Opinion ID: 2612209
Heading Depth: 1
Heading Rank: 6

Heading: The Alter Ego Doctrine.

Text: Appellants' final contention is that the trial court erred in finding that sufficient evidence existed to justify piercing the corporate veil. We agree. In order to apply the alter ego doctrine, the following requirements must be met: (1) the corporation must be influenced and governed by the person asserted to be its alter ego; (2) there must be such unity of interest and ownership that one is inseparable from the other; and (3) the facts must be such that adherence to the fiction of a separate entity would, under the circumstances, sanction a fraud or promote injustice. Mosa v. Wilson-Bates Furniture Co., 94 Nev. 521, 583 P.2d 453 (1978); McCleary Cattle Co. v. Sewell, 73 Nev. 279, 317 P.2d 957 (1957). In North Arlington Med. v. Sanchez Constr., 86 Nev. 515, 522, 471 P.2d 240, 244 (1970), we stated: Undercapitalization, where it is clearly shown, is an important factor in determining whether the doctrine of alter ego should be applied. However, in the absence of fraud or injustice to the aggrieved party, it is not an absolute ground for disregarding a corporate entity. In any event, it is incumbent upon the one seeking to pierce the corporate veil, to show by a preponderance of the evidence, that the financial setup of the corporation is only a sham and caused an injustice. In the instant case, the record reveals that the Rowland Corporation was incorporated by Martin Rowland in 1974. The directors at the time of incorporation were Martin Rowland, Glen Rowland and Gerald Rowland. Martin Rowland acted as president, performing the bookkeeping duties, and Glen Rowland acted as vice president, handling the construction. Shares of stock were first issued in 1977: one share for $100 issued to Martin Rowland and his wife; one share for $100 issued to Glen Rowland and his wife; one share for $100 issued to Darlene Rowland (Martin's daughter); and one share for $100 issued to Gerald Rowland (Martin's son) and his wife. Several months later, an additional five shares were issued to Martin and his wife for $500 and two shares issued to Glen and his wife for $200. In addition to this paid-in capital, Martin Rowland made an unsecured personal loan of $15,000 to the corporation in 1977. The corporation had no other assets, and, as of the time of trial, had a negative net worth. Although no formal directors or shareholders meetings were ever held, Martin testified that in lieu thereof, he personally phoned the directors and shareholders regarding corporate business. No dividends were paid to shareholders, nor did the officers or directors receive salaries. The corporation did not have a minute book, nor is there evidence that any minutes were kept. The corporation did obtain a general contractor's license and a framing contractor's license, both in its name. It also obtained a surety bond in the amount of $5,000. The corporation also obtained workmen's compensation insurance and transacted business with the Employment Security Department. In addition, there was a corporate checking account. Martin also testified that other directors and shareholders besides Glen and he were involved in the corporation business. Martin and Glen did not, however, confer with the other shareholders or directors when they entered into the Lepire contract, nor when they filed the lien. Although the evidence does show that the corporation was undercapitalized and that there was little existence separate and apart from Martin and Glen Rowland, we conclude that the evidence was insufficient to support a finding that appellants were the alter ego of the Rowland Corporation. See North Arlington Med. v. Sanchez Constr., supra . Appellants' remaining claims either lack merit or need not be addressed. The trial court's judgment is affirmed with the exception of its findings of slander of title, alter ego and its award of punitive damages and attorney's fees. We reverse the latter determinations.