Baatz v. Arrow Bar
1990 S.D. LEXIS 22, 452 N.W.2d 138, 1990 WL 17901 (1990)
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Rule of Law:
A corporation's shareholders are not personally liable for the torts of the corporation unless a plaintiff can prove that the shareholder personally committed the tortious act or that sufficient reason exists to pierce the corporate veil. Merely owning, managing, or personally guaranteeing corporate debt is insufficient to impose personal liability.
Facts:
- Roland McBride, while intoxicated, crossed the center line in his car and struck Kenny and Peggy Baatz, who were on a motorcycle, causing them serious injuries.
- An eyewitness observed McBride being served alcoholic beverages at the Arrow Bar on the afternoon of the accident while McBride was already intoxicated.
- Edmond and LaVella Neuroth had previously formed Arrow Bar, Inc., a corporation, to own and operate the business.
- Edmond and LaVella Neuroth contributed $50,000 to the corporation and personally guaranteed corporate debts totaling over $295,000.
- Edmond Neuroth served as the corporation's president, and Jacquette Neuroth served as the bar's manager.
- Based on advice of counsel and a change in state law, the corporation did not carry dram shop liability insurance at the time of the accident.
Procedural Posture:
- Kenny and Peggy Baatz sued Arrow Bar, Inc. and the Neuroths individually in trial court.
- The trial court initially granted summary judgment in favor of all defendants.
- Baatz, as appellant, appealed to the South Dakota Supreme Court, which reversed the summary judgment and remanded the case for trial in a prior decision.
- On remand, before the trial could occur, the individual defendants (Edmond, LaVella, and Jacquette Neuroth) again moved for summary judgment.
- The trial court granted the motion, dismissing the claims against the Neuroths as individuals.
- Baatz, as appellant, now appeals the trial court's grant of summary judgment for the individual defendants to the South Dakota Supreme Court.
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Issue:
Do the individual shareholders and employees of a corporation incur personal tort liability for the corporation's alleged illegal sale of alcohol when there is no evidence that they personally served the intoxicated individual and the facts are insufficient to justify piercing the corporate veil?
Opinions:
Majority - Sabers, Justice
No. The individual shareholders and employees do not incur personal liability. An employee is only personally liable for an illegal sale of alcohol if they personally served the intoxicated patron, and there is no evidence that any of the Neuroths did so. Furthermore, the corporate veil will not be pierced because there is no evidence of injustice or inequitable consequences; personally guaranteeing corporate loans strengthens, rather than weakens, the presumption of corporate separateness, and mere allegations of undercapitalization or failure to observe minor corporate formalities, without supporting facts, are insufficient to disregard the corporate entity.
Dissenting - Henderson, Justice
Yes. Summary judgment was improper because genuine issues of material fact exist for a jury to decide. The dissenter argues that the corporation is merely the instrumentality of the shareholders, created as a 'shield against individual liability.' Evidence of undercapitalization, the family's complete control, and the owner's admission of incorporating to avoid liability create a question of fact as to whether the corporate veil should be pierced to prevent injustice.
Analysis:
This decision reinforces the significant legal protection afforded by the corporate form, setting a high bar for plaintiffs seeking to 'pierce the corporate veil' in tort cases. It clarifies that shareholder actions like personally guaranteeing corporate loans do not, by themselves, justify disregarding the corporate entity; in fact, they may be seen as affirming it. The ruling emphasizes that plaintiffs must provide specific, concrete evidence supporting the factors for piercing the veil (e.g., undercapitalization, fraud) and cannot survive summary judgment on mere allegations.
