1. Walkovszky v. Carlton
1.1. Facts
1.1.1. Parties
1.1.1.1. John Walkovszky (Plaintiff)
1.1.1.2. William Carlton, and Seon Cab Corp. et al (Defendants)
1.1.2. What Happened
1.1.2.1. Plaintiff was run down by a taxicab iun New York City in 1962 (four years ago)
1.1.2.1.1. The taxicab was registered under Seon Cab Corporation, which is owned by the defendant
1.1.2.2. Plaintiff alleges he was severely injured during the accident
1.1.3. Procedural History
1.1.3.1. Plaintiff sued corporation in which taxicab was registered plus additional corporations
1.1.3.1.1. Aim was to maximize recovery of damages for personal injury
1.1.3.1.2. The defendant and two other individuals were stockholders, directors and officers of 10 different corporations (including Seon) thus in reality were a single entity
1.1.3.1.3. Plaintiff claims the taxicab was negligently operated at the time
1.1.3.1.4. Plaintiff argues that the corporate veil should be pierced to hold all three individual owners personally liable.
1.1.3.1.5. Defendant filed motion in Supreme Court, Richmond County, to dismiss action for failure to state a cause of action
1.1.3.2. Plaintiff appealed
1.1.3.2.1. The Supreme Court, Appellate division reversed the order; motion was denied, holding that there is a valid cause of action
1.1.3.3. Defendants appealed to the Court of Appeals on a certified question of law: whether the corporate veil could be pierced
1.1.3.3.1. Plaintiff filed a motion to dismiss the appeal
1.1.3.3.2. Court of Appeals held that complaint of a deliberate fragmented corporate entity was insufficient to state a cause of action against individual stockholders of the corporation
1.2. Issue
1.2.1. Whether the court should "pierce the corporate veil" and allow liability to reach beyond Seon's corporate assets and include stockholder assets.
1.2.1.1. If pierced, does the decision prevent fraud and/or achieve equity? If limited, does it permit abuse of corporate liability protections?
1.3. Rule of Law
1.3.1. Under Respondeat Superior, a plaintiff is entitled to hold the entire corporation responsible for the act of its agents
1.3.2. Individuals are entitled to incorporate a business to limit personal liability but its not without limits
1.3.2.1. Courts may "pierce the corporate veil" and hold shareholders personally liable
1.3.2.1.1. In cases of fraud or circumvention of the law, including:
1.3.2.1.2. To achieve equity remedy with insufficient capital for payment of liability
1.3.2.1.3. Guided by "general rules of agency"
1.3.2.2. In claiming liability, cause for action must be clear
1.3.2.2.1. Taxicab ownership
1.3.2.2.2. Establishment of individual vs, business activities
1.4. Application
1.4.1. Undisputed: Entitlement to damages from liability per Agency Respondeat Superior law
1.4.2. Establishment of cause
1.4.2.1. Individual owners are personally liable for negligence commited by their agent and the personal veil should be pierced
1.4.2.1.1. Taxi owned by an undercapitalized fragmented corporation that is part of a single entity alter ego, using personal funds for individual interest
1.4.2.1.2. Taxicab that hit plaintiff was operated by Marchese, an agent of the Seon Cab Corp.
1.4.2.1.3. Allegations of fraud
1.5. Conclusion
1.5.1. Judgment against defendant was reversed: Defendant is not personally liable as a corporation doing the business it's intended
1.5.2. Certified question was answered in the negative: Plaintiff cannot pierce the corporate veil or claim for damages against all corporations
1.5.2.1. It is not fraudulent for Carlton to form a corporation and limit personal liability
1.5.2.1.1. The form of the corporation cannot be scrutinized simply because there are less assets than the desired amount of recovery.
1.5.2.1.2. Even if the cabs were owned by a single corporation, it would still be difficult to justify personal liability.
1.5.2.1.3. Carlton has the mandatory liability coverage as required by law.
1.5.2.2. There are no allegations that Carlton was using the corporation to conduct business in a personal capacity.
1.5.2.2.1. Thus, the court cannot "pierce the corporate veil" under grounds of agency
1.5.3. Order of the Supreme Court, Richmond County was reinstated
1.5.3.1. Plaintiff fails to adequately support a cause of action - be it fraud or agency
1.5.3.1.1. Plaintiff was given leave to amend their complaint given the result of the case, to specific the taxicab ownership
1.6. Impact
1.6.1. Goldberg v. Lee Express Cab Corporation
1.6.1.1. A pedestrian (Goldberg) was hit by a taxi operated by Lee Express Cab Corp., a corporation wholly owned by an individual (Natan More) who owned 16 additional cab corporations.
1.6.1.1.1. The plaintiff moved to sue Lee Express Cab Corp. and the 16 other taxi corporations owned by More.
1.6.1.1.2. More motioned to dismiss himself and the other corporations as defendants because each corporation was operated as a separate business entity.
1.6.1.1.3. Unlike Walkovskzy v. Carlton, the plaintiff alleged that the defendant commingled the operations of the corporations and that none of the corporations had an existence on its own. Accordingly, the court denied the motion to dismiss the other corporations as defendants.
1.6.2. Gartner v. Snyder
1.6.2.1. Lower court ruled in favor of a plaintiff that sued to hold individual shareholders personally liable for a corporation's breach of contract to sell property.
1.6.2.1.1. The plaintiff held that the corporation was undercapitalized and the shareholders used two other corporations to conduct real estate business.
1.6.2.1.2. The appellate court reversed the lower court's decision to pierce the corporate veil.
1.6.2.1.3. The appllate court cited Walkovszky v. Carlton and NY courts' previous reluctance to hold individual shareholders liable (even in cases of undercapitalization) unless there is use of the corporation to conduct personal business.
1.7. Importance
1.7.1. This case limits the shareholders' incentive to purchase insurance greater than the legislatively-mandated minimums.
1.7.1.1. Provided the corporation is operating legally, there is no incentive for it to carry more insurance than is legally required.
1.7.2. The outcome of this case reinforces the liability protection of shareholders in a corporation. This limits the court's ability to "pierce the corporate veil."
1.7.2.1. Dividing up a large organization into multiple, independently operating corporations can be advantageous.
1.7.2.1.1. This ensures that liability is compartmentalized and limits the legal exposure of the overall organization.
1.8. Influence
1.8.1. Liability insurance coverage
1.8.1.1. This case and subsequent related cases triggered the state of New York to legislatively increase the automobile liability insurance coverage minimum for personal injury not resulting in death for one person from $10,000 to $25,000 in 1996
1.8.2. Legal corporate boundaries of piercing the corporate veil
1.8.2.1. This case helped establish the ultimate test for corporate disregard theory in preventing piercing of the corporate veil
1.8.2.1.1. Court reiterated that it cannot be reasonably or logically inferred that the liability from the business of one corporation that is a part of many corporations (or an enterprise) should be carried by all the other corporations in contract and tort law
1.8.2.1.2. Secondary sources law reviews indicate that fragmenting a business into a network of corporate affiliates is an effective prophylactic for veil-piercing, as long as the network adheres to corporate formalities and conducts distinct operations