Lanak & Hanna recently obtained a favorable settlement in a complex alter ego case against the former CEO and CFO of a recycling company. The firm opposed a contractor who sought to hold the executives personally liable for $1.8 million in construction costs. After L&H filed a motion for summary judgment on the alter ego claims, the plaintiff contractor agreed to dismiss its case in exchange for a waiver of costs claims by the executives.
Alter Ego Liability in California
Under California law, an alter ego claim allows a creditor to pierce the corporate veil and hold an individual shareholder or officer personally liable for the debts of the corporation. To prevail on an alter ego claim, a plaintiff must prove that:
- There is such a unity of interest and ownership between the corporation and the individual that the separate personalities of the corporation and the individual no longer exist; and
- An inequitable result will follow if the acts are treated as those of the corporation alone.
Courts consider a variety of factors in determining whether to pierce the corporate veil, including:
- Commingling of funds or assets
- Inadequate capitalization
- Disregard of corporate formalities
- Use of the corporation as a mere shell or conduit for the individual’s personal affairs
Case Details
In this case, Lanak & Hanna presented compelling evidence that the former CEO and CFO had not commingled personal and corporate funds, had adequately observed corporate formalities, and had not treated the corporation as their personal bank. The firm’s motion for summary judgment argued that the corporation’s adequate capitalization over multiple years of existence was not subject to dispute and that the individuals therefore had no personal liability for the alleged corporate debts.
Settlement
Faced with the prospect of a summary judgment ruling in favor of Lanak & Hanna’s clients, the contractor agreed to dismiss its case against the former executives in exchange for waiver of costs incurred by the executives in defending themselves. This result represents a significant victory for the firm’s clients, who were able to avoid the uncertainty and costs associated with an actual trial.
Contact Lanak & Hanna
If you have questions about alter ego liability in California, or if you need assistance with a construction dispute, please contact Colin McCarthy, Chris Wilson or Erica Loftis-Pacheco at Lanak & Hanna. Our experienced attorneys can help you navigate the complexities of corporate law and protect your interests.
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