Corporations

Brief

Hunting v. Elders

Procedural History:

• Trial court ruled against Gordon and Elmyer Enterprises ($1.5 million) in first phase.
• Second phase resulted in holding that Elders was the alter ego of Elmyer Enterprises and thereby holding him personally liable for $1.5 million.
• Appealed.
• Affirmed.

Facts:

• Gordon was intoxicated at a bar which was operated by Elmyer Enterprises.
• Gordon was served alcohol by the bar even though he was obviously intoxicated.
• Upon leaving the bar he caused an accident that left Hitchcock permanently brain damaged.
• A subsequent non-jury trial was held on whether to pierce the corporate veil of Elmyer Enterprises and hold Elders liable for the judgment as the alter ego.
• Facts relating to Elders:
  • 1990-opened two bars on his property.
  • Liquor licenses originally held in his own name.
  • 1993-Reinstates Elmyer Enterprises for the purpose of operating the bars.
  • Each bar capitalized with $1000.
  • Even the equipment used at the bars was leased to Elmyer Enterprises by other companies owned by Elders.
  • 1993- Elders transferred several shares of stock to his wife and neice.
    • Niece testifies she was unaware of this.
    • Waring-Woods, a forensic accountant, testified at trial that funds were siphoned by Elders.
      • $400-$800k.
      • John Freeman also testified that the company was run as façade (Frontage).

Issue:

• Whether the corporate veil can be pierced to hold Elders liable for the judgment rendered?

Holding:

• Yes.

Reasoning:

• The South Carolina Supreme Court has ruled that the corporate entity may be disregarded in certain situations.
• It is the party which is trying to pierce the corporate veil that has the burden of proof.
• Sturkie 2 Part Test in determining whether the corporate veil can be pierced:
  • Part 1: Eight Factor Test looking at the corporate formalities by the dominate share holder.
    • Corporation lacked normal business records.
    • False records indicating that his niece attended meetings.
    • Non-payment of dividends (However, this requirement holds less weight).
    • The corporation was grossly undercapitalized.
    • Minimally capitalized to begin with and never properly capitalized as the corporation made money.
    • Court found this prong to be satisfied.
• Part 2: There must be an alement of injustice or fundamental unfairness if the acts of the corporation be not regarded as the acts of the individuals.
  • 1. Defendant must be aware of the plaintiffs claims against the corporation.
  • AND
  • 2. Thereafter, the defendant acted in a self serving manner with regard to the property of the corporation and in disregard of the plaintiffs claim in the property.
  • Court found that Elders knew of the claim and continued to act in self-interest.
  • Court also found elders to be liable for the interest accrued on the judgment. e