CA business law, piercing the corporate veil of a CA S corporation

Piercing the corporate veil is done by someone has a judgment against the company and desires to attach the assets of the owner. If you have a judgment against the owner, piercing the veil is not applicable. If your judgment is against the owner and the owner has filed for bankruptcy protection, all you can do is file your claim in the bankruptcy case. If you have any facts indicating fraud rather than breach of contract, you can sue for fraud in the BK case. Apparently, you have received opinions from two attorneys saying that this would be difficult and expensive.

If you have a judgment against the company and want to pierce the veil and go after the assets of the person, I can discuss that. But first, don't overlook the possibility that you can go after the assets of the company even though they are in the hands of a buyer.

Now to the question about the cost of piercing the corporate veil. Your question is impossible to answer. Piercing the corporate veil can be very expensive in some cases and very inexpensive in other cases. In order to pierce the veil you would need to prove that the corporation was not properly maintained in a separate entity, but instead was treated as nothing more than the alter-ego or agent of the owner. That is done by proving some combination of the following:

The owner comingled bank accounts or other asses belonging to the owner and the corporation.

The owner misused corporate assets, such as using the company's employees for the owner's personal work.

The company did not have a shareholders meeting every year to elect one or more members of the board of directors, with minutes.

The board of directors did not elect officers of the company every year, with minutes.

The company had very few, or no, meetings of the board of directors, with minutes.

Major decisions that should be board of directors decisions were made by the owner, not by the board of directors.

The company borrowed money from the owner or the owner borrowed money from the company without bothering with promissory notes, interest, collateral or board of directors approval, with minutes.

The owner business cards, letterhead, invoices, all refer to "Joe Doaks, CPA" rather than "Joe Doaks Accountancy Corporation."

Customers were allowed to pay the CPA fees by checks made out to Joe Doaks rather than to the company.

The company didn't issue a stock certificate to the owner.

The company has not kept up to date with the annual information filings with the state secretary of state.

Etc.

Sometimes, proving a few of those things is dead easy because the company never issued a stock certificate, never had a board meeting and the owner used the company as his personal checkbook. Sometimes proving any of those things is not even possible because the owner did a perfect job of maintaining the separte entity status. Finding that out won't cost much because the company will have perfect records and will be glad to show them off. Sometimes, in the worst of times, tons of money can be spent on legal fees attempting to prove things that the attorney and the client know to be true but can't easilly prove because the defendant has falsified the records cleverly.

You did not say that he owner did even one thing wrong in maintaining the corporation. So you can see that there is no way for anyone to estimate how much it will take to prove the facts needed to pierce the corporate veil.

There are only three things I can think of for you to do. First, file your claim in the bankruptcy proceeding.

Second, take your case to a lawyer experienced in bankruptcy litigation.

Third, take your case to a collections litigation attorney and obtain an opinion on whether you can go after the assets of the owner.

This answer must not be relied on as legal advice for the reasons posted here: http://mcgyverdisclaimer.blogspot.com . And I am not your attorney.

David

Rob - the previous answer is correct. What you need to do now is file an adversary proceeding against the defendant in bankruptcy court. You may have a good case for fraud. I don't necessarily agree that it would be too expensive for you to pursue further.

Feel free to contact me (see website below) if you would like to discuss your case further.

Best,

Brian Pedigo
www.PedigoLaw.com

You could also make a motion before the court that issued the original judgment to add the CPA individually as a third-party judgment debtor, which sometimes can shortcut the process of piercing the corporate veil much less expensively. There are a series of facts you would have to prove, but the process can be much faster than filing a new case.