Walkovszky v. Carlton, 223 N.E. 2d 6 (N.Y. 1966)*pgs. 1-9 of Document

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Walkovszky v. Carlton, 223 N.E. 2d 6 (N.Y. 1966)*pgs. 1-9 of Document by Mind Map: Walkovszky v. Carlton, 223 N.E. 2d 6 (N.Y. 1966)*pgs. 1-9 of Document

1. Facts

1.1. Parties

1.1.1. Appellant/Defendant William Carlton, owner of twenty taxicabs owned in pairs by 10 individual corporations. One of the taxicabs had hit plaintiff Walkovszky.

1.1.2. Respondent/Plaintiff John Walkovszky, apedestrian argued that defendant's business structure was fraudulent.

1.2. What Happened

1.2.1. In 1962, Walkoszky was a pedestrian on a New York street when he was struck by a cab owned by Seon Cab Corp, a corporation of which Carlton was the stockholder.

1.2.2. Walkoszy received some compensation for injury in the accident, but was not satisfied with the limited amount. He sued Carlton only to find out that the cab's ownership entity was structured in a way to limit the stockholder's total exposure to liability.

1.2.3. Carlton was the stockholder for 10 separate corporations - each of which owned and operated two cabs and carried the legal minimum auto liability insurance.

1.2.3.1. Walkovsky brought the suit against Carlton, all 10 corporations, the driver and others; claiming the structure was one, big organization and should all be held liable

1.3. Procedural History

1.3.1. Initially, Walkoszky filed a claim against insurance.

1.3.2. Not being satisfied with the limited compensation for his injury he sued Carlton, the driver, all related corporations, et al. claiming that the corporation structure was designed to Carlton's personal benefit and shouldn't prohibit Carlton from being held liable.

1.3.2.1. Walkovszky requested that the court "Pierce the corporate veil" in order to sue Carlton, directly alleging he was liable for the injuries from the cab accident.

1.3.3. Carlton brought motion to be excluded from the suit as an individual shareholder that cannot be held personally liable for corporate action.

1.3.3.1. Court granted the motion

1.3.4. Walkoszky appealed Carlton's exclusion, and motion was reversed. Carlton appealled the decision to reverse, which is represented in this case.

2. Issue

2.1. Whether liability should be extended to reach assets beyond those belonging to the corporation the court is guided by general rules of agency. In this case, the main question is: Can Carlton be held personally liable?

3. Rule of Law

3.1. Was the plaintiff using the control of the corporation for his or her own personal benefit?

3.1.1. This is, too, relevant for negligent acts

3.2. Corporations were created to protect the liability of individuals, however this boundary can be pierced "to prevent fraud or to achieve equity"

3.3. Does the corporation have "a separate existence of their own"?

3.3.1. One route: corporation is acting as a "dummy" for individual stockholders who are each conducting business for personal benefits

3.3.1.1. If this is the case - each individual stakeholder is liable

3.3.2. Otherwise, it is a collection of fragmented businesses that are combined towards a centralized corporation

3.3.2.1. If this is the case - the corporation is liable

4. Application

4.1. Walkovsky, rule would be applied in the case through arguing that when harmed the defender was stockholder of ten corporations with two registered cabs under Carlton name and had minimal cab insurance as a single corporation. Defendant should be liable personally for harm inflicted as the corporation illegally defrauds the public.

4.1.1. Since the corporation only had approximate coverage of ten thousand for insurance, Carlton was only interested in his personal advantage of the leveraged funds.

4.1.2. There was agreement that the legislature is faulty since only a minimum of ten thousand is an inadequate amount for insurance.

4.2. Carlton, rule would be applied in the case through dismissing the plaintiff's complaint due to "failure to state a cause of action." Corporations intended to under-capitalize not have enough assets for business activities in order to avoid responsibility for their actions. Court ruled the corporation was both legal and sufficiently capitalized.

