18 N.Y.2d 414, 223 N.E.2d 6, 276 N.Y.S.2d 585 (1966)
Four years prior to commencement of suit, the plaintiff was severely injured in New York City when run down by a taxicab owned by Seon Cab Corporation and negligently operated by Márchese.1
Carlton is a stockholder of ten corporations including Seon, each having only two cabs registered in its name with the minimum automobile liability insurance of $10,000 carried on any one cab.2 Although seemingly independent, the corporations are alleged to be operated as a single entity, unit and enterprise with regard to financing, supplies, repairs, employees and garaging, and all are named as defendants.3
The plaintiff asserts he is entitled to hold the stockholders personally liable because the multiple corporate structure constitutes an unlawful attempt to defraud members of the general public who might be injured by the cabs.4 The complaint alleges that none of the corporations had a separate existence of their own, that the separate corporations were undercapitalized, and that their assets have been intermingled.5
Carlton moved pursuant to CPLR 3211(a)(7) to dismiss the complaint on the ground that as to him it fails to state a cause of action.6 Special Term granted the motion, but the Appellate Division by a divided vote reversed.7 Carlton appeals to the Court of Appeals from the nonfinal order by leave of the Appellate Division on a certified question.8
Whether the complaint states a cause of action against Carlton individually by alleging that the multiple corporations had no separate existence and were operated as a single entity?9
The law permits the incorporation of a business for the very purpose of enabling its proprietors to escape personal liability. However, the privilege is not without its limits.10 The courts will disregard the corporate form, or pierce the corporate veil, whenever necessary to prevent fraud or to achieve equity.11 In determining whether liability should be extended to reach assets beyond those belonging to the corporation, the courts are guided by general rules of agency.12 Whenever anyone uses control of the corporation to further his own rather than the corporation’s business, he will be liable for the corporation’s acts. This liability arises upon the principle of respondeat superior applicable even where the agent is a natural person.13
No. The established facts show Carlton as a stockholder of ten corporations including Seon, each owning two cabs with minimum insurance.14 The corporations are operated as a single entity regarding financing, supplies, repairs, employees and garaging.15 The complaint alleges that none had a separate existence of their own and that the separate corporations were undercapitalized with intermingled assets.16 Yet the complaint is barren of any sufficiently particularized statements.17
It fails to show that Carlton and his associates are actually doing business in their individual capacities.18 There are no allegations of shuttling their personal funds in and out of the corporations without regard to formality and to suit their immediate convenience.19
The complaint falls short of adequately stating a cause of action against the defendant Carlton in his individual capacity.20
Whether the division of taxicab ownership among ten corporations each carrying only minimum liability insurance, with allegations of undercapitalization and intermingled assets, sufficiently pleads personal liability of the stockholder?21
The corporate form may not be disregarded merely because the assets of the corporation, together with the mandatory insurance coverage of the vehicle which struck the plaintiff, are insufficient to assure him the recovery sought.22 If the insurance coverage required by statute is inadequate for the protection of the public, the remedy lies not with the courts but with the Legislature.23
No. The established facts allege that the corporations were intentionally undercapitalized and their assets intermingled, with ownership fragmented among ten corporations each carrying only the minimum ten thousand dollars liability insurance.24 Such facts alone do not state a cause of action for personal liability because the plaintiff has not alleged that Carlton was conducting business in his individual capacity.25
The complaint falls short of adequately stating a cause of action against the defendant Carlton in his individual capacity.
Related opinions on this issue
Judge Keating dissents and would affirm the Appellate Division order.26 From their inception these corporations were intentionally undercapitalized for the purpose of avoiding responsibility for acts which were bound to arise as a result of the operation of a large taxi fleet having cars out on the street 24 hours a day and engaged in public transportation.27 During the course of the corporations' existence all income was continually drained out of the corporations for the same purpose.28
He maintains that the policy of the state favoring limited liability through the corporate device should not permit the privilege to continue when it is abused through intentional undercapitalization.29 Where a corporation is organized and carries on business without substantial capital in such a way that it is likely to have no sufficient assets available to meet its debts, it is inequitable that shareholders should set up such a flimsy organization to escape personal liability.30