Answering a Complaint With Alter Ego Allegations in California

Jack Prot

Answering a complaint with alter ego allegations in California is the topic of this article. The allegations are also known in the legal field as corporate veil piercing allegations because they are used to “pierce the corporate veil” and have a court disregard the corporate entity, which will allow a plaintiff to add an individual person, or persons, or even another corporation as a defendant and seek to hold them responsible for the debts or other liabilities of the main corporation.

Alter ego allegations are generally used against smaller corporations, particularly corporations with only one or two owners. In the experience of the author, many creditors will file a complaint with alter ego allegations with little, if any, evidence to support the allegations of the complaint in the hopes that this will somehow give them leverage.

A party cannot totally avoid the possibility that someone may seek to hold them personally liable for the debts for a corporation which they own or control, particularly in California. But they need to file an answer to any complaint seeking to impose alter ego liability on them, and be sure to claim indemnity from the corporation in the answer, and possibly in a cross-complaint as well, pursuant to subdivisions a through c of Section 317 of the California Corporations Code, as many if not most California corporate bylaws do allow the corporate directors and officers to claim indemnity from the corporation to the fullest extent of the law.

Anyone answering an alter ego complaint should include all of the 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 legal identity and existence, such as they did not personally guarantee any debts to the Plaintiff, etc. They should also be sure to send specially prepared interrogatories to the plaintiff asking them to state all facts that support their alter ego allegations, identify all persons with personal knowledge of those facts, and all documents, etc. Also request to inspect all documents that support their alter ego allegations as well.

Many times the Plaintiff will respond with a boilerplate response such as allegations are made on the advice of counsel, information and belief, etc. Sending supplemental discovery requests a month or two later requesting if any new information has been received which would require supplemental responses to interrogatories or document requests is a wise move in such situations. This is so because a party responding that their previous responses are still true and correct is basically admitting that they have no evidence, no fact, no persons with personal knowledge, and no documents to support their allegations. In that case a party might want to look into possibly filing a motion for summary adjudication on the issue of alter ego liability, or perhaps even summary judgment. In the opinion of the author, anyone who responds to a supplemental discovery request that they have NO new information, documents or anything else is just asking for a summary adjudication/judgment motion. They should have thought about that before making those allegations with no supporting evidence.

The author sincerely hopes you have enjoyed this article and found it informative.

Sincerely,

Stan Burman

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