summary of the Judgment

The Alaska Supreme Court vacated the Superior Court’s decision and remanded. It held:

Veil-piercing is not an “internal affair” of the corporation under the Restatement (Second) of Conflict of Laws; it affects the rights of third-party creditors.
Alaska does not adopt the internal affairs doctrine for corporate veil-piercing disputes; instead, courts apply Section 302 of the Restatement, balancing the contacts and interests of the forum and other jurisdictions.
Alaska has a more significant interest than Delaware in applying its law to this suit—stemming from the cleanup of Alaska lands and enforcement of Alaska contracts.
Under Alaska’s “alter ego” (mere-instrumentality) test, no additional “injustice” element is required once the corporate form is abused.
Because Alaska law would allow piercing the veil on these facts, the Superior Court’s application of Delaware law was reversed.

Analysis

Precedents Cited

Uchitel Co. v. Telephone Co. (646 P.2d 229 (Alaska 1982)) – Adopted the two-pronged veil-piercing regime: the misconduct test and the mere-instrumentality (alter ego) test with six factors.
Pister v. State, Department of Revenue (354 P.3d 357 (Alaska 2015)) – Recognized divergent approaches nationwide but declined to decide choice-of-law for veil-piercing; introduced internal affairs vs. contacts-based tests.
First National City Bank v. Banco Para El Comercio Exterior de Cuba (457 U.S. 624 (1982)) – Supreme Court held that when third‐party rights are at issue, internal affairs doctrine does not control; external liability claims require interest-balancing.
Restatement (Second) of Conflict of Laws §§ 301–307 – Sections 301 and 302 guide choice-of-law for corporate acts: internal affairs vs. external third-party claims; Section 307 addresses shareholder liability but does not mandate internal affairs application for veil piercing.
Alaska cases on alter ego factors – Jackson v. General Electric Co. (514 P.2d 1170 (Alaska 1973)) and Elliot v. Brown (569 P.2d 1323 (Alaska 1977)).

Legal Reasoning

1. Distinction of Tests: Alaska recognizes (a) a misconduct test (fraud, public convenience, crime) and (b) a mere-instrumentality/alter ego test. Under the latter, no separate injustice element is required once the shareholder-corporation unity is shown by the six Uchitel factors:

Shareholder ownership of all or most stock
Shareholder’s role in incorporation
Gross undercapitalization
Use of corporate property as personal property
Control of directors/executives
Failure to observe corporate formalities

2. Delaware Law Comparison: Delaware also uses misconduct and alter ego theories but requires “fraud or a sham” (injustice) even under alter ego. On KFOC’s facts—undercapitalization, commingling, lack of formalities—the Superior Court correctly found no evidence of deliberate fraud or asset stripping under Delaware law.

3. Veil-Piercing as “External”: The Court held that veil-piercing involves external third-party rights and not purely internal corporate governance. The internal affairs doctrine aims to prevent conflicting governance rules, but does not extend to creditor-oriented veil-piercing actions.

4. Restatement Section 302 Analysis: Section 302 directs courts to apply the law of the state with the most significant relationship. Although the default is the state of incorporation, an exception arises when the corporation’s only tie is its incorporation and the forum state has more compelling interests.

5. Balancing Interests: Alaska’s interests in enforcing environmental cleanup, enforcing Alaska contracts, and protecting Alaska Native Corporation rights outweigh Delaware’s interest in uniform corporate governance for an idled Delaware shell controlled by one shareholder.

Potential Impact

Alaska courts will apply an interests-based choice-of-law test to veil-piercing claims against foreign corporations, rather than a per se internal affairs rule.
Parties contracting with out-of-state entities in Alaska should be aware that Alaska’s veil-piercing standards may govern despite a foreign state of incorporation.
Alaska’s alter-ego test may facilitate veil-piercing when corporate form is abused, without requiring a separate “injustice” showing.
Lower courts must now conduct a Section 302 analysis—evaluating contacts, expectations, policies, and predictability—before choosing a jurisdiction’s veil-piercing law.

Complex Concepts Simplified

Corporate Veil-Piercing: A legal remedy allowing courts to hold shareholders personally liable when they use the corporation to shield wrongful conduct.
Internal Affairs Doctrine: The principle that a corporation’s internal governance issues (e.g., board elections, bylaws) are governed by the law of the state of incorporation to avoid conflicting rules.
Alter Ego Test: A veil-piercing standard focusing on whether a corporation is a façade for a controlling person, judged by six factors (control, formalities, capitalization, etc.).
Misconduct Test: A veil-piercing standard requiring fraud, undercapitalization intended to defeat creditors, or violation of public policy.
Choice-of-Law Analysis (Restatement § 302): Courts balance the interests of involved states, the parties’ justified expectations, and predictability to decide which jurisdiction’s law applies to corporate-related claims.

Conclusion

The Alaska Supreme Court’s decision establishes an interests-based choice-of-law rule for veil-piercing claims: Alaska courts will no longer automatically apply the law of the state of incorporation under the internal affairs doctrine. Instead, they must balance the forum’s and other states’ interests under Restatement Section 302. In this case, Alaska’s strong interest in enforcing environmental and contractual obligations on Alaska lands outweighed Delaware’s limited interest as a favored incorporation jurisdiction. Moreover, under Alaska’s alter ego test, once the corporation’s form is abused, no extra “injustice” element is required. The ruling clarifies choice-of-law methodology and strengthens Alaska’s ability to hold wrongdoers—and their shell corporations—accountable.