The Road to El Dorado: The “Rust” Shooting, Hollywood Loan-Out Companies, and Holding Shareholders Accountable

Introduction

In October 2021, cinematographer Halyna Hutchins was fatally shot on the set of Rust by the film’s star and producer, Alec Baldwin.  Following the tragic accident, Hutchins’ widower, Matthew Hutchins, filed a wrongful death suit in New Mexico, where Rust was being filmed.¹[1]Compl. for Wrongful Death and Loss of Consortium, 1-29, Hutchins et. al. v. Baldwin et. al. (N.M. Dist. Ct. 2022). Among the named defendants were Alec Baldwin and his loan-out company, El Dorado Pictures.²[2]Id. The other defendants were the various production companies involved in the film’s development and several key crew members including the film’s producers, first assistant director, prop master, and armorer.³[3]Id. While the suit was eventually settled out of court,⁴[4]Jonathan Capriel, Alec Baldwin Settles With Family of ‘Rust’ Cinematographer, LAW360 (Oct. 5, 2022, 12:59 p.m.), https://www.law360.com/articles/1537430/alec-baldwin-settles-with-family-of-rust-cinematographer certain elements of the complaint–the naming of both Baldwin and his loan-out company as parties to the suit and the factual allegations–prompted a discussion about the legal strategies that exist to hold employee-owners liable for misconduct.

The Hollywood Loan-Out Company and The Corporate Veil

A loan-out company is “a corporation with the principal activity of which is the performance of personal services,” with such personal services being “substantially performed by employee-owners”.⁵[5]I.R.C. § 269A(b)(1). Hollywood cast and crew members, including A-list actors like Alec Baldwin, typically use loan-out companies as the vehicle for providing their services to a film production.

Loan-out companies are favored for their tax-saving benefits.  However, another essential benefit of the loan-out company is that it shields the service-provider from personal liability.⁶[6]Id. For example, in Main Line Pictures, Inc. v. Basinger, the California Court of Appeals reversed a jury verdict finding the actress Kim Basinger liable for breaching a contract to star in a film because of ambiguity as to whether the contract was made with Basinger as an individual or with her loan-out corporation.  The court observed that “corporations are separate legal entities, distinct from their shareholders and officers,” and that “the liability of a corporation does not automatically attach to its shareholders, the owners of the corporation,” even where a corporation’s stock is owned by a sole shareholder.⁷[7] Main Line Pictures, Inc. v. Basinger, 1994 WL 914244 (Cal. Ct. App. 1994) at 4. The court thus held that “[Basinger’s loan-out company]…was…a separate corporate entity distinct from Basinger that could not create liability for her with its actions,”⁸[8]Id. highlighting the separability that the law recognizes between the loan-out corporation and the entertainer-owner.

On the other hand, just as a court may find that a corporation is a separate legal entity from its shareholder, it may also find that a corporation “lacks a separate identity from an individual…shareholder” or is considered an alter ego of the shareholder.”⁹[9]Legal Information Institute, Cornell Law School, Wex: Alter Ego (last visited Mar. 18, 2023), https://www.law.cornell.edu/wex/alter_ego#:~:text=Alter%20ego%20is%20a%20legal,respect%20to%20their%20limited%20liability. If a court considers a corporation to be an alter ego of a shareholder, it may “pierce the protections offered by the corporate entity,” a process called “piercing the corporate veil.”¹⁰[10]Robert C. Lind and Zeina Hamzeh, Use of Loan-Out Corporations in the Entertainment Industry, 17 ANDREWS ENT. INDUS. LITIG. REP. 2 (2006). Specifically, piercing the corporate veil “refers to a situation in which courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s actions or debts.”¹¹[11]Legal Information Institute, Cornell Law School, Wex: Piercing the Corporate Veil (last visited Mar. 18, 2023), https://www.law.cornell.edu/wex/piercing_the_corporate_veil.

However, piercing the corporate veil to hold shareholders and officers derivatively liable for the corporation’s actions or debts is not the sole method of obtaining relief from shareholders and officers.  For example, the corporate form “has never provided insulation for an individual committing a tortious act, even if the individual purported to be acting as an officer or otherwise in the name of the corporation.”¹²[12] O’Kelley, Thompson, and Lund, Corporations and Other Business Associations: Cases and Materials (9th ed. 2022) at 666. In such instances, a court may hold a corporate shareholder directly liable for their participation in the commission of a tortious act, without having to ever meet the high burden of proof to warrant corporate veil-piercing.

