Opinion ID: 688310
Heading Depth: 2
Heading Rank: 4

Heading: Grant of Summary Judgment on the Alter-Ego Issue

Text: 27 On cross-appeal, Amoco contends that the district court erred in granting summary judgment on the alter-ego issue. We review a grant of summary judgment de novo. Jones v. Union Pacific R.R., 968 F.2d 937, 940 (9th Cir. 1992). We must determine, viewing the evidence in the light most favorable to the non-moving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). We are not permitted to weigh the evidence or determine the truth of the matter, but only determine whether there are genuine issues for trial. Id. at 1131. 28 In general, a parent corporation is not liable for the wrongs of its wholly owned subsidiary. Jackson v. General Electric Co., 514 P.2d 1170, 1172 (Alaska 1973). An important exception to this rule, however, is that a parent corporation will be liable for the wrongs of its subsidiary if the parent corporation has not permitted its subsidiary to exercise its independent status as a separate corporate entity. Id. at 1173. The City sought to use this alter-ego doctrine to pierce the corporate veil and impose liability on Amoco for the failure of the Techite pipes. The district court granted the City's motion for summary judgment in spite of Amoco's contentions that material issues of fact existed with respect to the relationship between the two corporations. 29 Amoco asserts two reasons as to why the grant of summary judgment on the alter-ego issue was improper. First, although Amoco concedes that an analysis of the 11-part mere instrumentality test is essential to an inquiry of whether ARPCO acted as the alter ego of Amoco, Jackson, 514 P.2d at 1173, Amoco argues that the district court erred by not requiring the City also to prove that the subsidiary's corporate form was used to defeat public convenience, justify wrong, commit fraud, or defend crime. According to Amoco, in order to justify piercing the corporate veil, the plaintiff must satisfy both the mere instrumentality test and the defeats public convenience test. We disagree. 30 In McKibben v. Mohawk Oil Co., Ltd., 667 P.2d 1223, 1229 (Alaska 1983), the Alaska Supreme Court identified the mere instrumentality test and the defeats public convenience test as alternative methods for piercing the corporate veil. The Court stated: 31 Two theories may be used to justify disregarding the corporate status of a subsidiary. First, a parent corporation may be held liable for the conduct of its subsidiary when the parent uses a separate corporate form to defeat public convenience, justify wrong, commit fraud or defend crime. Second, a parent corporation may be held liable on the alternative theory that the subsidiary is the mere instrumentality of the parent. 32 Id. (emphasis added). 33 Amoco cites two cases decided subsequent to McKibben in an effort to persuade us that a plaintiff is entitled to pierce the corporate veil only if it has demonstrated that the corporate form was used to defeat public convenience, justify wrong, commit fraud or defend crime. We read these cases differently. In both cases, the Alaska court recognized the continued viability of the mere instrumentality test and the defeats public convenience test as alternative means of piercing the corporate veil. Croxton v. Crowley Maritime Corp., 817 P.2d 460, 465, n.9 (Alaska 1991) (mere instrumentality test is an alternative to defeat public interest test); Murat v. F/V Shelikof Strait, 793 P.2d 69, 78-79 (Alaska 1990) (summary judgment improper because issues of fact existed as to whether the corporation was formed to defeat public convenience, justify wrong, commit fraud or defend crime or one which functioned as a mere alter-ego of its parent.) (emphasis added). Therefore, we conclude that Alaska law establishes that the mere instrumentality test and the defeats public convenience test are alternative means of piercing the corporate veil. The district court properly decided that the City was required only to demonstrate that ARPCO was the mere instrumentality of Amoco, and that it need not also prove the corporation was formed to defeat public convenience. 34 Because the district court's ruling was based on the mere instrumentality test, we must consider Amoco's second argument that summary judgment was improperly granted on the basis that the subsidiary corporation was undercapitalized. In granting summary judgment, the district court considered the 11-part mere instrumentality test established in Jackson, 514 P.2d at 1173, and concluded on the basis of only one factor--undercapitalization--that the grant of summary judgment was appropriate. 35 Amoco's assertion that undercapitalization alone is an insufficient basis to justify a finding that a subsidiary corporation acted as the alter ego of its parent is persuasive. Alaska law establishes that a finding of undercapitalization alone is insufficient to warrant piercing the corporate veil. Murat, 793 P.2d at 78. [I]t remains the general rule that inadequate capitalization, while an important factor, is not alone sufficient to justify piercing the corporate veil. Id. Thus, the district court's grant of summary judgment solely on this basis was improper. 36 Moreover, Amoco demonstrated the existence of triable issues of fact with respect to the remaining factors to be considered in analyzing the subsidiary's status as a mere instrumentality. Jackson, 514 P.2d at 1173. Alaska law does not require the presence of all 11 factors before the subsidiary's corporate status will be disregarded, id. at 1173; see also Murat, 793 P.2d at 78, but it does require more than merely a finding of undercapitalization. We find material issues of fact sufficient to defeat summary judgment with respect to several of the remaining factors. For example, the parties dispute the degree of commonality between the directors and officers of Amoco and ARPCO, the level of financial interrelationship between the two corporations, and Amoco's level of managerial control. Viewing these disputed factual issues in the light most favorable to Amoco, we cannot conclude that this issue was appropriately resolved on summary judgment. Therefore, we reverse and remand for further proceedings to determine this issue.