Tuesday, November 15, 2011

Walkovszky v. Carlton case brief

Walkovszky v. Carlton
276 N.Y.S.2d 585, 223 N.E.2d 6 (1966)

-Carlton owned a fleet of 20 taxicabs. 
-Instead of having a single corporation that owned all 20, Carlton owned 10 separate corporations that each owned two taxicabs.
-One of the taxicabs ran over Walkovszky.
-Walkovszky sued, but the single taxibcab corporation only carried $10k in insurance. The only assets the corporation had was two taxicabs (both had large loans out on them).
-Walkovszky was unable to get money from the corporation and asked the Court to pierce the corporate veil and allow him to sue Carlton directly, as well as the other 19 taxicab corporations.
-Walkovszky argued:  Carlton's business scheme was fraudulent because he was improperly sequestering assets to artificially limit his liability.
-If Carlton had only one corporation, then it would have more assets, and there would be enough money to pay for Walkovszky's injuries.
-Carlton argued that each of his 10 corporations were legitimate and in compliance with all laws.
-Carlton had the minimum amount or insurance required by Statute.

-Trial Court found for Walkovszky. Carlton appealed
-The Appellate Court reversed, dismissed the complaint for failure to state a claim.

-The only time the court will pierce the corporate veil is if there is fraud, or if there is evidence that the corporation is 'under-capitalized'. (Walkovszky did not show evidence of under-capitalization).

-The idea of undercapitalization is that the corporation was purposely not provided with enough assets to be able to legitimately do business in order to limit the amount of assets the corporation had at risk if someone made a claim against it.
-The Court found that Carlton's other nine corporations were not relevant. Since the specific corporation that ran over Walkovszky was legitimate and not undercapitalized, then there was no basis for the Court to pierce the corporate veil and go after Carlton's assets.
-The Court noted that there are a lot of people who own a single taxicab corporation with only one or two taxicabs.  If the Court allowed Walkovszky to go after Carlton's personal assets, it would set a precedent putting similar small businesses at risk.
-The Court found that Walkovszky's complaint did not allege any fraud or deceitful intention on Carlton's part.

-Dissent argued that under principles of equity, Walkovszky should be given the chance to recover for his injuries.
-Walskovsky went back and amended his complaint to say that Carlton was carrying on the business in his individual capacity. That means that Carlton was operating the corporation in a way that benefited him personally, and not in a way that benefited the corporation. The Court accepted this claim. Carlton settled.

Course: Corporations.
Topics: Piercing the Corporate Veil.

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