Derivative Liability: Piercing the Corporate Veil in New Mexico

As an A-list actor who has earned tens of millions of dollars over the course of his career, it comes as no surprise that Alec Baldwin has a loan-out company.  In fact, several of the claims filed identify both Baldwin and his loan-out company, El Dorado Pictures, as parties.¹³[13]Compl. for Wrongful Death and Loss of Consortium, 1-29, Hutchins et. al. v. Baldwin et. al. (N.M. Dist. Ct. 2022) These claims include the wrongful death suit filed by Matthew Hutchins,¹⁴[14]Id. a negligence suit filed by Rust crewmembers,¹⁵[15]Meg James, Alec Baldwin and ‘Rust’ Producers Sued by Crew Members Over Fatal Shooting, L.A. Times (Feb. 27, 2023, 2:43 p.m.), https://www.latimes.com/entertainment-arts/business/story/2023-02-27/alec-baldwin-and-rust-producers-sued-by-crew-members-over-fatal-shooting. a civil suit filed by Hutchins’ family,¹⁶[16]Josh Dickey, Alec Baldwin, ‘Rust’ Producers Hit With New Lawsuit From Halyna Hutchins’ Parents and Sister,  The Wrap (Feb. 9, 2023, 12:25 p.m.), https://www.thewrap.com/alec-baldwin-rust-producers-lawsuit-halyna-hutchins-family/. and a civil suit filed by script supervisor Mamie Mitchell.¹⁷[17]Dana Kennedy, LA Judge Nixes Most Claims In Script Supervisor’s ‘Rust’ Suit Against Film’s Producers, N.Y. Post (Sept. 17, 2022, 12:50 p.m.), https://nypost.com/2022/09/17/la-judge-nixes-claims-in-rust-suit-against-films-producers/.

In New Mexico, where Matthew Hutchins’ claim of wrongful death was filed, scholars have noted that there appears to be a “conservative” corporate veil-piercing policy.”¹⁸[18]Stephen B. Presser, Piercing the Corp. Veil, §2.32, New Mexico, Stephen B. Presser (Sept. 2022). In Scott v. AZL Resources, Inc., the Supreme Court of New Mexico noted that “only under special circumstances will the courts disregard the corporate entity to pierce the corporate veil holding individual shareholders or a parent corporation liable.”¹⁹[19]Scott v. AZL Resources, Inc., 106 N.M. 118, 121 (Sup. Ct. N.M. 1988). The court further specified that these “special circumstances” included instances “where the corporation was set up for fraudulent purposes or where to recognize the corporation would result in injustice,” and specified three elements that must be satisfied to pierce the corporate veil.²⁰[20]Id. These elements were recently reiterated in 2015 by the New Mexico Court of Appeals in Morrissey v. Krystopowicz.²¹[21]Morrissey v. Krystopowicz, 365 P.3d 20, 23-4 (NM Ct. App. 2015). First, the court must find that the alter ego doctrine applies, thus finding that the corporation and the shareholder are inextricably linked.²²[22]Id. Second, the court must find some “moral culpability attributable to the shareholder.”²³[23]Id. Third, the court must find a “reasonable relationship between the injury suffered by the plaintiff and the actions of the defendant.”²⁴[24]Id.

With so much uncertainty still surrounding  the Rust incident and the status of El Dorado, Baldwin’s loan-out company, it is difficult to determine whether Hutchins would have satisfied the Scott factors in the settled wrongful death suit.  Regardless, it is worth discussing what the court’s analysis would have looked like had this case went to court.

First Factor: Alter Ego

Under the first factor, New Mexico courts require a showing that the corporation “was operated not in a legitimate fashion to serve the valid goals and purposes of that corporation but it functioned instead under the domination and control and for the purposes of some dominant party.”²⁵[25]Scott, 106 N.M. 121. The wrongful death complaint suggested that El Dorado, along with the other involved production companies, failed to provide the Rust production with adequate talent and failed its duty to enforce safety protocols, all in the pursuit of diminished production costs. ²⁶[26]Compl. for Wrongful Death and Loss of Consortium, 1-29, Hutchins et. al. v. Baldwin et. al. (N.M. Dist. Ct. 2022). Specifically, the complaint claimed that Rust’s production companies, including El Dorado, were “responsible for the safe use of firearms on set and the safety of its cast and crew.”²⁷[27]Id. The complaint recounted that “on two separate occasions prior to the shooting of Ms. Hutchins, guns on the Rust Production had been discharged in an unsafe manner while loaded with ammunition.”²⁸[28]Id. Following these incidents, crew members complained to supervisors about on-set safety, which were ignored.²⁹[29]Id.

