Walkovszky v. Carlton
276 N.Y.S.2d 585, 223 N.E.2d 6 (1966)
Carlton owned a fleet of 20
taxicabs. But instead of having a single corporation that owned all
twenty, Carlton owned 10 separate corporations that each owned two
One of the taxicabs ran over
Walkovszky. Walkovszky sued, but the single taxibcab corporation only carried
$10k in insurance, and had no assets other than the two taxicabs (which
had big loans on them).
Unable to get money for his
injuries from the corporation, Walkovszky asked the Court to pierce the
corporate veil and allow him to sue
Carlton directly, as well as the other 19 taxicab corporations.
Walkovszky argued that
Carlton's business scheme was fraudulent because he was improperly
sequestering assets to artificially limit his liability.
If Carlton had only one
corporation, then it would have 10x the assets, and there would be
enough money to pay for Walkovszky's injuries.
Carlton argued that each of
his 10 corporations was completely legitimate and in compliance with all
Carlton had the minimum
amount or insurance required by Statute. It's just that the minimum
insurance was pretty low.
The Trial Court found for
Walkovszky. Carlton appealed
The Appellate Court reversed
and dismissed the complaint for failure to state a claim.
The Appellate Court found
that the only time they will pierce the corporate veil is if there is fraud, or if there is evidence
that the corporation is 'undercapitalized', but Walkovszky did not show
evidence of that.
The idea of undercapitalization is that the corporation was purposely not
provided with enough assets to be able to legitimately do business in
order to limit the amount of assets the corporation had at risk if
someone made a claim against it.
The Court found that
Carlton's other 9 corporations were irrelevant. Since the specific
corporation that ran over Walkovszky was legitimate and not undercapitalized, then there was no basis for the Court to pierce
the corporate veil and go after
The Court noted that there
are a lot of people who own a single taxicab corporation with only one
or two taxicabs, and if the Court allowed Walkovszky to go after
Carlton's personal assets, it would set a precedent putting all those
small businesses at risk.
The Court found that
Walkovszky's complaint did not allege any fraud or deceitful intention on Carlton's part.
In a dissent it was argued
that principles of equity dictate that Walkovszky be given the chance to
recover for his injuries.
Walskovsky went back and
amended his complaint to say that Carlton was carrying on the business in
his individual capacity. That
means that Carlton was operating the corporation in a way that benefited
him personally, and not in a way that benefited the corporation. The
Court accepted this claim. Carlton then settled.