Alter-Ego / Piercing the Corporate Veil – Are You Treated Like My Employer?“Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.)Though rarely used in California, plaintiffs often attempt to ‘pierce the corporate veil’ and use the ‘alter ego doctrine’ to assert that another entity or person should be held liable in addition to the plaintiff’s agreed-upon employer. The general rule that a corporation is a stand-alone entity may be disregarded – and the ‘corporate veil’ pierced – in the event there is an abuse of the corporate privilege.
In the meantime, real estate investors, and their attorneys, should consider early on what role alter ego and attorney’s fees contract provisions may have in any pending or potential future litigation.MSY Trading Inc. v. Saleen Automotive, Inc. (June 26, 2020) 2020 WL 3481424, *1. California Civil Code § 1717.Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539.[View source.]
Judge Nelson rejected this argument on the basis that the plaintiff had the burden of proof on the issue. Citing Sonora Diamond Co. v. Superior Court, 83 Cal. App. 4th 523 (2000), she wrote:The law is well-established that a holding company ordinarily cannot be held liable for the acts of its wholly owned subsidiary absent a showing of agency or alter ego liability.Although possible, it is not at all likely that Judge Nelson’s ruling will be the last word in this litigation. Whether final or not, her ruling is a reminder to both plaintiffs and defendants that the separate legal statuses of a parent and subsidiary corporations should not be overlooked.
Judge Nelson rejected this argument on the basis that the plaintiff had the burden of proof on the issue. Citing Sonora Diamond Co. v. Superior Court, 83 Cal. App. 4th 523 (2000), she wrote: The law is well-established that a holding company ordinarily cannot be held liable for the acts of its wholly owned subsidiary absent a showing of agency or alter ego liability. Although possible, it is not at all likely that Judge Nelson’s ruling will be the last word in this litigation.
It is important to note that this case did not involve any other theory of jurisdiction, such as an “alter ego”-type of theory holding a foreign parent subject to jurisdiction in California, where its corporate formality-ignoring subsidiary operates.The representative services doctrine, set forth in Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, held that general personal jurisdiction could be asserted over a foreign defendant if its in-state subsidiary performed “a function that is compatible with, and assists the parent in pursuit of, the parent’s own business.” In other words: “[I]f a parent uses a subsidiary to do what it otherwise would have done itself, it has purposely availed itself of the privilege of doing business in the forum.
The court began its analysis of general jurisdiction by reiterating the “firm proposition that neither ownership nor control of a subsidiary corporation, without more, subjects the parent to the jurisdiction of the state where the subsidiary does business.” Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 540 (2000) (italics added). But, what constitutes “more”?