Fletcher v. A.J. Industries
Citation and Court
Fletcher v. A.J. Industries, Inc., 266 Cal. App. 2d 313 (Cal. App. 1968)
Facts
Fletcher sought to hold A.J. Industries liable for the debts of its subsidiary, arguing that the subsidiary was inadequately capitalized and that the parent corporation had failed to observe corporate formalities, treating the subsidiary as an alter ego. The subsidiary had been formed with minimal capital and operated as a mere instrumentality of the parent.
Issue
Whether the corporate veil of a subsidiary should be pierced to hold the parent corporation liable for the subsidiary’s debts, where the subsidiary was inadequately capitalized and failed to observe corporate formalities.
Holding
The California Court of Appeal upheld the piercing of the corporate veil, finding that the subsidiary’s inadequate capitalization and the parent’s disregard of corporate formalities justified treating them as one entity.
Rule / Doctrine
Courts will pierce the corporate veil and hold a parent or controlling shareholder liable for a subsidiary’s debts when: (1) there is such unity of interest and ownership that the separate personalities of the corporation and its owner no longer exist; and (2) adherence to the fiction of separateness would sanction fraud or promote injustice. Inadequate capitalization and failure to observe formalities are key factors supporting piercing.
Significance
A leading California case on piercing the corporate veil, illustrating the two-prong alter ego test (unity of interest + inequitable result). Demonstrates how inadequate capitalization combined with disregard of formalities can support veil-piercing, and establishes the factors courts weigh in this fact-intensive inquiry.