Hot Topics in Insolvency Law: Alter Ego Claims

4/2/2012 Articles

Published in Business Law News by the State Bar of California, Issue 1 - 2012

Authors: Gary Kaplan of Farella Braun + Martel and Thomas Phinney of Parkinson Phinney

This article will address some interesting recent developments in the use of alter ego law and related theories by bankruptcy trustees and other parties. The alter ego doctrine arises when a litigant claims that an opposing party is using the corporate form unjustly and in derogation of the litigant’s interests, and that the court should not maintain the “fiction” of a separate legal entity. In certain circumstances, courts will disregard the corporate entity (also known as “piercing the corporate veil”) and will hold individual shareholders liable for the actions of the corporation.  An alter ego claim generally requires establishing both: (1) a unity of interest and ownership such that the separate personalities of a corporation and its shareholder(s) no longer exist, and (2) if the culpable acts are treated as those of the corporation alone, an inequitable result will follow.