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The two relevant cause of action are intentional interference with economic advantage; and interference with existing and prospective contractual relations.
1. The elements for a cause of action for intentional interference with economic advantage are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.[1] The wrinkle with this cause of action is that the intentional acts aimed to disrupt a relationship (#3) requires an ‘independent wrongful act’ such as fraud or another tortious means. It is not just beating someone out for a job or contract, but doing so by doing something unfair [libel, slander, etc.] to disrupt relationships with third parties. 2. The elements for interference with existing and prospective contractual relations are: (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.”[2] Wrongfulness independent of the inducement to breach the contract is not an element of the tort of intentional interference with existing contractual relations. Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage. It is not necessary that the defendant’s conduct be wrongful apart from the interference with the contract itself. It is necessary to distinguish the tort of interference with an existing contract because the exchange of promises which cements an economic relationship as a contract is worthy of protection from a stranger to the contract. Intentionally inducing or causing a breach of an existing contract is therefore a wrong in and of itself. Because this formal economic relationship does not exist and damages are speculative when remedies are sought for interference in what is only prospective economic advantage, some wrongfulness apart from the impact of the defendant’s conduct on that prospect should be required. Additional aspect of wrongfulness is not an element of the tort of intentional interference with an existing contract. Moreover, the tort of intentional interference with performance of a contract does not require that the actor’s primary purpose be disruption of the contract. As explained in comment j to section 766 of the Restatement Second of Torts: “The rule stated in this Section is applicable if the actor acts for the primary purpose of interfering with the performance of the contract, and also if he desires to interfere, even though he acts for some other purpose in addition. The rule is broader, however, in its application than to cases in which the defendant has acted with this purpose or desire. It applies also to intentional interference, in which the actor does not act for the purpose of interfering with the contract or desire it but knows that the interference is certain or substantially certain to occur as a result of his action. The rule applies, in other words, to an interference that is incidental to the actor’s independent purpose and desire but known to him to be a necessary consequence of his action. “One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.”[3] “The fact that this interference with the other’s contract was not desired and was purely incidental in character is, however, a factor to be considered in determining whether the interference is improper. If the actor is not acting criminally nor with fraud or violence or other means wrongful in themselves but is endeavoring to advance some interest of his own, the fact that he is aware that he will cause interference with the plaintiff’s contract may be regarded as such a minor and incidental consequence and so far removed from the defendant’s objective that as against the plaintiff the interference may be found to be not improper.”[4] [1] Korea Supply Company v. Lockheed Martin Corporation, (2003) 29 Cal.4th 1134, 1153. [2] Quelimane Company, Inc. v. Stewart Title Guaranty Company, 19 Cal. 4th 26 (1998); Pacific Gas & Electric Co. v. Bear Stearns & Co., 270 Cal. Rptr. 1 (1990). [3] Rest. 2d Torts, § 766. [4] Rest. 2d Torts, § 766, com. j at p. 12; Quelimane Company, supra.
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When are individual shareholders liable for the acts of a corporation? The Alter Ego Doctrine9/19/2013 The alter ego doctrine is used to establish the direct liability of a shareholder or owner when the shareholder or owner improperly uses the corporate entity to commit acts which harm the corporation itself, or third persons involved with the corporation.
