The Litigation Hazards of Corporate Formalities and How to Avoid Them

• Pages: 36-42
• Date: 01 July 2025
• Published date: 01 July 2025
• Author: Daniel Harris
• Subject Matter: Derecho Público y Administrativo

36 THE BRIEF ❭ Summer 2025

OLENA MALIK/MOMENT/GETTY IMAGES

Corporate formalities can wreck otherwise solid cases. In

February 2025, for example, the U.S. Supreme Court

reversed a $43 million trademark judgment because

the plainti’s theory of damages attributed prots recorded by

the defendant’s corporate aliates to the defendant. This was

improper, the Court held, even though the defendant and its

aliates were economically integrated, because the defendant

and its aliates were legally separate corporations.1

The Court’s decision highlights the troubling relationship

between corporate formalities and substantive justice. Because

corporations are legally distinct from their owners and ali-

ates, businesses can reduce or avoid liabilities by outsourcing

their potentially tortious activities to a separately incorporated

company. This article explains why the formalistic rule of

corporate separateness exists and what plaintis can do to

overcome the hazards it creates.

Supreme Court Reafrms Corporate Individuality

In Dewberry Group, Inc. v. Dewberry Engineers Inc., the U.S. Supreme

Court rearmed the principle of cor porate individuality—the

notion that a corporation is a separate and autonomous legal

person, distinct from its owners and aliates.2 The case illustrates

how the rule of corporate individuality can frustrate tort plaintis

seeking commonsense justice.

Dewberry Engineers, a real estate company and owner of

the registered trademark “Dewberr y,” sued another real estate

company, the similarly named but unrelated Dewberry Group,

Inc., for infring ing its trademark in violation of the federal

Lanham Act. The plainti succeeded in establishing liability.3

The issue that led to Supreme Court review involved the

calculation of damages.

The plainti sought the normal remedy under the Lan-

ham Act, which is disgorgement of the defendant’s prots

deriving from the trademark violation.4 The problem was

that the defendant was a separately incorporated company

within a larger corporate family, which included proper-

ty-owning aliates that collected rental income from their

properties. The defendant provided marketing and other

services to its aliated companies, charged them below-cost

fees, and was able to stay in business only because of “occa-

sional cash infusions” from their common owner.5 Because

the defendant was technically operating at a loss, it did not

report any prots. Instead, the ill-gotten gains from the defen-

dant’s trademark infringements showed up as prots on the

books of its aliates.6

Undaunted by this technicality, the plainti’s damages

expert testied that, from an economic perspective, the

defendant and its aliates were suciently integrated to

justify consideration of the “total revenues and prots of

the combined Dewberry Group real estate business” in the

calculation of the damages award.7 The district court accepted

this approach, opting to treat the defendant and its aliates “as

THE LITIGATION

HAZARDS OF CORPORATE

FORMALITIES AND

HOW TO AVOID THEM

BY DANIEL HARRIS

PUBLISHED IN

THE BRIEF

, VOLUME 54, NUMBER 4, SUMMER 2025. © 2025 BY THE AMERICAN BAR ASSOCIATION. REPRODUCED WITH PERMISSION. ALL RIGHTS RESERVED. THIS INFORMATION OR ANY PORTION THEREOF MAY

NOT BE COPIED OR DISSEMINATED IN ANY FORM OR BY ANY MEANS OR STORED IN AN ELECTRONIC DATABASE OR RETRIEVAL SYSTEM WITHOUT THE EXPRESS WRITTEN CONSENT OF THE AMERICAN BAR ASSOCIATION.

PUBLISHED IN

THE BRIEF

, VOLUME 54, NUMBER 4, SUMMER 2025. © 2025 BY THE AMERICAN BAR ASSOCIATION. REPRODUCED WITH PERMISSION. ALL RIGHTS RESERVED. THIS INFORMATION OR ANY PORTION THEREOF MAY

NOT BE COPIED OR DISSEMINATED IN ANY FORM OR BY ANY MEANS OR STORED IN AN ELECTRONIC DATABASE OR RETRIEVAL SYSTEM WITHOUT THE EXPRESS WRITTEN CONSENT OF THE AMERICAN BAR ASSOCIATION.