Business Associations, Pages 420–423

Minton v. Cavaney

Supreme Court of California, 1961

Facts:

Plaintiffs' daughter drowned in a pool operated by Seminole Hot Springs Corporation. Plaintiffs recovered a $10,000 judgment against Seminole, but this went unsatisfied. Plaintiffs then sued defendant Cavaney to hold him personally liable for the judgment. He died, and his widow, the executrix of his estate was substituted as defendant.

Cavaney was the attorney for Seminole and had been a director, secretary, and treasurer of Seminole to accommodate his client. He also kept its records in his office. Seminole had never issued any shares of stock, owned any assets, or functioned as a corporation.

Procedural History:

Trial court entered judgment for plaintiffs for $10,000.

Issue:

Was defendant personally liable for Seminole's debt?

Defendant's Argument:

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the "alter ego" doctrine is inapplicable because plaintiffs failed to show that there was "'

  1. ... such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and
  2. that, if the acts are treated as those of the corporation alone, an inequitable result will follow.'"

Reasoning:

The owners of Seminole no doubt did not try to provide adequate capitalization. Cavaney was the director of Seminole and was to receive one-third of the shares of stock to be issued. This shows that he was an equitable owner of the company. The fact that he kept its records in his office shows that he actively participated in the conduct of its business.

The trial court does not have to believe that he was director just to accommodate his client, but either way, a person cannot divorce the responsibilities of a director from the statutory duties and powers of the office, even if it is only a temporary position.

However, the judgment against Seminole cannot be binding against Cavaney without an opportunity to relitigate the issues as he was not a party to the action against it.

Holding:

Yes, defendant was personally liable for Seminole's debt, but his estate must have a chance to relitigate that Seminole was liable for the expense. Reversed.

Concurring & Dissenting Opinion:

The majority is correct that this should be reversed as defendant did not have an opportunity to relitigate. However, the mere professional activity by an attorney in the organization of a corporation cannot constitute any basis for a finding that the corporation is the attorney's alter ego or that he is personally liable for its debts. The acts performed in organizing a corporation does not constitute the carrying on of business by a corporation.

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