Court Holds Corporations Owed Duty To Protect Third Parties From Abuse By Sole Shareholder
Monday, August 21, 2023
California Michael Jackson Corporations Must Protect Third Parties

Michael Jackson died in 2009.  After his death, two plaintiffs filed complaints against two corporations of which Michael Jackson was the sole shareholder.  The trial court sustained the plaintiffs' demurrer setting up appeals to the California Court of Appeal.  In an opinion published last Friday, the Court summarized the issue and its holding as follows:

The principal issue in these cases is whether two corporations, wholly owned by the late entertainer Michael Jackson, had a legal duty to protect plaintiffs from sexual abuse Jackson is alleged to have inflicted on them for many years while they were children.  The corporations say they had no duty to protect plaintiffs from Jackson because of their corporate structure, that is, “because they had no ability to control Jackson—their sole owner—or his interactions with [plaintiffs]. Parties cannot be liable for neglecting to exercise powers they simply do not have.”

Following the guidance in Brown v. USA Taekwondo (2021) 11 Cal.5th 204 (Brown), we conclude a corporation that facilitates the sexual abuse of children by one of its employees is not excused from an affirmative duty to protect those children merely because it is solely owned by the perpetrator of the abuse.  The corporations say these are “idiosyncratic circumstances,” and perhaps they are.  There is certainly no comparable case law to recite. But it would be perverse to find no duty based on the corporate defendant having only one shareholder.

2023 WL 5317832.  

Although the defendants are apparently corporations, the Court does not apply corporate law principles such as reverse veil piercing.  The opinion, moreover, does not mention where the defendants were incorporated.  I even have some doubt about whether the defendants are in fact corporations, as I could not find either using the California Secretary of State's online business search.  I was able to find limited liability companies with the same names (except for the suffix "LLC" rather than "Inc.").   Perhaps this is another case for Professors Prince and Fershee.  See The Too Too Unpardonable Fault Of Conflating LLCs And Corporations.


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