Legal Question in Business Law in California

Not unless your name is on the judgment, or they get a court to order you added personally.

It's more complicated than that. Here are a few observations:

Did the suit against the corporation also name you as a defendant? If so, what claims were made as to your personal liability, and did plaintiffs win on those claims; i.e., does the judgment include judgment against you?

Did the corporation defend the suit, or allow a default judgment? A default judgment against an insolvent corporation is not a sufficient basis for piercing the corporate veil, and alter ego liability cannot be added by amending the judgment where the corporation�s liability was not actually litigated, i.e. where the judgment was obtained by default. Motores de Mexicali, S.A. v. Superior Court (1958) 51 Cal.2d 172, 175; NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778-781. However, if the case were defended and judgment given against the corporation, on the merits after trial, the plaintiffs may be able to bring an additional proceeding to find you personally liable on an alter ego basis.

Next, a shareholder, officer or director may not receive an unlawful distribution from a corporation. Corporate distributions are unlawful under a number of circumstances, including when made from funds other than retained earnings (Corporations Code �500) or when the corporation�s ability to pay its creditors is impaired (Corp. Code �501). Distributions include not only dividends, but most other ways that something of value can be taken out of a corporation for the benefit of shareholders, including excessive salaries (Kohn v. Kohn (1950) 95 Cal.App.2d 708, 714). When a corporation is sold, if ANY of the money received goes to an insider before creditors are paid, and the corporation is insolvent at the time of the sale, or rendered insolvent by payouts to the selling insiders, the payout is probably an impermissible distribution, and the party receiving the distribution or payout can be obliged to refund it to the corporation for the creditors.

The directors are sometimes treated as trustees of the creditors under the "trust fund doctrine." The following is quoted from Berg & Berg Enterprises, LLC v. Boyle, 178 Cal.App.4th 1020 at page 1041: "......the scope of the trustfund doctrine in California is reasonably limited to cases where directors or officers have diverted, dissipated, or unduly risked the insolvent corporation's assets. In other words, the doctrine is not applied to create a duty owed by directors to creditors solely due to a state of corporate insolvency. Application of the doctrine requires, in addition, that directors have engaged in conduct that diverted, dissipated, or unduly risked corporate assets that might otherwise have been used to satisfy creditors' claims."

Finally, was the corporation suspended? The law is unsettled in California as to whether an officer or director of a suspended corporation is rendered personally liable for debt incurred by the corporation while suspended. Arguably, the officers and directors can be held personally liable if they knew that the corporation had been suspended when the debt was incurred. Indeed, until recently exercise of corporate powers with such knowledge was a criminal act (under former Revenue & Taxation Code �25962.1, now repealed). However, there is no California case so holding.

There's a practical limit on how far the employees are likely to push to go after $18,000. They may give up on collecting from you before exhausting all lines of attack. If you'd like a little more analysis, contact me directly and share the essentials of the complaint and the judgment with me (no charge).