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Piercing the Corporate Veil in Hawaii

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									Defendants may try to hide assets by placing them in a corporation. In
such cases, the attorney is forced to attempt to "pierce the corporate
veil". The rule at common law was that, "officers, directors or
shareholders of a corporation are not personally liable for the tortuous
conduct of the corporation or its other agents, unless there can be found
some active or passive participation in such wrongful conduct by such
persons." Cahill v. Hawaiian Paradise Park Corp., 56 Haw. 522, 526
(1975). However, in 1973, the Hawaii Supreme Court held that a "corporate
entity should be disregarded because of circumstances that reveal that
the shareholders treated and regarded the corporation as their alter
ego." Kahili, Inc. v. Yamamoto, 54 Haw. 267, 271 (1973). This exception
has since been called the "piercing the corporate veil" doctrine because
it permits officers, directors, or shareholder to be found personally
liable for their actions regardless of the general rule at common
law.There are two overarching elements required by most jurisdictions
(including Hawai'i) to pierce the corporate veil. Id. First, there must
be evidence that an individual in a corporation "treated and regarded the
corporation" as his/her "alter ego", and "using the corporation as an
agency or instrumentality or a conduit through which they were conducted
his/her personal business." Kahili, Inc. at 271. Second, the
circumstances must indicate that "recognition of the fictional
corporation" would sanction a fraud or promote "injustice and inequity".
Id.There are many factors to consider in determining whether "the
separate personalities of the corporation and the individual no longer
exist" thus satisfying the first element of piercing the corporate veil.
Associated Vendors, Inc. v. Oakland Meat Co., Inc., 26 Cal.Rptr. 806,
813-815 (Cal., 1962) cited by Murdock v. Ventures Trident II (Not
Reported in Cal.Rptr.2d) 2003 WL 21246596. Generally, courts in Hawai'i
have allowed for piercing of the corporate veil when there are enough
factors satisfied to show that there were no separate identities between
the corporation and an individual. For example, the Hawaii Supreme Court
allowed for the "piercing of the corporate veil" when; (1) two
shareholders owned all stock, (2) corporation was undercapitalized, and
(3) shareholders' behavior in lease negotiations suggested they were
acting for their behalf rather than for the corporation. Kahili, Inc. at
269-272.As mentioned, it is important to also provide evidence that will
convince the court that if it does not pierce the corporate veil,
inequity and injustice or fraud will prevail. For example, if there is
evidence that an individual was "manipulating the corporation" to
"foster" her individual interests to the disadvantage of other members of
her corporation, then it is only fair that she be found liable
(personally) for her actions rather than the corporation. Riddle at 112.
Furthermore, the Hawaii Supreme Court held that evidence that an
individual used the corporation to commit fraud or another illegal act
constitutes promoting inequity and injustice therefore justifies piercing
of the corporate veil. Chung v Animal Clinic Inc., 63 Haw. 642, 646-647
(1981). Finally, actual fraud does not need to be shown, just that by
"piercing of the corporate veil" the Court will prevent fraud or
injustice. Associated Vendors, Inc. at 813.

								
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