Responding to a California alter ego complaint is the subject of this article. The pleadings are also known in the legal field as corporate veil piercing pleadings because they are used to “pierce the corporate veil” and cause a court to disregard the corporate entity, which will allow a plaintiff to add an individual person or persons, or even another corporation as a defendant and try to hold them responsible for the debts or other liabilities of the parent corporation.
Alter ego accusations are usually used against smaller corporations, particularly corporations with only one or two owners. In the author’s experience, many creditors will file an alter ego claim with little or no evidence to support the claim’s claims in the hope that this will somehow give them leverage.
A party cannot entirely avoid the possibility that someone may seek to hold it personally liable for the debts of a corporation it owns or controls, particularly in California. But they must file an answer to any claim that purports to impose alter ego liability on them, and be sure to claim damages from the corporation in the answer, and possibly also in a cross-claim, pursuant to Code Section 317 subdivisions a to c. of California Corporations, as many, if not most, California corporate statutes allow corporate directors and officers to claim compensation from the corporation to the fullest extent permitted by law.
Anyone responding to an alter ego claim should include whatever specific information they have in their affirmative defenses as to why the Court should not deviate from the usual legal doctrine of separation of corporate and individual identity and legal existence, as if they didn’t do it personally. guarantee any debt with the Claimant, etc. They must also ensure that they send specially prepared interrogatories to the plaintiff asking them to establish all the facts that support their 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 as well.
Many times, the Complainant will respond with a boilerplate response, such as that the allegations are made with the advice of counsel, information, and beliefs, etc. Submitting additional discovery requests a month or two later to ask if new information has been received that requires additional responses to interrogatories or document requests is a smart move in such situations. This is so because a party who responds that their previous answers are still true and correct is essentially admitting that they have no evidence, no facts, no person with personal knowledge, and no documents to support their claims. In that case, one of the parties might want to consider filing a motion for summary adjudication on the issue of alter ego liability, or perhaps even summary judgment. In the author’s opinion, anyone who responds to a supplemental discovery request that they have NO new information, documents, or anything else, is only asking for a motion for adjudication/summary judgment. They should have thought of that before making those accusations without supporting evidence.
The author sincerely hopes that you have enjoyed this article and found it informative.
To be honest,
Stan Burman