As the wrongful death complaint alleged, El Dorado was “contracted by the Rust Production to provide production, talent, and writing services.”³⁰[30]Compl. for Wrongful Death and Loss of Consortium, 1-29, Hutchins et. al. v. Baldwin et. al. (N.M. Dist. Ct. 2022). The expectation that the parties providing these services have adequate training, background, and experience was inherent to the contract.  By failing to fulfill its duties in apparent pursuit of reduced costs it appears that El Dorado was not operated, by Baldwin and potentially others, “in a legitimate fashion to serve the” company’s stated goals and purposes, and thus could be considered an alter ego of Baldwin.³¹[31]Morrissey, 365 P.3d at 23-4. Of course, courts rely on a number of factors when assessing whether the shareholder is the alter ego of the corporation, including but not limited to “the commingling of funds and other assets; the number or identity of the shareholders; directors and officers of the corporation…and the corporation’s compliance with the corporate form and formalities…”³²[32]Lind and Hamzeh supra note 10. Without clear evidence to satisfy some or all of these specific factors, it is difficult to determine whether Baldwin himself had sufficient control over El Dorado to render the company his alter ego.

Second Factor: Moral Culpability

While the Morrissey court emphasized the importance of finding moral culpability, neither that decision nor the Scott decision offered a clear definition of that concept. As an example of moral culpability, both decisions mention “use of the subsidiary to perpetrate a fraud.” ³³[33]Id.While cutting corners on set could constitute recklessness, negligence, and bad business practice, such conduct is unlikely to constitute fraud.  The use of the words “moral culpability” insinuate intention behind action.  However, without a clear definition of the concept, it is inconclusive whether the El Dorado’s cost-cutting in this case would satisfy the second factor. 

Third Factor: Proximate Cause

Assuming arguendo that El Dorado’s actions satisfied the first and second Scott factors, there clearly is proximate cause here. The Morrissey court stated that in New Mexico, “the plaintiff must show that the control and breach of duty proximately caused the injury or unjust loss.” ³⁴[34]Id. The wrongful death complaint provided evidence that highlighted the alleged ways in which El Dorado, Baldwin, and the other leaders on the Rust production breached their duty to ensure safety on the Rust set, and how this led to the reckless handling of firearms. Hutchins’ death was a direct result of a failure to adhere to gun safety protocol, thus establishing proximate cause between Baldwin/El Dorado’s alleged non-compliance and Hutchins’ tragic death.

Direct Liability: Committing a Tortious Act in New Mexico

As noted, in tort cases, piercing the corporate veil is not the only means by which a plaintiff may seek recourse against a corporation’s shareholders. Baldwin is named as an individual in the wrongful death suit, which prompts a discussion about the kind of direct liability he could have faced had this suit went to trial.

New Mexico law defines wrongful death as occurring “whenever the death of a person [is] caused by the wrongful act, neglect or default of another.”³⁵[35]NM Stat §41-2-1 (2022). Matthew Hutchins’ wrongful death complaint alleged that Baldwin failed to satisfy his personal duty to learn gun safety rules and adhere to basic gun safety rules on set.³⁶[36]Compl. for Wrongful Death and Loss of Consortium, 1-29, Hutchins et. al. v. Baldwin et. al. (N.M. Dist. Ct. 2022). One of a film producer’s key roles is hiring crewmembers. In his capacity as a producer, Baldwin’s involvement in the hiring of Rust’s crewmembers, specifically in the hiring of armorer Hannah Gutierrez-Reed, is still being contested.³⁷[37]Gene Maddaus, D.A. and OSHA Disagree on Alec Baldwin’s Culpability as ‘Rust’ Producer (EXCLUSIVE), VARIETY (Feb, 22, 2023, 9:20 a.m.), https://variety.com/2023/film/news/alec-baldwin-rust-producer-da-osha-1235531157/. Regardless, as an actor, Baldwin had an obligation to learn and adhere to gun safety rules on set.³⁸[38]Compl. for Wrongful Death and Loss of Consortium, 1-29, Hutchins et. al. v. Baldwin et. al. (N.M. Dist. Ct. 2022). When one reviews Baldwin’s firing of the gun in a vacuum, excluding the negligent and reckless behavior leading up to the incident itself, it is quite stunning that a career actor like Baldwin made such a massive error.

