Outdoors reverse veil piercing differs from conventional veil piercing, which is permitted because of the “‘The alter ego doctrine prevents people or different companies from misusing the company legal guidelines by the system of a sham company entity. Conventional veil-piercing permits a celebration to pierce the company or restricted legal responsibility firm (LLC) veil in order that a person shareholder [or LLC member] could also be held personally responsible for claims in opposition to the company [or LLC However reverse veil piercing, rather than seeking to hold an individual responsible for the acts of an entity, seeks to satisfy the debt of an individual through the assets of an entity of which the individual is an insider. Outside reverse veil piercing arises when the request for piercing comes from a third party outside the targeted business entity. In a recent decision out of SLO County, where the wrongdoer was the owner of an LLC that owned land in Cambria. The trial court amended a judgment against the wrongdoer to reverse veil pierce and add the LLC.
The trial court’s adding the nonparty alter ego to the judgment was an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant.
The wrongdoer appealed, arguing that a charging order under Corporations Code section 17705.03 provides the sole remedy available, but the courts state otherwise. [T]he key’s whether or not the ends of justice require disregarding the separate nature of the LLC beneath the circumstances. In making that dedication, the trial courtroom ought to, at minimal, consider the identical components as are employed in a conventional veil piercing case, in addition to whether or not the plaintiff has any plain, speedy, and sufficient treatment at regulation. Outdoors reverse piercing is permissible within the context of a restricted legal responsibility firm as a result of, in contrast to an organization, a restricted legal responsibility firm doesn’t difficulty shares on which a creditor could levy and collectors wouldn’t have ample various cures at regulation.
In California the alter ego doctrine begins with two situations that should be met.
-First, there should be such a unity of curiosity and possession between the company [or LLC] and its equitable proprietor that the separate personalities of the company [or LLC] and the shareholder [or member] don’t in actuality exist.
-Second, there should be an inequitable consequence if the acts in query are handled as these of the company [or LLC] alone
As to the primary situation – unity of curiosity and possession – related components, on this case, contains 1] commingling of funds and different property, failure to segregate funds of the separate entities, and the unauthorized diversion of company funds or property to aside from company makes use of; 2] the remedy by a person of the property of the company as his personal; 3] the disregard of authorized formalities and the failure to keep up arm’s size relationships amongst associated entities. (A extra full checklist is about out under).
Right here, the wrongdoer owned the LLC and was its supervisor. The courtroom of appeals discovered that the trial courtroom correctly concluded that he used LLC financial institution accounts as in the event that they have been his personal private accounts as a result of:
–he wrote a $5,000 verify drawn on BKS Cambria’s checking account. The verify was payable to an lawyer retained to answer the IRS relating to their private returns.
–In the identical month, he wrote 4 checks transferring $80,000 from the LLC account to his private checking account to fund a mortgage to Valentin Alexandrov, a co-judgment debtor. He wired the funds to Alexandrov, who later wired them again. The debtor didn’t return the $80,000 to the LLC.
— he transferred funds from the LLC to a different entity, the “memo” portion of each checks merely states “switch.”
— he lives rent-free on LLC property and receives “round $1200 per thirty days as a mortgage from” the LLC. He didn’t specify the rate of interest or reimbursement schedule for the mortgage.
— He makes money withdrawals from the LLC whereas failing to doc when and why funds are distributed from the LLC, used LLC funds to pay the bills of different entities, and paid attorneys and litigation bills within the lawsuit in opposition to himself personally despite the fact that the LLC was not occasion to the motion.
ALTER EGO FACTORS
The alter ego take a look at encompasses a number of things: “ [c]ommingling of funds and different property, failure to segregate funds of the separate entities, and the unauthorized diversion of company funds or property to aside from company makes use of …;  the remedy by a person of the property of the company as his personal …;  the failure to acquire authority to difficulty *513 inventory or to subscribe to or difficulty the identical …;  the holding out by a person that he’s personally responsible for the **139 money owed of the company …; the failure to keep up minutes or sufficient company information, and the confusion of the information of the separate entities …;  the similar equitable possession within the two entities; the identification of the equitable house owners thereof with the domination and management of the 2 entities; identification of the administrators and officers of the 2 entities within the accountable supervision and administration; sole possession of the entire inventory in an organization by one particular person or the members of a household …;  the usage of the identical workplace or enterprise location; the employment of the identical staff and/or lawyer …;  the failure to adequately capitalize an organization; the whole absence of company property, and undercapitalization …;  the usage of an organization as a mere shell, instrumentality or conduit for a single enterprise or the enterprise of a person or one other company …;  the concealment and misrepresentation of the identification of the accountable possession, administration and monetary curiosity, or concealment of private enterprise actions …;  the disregard of authorized formalities and the failure to keep up arm’s size relationships amongst associated entities …;  the usage of the company entity to acquire labor, companies or merchandise for one more particular person or entity …;  the diversion of property from an organization by or to a stockholder or different particular person or entity, to the detriment of collectors, or the manipulation of property and liabilities between entities in order to pay attention the property in a single and the liabilities in one other …;  the contracting with one other with intent to keep away from efficiency by use of a company entity as a protect in opposition to private legal responsibility, or the usage of an organization as a subterfuge of unlawful transactions …;  and the formation and use of an organization to switch to it the prevailing legal responsibility of one other particular person or entity.” … [¶] This lengthy checklist of things just isn’t exhaustive. The enumerated components could also be thought of “[a]mong” others “beneath the actual circumstances of every case.” ’ … ‘No single issue is determinative, and as an alternative, a courtroom should look at all of the circumstances to find out whether or not to use the doctrine.
(Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 512–513)