Destruction of Documents by Equitable Owner and the Corporate Veil

The “corporate veil” is the legal term used to describe the separation between the assets of a legal entity and the personal assets of shareholders, directors, and officers. This “corporate veil” provides liability protection for business owners. It protects their personal property from being used to satisfy judgments or business liabilities.

But the “corporate veil” does not offer absolute immunity from judgement.  There are ways to “pierce” it.

Courts might “pierce the corporate veil” and impose personal liability on officers, directors, shareholders, or members.  The Courts have explained:

In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.

Troyk v. Farmers Group, Inc. (2009) 171 Cal App 4th 1305, 1341.

A recent California case has expanded the scope of these factors to include an equitable owner’s intentional destruction of evidence maintained by the corporate entity.

In Hacker v. Fabe (2023) 1267 Cal App. 5th 1267, the plaintiff received a judgment against her former employer, a corporation, for unpaid wages.  Years later, while the plaintiff was attempting to collect on her judgment, it was learned that the manager of her previous employer had engaged in the destruction of evidence regarding assets owned by the corporation in an attempt to avoid paying her judgment.  It was argued that, as a result, the manager himself should be personally liable for the plaintiff’s judgment, piercing the corporate veil.

Ultimately, the Court of Appeal for the Second District agreed, holding:

The trial court did not abuse its discretion when it granted a motion to amend a judgment against a company to add the company’s owner as an alter ego judgment debtor because there was evidence the owner’s conduct in transferring assets while exercising complete control over the company amounted to bad faith

Heiting & Irwin has decades of experience handling cases involving corporate defendants.  If you or a loved one was injured by the actions of another (including a corporation), do not hesitate to contact the experienced attorneys at Heiting & Irwin.  Call us today at (951) 682-6400 for a free consultation or visit us online at www.hilegalgroup.com