Utah Alter ego/Piercing veil

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In Norman v. Murray First Thrift & Loan Co., 596 P.2d 1028 (Utah 1979), the Utah Supreme Court adopted a two-prong test to determine when disregarding the corporate entity is justified:

[I]n order to disregard the corporate entity, there must be a concurrence of two circumstances:

(1) there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, viz., the corporation is, in fact, the alter ego of one or a few individuals; and

(2) the observance of the corporate form would sanction a fraud, promote injustice, or an inequitable result would follow.

Id. at 1030. See also Colman v. Colman, 743 P.2d at 786; Automotriz Del Golfo De California v. Resnick, 47 Cal.2d 792, 306 P.2d 1, 3 (1957).

The first prong has been termed “the ‘formalities requirement,’ referring to the corporate formalities required by statute.” Messick v. PHD Trucking Serv., Inc., 678 P.2d 791, 794 (Utah 1984). The second prong of the test may be called the “fairness requirement,” Barber, Piercing the Corporate Veil, 17 Willamette L.Rev. 371, 376 (1981), and “is addressed to the conscience of the court.” Messick v. PHD Trucking Serv., Inc., 678 P.2d at 794. A key feature of the alter ego theory is that it is an equitable doctrine requiring that each case be determined upon its peculiar facts. National Bond Fin. Co. v. General Motors Corp., 341 F.2d 1022, 1023 (8th Cir.1965).

Case law provides numerous suggestions as to what particular factors are relevant to determining whether the two-prong test has been met. E.g., Colman v. Colman, 743 P.2d at 786. See United States v. Advance Mach. Co., 547 F.Supp. 1085, 1093 (D.Minn.1982). In the parent-subsidiary situation, the central focus of the formalities prong is “the degree of control that the parent exercises over the subsidiary and the extent to which the corporate formalities of the subsidiary are observed.” Barber, Piercing the Corporate Veil, 17 Willamette L.Rev. at 397.

One commentator has listed eleven factors relevant to deciding whether the parent exercises “the necessary control” over its subsidiary. Id. See id. at 398. Six are pertinent to the present case:

1) “the parent corporation owns all or most of the capital stock of the subsidiary”;

2) “the parent corporation finances the subsidiary”;

3) “the subsidiary has grossly inadequate capital”;

4) “the parent corporation pays the salaries and other expenses or losses of the subsidiary”;

5) “the directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation in the latter's interest”; and

6) “the formal legal requirements of the subsidiary are not observed.” Id. at 398.

Salt Lake City Corp. v. James Constructors, Inc., 761 P.2d 42, 46-47 (Utah Ct. App. 1988)