Opinion ID: 2639115
Heading Depth: 2
Heading Rank: 2

Heading: The Petition Adequately States a Claim to Disregard the Corporate Veil.

Text: ¶ 16 Generally, a corporation is regarded as a legal entity, separate and distinct from the individuals comprising it. Buckner v. Dillard, 1939 OK 144, ¶ 21, 89 P.2d 326, 328. However, the notion of a corporation's legal entity, apart from the persons composing it, is introduced for convenience and to serve the ends of justice. Mid-Continent Life Ins. Co. v. Goforth, 1943 OK 244, ¶ 10, 143 P.2d 154, 156. Accordingly, Oklahoma has long recognized the doctrine of disregarding the corporate entity in certain circumstances. Courts may disregard the corporate entity and hold stockholders personally liable for corporate obligations or corporate conduct under the legal doctrines of fraud, alter ego and when necessary to protect the rights of third persons and accomplish justice. See Goforth, 143 P.2d at 156 (courts may disregarded the legal fiction that bestows on a corporation an existence separate and distinct from its stockholders when necessary to protect the interests of the public, circumvent fraud and protect the rights of third persons or accomplish justice); Frazier v. Bryan Memorial Hosp. Authority, 1989 OK 73, ¶ 16, 775 P.2d 281, 288 (if one corporation is simply the instrumentality of another corporation, the separation between the two may be disregarded and treated as one). ¶ 17 Fanning filed an amended petition asserting a legal theory seeking to pierce the corporate veil and hold SSCC shareholders individually liable for the obligations and conduct of SSCC. Fanning alleged the shareholders used the corporate entity to defeat the public policy of protecting a resident from neglect and abuse, that they failed to secure and maintain liability insurance, and that they allowed SSCC to become suspended from doing business within the state. She also argued that the public policy of protecting elderly residents is a compelling or overriding reason to disregard the corporate entity and pierce the corporate veil. ¶ 18 Shareholders moved to dismiss simply stating the general rule that a shareholder is a separate entity that cannot be liable for the negligent acts of the corporation. [8] The trial court dismissed the case and COCA affirmed. In affirming, COCA held that Fanning failed to allege sufficient facts to state a claim that would justify the court disregarding the corporate entity and imputing liability for the acts of the corporation to the shareholders. ¶ 19 Oklahoma became a notice pleading state with the adoption of the Oklahoma Pleading Code in 1984. 12 O.S.2001, § 2008. The Pleading Code does not require a plaintiff to set out in detail the facts upon which the claim is based but merely requires a short and plain statement of the claim showing that the pleader is entitled to relief; and . . . [a] demand for judgment for the relief to which he deems himself entitled. 12 O.S.2001, § 2008(A)(1) & (2). This requirement is not onerous, but is merely to give an opposing party fair notice of the claim and the grounds upon which it rests. Gunn v. Consolidated Rural Water & Sewer Dist., No. 1, Jefferson County, Oklahoma, 1992 OK 131, ¶ 13, 839 P.2d 1345, 1351. ¶ 20 The United States Supreme Court reaffirmed the liberal system of notice pleading in Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit et al, 507 U.S. 163, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993). [9] In Leatherman, homeowners filed a complaint which alleged that searches of their home violated the Fourth Amendment and that municipal corporations failed to adequately train officers. The trial court dismissed the complaint finding the plaintiffs had failed to meet the heightened pleading standard required in a civil rights suit alleging municipal liability under 42 U.S.C. § 1983. The Fifth Circuit affirmed. In reversing, the United States Supreme Court stated: [t]he Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim. To the contrary, all the Rules require is `a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests. Leatherman, 507 U.S. at 168, 113 S.Ct. 1160, quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957). ¶ 21 Title 12 O.S.2001, § 2009(B) does impose a particularity requirement in some instances. In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. [10] Since this case does not involve fraud or mistake, Fanning was only required to set forth a short and plain statement of her claims so that the defendants would have fair notice of what Fanning's claims were and the grounds upon which they rest. As the Supreme Court pointed out in Leatherman, in the absence of an amendment to Rule 9, federal courts and litigants must rely on summary judgment and control of discovery to weed out unmeritorious claims. Leatherman, 507 U.S. at 168-69, 113 S.Ct. 1160. ¶ 22 In her petition, Fanning has asserted legal theories of negligence and breach of contract. Fanning seeks to pierce the corporate veil of SSCC and hold the individual shareholders liable for the obligations and conduct of the facility. Fanning has given the defendants fair notice of her claims and the grounds upon which they rest. Whether Fanning can prevail on her claim against the shareholders remains to be seen. However, Fanning must be afforded an opportunity to complete discovery so that the court will have a fully developed factual record to determine the issue. At this stage of the proceedings it does not appear beyond a doubt that Fanning can prove no set of facts in support of her theories of recovery. Accordingly, the trial court erred in dismissing Fanning's petition. ¶ 23 Even if the allegations in Fanning's petition were not sufficient to withstand a motion to dismiss, the trial court still erred in dismissing the case without providing Fanning with an opportunity to amend her complaint. Title 12 O.S.2001, § 2012(G) provides ( o )n granting a motion to dismiss a claim for relief, the court shall grant leave to amend if the defect can be remedied and shall specify the time within which an amended pleading shall be filed. This Court has interpreted the statute as a mandatory duty placed on trial courts, as long as the defect can be remedied. See Kelly v. Abbott, 1989 OK 124, ¶ 6, 781 P.2d 1188, 1190. In order for the courts to dismiss a claim for failure to state a cause of action without giving the plaintiff the opportunity to amend, it must appear that the claim does not exist rather than the claim has been defectively stated. See Lockhart v. Loosen, 1997 OK 103, ¶ 5, 943 P.2d 1074, 1078 (which draws a distinction between a petition that is dismissible for want of a cognizable legal theory of liability and one that is dismissible for insufficient facts under a recognized theory). ¶ 24 The journal entry of judgment in this case merely provides that the court [h]ereby sustains these Defendants' Motion to Dismiss, pursuant to 12 Okla.Stat. § 2012(B)(6). The judgment does not provide Fanning with leave to amend. Similarly, since Fanning pled a cognizable legal theory, i.e., piercing the corporate veil, the judgment does not contain a statement that no amendment of the petition could cure the defects in Fanning's petition. If the trial court was of the opinion that the claim was defectively pled, it should have provided Fanning with an opportunity to amend. Accordingly, the trial court erred in dismissing Fanning's petition.