Courts impose liability on related companies under the “alter ego” theory where two apparently separate companies are considered to be one, in spite the maintenance of two or more distinct operations. In other words, the two separate companies are treated as an alter ego of each other for liability purposes.
Under certain circumstances, courts apply the concept of “piercing the corporate veil” to hold corporate owners personally liable for corporate debts.
In the recent case of Matter of B.R.M. Concrete, Inc. v. Portland Transit-Mix, Inc., the court addressed issues of alter ego and the personal liability of a corporate president and sole shareholder.
B.R.M. Concrete Inc. supplied concrete valued at $193,928 to Portland Transit-Mix, Inc. When Portland refused to pay for the concrete, B.R.M. sued Portland, its corporate principals, and Bedrock Concrete Inc., which was another company owned by the same principals.
According to B.R.M., Portland and Bedrock failed to follow corporate formalities such that they were mere alter egos of the corporate principals. Specifically, B.R.M. pointed to the follow factors: (a) there was an overlap in the corporate officers and shareholders; (b) the corporations had the same address; (c) the corporations banked at the same location; (d) the companies held no meetings; (e) the companies had no by-laws; (f) the companies had no records of meetings or documents regarding shareholders; and (g) the companies had no records of business transactions or other financial records. In addition, Bedrock admitted that it paid for at least a portion of the concrete that was delivered to Portland. Given defendants’ failure to follow corporate formalities, B.R.M. argued that the corporate and individual defendants were liable for the $193,928 owed.
Defendants argued that only Portland was liable for the debt, which it did not have sufficient assets to pay. According to defendants, Portland and Bedrock were separate corporations which conducted separate businesses and maintained separate bank accounts. Defendants also argued that the individual defendants only conducted business on behalf of the corporate defendants. The defendants moved for summary judgment, seeking to have the claims against the corporate principals and Bedrock dismissed.
The trial court denied the defendants motion to dismiss B.R.M.’s claims. According to the court, piercing the corporate veil requires a showing that the individual defendants (1) exercised complete dominion and control over the corporation, and (2) used such dominion and control to commit a fraud or wrong against the plaintiff which resulted in injury. The mere claim that the corporations were completely dominated by the individual defendants, or conclusory assertions that the corporations acted as their alter ego, without more, will not suffice to support the equitable relief of piercing the corporate veil. Since the decision whether to pierce the corporate veil, or treat two companies as alter egos in a given circumstance depends on the particular facts and circumstances, the court held that triable issues of fact existed as to whether the corporate principals and Bedrock could be found liable.
The analysis of whether corporate principals or corporate entities can be held liable for the debts of another corporate entity under the theories of alter ego or “piercing the corporate veil” requires a fact intensive review. Here, the court believed that a trial was necessary to determine whether all defendants should be held liable for the debt due. The prudent contractor should take care to follow corporate formalities so as to minimize the risk of alter ego liability or personal liability resulting from corporate dealings.