Aid and assistance liability can be a dangerous trap for Portland business lawyers, Seattle business attorneys and their clients on either side of the Northwest border.
Corporate officers and directors usually consider themselves shielded from legal liability for corporate acts. After all, that’s the whole point of the corporate shield — that shareholders and corporate actors are, in general, shielded from individual liability.
But that’s not always the case. And not surprisingly, corporate executives who find themselves unexpectedly having to defend a lawsuit seeking to hold them individually liable for a corporate action can often feel quite the financial squeeze.
In general, corporate owners can be found individually liable only if a plaintiff can pierce the corporate veil. This is a very complicated legal doctrine, but it usually occurs when the actor failed to observe corporate formalities, failed to properly capitalize the company, commingled his own funds with company funds or generally used the corporation as an alter ego.
Corporate executives are also individually liable for any fraud they participate in. The key question is what that really means.
My Portland business fraud defense clients are often surprised at the allegations that come flying at them. Among other things, creative plaintiffs can allege what is called aiding and assistance or civil conspiracy liability. Essentially, if you have knowledge of wrongdoing within the corporation, a plaintiff can argue that you knew of the fraud and helped carry it out. It is a very loose type of allegation and it can cost executives significant money defending it, even if you are completely innocent of any wrongdoing.
There are a host of questions that come along with aid and assist or civil conspiracy liability, but if established, you can be held liable for all of the bad actors’ conduct, whether or not you actually did anything wrong.
Such allegations can be scary stuff, and unfortunately they are usually rather costly to defend.