Appellants, a corporate officer and two shareholders

Appellants, a corporate officer and two shareholders, sought review of a judgment from the Superior Court of Stanisluas County (California), which found that corporations were appellants’ alter egos in a claim brought by respondent creditors.

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Overview

Respondents, creditors, filed an action against appellants, corporate officer and two shareholders, seeking declaratory and other relief. They alleged appellants were alter egos of corporations indebted to respondents. The trial court found that appellants were liable to respondents under the alter ego theory. On appeal, the court affirmed in part and reversed in part. The court held that under common law there were two requirements needed to disregard a corporate entity. First, there had to be a unity of interest and ownership such that the separate personalities of the corporation and the individual no longer existed. Second, if acts were treated as those of the corporation alone, an inequitable result has to result. The court stated that there was insufficient evidence that appellant corporate officer had a unity of interest and ownership. However, the court found that liability was proper for appellant shareholders. The fact that they controlled and dominated the corporations did not preclude holding each of them personally liable on the obligations, since it was settled that two or more shareholders of a corporation may be liable as principals under the alter ego principle.

Outcome

The court reversed in part and affirmed in part. There was in4sufficient evidence to find appellant corporate officer liable for debts of a corporation. However, the court found sufficient evidence to grant declaratory relief against appellant shareholders under the alter ego theory.