Hikita v. Nichiro Gyogyo Kaisha, Ltd
In Hikita v. Nichiro Gyogyo Kaisha, Ltd. (Alaska 2000) 12 P.3d 1169, the Alaska Supreme Court held that a prior judgment against a corporation did not have collateral estoppel effect on a shareholder where, at the time of the prior action, the corporation was insolvent and had more than $ 3.5 million in outstanding judgments against it.
Applying the Restatement principles governing closely held corporations, the court stated that collateral estoppel would apply if (1) a stockholder actively participated in the corporation's litigation, and (2) the stockholder had an adequate incentive to pursue the litigation. (Id. at p. 1177; see id. at pp. 1174, 1176-1177 discussing Rest.2d Judgments, 59(3)(a).)
The court also cited NEC Electronics Inc. v. Hurt (1989) 208 Cal. App. 3d 772 with approval for the proposition that "the interests of a sole shareholder of a corporation did not align with the corporation because the corporation was on the verge of bankruptcy and therefore had no incentive to litigate." (Id. at p. 1178, fn. 30.)
In Hikita, supra, 12 P.3d 1169, the Alaska Supreme Court rejected this argument, stating: "The defendant nevertheless offers the theory that the plaintiff should have been motivated by the incentive of avoiding collateral estoppel ... . But the defendant's reasoning is circular and would nullify the second requirement of Restatement 59(3)(a). ... Collateral estoppel will apply under the Restatement ... if:
(1) a stockholder was an active participant in a closely held corporation's litigation; and (2) if the stockholder had adequate incentive to pursue the corporation's claims. If the risk of collateral estoppel were itself a sufficient incentive to bind a close corporation's shareholders to actions they participated in on their corporation's behalf, then their active participation would always trigger issue preclusion. Thus, the defendant's approach is inherently inconsistent with 59(3)(a)'s requirement that a stockholder be an active participant and have adequate incentive." (Hikita, supra, 12 P.3d at p. 1177.)