FACTS: Walkovszky was severely injured 4 yrs. ago in NYC when he was run down by a cab owned by Carlton’s Seon Cab Corporation and negligently operated at the time by the Defendant’s Marchese. In his complaint Walkovszky alleged that Seon was one of 10 cab companies of which Carlton was a Share Holder (SH), and that each corp. had but 2 cabs registered in its name. The complaint, by this, implied that each cab corp. carried only the minimum auto liability insurance required by law ($10,000). It was further alleged that these corps. were operated as a single entity w/regards to financing, supplies, repairs, employees, and garaging. Each corp. and its SH’s were named as Defendants b/c the multiple corp. structure, Walkovszky claimed, constituted an unlawful attempt to “defraud members of the general public.”
ISSUE: Did Walkovszky’s complaint state a sufficient cause of action so as to recover against each cab corp., Carlton as SH, and each corp.’s SH’s?
HOLDING: No, while the law permits the incorporation of a business for the purpose of minimizing personal liability, this privilege can be abused. Courts will disregard the corporate form (“pierce the corp. veil”) to prevent fraud or to achieve equity. General rules of agency – respondeat superior – will apply to hold an individual liable for a corp.’s negligent acts. The court here had earlier invoked the doctrine in a case where the owner of several cab companies (and whose name was prominently displayed on the cabs) actually serviced, inspected, repaired, and dispatched them. However, in such instances, it must be shown that the SH was conducting business in his individual capacity. In this respect, Carlton’s complaint is deficient. The corporate form may not be disregarded simply b/c the assets of the corp., together w/liability insurance, are insufficient to assure recovery. If the insurance coverage is inadequate, the remedy lays w/the legislature and not the courts. It is not fraudulent for the owner of a single cab corp. to take out no more than minimum insurance. Fraud goes to whether Carlton and his associates were shuffling their funds out of the corporations w/out regard to formality and to suit their own convenience.