Walkovsky v. Carlton 223 N.E. 2d 6 (N.Y. 1966)

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Walkovsky v. Carlton 223 N.E. 2d 6 (N.Y. 1966) by Mind Map: Walkovsky v. Carlton       223 N.E. 2d 6 (N.Y. 1966)

1. Facts

1.1. Parties

1.1.1. John Walkovsky , Plaintiff

1.1.2. William Carlton, Defendant

1.2. What happend ?

1.2.1. Walkovsky was a pedestrian in NY city when he sustained injury after being run down by a cab.

1.2.1.1. The taxicab was owned by the Sean Cab Corporation and at the time of the incident was operated by the defendant Marchese.

1.2.2. Defendant, Carlton, claimed to be a stockholders in 10 such corporations, including Seon, with each corp has two cabs registered in its name.

1.2.2.1. Each cab carried a minimum automobile liability insurance of $10,000 as required by the NY law.

1.2.2.2. Walkovsky claimed that these 10 corporations are ran as one rather than different entities and segregation is merely an unlawful attempt "to defraud members of the general public" to avoid liability in case of injuries caused by the cabs

1.3. Procedural History

1.3.1. Walkovsky filed a suit against Sean Cab Corp but unable to get the required compensation for his injuries. He asked the court to pierce the corporate veil and allow him to sue Carlton directly.

1.3.2. Carlton appealed to the court of appeals

1.3.2.1. The Appellate Court reversed the ruling on the basis of failure to state a claim

1.3.2.2. The Appellate court can only pierce the corporate veil in case of fraud and there is no evidence in this case.

1.3.2.3. In short , the court could not find a claim or cause of action against Carlton in an individual capacity.

1.3.3. Walkovsky then amended his suit and claimed that Carlton is running the business in an individual capacity to benefiting himself personally.

1.3.3.1. Court accepted this claim and Walkovsky settled with Carlton.

2. Issue

2.1. Whether Carlton can be held personally liable for the injuries to Walkovsky on the ground running a business under multiple entities with an intent "to defraud members of the general public" ?

3. Rules of Law

3.1. The issue before the court was whether the defendant should be held personally liable for the injuries suffered by the plaintiff because he organized, managed, dominated, and controlled a fleet of corporations which appeared to be provided as a cover to carry out his business without imposing financial or other liabilities.

3.1.1. The plaintiff has a burden to prove that the defendant was personally liable, that is that the personal liability of the corporation's stockholders since the ownership of the organizations had been deliberately split up among many corporations.

3.1.1.1. Section 370 of the Vehicle and Traffic Law allows taxi owner operators to form fleets with other corporations. It also states the minimum insurance required by each subdividion ($10,000) which the defendant held.

3.1.1.1.1. The court can pierce the corporate veil if there is evidence of a corporation being under capitalized.

3.1.1.1.2. The court can pierce the corporate veil if there is evidence of a corporation being fraudulent or engaging in illegal activities.

3.1.2. The court stated that it is not impossible for the plaintiff to state the valid cause of action against the defendant and held that the plaintiff had not done so.

3.1.2.1. The court noted that if the insurance coverage that was held by the defendant was not adequate to protect the public, the remedy of the claim would lie with the legislative body, not the courts.

4. Analysis

4.1. When a corporation is undercapitalized, it means that the corporation does not have enough assets to conduct it's business to capacity and in a reasonable manner.

4.1.1. This would allow the corporation to limit the liability if someone was to make a claim against it.

4.2. The court found that the Defendant's nine other corporations were not relevant since the specific corporation (Sean Cab Corp) that hit the Plaintiff was legitimate and adequately capitalized.

4.2.1. As a result, The court has no basis to pierce the corporate veil.

4.3. The claim by the plaintiff highlighted that because the corporation was only carrying $10,000 for insurance purposes, the defendant was holding out for his own personal gain.

4.3.1. While the bare minimum approach was taken, it was agreed that the legislation is what is at fault if $10,000 as the minimum is not an adequate amount to have as insurance for a taxi service business.

5. Conclusion

5.1. Carlton was not found personally liable due to the absence of evidence of any fraudulent activities.

5.2. Carlton operated the business under the regulation of the state law though businesses were undercaptilized but compliant.

6. Importance

6.1. Many taxi service companies have restructured their organizations in the same way as Carlton in order to mitigate liability risks. This ensures that their company will not be held liable in the future for any claims brought against it.

7. Impact

7.1. Bowles v. Errico 163 A.D.2d 771 (1990 N.Y.)

7.1.1. Plaintiff executor's wife was involved in a fatal motor vehicle accident with a moving van, and plaintiff filed an action and obtained a default judgment against the moving van and driver. Plaintiff thereafter alleged that defendant moving company was the real employer of the driver and filed a wrongful death action against it.

7.1.1.1. Defendant's motion for summary judgment dismissing the complaint was granted, and plaintiff sought review. The court affirmed, holding that plaintiff had failed to meet his burden of establishing a basis for the disregard of the corporate entity, in that plaintiff's assertions that defendant had hid behind a hollow corporate front, which was the entity originally sued by plaintiff, were not adequately supported.

7.1.1.1.1. Further, the court noted that there were no allegations concerning any fraudulent or illegal conduct on the part of defendant, nor had it been shown that defendant used the control of the company to commit any wrongdoing.

7.2. Hyland Meat Co. Inc. v. Peter K . Tsagarakis 202 A.D.2d 552 (1994 N.Y. App. Div.)

7.2.1. Seller filed an action for damages against buyers who received goods from seller. The trial court held that buyers of goods sold and delivered were individually responsible for payment of damages to seller because it was proper to pierce the corporate veil.

7.2.1.1. On appeal, the court held that the evidence was sufficient to hold the buyers personally liable through a piercing of the corporate veil because it was shown that the buyers exercised complete domination of the corporation in respect to the transaction attacked and that such domination was used to commit a fraud against the seller which resulted in the seller's injury.

7.2.1.1.1. The court also held that the buyers' failure to give the seller notice of the bulk transfer of the restaurant rendered the transfer ineffective as against the seller.

8. Influence

8.1. In light of this decision , the states have now increased the minimum amount of liability insurance required by a corporation to properly compensate for the injuries sustained during the auto accidents.

8.2. Separation of personal and business ownership became a critical criteria .

8.2.1. Its an important under the law to keep these functions separate including

8.2.1.1. Financial liabilities and proper bookeeping

8.2.1.2. Making sure that business is not undercapatalized

8.2.1.3. Compliant with the ethical business practices and adherence to the business laws.