Postal Instant Press, Inc. v. Kasawa Corporation
Filed May 20, 2008, Fourth District, Div. Three
Cite as 2008 SOS 3012

Alter Ego Doctrine Inapplicable, Judgment Reversed

Shahid Rangoonwala (Shahid) and Syed Saeed Ahmed (Ahmed) purchased a Postal Instant Press (PIP) franchise. They executed an agreement and consented to assignment of the franchise. PIP was made a party to the agreement.

Thereafter, Shahid and Ahmed formed and capitalized Kasawa Corporation. Kasawa was not a party to the franchise agreement or the assignment agreement.

Later, Ahmed left their partnership.

A dispute arose between PIP and Shahid concerning payment of royalties to PIP. The dispute went to arbitration. PIP received an award.

The trial court confirmed the award and entered judgment against Shahid, at which time the PIP franchise was owned solely by him.

In PIP’s collection efforts, it conducted investigation on Shahid’s business and financial matters. The investigation revealed the following:

• Kasawa, which owned the franchise assets, had merged with another entity owned by Michael Haxton, but its name survived in the resulting company.


• Shahid no longer owned shares of Kasawa, but for a time received monthly draws from the PIP franchise. Kasawa sold the franchise assets to Ward and Susan Johnson.


• Haxton was the only shareholder of Kasawa, whose only asset was the right to payment from the Johnsons under the asset-purchase agreement.


• Kasawa conducted no business, did not maintain corporate records, and did not conduct shareholder meetings.

Due to the following developments, PIP moved to amend the judgment to add Kasawa as a judgment debtor. The trial court granted the motion by concluding that Shahid and Kasawa were alter egos.

Shahid appealed.

The California Court of Appeal reversed the trial court’s decision holding that PIP could not reach Kasawa’s assets to satisfy Shahid’s personal liability.

This is a case of first impression in California hence the court made the following findings:

• Trial court erred in adopting the third party variant of the alter ego doctrine, called outside reverse piercing.

  Outside reverse piercing is one whereby a third party creditor is permitted to reach corporate assets to satisfy claims against an individual shareholder.

  Outside reverse piercing is not a logical extension of the standard alter ego doctrine, but instead addresses significantly different concerns. Further, it can harm innocent shareholders and corporate creditors, and allow judgment creditors to bypass normal judgment collection procedures.

• The legal theories such as agency or respondeat superior and legal remedies such as claims for conversion or fraudulent conveyance can adequately protect judgment creditors without the need to distort theories of corporate liability.


• Assuming that the doctrine is applicable, PIP failed to satisfy at least two of those qualifications - inadequacy of legal remedies and no harm to innocent creditors - and, as a result, the judgment would have been reversed even if the court had found the doctrine acceptable.