Appellant creditor sought review of a decision of the Superior Court of Los Angeles County (California) that sustained appellees, shareholders’ of debtor corporation, demurrer and dismissed an action seeking to impose alter ego liability based on a fraudulent conveyance claim.
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Overview
Appellant creditor filed suit against a bankrupt corporation that sold furniture for breach of contract, conversion, and other claims. Appellant was awarded the value of the merchandise delivered to the corporation pursuant to the parties’ contract. Appellant then filed suit against the corporation and respondents, individual shareholders of the corporation, seeking to impose alter ego liability based on a fraudulent conveyance claim. The trial court granted respondents’ demurrer, dismissing the action, ruling appellant did not state a claim and on res judicata grounds. The court reversed holding that an individual creditor may pursue a fraudulent conveyance action where a bankruptcy case was closed. Appellant’s first action was for breach of contract by the corporation, while the second action applied to tortious behavior by individual shareholders, thus res judicata was not applicable.
Outcome
The court reversed the dismissal of the action. The court held that res judicata was not applicable because appellant’s second action applied to tortious behavior by individual shareholders, not the corporate entity. Appellee could pursue the fraud claim because the bankruptcy case was closed.
