First District Denies Alter Ego Liability Even Where Officer Pays Self and Wife, While Failing to Pay Wages and Commissions

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The Court of Appeal for the First District held that an officer’s failure to pay wages and commissions to an employee, while paying himself and his wife during the same period, is not the type of conduct that requires piercing the corporate veil.  Wymore v. Minto, No. A125476, 2010 WL 3687511 (Cal. Ct. App. 1st Dist. Sept. 22, 2010).

Nor do we see any merit to appellants’ various arguments that it would work an injustice to allow respondent to hide behind EWM because it was his decision, as a director and officer of EWM, not to pay appellants wages and commissions in 2007, while paying himself and his wife during the same calendar year. The fact that respondent, as the president of EWM, may have intentionally failed to pay appellants is not the type of conduct that requires piercing the corporate veil. (Sonora, supra, 83 Cal. App. 4th at p. 539; see Auer, supra, 227 Cal.App.2d at p. 411; Associated Vendors, supra, 210 Cal.App.2d at pp. 836-837) In Sonora, supra, 83 Cal.App.4th 523, the court held that “injustice was not proved by [the corporation’s] apparent inability to meet the balance of its endowment obligation to the District. The alter ego doctrine does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form. Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard.” (Id. at p. 539, italics added; see also Katzir’s Floor and Home Design, supra, 394 F.3d at p. 1149 [factual finding that individual defendant ” ‘formed “new” corporation … to continue conducting the same business … and to escape [plaintiff’s] judgment’ ” against former corporation was not sufficient to apply alter ego doctrine].)

Id. *7.

The court also upheld an award of defendant’s attorneys fees of $6,577.50 as the prevailing party pursuant to Labor Code section 218.5.

Because respondent would have been liable for attorney fees had appellants prevailed at trial on the alter ego doctrine (and appellants make no argument to the contrary), section 218.5 allows respondent, as the prevailing party, to recover his attorney fees from appellants, the losing parties. (See Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128-129 [defendant as prevailing party entitled to recover attorney fees under reciprocal contractual attorney fees provision in Civil Code section 1717 after plaintiff unsuccessfully sought to impose alter ego liability on defendant]; Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1111 [because plaintiff would have been entitled to recover contractual attorney fees if found to be a prevailing party under Civil Code section 1717, there is no question plaintiff is liable for attorney fees as a losing party].)

Id. *8.

Judges and Attorneys

Administrative Presiding Justice William R. McGuiness wrote the opinion for the court.  Associate Justices Peter J. Siggins and Martin J. Jenkins concurred.

Stephen Fredrick Henry, Berkeley, CA, Brian Gearinger, Gearinger Law Group, San Francisco, CA, for Plaintiff and Appellant.

Richard Michael Kelly, Kelly Litigation Group, Redwood City, CA, for Defendant and Respondent.

By CHARLES JUNG

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