## Facts

- John Walkovszky was seriously injured in New York City when struck by a taxicab owned by Seon Cab Corporation and allegedly negligently operated by the driver.
- The complaint alleged that William Carlton was a shareholder in ten closely held cab corporations, including Seon, and that each corporation owned only one or two cabs.
- Each cab corporation allegedly carried only the statutory minimum automobile liability insurance (about $10,000), limiting recovery for injured pedestrians.
- The complaint alleged the corporations were operated as a single business with shared financing, supplies, repairs, employees, and garaging.
- Walkovszky asserted the fragmented corporate structure was designed to defraud or defeat recovery by members of the public injured by the taxis and sought to hold Carlton personally liable beyond the assets and insurance of the individual cab corporation.

## Issues

1. Whether allegations that multiple cab corporations operated as a single enterprise and were intentionally thinly capitalized and minimally insured are sufficient to disregard the corporate form and impose personal liability on an individual shareholder.
2. Whether the complaint stated facts showing the shareholder used the corporations as a personal instrumentality, or used the corporate form to perpetrate fraud, such that veil piercing would be proper.
3. Whether, if the pleading is insufficient, the plaintiff should be granted leave to amend to allege additional facts supporting shareholder liability.

## Decision

- The Court of Appeals reversed the Appellate Division and reinstated dismissal of the complaint against Carlton for failure to state a cause of action.
- The court held that, as pleaded, the complaint did not allege facts sufficient to impose personal liability on Carlton.
- The court granted Walkovszky leave to replead to attempt to allege a legally sufficient veil-piercing theory.
- The dissent would have permitted personal liability based on deliberate undercapitalization in a business where accident liabilities are predictable.

## Legal Principles

- Limited liability is a lawful purpose of incorporation; courts will disregard the corporate form only when necessary to prevent fraud or to achieve equity.
- Veil piercing to reach a shareholder typically requires factual allegations that the shareholder dominated and used the corporation to conduct personal business, to siphon assets, or otherwise to abuse the corporate form in a way comparable to an agency relationship.
- Allegations that commonly owned corporations operate as a unified enterprise may support treating the corporations collectively as a single business for liability purposes, but do not, without more, justify reaching a shareholder’s personal assets.
- Undercapitalization and compliance with only statutory minimum insurance requirements, standing alone, do not establish fraud or shareholder abuse sufficient to impose personal liability.
- A plaintiff may be permitted to amend where additional facts could plausibly show misuse of the corporate form warranting veil piercing.

## Conclusion

The court held that a shareholder is not personally liable for tort injuries merely because a fleet is divided into many minimally insured, thinly capitalized corporations operating in concert; absent specific allegations of shareholder misuse of the corporate form for personal ends or fraud, dismissal is proper, though amendment may be allowed to plead such facts.


Walkovszky v. Carlton, 18 N.Y.2d 414, 223 N.E.2d 6 (N.Y. 1966)