Of course, Baldwin is not the only member of the cast or crew who could have been held directly liable for Halyna Hutchins’ death.  The wrongful death complaint named producers Ryan Donnell Smith, Nathan Klingher, Ryan Winterstein, Anjul Nigam, Matthew Delpiano, Ryan Dennett-Smith, Gabrielle Pickle, and Katherine Walters as individual defendants, separate from their respective production companies.³⁹[39]Id. Moreover, the complaint named armorer Hannah Gutierrez-Reed, armorer assistant Seth Kenney, props master Sarah Zachry, first assistant director and safety mentor David Halls, executive producers Chris M.B. Sharp, Jennifer Lamb and Emily Salveson as individual defendants as well.⁴⁰[40]Id. As the wrongful death complaint underscores, “every member of the production, cast and crew alike, was at all times required to follow industry protocols and adhere to basic gun safety rules.” ⁴¹[41]Id. As producers, props masters, armorers, and first assistant directors, these individuals shared heightened duties to manage on-set safety. Baldwin’s liability as the one who pulled the trigger clearly implicated him.⁴²[42]Id. This begs the question whether the involvement of these named individuals mitigate Baldwin’s liability to any degree?

The Court of Appeals of New Mexico answered this question in Gulf Insurance Co. v. Cottone.⁴³[43]Gulf Ins. Co. v. Cottone, 140 N.M. 728 (N.M. Ct. App. 2006). In that case, the court explained that New Mexico is “a pure comparative fault state,” meaning that “when concurrent tortfeasors negligently cause a single, indivisible injury, the general rule is that each tortfeasor is severally responsible for its own percentage of comparative fault for that injury.” ⁴⁴[44]Id. at 5.Similarly, the state law of New Mexico states that where several liability is found, the liable defendants will only be responsible for the portion of damages that “is equal to the ratio of such defendant’s fault to the total fault attributed to all persons,” including co-defendants.⁴⁵[45]N.M. Stat. § 41-3A-1 (2021).

Pursuant to comparative fault analysis, Hutchins’ death certainly qualifies as a single, indivisible injury. Which exact oversight led to Hutchins’ death has been a hotly contested point of conversation since the tragedy occurred.  The impression has been that the Rust set was plagued with multiple coincident oversights that appear to be indistinguishable from each other.  Managing on-set safety was a concerted effort among these named defendants,⁴⁶[46]Compl. for Wrongful Death and Loss of Consortium, 1-29, Hutchins et. al. v. Baldwin et. al. (N.M. Dist. Ct. 2022). meaning that any and all of these individual defendants, Baldwin included, likely could have been held directly liable for the wrongful death of Halyna Hutchins. 

Civil cases, like wrongful death suits, only require a showing by a preponderance of the evidence.⁴⁷[47]Legal Information Institute, Cornell Law School, Wex: Preponderance of the Evidence (last visited Apr. 13, 2023), https://www.law.cornell.edu/wex/preponderance_of_the_evidence. Had the claim proceeded to court, it appears that Matthew Hutchins certainly could have proven that Baldwin’s own oversight and negligence was, more likely than not, the cause of Halyna Hutchins’ death, and he would have likely been able to hold Baldwin directly liable for his tortious conduct.  However, it is equally likely that Baldwin’s own liability would have, to an extent, been mitigated by that of his co-defendants.

Final Remarks

While the particulars of the wrongful death settlement are confidential, it appears that Matthew Hutchins’ attorneys strategically pleaded the complaint to name all entities who could be held liable for the tragic death of Halyna Hutchins.  By naming Baldwin individually, Hutchins’ attorneys offensively prepared for the possibility that El Dorado’s corporate veil would be impenetrable and thus able to absolve Baldwin of direct liability for Hutchins’ death.  This complaint exemplifies the different kinds of recourse that may be pursued when attempting to implicate shareholders of companies who allegedly cause harm, and should signal to entertainment attorneys, business managers, agents, and entertainers alike that the loan-out company structure is not infallible.

Written by: Haley Zenenberg
Haley is a 2024 J.D. Candidate at Brooklyn Law School