Postal Instant Press, Inc. v. Kaswa Corp.

Introduction

Kaswa Corporation (Kaswa) appeals from an amended judgment entered after the trial court granted the motion of Postal Instant Press, Inc. (PIP), to add Kaswa as a defendant/judgment debtor. PIP had obtained the judgment against Shahid Rangoonwala, a former shareholder of Kaswa, for claims arising out of a franchise agreement to which Kaswa was not a party. In this case of first impression in California, we analyze authorities nationwide and hold a third party creditor may not pierce the corporate veil to reach corporate assets to satisfy a shareholder’s personal liability. Accordingly, we reverse.

Under the standard alter ego doctrine, in appropriate circumstances the corporate form may be disregarded and the corporate veil pierced so that an individual shareholder may be held personally liable for claims against the corporation. Some courts have recognized a variant of the alter ego doctrine, called third party or “outside” reverse piercing of the corporate veil, by which the corporate veil is pierced to permit a third party creditor to reach corporate assets to satisfy claims against an individual shareholder.

The reasoning of the cases adopting outside…