Walkovszky v. Carlton
23 N.Y.2d 714, 296 N.Y.S.2d 362, 244 N.E.2d 55 (1968)

Facts:
Plaintiff was hit by a taxicab owned by the Seon Cab Corporation and sued. Carlton was a stockholder of 10 corporations, including Seon, each of which had two cabs registered to its name.

  • The plaintiff asserts that he is entitled to hold the stockholders personally liable for the damages sought because the multiple corporate structure constitutes an unlawful attempt to defraud members of the general public who might be injured by the cabs.

History:

  • The court at Special Term granted the defendant’s motion to dismiss.
  • The Appellate Division, by a divided vote, reversed.

Issue:
Can Carlton be held personally liable in this case?

Holding:
No.

Reasoning:
Incorporation of a business is permitted for the purpose of enabling its proprietors to escape personal liability. However, you can “pierce the corporate veil” when anyone uses control of the corporation to further his own rather than the corporation’s business.

  • If this occurs, he will be responsible for the corporation’s acts under the principle of respondeat superior.

Here, while the complaint alleges that the separate corporations were undercapitalized and that their assets have been intermingled, it failed to mention that the defendant Carlton and his associates are actually doing business in their individual capacities, shuttling their personal funds in and out of the corporations without regard to formality.

The majority felt that if the insurance coverage required by statute was inadequate for the protection of the public, the remedy lies not with the courts but with the Legislature.

Dissent:
“From their inception these corporations were intentionally undercapitalized for the purpose of avoiding responsibility for acts which were bound to arise as a result of the operation of a large taxi fleet.”

  • The minority felt that Legislature’s intent could not have been to shield these types of individuals.

Model Business Corporation Act § 6.22: LIABILITY OF SHAREHOLDERS.

(b) Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.