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Responding to a complaint with allegations of alter ego in California is the subject of this article. The charges are also known in the legal field as corporate veil piercing charges because they are used to “pierce the corporate veil” and cause a court to ignore the corporate entity, allowing the plaintiff to add an individual person, or persons, or even another corporation as a defendant and seek to hold them liable for the debts or other liabilities of the parent corporation.
Alter ego accusations are generally used against smaller corporations, particularly corporations with only one or two owners. In the author’s experience, many creditors will file a complaint with alter ego allegations with little, if any, evidence to back up the allegations in the complaint in the hope that this will somehow give them leverage.
A party cannot entirely avoid the possibility of someone attempting to hold you personally liable for the debts of a corporation that you own or control, particularly in California. But they must file a response to any complaint that seeks to impose alter ego liability on them, and be sure to claim compensation from the corporation in response, and possibly also in a counterclaim, pursuant to subdivisions a to c of Section 317 of the Code of Commerce. California corporations, as many, if not most, California corporate statutes allow corporate directors and officers to claim compensation from the corporation to the extent permitted by law.
Anyone responding to an alter ego complaint should include any specific information they have in their affirmative defenses as to why the Court should not deviate from the usual legal doctrine of the separation of corporate and individual identity and legal existence, as it does not he did it personally. Guarantee any debt with the Plaintiff, etc. They should also make sure to send specially prepared interrogations to the plaintiff asking him to state all the facts that support his alter ego allegations, identify all persons with personal knowledge of those facts and all documents, etc. Also ask to inspect all documents that support your alter ego allegations.
Many times the Plaintiff will respond with a repetitive response, such as that the allegations are made with the advice of an attorney, information and beliefs, etc. Submitting supplemental discovery requests a month or two later to ask if new information has been received that requires supplemental responses to questioning or document requests is a wise move in such situations. This is because a party who responds that their previous answers are still true and correct basically admits that they have no evidence, facts, persons with personal knowledge, or documents to support their allegations. In that case, one of the parties might want to consider filing a motion for summary adjudication on the subject of alter ego liability, or perhaps even a summary judgment. In the author’s opinion, anyone responding to a request for supplemental proof that they have NO new information, documents, or anything else, is only asking for a motion for summary adjudication / sentencing. They should have thought about that before making those accusations without supporting evidence.
The author sincerely hopes that you have enjoyed this article and found it informative.
Sincerely,
Stan burman
