Module 6 Case

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Module 6 Case by Mind Map: Module 6 Case

1. Walkovsky v. Carlton, 223 N.E. 2d 6 (NY 1966)

1.1. Facts

1.1.1. Parties

1.1.1.1. John Walkovsky

1.1.1.2. William Carlton

1.1.2. What Happened

1.1.2.1. Mr. Walkovsky was struck by a taxicab

1.1.2.1.1. Plaintiff sued and wanted to hold all stakeholders accountable. The $10,000 minimum legal liability was not enough to pay for the recovery of the plaintiff so he filed to hold the defendant personally liable for the remaining damages.

1.1.2.2. The taxi carried minimum legal liability insurance of $10,000

1.1.2.3. The taxi was owned and operated by a corporation that had virtually no other assets

1.1.2.4. The solitary owner of the corporation also owned nine other corporations each owning one or two taxis with minimum liability insurance and no additional assets

1.1.3. Procedural History

1.1.3.1. Case filed in the New York Supreme Court, Richmond County

1.1.3.1.1. The Court found that the corporate veil could not be pierced, found in Mr. Carlton's favor

1.1.3.2. Case brought to New York Supreme Court Appellate division

1.1.3.2.1. The appellate court reversed the lower court decision, found that the ten corporations acted as a single entity, run by Mr. Carlton

1.1.3.3. Case brought to New York Court of Appeals

1.2. Issue

1.2.1. Whether the liability of a corporation is extended beyond the assets that corporation holds to include the assets of the corporation's owner

1.2.2. Whether or not the cause of action in a corporate liability case can be established by a fragmented corporate structure of many individual entities, owners, and stock-holders.

1.3. Rule of Law

1.3.1. The New York Business Corporation Law

1.3.1.1. Section 401

1.3.2. CPLR 3013

1.3.3. Vehicle and Traffic Law - Section 370

1.3.3.1. States that taxi owner/operators are allowed to create taxi fleets with different corporations.

1.3.3.2. States the minimum liability insurance of $10,000.

1.4. Analysis/Application

1.4.1. The taxi owner/operators are entitled according to this law to form a corporation in the fragmented style of this case

1.4.2. Plaintiff did not provide sufficient evidence that the associates of the defendant (the multiple entities involved in the taxi chain) were "doing business in their individual capacities

1.4.2.1. defined as a perversion of corporate business where individuals in their individual capacity move funds into and out of the many corporations for their own convenience

1.4.2.2. proof of this perversion would be necessary to to justify the imposition of liability onto the individual shareholders of a company

1.4.2.2.1. there is no proof that Seon Cab Corporation had their business conducted by a larger entity in this case

1.4.3. cause of action was not established by plantiff

1.4.3.1. used an argument based on fraud to establish liability to the agency

1.4.3.1.1. fraud is based on the taxi's having minimum liability insurance required by law and distributed across many companies to hide assets according to the plaintiff, the business did not break laws as structured and is not cause for action

1.4.3.2. argument based on fraud does not establish issues with the agency

1.4.3.2.1. per the court they are in fact following the law by having the minimum required liability insurance, this cannot be fraud and does not establish cause of action

1.4.3.2.2. there may be an argument for increasing minimum liability insurance but it is an issue for the legislature

1.5. Conclusion

1.5.1. Appellate Court decision reversed

1.6. Impact

1.6.1. Decision cited in case Rochester Gas and Electric v. GPU, Inc. 2008 WL 8912083 (2008)

1.6.2. Decision cited in case Joseph Morris v New York State Department of Taxation and Finance. 82 N.Y. 2d 135 (1993)

1.7. Importance

1.7.1. This case strengthened the corporate veil

1.7.2. This case re-affirmed the use of creative legal planning to form a liability shield--

1.8. Influence

1.8.1. Without this outcome, the legal corporate entity might look entirely different today

1.8.2. This outcome maintained the corporate veil which establishes that corporations and their owners are legally separate entities. A different outcome could have began a longer-term erosion of this separation, which would have far reaching impact on the business landscape we have today.