Sampson v. Hunt

Supreme Court of Kansas · 1983 · Corporations

665 P.2d 743 (1983)

Updated August 22, 2026

Corporationsalter egopiercing the corporate veilmalicious prosecutionfiduciary duties of directorsone-man corporationprobable causeres judicata

Facts

Hunt and Sampson had prior business dealings through Construction and Development, Inc. (C & D) and other ventures, followed by extensive litigation after their business separation. In 1975 C & D filed a suit to collect a $50,000 note even though Hunt, acting as sole owner of C & D, had previously asserted the same claim in earlier litigation and that claim had been dismissed with prejudice. Hunt also filed a separate suit against Sampson and others alleging fraud and breach of fiduciary duty arising from lease and debt-payment decisions made by the board of directors of Seneca Square-related corporations, decisions that benefited Hunt and Sampson equally and were made over Hunt's objection. Sampson then brought this action alleging both prior suits were maliciously prosecuted and that Hunt was the alter ego of C & D.

Issue

Did the trial court properly direct verdicts that Hunt was the alter ego of C & D and that Hunt and C & D lacked probable cause to file the two prior lawsuits? Also, was the evidence sufficient to support actual damages, and were the punitive damages excessive?

Rule

On a motion for directed verdict, if the evidence is undisputed and reasonable persons could not draw differing inferences, the issue becomes one of law for the court. Alter ego permits disregarding the corporate entity when an individual uses the corporation merely as an instrumentality to conduct personal business, considering factors such as undercapitalization, failure to observe formalities, nonfunctioning officers or directors, absence of records, facade use, and use of the entity to promote injustice or fraud; mere sole ownership is not enough. In malicious prosecution, the plaintiff must prove initiation of prior civil proceedings, lack of probable cause, malice, favorable termination, and damages, and probable cause exists only when the initiator reasonably believes there is a sound chance the claim may be held legally valid based on facts known at commencement.

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

In Topeka, Nora Vance is the sole shareholder, president, and only director of Prairie Masonry, Inc. The company has not taken a job in six years, has no assets other than a checking account and an inactive contractor license, and Nora personally pays the fees needed to keep it alive; she also previously sued on what was functionally the corporation’s claim in her own name.

If a court is asked to decide whether Nora should be treated as the corporation’s alter ego, which is the best answer?

Explanation. The majority opinion states that alter ego may be found where undisputed facts show the corporation is essentially defunct, assetless, completely controlled by one person, and used as that person’s instrumentality. Relevant factors include undercapitalization, nonfunctioning directors, facade use, and promoting injustice. Mere sole ownership is not enough by itself, but here the facts go far beyond sole ownership.