Minnesota Mining & Manufacturing Co. v. Superior Court

Opinion

MERRILL, J. Petitioner, a defendant in a civil action, challenges the Alameda County Superior Court’s ruling confirming a settlement between plaintiff and a codefendant. (Code Civ. Proc., § 877.6.) In deciding whether to confirm the settlement, the court performed a mathematical calculation to determine the “ballpark” for the settling defendant. But a significant error of law was made in establishing one of the factors for that calculation. We issue a writ of mandate to vacate the court’s order.

For purposes of our opinion we need not belabor the facts and procedures. We focus directly upon the court’s order granting the motion confirming a good faith settlement between plaintiff Maximum Technology (MaxiTech hereinafter) and defendant Robert A. D. Schwartz (Schwartz hereinafter). Although MaxiTech has sued Schwartz and other defendants, including petitioner, for over $2 million, MaxiTech settled with Schwartz for $20,000. In a written decision, the court approved the settlement and explained the steps in its analysis.1 We focus on only one step, because it reveals a fatal error in the court’s approach.

[1028]Recovery by MaxiTech against Schwartz depends upon MaxiTech being able to pierce the corporate veil of Litrex, a corporation owned by three shareholders. Schwartz is a 40 percent owner of Litrex. Richard L. Finch, a 20 percent owner, has also been sued by MaxiTech, but Sidney M. Pankin, owner of the remaining 40 percent, has not been named as a defendant. The superior court has concluded that if the corporate veil is pierced, Schwartz will be liable for only 40 percent of the judgment, based upon his 40 percent ownership interest in Litrex. The court made an error of law. Under settled rules of law, if the corporate veil is pierced, Schwartz may be held liable as an individual for the entire obligation of the corporation.

Where the alter ego doctrine applies, ownership of even one share is sufficient to hold a shareholder liable for the debts of a corporation. (Riddle v. Leuschner (1959) 51 Cal.2d 574, 580 [335 P.2d 107].) Regardless of the size of a shareholder’s holding, each of several shareholders may be held liable as a principal or partner of the corporation. (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 916 [73 Cal.Rptr. 657].) Where the alter ego theory is proved, corporation owners are “essentially partners operating through a corporate form, and they are liable for its debts.” (Hiehle v. Torrance Millworks, Inc. (1954) 126 Cal.App.2d 624, 630 [272 P.2d 780].) “[T]he partners of a partnership are jointly and severally liable for the conduct and torts injuring a third party committed by one of the partners. [Citations.]” (Black v. Sullivan (1975) 48 Cal.App.3d 557, 569 [122 Cal.Rptr. 119].)