On June 23, 1999 the Trustee obtained a ruling from Alaska Superior Court Judge Charles Pengilly in Compton v. Hompesch et al. The full text of the opinion is set out below.

LARRY D. COMPTON, Trustee, Plaintiff, v.	) ) ) ) )
RICHARD W. HOMPESCH, II and HOMPESCH & ASSOCIATES, a professional corporation, successor to WINFREE & HOMPESCH, s professional corporation, Defendants.	) ) ) ) ) ) ) )

Case No. 4FA-97-2519 CI

This case raises the question of whether, and to what extent, an attorney who represents both a corporation and its sole shareholder owes a separate duty of professional care to both. On September 2, 1998, Judge Greene answered this question in the negative, holding that where the corporation is "in pari delicto" with the shareholder, the two must be treated as a single entity. Judge Greene subsequently recused herself, however, and vacated her order dismissing this case on that ground. The matter was then reassigned to this court, which requested supplemental briefing as to the proper interpretation of Willner’s Fuel Distributors v. Noreen, 882 P.2d 399 (Alaska 1994), as it applies to this case.

All parties have responded by focusing on the following "summation" of the Willner’s Fuel analysis:

[I]f an attorney represents both a dissolved or insolvent corporation and a director or officer of that firm, and if the attorney controls corporate assets, then the attorney must protect the financial rights of the creditors to those assets, where he or she knows or should know that the director or officer intends to interfere with the creditors' claims through an improper distribution of those assets.

Id. at 406. This language clearly establishes the existence of a fiduciary obligation, running to the corporate creditors, owed by an attorney in the role of trustee of corporate assets held in a trust account. It does not bear directly on the issues in the present case.

The language which concerns the court appears one page earlier:

As for [the attorney’s] liability, we note that [he] represented two clients: [the sole shareholder] and [the business], a dissolved corporation. The interests of these two clients with respect to [corporate assets] were not identical. The corporation’s interest was in maximizing its share of the proceeds and in dispersing the proceeds to its creditor in accordance with the priorities established by law. [The shareholder’s] interest was in maximizing his individual claim to the proceeds. A lawyer who represents clients with conflicting interests is in a sensitive position and may be liable for breach of the lawyer’s . . . responsibilities to either client.

Id. at 405. This language identifies an inherent conflict which arises out of an attorney’s joint representation of a corporation and its sole shareholder.

In seeking dismissal, Mr. Hompesch relies principally upon the claim that the corporations now in issue were Ms. Bonham’s "alter egos," and must be considered with her as one single entity. Given the Alaska Supreme Court’s holding in Willner’s Fuel, however, the court is unpersuaded by this argument. Like Ms. Bonham, the owner of the corporation discussed in Willner’s Fuel was the sole shareholder of the corporation; no other natural persona was in any way involved with the running of the business. In spite of the fact that the practical identity of the owner with the business entity could not have been closer, the Willner’s Fuel court found the attorney representing both to have a conflict of interest and to owe an independent duty to the corporate entity. This court is unable to perceive any meaningful distinction between Willner’s Fuel and the present case. It can identify no basis for imputing Ms. Bonham’s malfeasance to her corporations, where the Alaska Supreme Court declined to accept that imputation in Willner’s Fuel, Willner’s Fuel is dispositive.

Like the attorney in Willner’s Fuel, Mr. Hompesch represented separate clients: Ms. Bonham, a natural person, and her dissolved corporation, World Plus, Inc. and Atlantic Pacific Funding Corporation. The interests of those clients were not identical with respect to corporate assets. The corporations’ interest was in "maximizing [their] share of the proceeds and in dispersing the proceeds to [their] creditors in accordance with the priorities established by law." See id, at 405. Ms. Bonham’s interest, obviously, was in maximizing her individual wealth. Lime the attorney in Willner’s Fuel, Mr. Hompesch put himself in a "sensitive position" by "representing clients with conflicting interests." Id. And, finally, like the attorney in Willner’s Fuel, Mr. Hompesch can be sued on behalf of the corporation for serving the interests of this other client at their expense.² His Motion to Dismiss is DENIED on that ground.

DATED this 23rd day of June, 1999.

/s/ Charles R. Pengilly Superior Court Judge

¹The argument failed for a more fundamental, and more general, reason as well:

The alter ego doctrine is applied to avoid the inequity of one corporation using another corporation to shield itself from liability. Such fraud or inequity must be that of the party against whom the doctrine is invoked and the party must have been an actor in the course of the conduct constituting the abuse of the corporate privilege. The doctrine cannot be applied to prejudice the rights of an innocent third party.

1 W. Fletcher, Private Corporations, §41.20 at 596 (rev. ed. 1999). Even if Willner's Fuel were not dispositive, this principle would preclude Mr. Hompesch from relying on the alter ego doctrine to thwart action by the corporations' creditors in this case. His Motion to Dismiss is DENIED on that ground

²Again, the law of corporations offers an independently sufficient rationale for allowing the trustee's action to go forward:

While a party may itself be denied a right or defense on account of its misdeeds, there is little reason to impose the same punishment on a trustee, receiver or similar innocent entity that steps into the party's shoes pursuance to court order or operation of law. Moreover, when a party is denied a defense under such circumstances, the opposing party enjoys a windfall. This is justifiable as against the wrongdoer himself, not against the wrongdoer's innocent creditors.

F.D.I.C. v. O'Melveny & Myers, 61 F.3d 17, 19 (9th Cir. 1995). The same point was made in somewhat more colorful language by the 7th Circuit:

The appointment of the receiver removed the wrongdoer from the scene. The corporations were no more [the shareholder's] evil zombies. Freed from his spell they became entitled to the return of the monies--for the benefit not of [the shareholder] but of innocent investors.

Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995).

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