Business Associations, Pages 414–418

Walkovszky v. Carlton

Court of Appeals of New York, 1966

Facts:

Plaintiff was hit by a taxi negligently operated by defendant Marchese and owned by defendant Seon Cab Corporation, of which defendant Carlton was a stockholder. Carlton also owned stock in nine other corporations like Seon, each owning and operating two taxis and impliedly carrying the minimum liability insurance. Although seemingly independent, the ten companies were allegedly operated as a single enterprise.

Procedural History:

  • The court at Special Term granted defendant's motion to dismiss.

  • Appellate Division reversed.

Issue:

Was the defendant individually liable if his companies acted as one enterprise?

Reasoning:

If a larger company owned the ten, that company would be liable under the principle of respondeat superior, but not the sister companies. If the defendant owned only one company, he would not be personally liable. If the minimum insurance was inadequate, that is an issue for the legislature. They are not required to carry above that minimum. To carry only the minimum insurance does not constitute fraud.

Nothing here would justify piercing the corporate veil. Although it is alleged, there is no evidence that defendant was intermingling corporate assets with his own. It does not matter the size of the cab company that hits someone. The victim's rights are the same either way.

Holding:

No, the defendant was not personally liable because he operated several similar small corporations. Reversed.

Dissenting Opinion:

Keating: The defendant Carlton should be liable for the negligence. His corporations were intentionally undercapitalized for the purpose of avoiding responsibility for acts arising out of the operation of their taxis, and he drained their income out of them for this purpose. This is an abuse of the privilege of limited liability. This is inequitable and violates public policy to provide recovery for those injured thorough the negligence of others.

When the legislature set the required minimum liability insurance at $10,000, it did not intend to provide shield those who organized corporations with the specific intent of avoiding responsibility to the public. It would have believed that those with substantial assets would take out much more insurance to protect their assets.

Holding that a shareholder may be held personally responsible for his corporation's liabilities when it was organized with insufficient capital to meet liabilities certain to arise would only affect people that abuse the corporate privilege at the expense of the public interest, such as is the case here. The Appellate Division should be affirmed.

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