Perkins v. RMR Building Group: Insolvency and “Cost-Plus” Misuse Alone Do Not Justify Piercing an LLC Veil Absent Proof of Fraud-Indicative Diversion, Facade, or Formation Undercapitalization

I. Introduction

In Perkins v. RMR Building Group, 320 Neb. 707 (2026), the Nebraska Supreme Court reviewed—on further review—an unpublished Nebraska Court of Appeals decision that had pierced the veil of a limited liability company (LLC) to impose personal liability on its sole member/manager, Robert M. Ryan II, for construction funds RMR Building Group, LLC (RMR) failed to apply as promised.

The dispute arose from a commercial redevelopment project in Omaha under a written “cost-plus” contract. Perkins (three related entities owned by Michael Perkins) paid RMR in advance based on invoices for project costs plus a 4½% fee. One invoice included $526,236 for “HVAC equipment” plus a corresponding fee. Perkins paid; RMR deposited the check into its general operating account but did not pay for the HVAC equipment, instead paying other obligations.

The key issues were: (1) whether RMR’s LLC veil should be pierced to hold Ryan personally liable for RMR’s breach and misuse of cost-plus funds; and (2) whether Ryan was independently liable in tort for fraudulent misrepresentation and/or conversion.

II. Summary of the Opinion

The Supreme Court reversed the Court of Appeals and directed affirmance of the district court’s judgment. The district court had held RMR liable for breach of contract (and for money had and received and unjust enrichment) but refused to pierce the LLC veil and rejected tort claims against Ryan.

The Supreme Court held that the evidence did not establish, by a preponderance, that RMR was used to commit fraud or an unjust act warranting veil-piercing. Although RMR was insolvent when it incurred the debt, insolvency alone was insufficient. The Court also affirmed rejection of claims that Ryan personally committed fraudulent misrepresentation or conversion.

III. Analysis

A. Precedents Cited

1. Veil-piercing as a remedy; action characterization and review standards

  • Nebraska Engineering Co. v. Gerstner: The Court relied on this case to reiterate two foundational points: (a) the law/equity characterization affects appellate review; and (b) “piercing the corporate veil is an equitable remedy, not an action in itself.” This framing mattered because the only live issue at trial on the contract claim was whether to disregard the entity.
  • PSK v. Legacy Outdoor Advertising: Cited for the equity standard of review—de novo on the record with potential weight given to the trial judge’s credibility assessments where evidence conflicts on material facts.
  • Deckard v. Cotton and Boone River, LLC v. Miles: Used to distinguish review of factual findings in bench trials of law actions (clearly erroneous) from independent review of questions of law (including statutory interpretation).

2. The substantive veil-piercing framework and “badges of fraud”

  • Thomas & Thomas Court Reports v. Switzer: Anchored the baseline rule that an LLC’s separate legal identity is generally preserved until sufficient reason appears to do otherwise.
  • Christian v. Smith and United States Nat. Bank of Omaha v. Rupe: Supplied the governing test and factors for disregarding the entity on a fraud rationale: (1) inadequate capitalization, (2) insolvency when debt incurred, (3) diversion of funds/assets to personal or improper uses, and (4) the entity as a facade for personal dealings.
  • Gifford-Hill & Co. v. Stoller: The Court imported the “badges of fraud” concept into veil-piercing analysis: the Rupe/Christian factors are indicators, not automatic proof; they are “open to explanation,” and multiple badges may require “strong, clear evidence” to repel an inference of fraudulent intent.
  • J. L. Brock Bldrs., Inc. v. Dahlbeck: Cited for the proposition that inadequate capitalization alone is insufficient to prove fraud; also referenced in the Court’s discussion of diversion-related inferences.
  • 407 N 117 Street v. Harper: Cited for the “facade” factor formulation as applied in more modern veil-piercing cases.
  • Global Credit Servs., Inc. v. AMISUB: Used for the proposition that personally “standing behind another’s debts” does not itself justify disregarding the corporate (or LLC) form—significant here because some paid obligations were personally guaranteed by Ryan.

3. Contract duty; tort elements for fraud and conversion

  • Schwarz v. Platte Valley Exterminating (quoting Lincoln Grain v. Coopers & Lybrand): Cited for the embedded common-law contract duty to perform with care, skill, reasonable expediency, and faithfulness—supporting the conclusion that RMR’s conduct was a breach of contract.
  • Brauer v. Hartmann: Provided the six elements of fraudulent misrepresentation, particularly emphasizing intent/knowledge requirements.
  • Peterson v. Homesite Indemnity Co. and Barelmann v. Fox: Supplied the definition and elements of conversion, including the need for plaintiff’s immediate right to possession and the tort-feasor’s wrongful possession.

B. Legal Reasoning

1. The Court’s central clarification: breach and sharp practice are not automatically veil-piercing fraud

The Court accepted that RMR’s use of cost-plus funds to pay non-project obligations was contrary to industry expectations and constituted breach (RMR billed for HVAC equipment and collected a fee while not paying the HVAC vendor). But the Court drew a bright line between (a) contractual breach/unjust enrichment and (b) the heightened showing needed to disregard an LLC’s separate existence. The latter requires proof that the entity was used to “commit fraud, violate a legal duty, or perpetrate a dishonest or unjust act” in contravention of another’s rights.