4.2.1. If plaintiff makes a claim against the corporation, under-capitalization permits the corporation to restrict the liability.

4.2.2. Court had no basis to "pierce the corporate veil."

4.2.3. Also, plaintiff's complaint did not allege the corporation was fraudulent.

5. Conclusion

5.1. Dismissed complaint, because "a stockholder in New York is not personally liable for corporation torts unless the stockholder is performing business in his or her own capacity." Defendant was not conducting business in his or her individual capacity. Reversal of Lower Court's decision, Court decided that the outcome is dependent on the situation in answering the question of "if the corporation was capitalized adequately?"

5.1.1. The defendant Carlton was not liable personally due to the fact of no fraudulent evidence contested by plaintiff Walkovsky. Operation of the business was "indeed legitimate and not under-capitalized."

6. Impact

6.1. In the Matter of Joseph Morris v. New York State Department of Taxation and Finance et al.

6.1.1. COURT OF APPEALS OF NEW YORK

6.1.2. Parties

6.1.2.1. Joseph Morris, Appellant

6.1.2.2. NY State Dept of Tax and Finance, et al., Respondents

6.1.3. What Happened

6.1.3.1. Background

6.1.3.1.1. A Delaware Company purchased a boat in which their president, Joseph Morris, used in New York waters. He was a New Jersey resident but leased an apartment in New York.

6.1.3.2. Use of Citation

6.1.3.2.1. The court cited the case for its definition of"piercing the corporate veil" since the respondents used the doctrine to assess a tax on Mr. Morris. The terminology is usually applied to "prevent fraud or to achieve equity" by holding owners personally liable for obligations which are being wrongfully circumvented through incorporation.

6.1.3.3. Outcome

6.1.3.3.1. The court reversed the judgement of the lower court and found the company was properly formed for purchasing and using boats. Therefore, the doctrine of "piercing the corporate veil" does not apply.

6.2. Anthony Smith et al. v. Delta International Machinery Corp. and JKR Associates, LLC, et al.

6.2.1. SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

6.2.2. Parties

6.2.2.1. Anthony Smith, et al., Respondents

6.2.2.2. Delta International Machinery Corp., Defendant, and JKR Associates, LLC, et al., Appellants

6.2.3. What Happened

6.2.3.1. Background

6.2.3.1.1. The plaintiff, Anthony Smith, injured himself using a table saw while employed and in accordance with his position description.

6.2.3.2. Use of Citation

6.2.3.2.1. The court cited the case to define when it is permissible for business owners to be held personally liable: "to prevent fraud or to achieve equity."

6.2.3.3. Outcome

6.2.3.3.1. In this case, the court found that the Plaintiff showed no evidence that the principal defendant abused the privilege of incorporation for fraud or personal gain. The court substituted provisions to match appropriate defendants (since using nonexistent entity was incorrect). The court affirmed the new provisions and granted summary judgment.

7. Importance

7.1. The outcome of the case positively affects business owners because it verifies the liability and obligation protection owners receive through incorporation. Thus, making it more difficult for business owners to be sued individually.

7.1.1. To use the doctrine "piercing the corporate veil," an individual must prove the business owner is performing business in his or her own capacity for personal rather than corporate gain.

8. Influence

8.1. Urrent business practice involves if anyone used corporation influence to further her/his own as opposed to the corporation's business, she/he would be responsible for the corporation's acts due to "respondeat superior" principle.

8.1.1. It seems that this case which chose not to pierce the corporate veil is often quoted as being misunderstood in its assumptions. This case has been used in lessons of when it is necessary to break through the corporate structure to affect the shareholders behind it. Current practice is to legally, but ethically and prudently create corporations for the purpose of public interest; and not directly for the limitation of personal liability

8.2. Automobile liability requirements have evolved over time. Current business practice of businesses and corporations had to have increased minimum liability insurance after the ruling or decision of this particular court case. Requests to amend cases after this case because some cases were amended due to this ruling. Walkovsky amended his suit.