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gorillapaws's avatar

Lawyers/Law Students: what's involved with proving a defendant acted in "bad faith"?

Asked by gorillapaws (26390points) March 18th, 2011

My parents are included in a group that are suing a guy and his family members for using his company as a vehicle to siphon out their investments for the benefit of the insiders. I’ve been reading up on what’s involved with piercing the corporate veil and establishing alter ego liability online, and one of the requirements seems to be establishing that the defendant acted in bad faith.

My question is what’s involved with meeting this requirement? does the plaintiff need to present evidence that actually proves a malicious thought process (like e-mails, or a journal entry that outlines the person’s thinking?) or would simply having the accounting records of obviously shady/fraudulent transactions be the kind of thing that’s sufficient (e.g. borrowing money from the company at very low interest rates, and then reinvesting that borrowed money in the company and giving yourself exorbitant rate of return like 50%)? From the few undergraduate courses I took on law, I recall that establishing intent can be particularly tricky. Is proving bad faith the same kind of challenge that would be involved with proving intent in criminal law?

I’m not looking for actual legal advice, just to help understand what’s involved, in the general sense, with establishing that someone acted in “bad faith”.

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4 Answers

john65pennington's avatar

“Acting in bad faith” has to do with intent. If I give you five dollars to go to the store to buy a gallon of milk and you bought beer, instead, you acted in bad faith.

Its not performing a task, in which someone or somebody has bestowed in you, on their behalf.

This falls under the fraud statutes in most of the states. Depending on the amount of money or goods involved.

iamthemob's avatar

It involves much, much more than intent in criminal law. Because decisions in a business situation can have mixed motivations, a lot of leeway is given to them by the courts.

One of the things that you should look into is evidence that shows that they were acting in their interest and against the interest of the investors. Corporate board members and managers have a fiduciary duty to investors. Check out this – it’s a good primer.

gorillapaws's avatar

Thanks for both of the GA’s.

perspicacious's avatar

Criminal intent and proving the bad faith element in a civil proceeding are very different. I just read iamthemob’s answer and I’ll defer to him. I’m not sure why you mention piercing the corporate veil but there is plenty online to read for you to get an understanding of what that means and what it takes to successfully do it.

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