The plaintiff asserts that the multiple corporate structure is a ruse, and constitutes an unlawful attempt to defraud the members of the public sustaining injuries. Therefore he contends he is entitled to hold the corporations' shareholders, personally liable for the damages sought by him.
Carlton wanted the case to be dismissed as the plaintiff had failed to state a cause of action. The court at Special Term granted the motion but the Appellate Division reversed that decision. It held that cause of action had been sufficiently made out. Carlton then appealed against this to the Court of Appeals in New York by leave of the Appellate Division on a certified question.
The court held that the complaint fell short of adequately stating a cause of action against Carlton in his individual capacity. It also held that the order of the Appellate Division should be reversed, with costs both in the Court of Appeals and in the Appellate Division. It further held that the certified question is answered in the negative, and that the order of the Supreme Court, Richmond County, be reinstated with leave to serve an amended complaint.
[The case took a twist on the ground of inadequate cause of action. But as regards the liability of share holders, the Judge has stated that the liability will be there under certain circumstances, for example, if the corporation is a dummy.