## Facts

- Seminole Hot Springs Corporation (Seminole) operated a public swimming pool at a leased facility.
- Seminole had no assets other than the lease and ultimately lost the lease for nonpayment of rent.
- William M. Cavaney was a director of Seminole and served as its secretary and treasurer; he also acted as the corporation’s attorney.
- Seminole never issued any shares of stock, though it once proposed issuing three shares, including one share to Cavaney.
- For a period, Seminole’s corporate records were kept at Cavaney’s office, which also served at least occasionally as Seminole’s mailing address.
- Plaintiffs’ daughter drowned in the pool operated by Seminole.
- Plaintiffs obtained a $10,000 wrongful death judgment against Seminole, but the judgment was not satisfied.
- Plaintiffs then sued Cavaney seeking to hold him personally liable for the unpaid judgment on an alter-ego theory.
- The trial court ruled for plaintiffs, and Cavaney appealed.

## Issues

1. Whether a director/officer who participated in operating an undercapitalized corporation may be held personally liable, under the alter-ego doctrine, for an unsatisfied tort judgment against the corporation.
2. Whether the absence of issued stock prevents a finding of “unity of interest and ownership” when the individual functioned as an equitable owner and exercised corporate control.

## Decision

- The California Supreme Court affirmed the judgment holding Cavaney personally liable for the unpaid judgment against Seminole.
- The court held that operating a hazardous business through a corporation with little or no capital is evidence supporting disregard of the corporate form.
- The court treated the lack of formally issued shares as not dispositive; a person may be considered an equitable owner for alter-ego purposes based on conduct and the realities of control and participation.
- Given Seminole’s lack of assets, failure to provide capital, and the role Cavaney played as a director and officer, the trial court could properly find that recognizing Seminole as a separate entity would result in an unjust outcome.

## Legal Principles

- A court may disregard the corporate entity when (1) there is such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) treating the acts as those of the corporation alone would result in an unjust outcome.
- Inadequate capitalization is a significant factor supporting alter-ego liability, especially where the corporation is used to conduct an activity that poses foreseeable risks of serious injury.
- Formal stock ownership is not required; equitable ownership and actual control may satisfy the “ownership” component when corporate separateness is only nominal.
- When individuals use a corporation as a shell without sufficient capital to meet expected liabilities, a court may impose personal liability to prevent the corporate form from being used to avoid responsibility.

## Conclusion

The California Supreme Court upheld imposing personal liability on Cavaney because the evidence supported a finding that Seminole was operated as an undercapitalized shell in a risk-laden business and that Cavaney’s role as director and officer, together with the corporation’s lack of meaningful separateness, justified treating him as an equitable owner and disregarding the corporate entity to prevent an unjust result.


Minton v. Cavaney, 364 P.2d 473, 56 Cal.2d 576 (1961)