Baatz v. Arrow Bar

Supreme Court of South Dakota · 1990 · Corporations

Corporationspiercing the corporate veilindividual employee liabilitysummary judgmentSDCL 35-4-78dram shopemployee liabilitypersonal service requirement

Facts

The Baatzes were seriously injured when Roland McBride crossed the center line and struck them while they were on a motorcycle. They alleged Arrow Bar served McBride alcohol while he was already intoxicated. Arrow Bar, Inc. had been formed by Edmond and LaVella Neuroth, who contributed capital and personally guaranteed certain corporate debts, and Jacquette Neuroth managed the business. The record contained no evidence that any of the Neuroths personally served McBride on the day of the accident.

Issue

Whether the individual Neuroths could be held personally liable either as employees of the corporate liquor licensee or by piercing Arrow Bar, Inc.'s corporate veil. Also, whether the record showed a genuine issue of material fact sufficient to defeat summary judgment on those theories.

Rule

Summary judgment is proper when no genuine issue of material fact exists, and the nonmoving party must present specific facts rather than mere allegations. Under SDCL 35-4-78, a cause of action may be brought against a liquor licensee's employee only if that employee personally breached the statute's standard of care; employee status alone is not enough. A corporate entity will be disregarded only when continued recognition would produce injustices and inequitable consequences, with relevant factors including fraudulent representation by directors, undercapitalization, failure to observe corporate formalities, absence of corporate records, payment by the corporation of individual obligations, or use of the corporation to promote fraud, injustice, or illegalities.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Rapid City, Dakota Lantern Tavern, Inc. was the liquor licensee for a neighborhood bar. After an intoxicated patron caused a crash, the injured plaintiff sued the corporation and also sued Nora Vance, a bartender, but discovery showed only that Nora was working that evening; no witness could identify who actually served the patron his last drinks.

Is Nora most likely individually liable under the governing rule?

Explanation. The majority rule is that an employee of a liquor licensee is individually liable only if that specific employee personally violated the statutory standard of care by serving alcohol to the intoxicated patron. Mere proof that Nora was an employee working that evening is not enough. The case rejects the broad view that any employee may be sued simply because the licensee may have violated the statute.