State ex rel. Christensen v. Nugget Coal Company

Supreme Court of Wyoming · 1944 · Corporations

144 P.2d 944 (1944)

Updated August 22, 2026

CorporationsAlter egoPiercing the corporate veilWorkmen's compensationcorporate entityveil piercingpartnership to corporationsuccessor liability

Facts

Swenson and Yates operated a coal mine as a partnership under the name Nugget Coal Company, and an employee, Wayne Johnson, was severely injured while the partnership was operating the mine. After the injury, the partners organized a corporation under the same name and transferred the partnership's mining property to it, while attempting to open a new Industrial Accident Fund account at a lower contribution rate rather than continue the partnership account, which had become overdrawn because of compensation awards paid for Johnson. The State refused to recognize a new account and claimed the corporation was merely a continuation or alter ego of the partnership. Swenson retained dominant control of the corporation, the business, office, property, and name remained the same, and stock issuance to others largely occurred long after the State's claim was known and after suit was filed.

Issue

May a corporation formed by a partnership after an employee injury be held liable for the partnership's existing workmen's compensation obligation on an alter ego theory, despite the general rule that a corporation is a separate legal entity? More specifically, can the corporate form be disregarded where recognizing it would evade the legislature's policy that each employer bear the compensation burden for its own employees?

Rule

Although a corporation is ordinarily a separate legal entity, courts will disregard the corporate form or hold the corporation liable for the obligations of its owners when there is such unity of interest and ownership, and such control, that separateness has ceased, and adherence to the fiction of separate existence would sanction fraud, defeat public policy, evade a statute, or promote injustice. In the workmen's compensation setting, where the statute requires that each employer bear as nearly as possible the compensation burden attributable to its own employees, a corporation organized and controlled by the same persons may be treated as the alter ego of the prior partnership and held liable for the partnership's existing compensation-related tax debt.

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

Evan Mercer and Luis Ortega ran a granite quarry near Cheyenne, Wyoming, as a partnership. After a worker suffered a serious on-the-job injury that caused a large overdraft in the partnership's separate industrial compensation account, Mercer and Ortega formed High Plains Stone, Inc., transferred the quarry assets to it, kept operating from the same office under the same managers, and asked the State to give the corporation a fresh account at the ordinary rate.

If the State sues the corporation for the partnership's existing compensation-related overdraft, which argument for liability is strongest under the governing rule?

Explanation. The majority held that a corporation may be charged with a prior partnership's compensation-related obligation when there is unity of interest and control and adherence to separate existence would evade the statute or promote injustice. The court emphasized the compensation system's policy that each employer should, as nearly as possible, bear the burden attributable to its own employees. It rejected any requirement of actual intent to defraud and did not adopt a blanket successor-liability rule.