Opinion ID: 1708771
Heading Depth: 1
Heading Rank: 2

Heading: Piercing

Text: Cotton's Fleet Service, Inc., is not entitled to acquire statutory employer status by disregarding the corporate structures of itself and its sibling corporation, Cotton's, Incorporated. We are urged by defendant to disregard the corporate identities of Cotton's Fleet Services, Inc., and Cotton's, Incorporated and to consider them as part of one corporate business owned and operated by their parent, Cotton Brothers, Inc. Defendant's objective is to merge itself with its parent, make the parent the actual employer of the plaintiff, and thereby immunize itself and the parent from plaintiff's tort claim. The general rule of law is that corporate entity is separate and distinct from the identity of its shareholders. La.Civ.Code art. 435. What is due to a corporation is not due to any of the individuals who compose it, or vice versa, and a creditor of a corporation cannot compel any of its members to pay what may be due him by the corporation. La.Civ.Code art. 437. The purpose of the insulation and limited liability of shareholders is to promote commerce and industrial growth by encouraging them to make capital contributions to corporations without subjecting all of their personal wealth to the risks of business. Glazer v. Commission on Ethics for Public Employees, 431 So.2d 752 (La.1983); Johnson v. Kinchen, 160 So.2d 296 (La.App. 1 Cir. 1964); 1 Hornstein, Corporation Law and Practice § 20 (1959); Barber, Piercing the Corporate Veil, 1981-82 Corp.Proc.Comm. 610, 611 (1982); Comment, Piercing the Corporate Veil in Louisiana, 22 Loy.Law Rev. 993, 994 (1976). The principle is well recognized, however, that the notion of legal entity may not be used to defeat public convenience, justify wrong, protect fraud, or defend crime. Glazer v. Commission on Ethics, 431 So.2d at 758; United States v. Milwaukee Refrigerator Transit Co., 142 F. 247, 255 (E.D.Wisc.1905). See also Haynes v. Champagne Tile Corp., 228 F.Supp. 157 (E.D.La.1964) and authorities cited therein. In each individual case, the just and reasonable limitation, if any, upon the exercise of the privilege of separate capacity is determined by balancing the policies fostered by corporate existence against the policies justifying its limitation under the particular circumstances. Glazer v. Commission on Ethics, 431 So.2d at 757; Mull v. Colt Co., 31 F.R.D. 154, 166 (S.D.N.Y.1962); Ballantine, Corporations, § 122, p. 292 (Rev.Ed. 1946); Comment, Piercing the Corporate Veil in Louisiana, supra, at 1002-17. The same factual scenario may result in recognition of a separate corporate identity for some purposes, and a disallowance of the separate corporate entity privilege for others. Glazer v. Commission on Ethics, 431 So.2d at 758. See Ballantine, supra, § 122; 1 Fletcher, Cyc.Corp. § 45 (Rev.Ed.1983). For example, the separate corporate entity privilege may not be invoked by a public official so as to use his wholly owned and controlled corporation to do that which the government code of ethics expressly commands he individually shall not do. Glazer v. Commission on Ethics, 431 So.2d at 758. But if the same corporation's separate identity is attacked by its creditors for the purpose of imposing individual liability upon its shareholders, the strong social interest in encouraging capital investment would require that the separate identity be respected absent conduct on the part of the shareholders constituting waiver of the privilege of insulation, such as their own disregard of the corporate form, or their use of the corporate form to perpetrate fraud. See Glazer v. Commission on Ethics, 431 So.2d at 757; Henn, Law of Corporations § 146, p. 253 (2d ed. 1970). In this case the policies to be fostered by the separate legal identities of the corporations involved clearly outweigh those to be advanced by piercing the corporate veils. Although the corporations are closely related, the summary judgment evidence does not show any of the traditional grounds for piercing, such as an abuse of the corporate forms in conducting business so that the ventures' separate entities have not been preserved, or a use of the corporate form to perpetuate fraud. See Glazer v. Commission on Ethics, supra and authorities cited therein. Furthermore, defendant's arguments suggesting other policies to be promoted by disregarding the corporate forms are also without merit. Defendant's arguments imply that efficiency, deterrence and cost spreading would be promoted by charging all accident costs to the whole of an economic enterprise rather than to one of its corporate fragments. However, the fundamental purpose of the corporate entity is to promote capital investment by protecting shareholders' personal wealth from the risks of business such as accident costs. Thus, the policy to be advanced by piercing suggested by defendant is one which the legislature clearly considered and determined to be outweighed by the strong social interest of encouraging capital investment when it originally decided to recognize separate corporate existence. In the absence of a constitutional attack, the courts are not free to redetermine a balancing of interests which the legislature manifestly considered and decided. It is difficult to entertain defendant's argument on this ground seriously because it attacks a basic policy decision of the legislature that is generally favorable to corporate investors and which defendant without a doubt would have defended strongly had this been a tort suit by a third person seeking to pierce the corporate entities. Defendant also suggests that the legislative policy extending tort immunity in La.R.S. 23:1032, not only to employers, but also to officers, directors and others, warrants a limited piercing extending such immunity to closely related parent and sibling corporations. La.R.S. 23:1032 provides that: The rights and remedies herein granted to an employee or his dependent on account of an injury, or compensable sickness or disease for which he is entitled to compensation under this Chapter, shall be exclusive of all other rights and remedies of such employee, his personal representatives, dependents, or relations, against his employer, or any principal or any officer, director, stockholder, partner or employee of such employer or principal, for said injury, or compensable sickness or disease. For purposes of this Section, the word principal shall be defined as any person who undertakes to execute any work which is a part of his trade, business or occupation in which he was engaged at the time of the injury, or which he had contracted to perform and contracts with any person for the execution thereof. Nothing in this Chapter shall affect the liability of the employer, or any officer, director, stockholder, partner or employee of such employer or principal to a fine or penalty under any other statute or the liability, civil or criminal, resulting from an intentional act. The immunity from civil liability provided by this Section shall not extend to: 1) any officer, director, stockholder, partner or employee of such employer or principal who is not engaged at the time of the injury in the normal course and scope of his employment; and 2) to the liability of any partner in a partnership which has been formed for the purpose of evading any of the provisions of this Section. The detailed, thorough nature of the immunity provision, however, indicates a legislative intent to limit the grant of immunity to those persons specifically listed. Furthermore, the expansion of the immunity provision to cover officers, directors and others resulted from Act 147 of 1976, which dealt with a problem created by suits against executive officers that had no significant ramification upon multiple corporate relationships. See Bazley v. Tortorich, 397 So.2d 475 (La.1981); 14 Malone & Johnson, supra, at § 364. Consequently, we conclude there is no policy underlying this part of the worker's compensation act which conflicts or even competes with the policies furthered by separate corporate existence. Therefore, there is no need or justification for a limitation upon the separate corporate entity rule to accommodate the policy of the worker's compensation immunity provision.