Despite the common thinking that shareholders are immune from the debts and obligations of a corporation, sometimes, in extraordinary circumstances, those shareholders can be made to answer for the corporate debts. It is a long held rule of law in California that the courts must recognize the limited liability afforded by the corporate entity. However, in certain circumstances where equity dictates, the courts may, upon a substantial showing of facts, find an exception to the rule. That exception is called the alter-ego doctrine. The first case which deviated from the ordinary rule of separate corporate existence was decided in 1921 by the California Supreme Court in Minifie v. Rowley.[1] There, the Court set forth the elements required to be present in order for the shareholders to be made liable for corporate obligations. The Minifie holding formed the basis for the alter-ego doctrine which has been evolving into a substantial body of law ever since. BASICS OF THE EXCEPTION TO THE RULE Under the alter-ego doctrine, when the corporate form is used to perpetuate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts may disregard the corporate entity and hold its individual shareholders liable for the actions of the corporation. “The separate personality of the corporation is a statutory privilege, and it must be used for a legitimate business purpose and must not be perverted. When it is abused it will be disregarded and the corporation looked at as a collection or association of individuals.”[2] The alter-ego doctrine is intended to prevent 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. In California, there is no litmus test for applying the alter-ego doctrine remedy; however, the courts have consistently stated that there are two general requirements for application of the alter ego doctrine:
The test is easy to state, but courts have found it difficult to apply. While the test is consistently stated, most cases have avoided formulas and tests and relied instead on the discretion of the trial court. SHOWING UNITY OF INTEREST Those factors tending to show a “unity of interest” are as follows: 1. Commingling of funds and assets. 2. Failure to segregate funds. 3. Diversion of funds or assets. 4. Treatment by shareholder of corporate assets as own. 5. Failure to maintain minutes. 6. Identical equitable ownership in two entities. 7. Officers and Directors of one entity same as controlled corporation. 8. Use of the same office or business location. 9. Employment of same employees. 10. Total absence of corporate assets. 11. Under-capitalization. 12. Use of Corporation as mere shell. 13. Instrumentality or conduit for single venture of another corporation. 14. Concealment or misrepresentation of the responsible ownership, management and financial interests. 15. Concealment or misrepresentation of personal business activities. 16. Disregard of legal formalities. 17. Failure to maintain arms length relationships among related equities. 18. The use of the corporate identity to procure labor, services or merchandise for another entity. 19. The Diversion of assets from a corporation by or to a stockholder or other person or entity to the detriment of creditors. 20. The manipulation of corporate assets and liabilities in entities so as to concentrate the assets in one and the liabilities in another. 21. The contracting with another with the intent to avoid performance by use of the corporation entity as a shield against personal liability. 22. The use of the corporation as subterfuge for illegal transactions. 23. The formation and use of a corporation to transfer to it the existing liability. In considering the factors on this list, appellate courts have held no one factor is conclusive. It is within the trial court’s discretion to consider the presence or absence of any of these factors or other relevant circumstances. DEMONSTRABLE INEQUITABLE RESULT A Plaintiff may not prevail on the theory of alter-ego unless he/she/it proves to the Court that an inequitable result will occur if the Court recognizes the corporate form over the substance and nature of the injury. The doctrine does not depend upon the presence of actual fraud, but is designed to prevent what would be fraud or an injustice. Accordingly, bad faith, in one form or another, is an underlying consideration. Without a showing of wrongdoing, violation of statute or evidence of injustice, the alter-ego exception cannot be employed by the Court as a remedy. The essence of the alter-ego doctrine is that justice be done. Although courts have considered many factors in justifying its application, their basic motivation is to assure a just and equitable result. CONCLUSION 1. The Alter-ego doctrine is an exception to the rule. 2. The Alter-ego doctrine is an equitable remedy to prevent injustice. 3. The Court is never required to employ the Alter-ego doctrine. 4. The doctrine may only be employed on a case by case basis depending on the facts. 5. Alter-ego liability is a question of fact, not law. 6. Because the exception arises as an equitable remedy and not a cause of action, there is no right to a jury trial. [1] Minifie v. Rowley, (1921) 87 Cal. 481, 202 P. 673. [2] In re: International Cab Company, No. Dist Court, Bank 98-30535 WDM. Where a party uses the work of another without its express written permission, authorization or consent that party may be in violation the United States Copyright Act.
The owner of a copyright has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending. Anyone who violates any of the exclusive rights of the copyright owner by copying, modifying and/or reproducing a party’s work is considered an “infringer” of the copyright as well as an “infringer” of the rights of the author. In order to prevail on a claim for copyright infringement, a Plaintiff must initially show that the application has been filed and either factual evidence of copying or that the defendant had access to the copyrighted work and that the offending and copyrighted works are so similar, that the Court may infer that there was factual copying. A Plaintiff need only then prove that the works are “substantially similar.” Damages for Infringement. The owner of the exclusive rights granted under the Act may institute an action for damages for infringement. The owner may seek “Statutory Damages” for each and every infringement committed by the company. “Statutory Damages” allow for the recovery of damages per infringement in a sum of not less than $750 or more than $30,000. In an instance, however, where the copyright owner can sustain the burden of proving that the infringement was committed willfully, the court may increase the award of statutory damages to a sum of $150,000. This can add up. For example, concerning infringement of a software program, infringement occurs each time the software is installed on a defendant’s computer without the authorization of the copyright owner. In addition, an infringement occurs each time the software is “booted up.” In other words, for purposes of the statute, an infringement occurs every time the software is loaded from some storage medium, such as a diskette or a computer’s hard drive, into the computer’s random access memory (RAM). Thus, an infringement occurs each time the computer bearing the unauthorized software is activated. Finally, a Plaintiff may also recover costs and reasonable Attorney’s Fees. See Title 17 USC Section 505. |
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February 2016
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