Corporate entities, such as LLCs or corporations, provide businesses with artificial legal structures in which they can conduct affairs related to their businesses separate from their other affairs, personal or economic. What the law, particularly in California, will not condone is the use of corporate structures to hide or shield assets from legitimate creditors. A recent case from California reiterates this policy in finding against an attorney who shut down the professional corporation he had formed after a judgment was entered against the corporation.
Steven J. Weinberg had started Steven J. Weinberg, PC (the “PC”) a Professional Corporation in 1981 as the business in which he operated his legal practice. In July 2009 Wells Fargo Bank sued his PC for repayment of a business line of credit in the amount of $57,075.51, plus interest and attorney’s fees. The bank also sued Weinberg as a guarantor for the company. After it succeeded in securing a judgment against the PC alone, Wells Fargo relied on Code Civ. Proc., § 187 which permits judgment creditors – such as Wells Fargo – to add Weinberg as a judgment debtorcontending he was an alter ego of the law corporation. Weinberg opposed the motion on the grounds that the matter was already litigated before the bank secured the judgment against the PC and that he was not liable for the corporation’s debts on any theory—including alter ego.
Noting that the “interests of justice” warranted that the Court give “greatest liberality” to the approval of amendments permitting additional judgment debtors, the appellate court in Wells Fargo Bank, N.A. v. Weinberg, No. E057011 (4th Dist. Calif. Ct. 2nd Div. 2014) affirmed the decision of the lower court to deem Weinberg as a judgment debtor. In order to prevail, the Court declared that Wells Fargo “must show (1) that there is such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow” citing Jack Farenbaugh & Son v. Belmont Construction, Inc. 194 Cal.App.3d 1023, 1032(1987). It determined that the Bank met this burden by showing sufficient evidence that Weinberg failed to observe corporate formalities and to keep his personal and business expenses and funds separate. The fact that he owned his professional corporation, stopped its operation, but continued to practice law as a sole proprietor with the same name, in the same location and using the same equipment demonstrated that Weinberg was merely an alter ego of the professional corporation and hence, the liability of that corporation can be, in this instance, imposed upon him individually as well.
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