2. Applying the Rupe factors: only insolvency supported piercing; the rest did not

a. Inadequate capitalization (measured at formation; evidentiary gap defeats the factor)

The Supreme Court rejected the Court of Appeals’ undercapitalization finding because the record did not establish when RMR was formed. Since “inadequate capitalization is measured at the time of incorporation,” the absence of formation timing evidence prevented a reliable determination. The Court also clarified terminology: “grossly inadequate capitalization,” “inadequate capitalization,” and “undercapitalization” describe the same factual circumstance in this context.

b. Insolvency (proved, but not enough alone)

The Court agreed RMR was insolvent when the debt was incurred, because it could not pay debts as they came due—meeting the definition of insolvency. However, insolvency was treated as one badge of fraud, not a dispositive rule. The Court emphasized that such factors are “open to explanation” and not usually conclusive.

c. Diversion of funds/assets (no “diversion” where payments were legitimate business expenses)

Despite evidence that some payments benefited Ryan indirectly (e.g., paying debts Ryan guaranteed, rent to an entity he partially owned, lawsuit-related payments), the Supreme Court held there was no improper “diversion” because the funds stayed within RMR’s accounts and were spent on “legitimate business expenses,” not siphoned/absconded for personal use. The Court treated “personal guarantees” as insufficient—standing behind company debts does not collapse the LLC form.

d. Facade/mere shell (not shown)

The Court agreed with both lower courts that RMR was not a shell or mere facade: it had real projects, employees, payroll, and an operational business purpose. This factor therefore weighed strongly against veil-piercing.

e. “Badges of fraud” synthesis: explanations can repel the inference

Importantly, the Court did not treat RMR’s cost-plus misuse plus insolvency as automatically fraudulent. It credited Ryan’s explanation that RMR’s failure was linked to inability to obtain an increased line of credit, not a plan to defraud Perkins through the LLC form. In the Court’s view, that explanation “adequately repels” the inference of fraud arising from insolvency, leaving the record short of a preponderance showing that the LLC was used as an instrument of fraud or injustice.

3. No independent tort liability for Ryan

a. Fraudulent misrepresentation

Applying Brauer v. Hartmann, the Court focused on whether Ryan personally made (or authorized with fraudulent intent) the allegedly false representation embodied in the invoice. The evidence showed the vice president, Critser, prepared customer invoices; Ryan did not prepare or send the invoice and did not handle supplier invoices. With no sufficient linkage between Ryan and the representation, and no proof of Ryan’s requisite intent/knowledge at the time of representation, the misrepresentation claim failed.

b. Conversion

The Court held Perkins lacked an “immediate right to possession” of the money after paying RMR. Even under a cost-plus arrangement, Perkins’ remedy sounded in contract/restitution, not conversion against Ryan individually. The Court also accepted the district court’s view that Ryan did not personally possess the funds as a tort-feasor.

C. Impact

  • Elevated evidentiary discipline on “formation-time” undercapitalization: The decision reinforces that undercapitalization must be assessed at formation and cannot be inferred from later financial distress without evidence of formation timing and formation capitalization.
  • Limits veil-piercing in “cost-plus” disputes: Even where a contractor misuses cost-plus funds in violation of industry norms (and even where insolvency exists), courts should not leap from breach to veil-piercing absent proof of fraud-indicative diversion, facade, or comparable misuse of the entity form.
  • Personal guarantees are not a shortcut to “personal benefit” diversion: The Court’s reliance on Global Credit Servs., Inc. v. AMISUB signals that paying company debts that an owner guaranteed will not, without more, constitute an “improper diversion” supporting veil-piercing.
  • Tort claims against owners/managers will be scrutinized for personal participation: The rejection of fraud and conversion claims underscores the need to prove the individual’s personal role in the representation or possession/control of property—veil-piercing is not a substitute for elements of torts.

IV. Complex Concepts Simplified

  • “Piercing the corporate veil” (or LLC veil): A court-made, equitable remedy that ignores the entity’s separate legal status and holds an owner/manager personally liable—but only when the entity is used as a tool for fraud, illegality, or comparable injustice.
  • “Badges of fraud”: Indirect indicators suggesting fraud (like insolvency or diversion). They are not automatic proof; they can be explained away depending on the circumstances.
  • “Cost-plus” contract: A pricing structure where the customer pays actual costs plus a fee. Industry practice may expect project funds to be used to pay project invoices, but breach of that practice typically yields contract and restitution remedies unless additional facts show fraud that justifies veil-piercing.
  • Conversion vs. breach of contract: Conversion requires wrongful possession/control of property when the plaintiff has an immediate right to possess it. Paying money under a contract generally transfers possession rights, making breach/restitution the usual path rather than conversion—especially against a non-possessing individual.

V. Conclusion

Perkins v. RMR Building Group tightens the analytical boundary between serious contractual misconduct and the exceptional remedy of veil-piercing. The Court reaffirmed that veil-piercing is not triggered by insolvency plus breach, even in a trust-laden cost-plus setting, absent proof that the LLC form itself was used to perpetrate fraud or injustice—shown through formation-time undercapitalization evidence, improper/personal diversion, or facade operations. The decision also illustrates the separate hurdle for individual tort liability: without personal participation and the requisite intent or possession, fraud and conversion claims against an LLC’s sole member/manager will fail.