Opinion ID: 1948940
Heading Depth: 1
Heading Rank: 2

Heading: questions two and three

Text: We feel that these two questions are sufficiently related to warrant discussing them together. Washburn contends that because Rabun was the sole shareholder and employee of the Gene Rabun Insurance Agency, Inc., and he directed all its business, the corporation was merely his alter ego and he should be held responsible for all actions that he took in the name of the corporation. The general rule regarding the separation of the corporate entity from the shareholders was stated as follows in Barrett v. Odom, May & DeBuys, 453 So.2d 729, 732 (Ala.1984): We generally accept the concept that a corporation is a separate legal entity, but when this concept is invoked in support of an end subversive of justice, it will be disregarded. Cohen v. Williams, 294 Ala. 417, 420, 318 So.2d 279, 280 (1975) (quoting 18 Am.Jur.2d Corporations § 14 at 559 (2d ed.1965)). A separate corporate existence will not be recognized when a corporation is so organized and controlled and its business so conducted as to make it a mere instrumentality of another or the alter ego of the person owning and controlling it. Woods v. Commercial Contractors, Inc. 384 So.2d 1076, 1979 (Ala.1980). A corporation and the individual or individuals owning all its stock and assets can be treated as identical, even in the absence of fraud, to prevent injustice or inequitable consequences. Cohen, 294 Ala. at 421, 318 So.2d at 281. However, as the Court of Civil Appeals stated in Read News Agency, Inc. v. Moman, 383 So.2d 840, 844, cert. denied, 383 So.2d 847 (Ala.Civ.App.1980): [I]n order to justify `piercing the veil' of corporate existence, it is not enough to show that the corporation may have been controlled by one or a few persons. Goldmann v. Johanna Farms, Inc., 26 N.J.Super. 550, 98 A.2d 142 (1953).... [A]s a matter of general corporate law our decisions hold that he who seeks to have the corporate cloak set aside must either demonstrate fraud or show that the recognition of the corporate form will result in injustice or inequitable consequences. Cohen v. Williams, [294 Ala. 417, 318 So.2d 279 (1975)]; C.E. Development Co. v. Kitchens, 288 Ala. 660, 264 So.2d 510 (1972). Clearly, then, even though a corporation is controlled by only one person, who is also the sole shareholder, in the absence of fraud or inequity, he will be protected from individual liability by the corporate entity. Washburn has shown no evidence that Rabun set up the corporation as a subterfuge to defraud creditors. Nor are there any facts suggesting that Rabun treated the corporation as an alter ego or otherwise failed to observe and comply with the legal requirements of Alabama corporate law. Rather, the undisputed facts developed on the motion for summary judgment established that (1) GRIA at all times since 1975, has been an operating corporation; (2) GRIA was an agent of Essex in Alabama pursuant to a written agreement; (3) at all times GRIA held itself out to the public as a corporation; (4) GRIA maintained proper corporate records; and (5) GRIA used corporate bank accounts and issued corporate checks to satisfy its corporate obligations. The underlying premise of appellant's argument in his brief, however, is that stockholders of a closely held corporate insurance agency are personally liable for corporate debts owed to its principal, the insurer. This premise has no basis in Alabama law, insofar as we can tell. It is a fundamental public policy of this state that owners of an insurance agency have the right to incorporate. An insurance company which contracts to do business with a properly incorporated insurance agency must look to the corporate entity to recover premiums allegedly owed by the agency, absent some personal guarantee of the obligations of the corporation by the stockholders. Therefore, the second certified question must be answered in the negative as well. The arrangement presented, where the sole shareholder controls the corporation, does not state a cause of action against Rabun as a matter of law. We are also of the opinion that the third certified question, based on the law presented above, must be answered in the negative as well. The evidence in the record clearly establishes that Rabun operated GRIA as a separate entity at all times. As stated above, Alabama law permits a corporation to be organized and operated by one shareholder. Therefore, Rabun is shielded from liability on the debts of GRIA. Thus, the answer to all three certified questions is in the negative. CERTIFIED QUESTIONS ANSWERED. TORBERT, C.J., and JONES, SHORES, BEATTY, ADAMS and HOUSTON, JJ., concur.