Question

William Sharp was the sole shareholder and manager of Chickasaw Club, Inc., an S corporation that operated a popular nightclub of the same name in Columbus, Georgia. Sharp maintained a corporate checking account but paid the club’s employees, suppliers, and entertainers in cash out of the club’s proceeds. Sharp owned the property on which the club was located. He rented it to the club but made mortgage payments out of the club’s proceeds and often paid other personal expenses with Chickasaw corporate funds.

At 12:45 a.m. on July 31, eighteen-year-old Aubrey Lynn Pursley, who was already intoxicated, entered the Chickasaw Club. Chickasaw employees did not check Pursley’s identification to verify her age, as required by a city ordinance. Pursley drank more alcohol at Chickasaw and was visibly intoxicated when she left the club at 3:00 a.m. with a beer in her hand. Shortly afterward, Pursley lost control of her car, struck a tree, and was killed. Joseph Dancause, Pursley’s stepfather, filed a tort lawsuit against Chickasaw Club and William Sharp. Using the information presented in the chapter, answer the following questions.

1. Under what theory might the court in this case make an exception to the limited liability of share-holders and hold Sharp personally liable for the damages? What factors would be relevant to the court’s decision?
2. Suppose that Chickasaw’s articles of incorporation failed to describe the corporation’s purpose or management structure as required by state law. Would the court be likely to rule that Sharp is personally liable to Dancause on that basis? Why or why not?
3. Suppose that the club extended credit to its regular patrons in an effort to maintain a loyal clientele, although neither the articles of incorporation nor the corporate bylaws authorized this practice. Would the corporation likely have the power to engage in this activity? Explain.
4. How would the court classify Chickasaw Club, Inc.—domestic or foreign, public or private?

Debate This:
The sole shareholder of an S corporation should not be able to avoid liability for the torts of her or his employees

Answer 1

Requirement 1

In this specific case it would be unlawful carelessness and all parties involved can be held accountable that permitted said person to be overserved. If a person is noticeably drunk they should have been cut off and detached however they apparently overserved this person and sustained to over serve her and then permitted her to drive. This is what is measured criminal negligence.

Requirement 2

Sharp will possibly be held responsible since on piercing the corporate veil by disregarding the proper making of the corporation. Due to technicalities the article of incorporation could not possibly cause the party to be held accountable.

Requirement 3

Normally speaking giving customers’ credit is not rare business. These don’t need to be deliberated in the articles of incorporation or the bylaws, normally its emphases on the ownership structure.

Requirement 4

Because it was made and functioned out of Georgia it would be a local corporation. Owing to the title falling under one person it is private and is privately owned therefore it is a closed corporation.