What Is Alter Ego Doctrine In California Corporate Law ?

Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. (Wenban Estate, Inc. v. Hewlett (1924) 193 Cal. 675, 696 [227 P. 723]; Communist Party v. 522 Valencia, Inc. (1995) 35 Cal. App. 4th 980, 993 [41 Cal. Rptr. 2d 618]; Robbins v. Blecher (1997) 52 Cal. App. 4th 886, 892 [60 Cal. Rptr. 2d 815].) A corporate identity may be disregarded--the "corporate veil" pierced--where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation. (Roman Catholic Archbishop v. Superior Court (1971) 15 Cal. App. 3d 405, 411 [93 Cal. Rptr. 338].) Under the alter ego doctrine, then, when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation's acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners. (Robbins v. Blecher, supra, 52 Cal. App. 4th at p. 892; Communist Party v. 522 Valencia, Inc., supra, 35 Cal. App. 4th at pp. 993-994.) The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal. App. 2d 825, 842 [26 Cal. Rptr. 806].) In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. (Automotriz etc. De California v. Resnick (1957) 47 Cal. 2d 792, 796 [306 P.2d 1, 63 A.L.R.2d 1042]; Hennessey's Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal. App. 3d 1351, 1358 [251 Cal. Rptr. 859]; Alberto v. Diversified Group, Inc., supra, 55 F.3d at p. 205; Calvert, supra, 875 F. Supp. at p. 678.) "Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other." (Roman Catholic Archbishop v. Superior Court, supra, 15 Cal. App. 3d at pp. 406, 411; Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal. App. 2d at pp. 838-839.) Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. (See Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal. App. 4th 1269, 1285 [31 Cal. Rptr. 2d 433]; Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal. App. 2d at pp. 838-839; Alberto v. Diversified Group, Inc., supra, 55 F.3d at p. 205.) No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. (Talbot v. Fresno-Pacific Corp. (1960) 181 Cal. App. 2d 425, 432 [5 Cal. Rptr. 361].) Alter ego is an extreme remedy, sparingly used. (Calvert, supra, 875 F. Supp. at p. 678.) In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. Alter ego liability is not limited to the parent-subsidiary corporate relationship; rather, "under the single-enterprise rule, liability can [also] be found between sister [or affiliated] companies." (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1249 [1 Cal. Rptr. 2d 301].) Factors for the trial court to consider include the commingling of funds and assets of the two entities, identical equitable ownership in the two entities, use of the same offices and employees, disregard of corporate formalities, identical directors and officers, and use of one as a mere shell or conduit for the affairs of the other. (Sonora Diamond, at pp. 538-539.) "No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. (Id. at p. 539.)