Opinion ID: 1120112
Heading Depth: 1
Heading Rank: 2

Heading: consideration of post-tort activities

Text: The defendants contend that activities taking place after the incident creating corporate liability should not be considered in deciding whether to disregard the corporate entity and allow satisfaction of the judgment resulting from that liability through the assets of individuals involved in the corporation. They argue that since the corporate entity will not protect persons who do not respect the corporation before the litigated activity anyway, transfers out of the corporation after the tortious incident cannot affect their individual liability. Thus, defendants state, post-tort activities are immaterial in determining whether to disregard the corporate entity. The defendants cite Harrison v. Puga, 4 Wn. App. 52, 480 P.2d 247, 46 A.L.R.3d 415 (1971) when discussing their claim that post-tort activities are immaterial in determining whether to disregard the corporate entity. In Harrison, the plaintiffs' recovery was limited to the $16,000 fraudulently taken by the defendant from a corporation jointly owned by plaintiffs and defendant. Defendants in this case assert that post-tort wrongful activities should always be dealt with by voiding transfers and transactions which affect recovery, and that Harrison limits the remedy for wrongful transfers to avoidance of the transactions. However, in Harrison, the amount of recovery was limited only because $16,000 represented the sum taken from the corporation by the defendant. Because the case dealt with a tortious activity intrinsically involved with the operation of the corporation itself, the recovery was limited to those amounts actually defrauded from the organization. The case does not require the court to consider only pretort behavior in determining whether to disregard the corporate entity. In addition, it does not necessarily limit the personal funds available for satisfaction of a judgment once the corporate entity is disregarded to that amount actually taken from the corporation. [1] The corporate entity is disregarded and liability assessed against shareholders in the corporation when the corporation has been intentionally used to violate or evade a duty owed to another. Culinary Workers Local 596 v. Gateway Cafe, Inc., 91 Wn.2d 353, 366, 588 P.2d 1334 (1979). This may occur either because the liability-causing activity did not occur only for the benefit of the corporation, and the corporation and its controllers are thus alter egos, see, e.g., J.I. Case Credit Corp. v. Stark, 64 Wn.2d 470, 392 P.2d 215 (1964); W.G. Platts, Inc. v. Platts, 49 Wn.2d 203, 298 P.2d 1107 (1956); or because the liable corporation has been gutted and left without funds by those controlling it in order to avoid actual or potential liability, see, e.g., Harrison v. Puga, supra at 63-64. In the latter case particularly, post-tort activities must be considered, and often will independently support disregard of the corporate entity, because it is only after the tort that the impetus to gut the corporation arises. Thus, the Court of Appeals was correct in holding that post-tort activities could be considered in making the determination whether to disregard the corporate entity. Defendants also contend that a determination that they are individually liable as de facto partners through disregard of the corporate entity is precluded by the jury's decision in the first phase of the bifurcated trial that they were not involved in a joint venture with Horace Burks when he shot Morgan. Although this determination might prevent assessment of liability on the alter ego theory because the corporation was adequately respected before the tort, the lack of personal liability for the tortious act itself does not alone prevent consideration of the assets available to satisfy the judgment. This argument by the defendants merely restates their assertion that post-tort activities should not be considered in assessing responsibility for the judgment, and for the same reasons, stated above, must be discounted. We therefore hold that post-tort activities may be considered in determining whether to hold shareholders liable for a tort judgment against the corporation. However, as will be seen below, the facts of this case are such that no remand for the purpose of looking at post-tort activities with regard to the appropriateness of disregarding the corporate entity is necessary.