Page 13 - John Hundley 2014

Sharp Thinking

No. 113 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. April 2014

Shareholder, Officer Status Not

Required To Pierce Corporate Veil

By John T. Hundley
Jhundley@lotsharp.com, 618-242-0246

Neither share ownership nor officer status is required for Illinois courts to apply the doctrine of piercing
the corporate veil, a panel in the Appellate Court's First District held this month.

Finding that veil piercing had been adequately pleaded in Buckley v. Abuzir, 2014 IL App (1st) 130469,
the court said that "[m]aking officer, director, or shareholder status a prerequisite to veil-piercing elevates
form over substance and is therefore contrary to veil-piercing's equitable nature."

The decision said it was consistent with prior Illinois law, but in fact seems to take that law a step
further in favor of veil-piercing.

Egregious Facts: In Buckley, plaintiff obtained a default judgment against a
corporation for stealing trade secrets. Finding the corporation unable to satisfy the
judgment, plaintiff sought to impose liability upon an individual who allegedly was
"the sole governing and dominating personality of the business enterprise." The
complaint seeking personal liability alleged that the corporation was the individual's
alter ego, and that it never issued any shares, never had elected directors, never had
shareholder or board meetings, never filed annual reports with the state, never paid
any dividends, and was inadequately capitalized at all times. It further alleged that
the corporation was organized "for the express purpose of switching over accounts,
taking customer lists, and using the trade secrets and recipes . . . owned by
Plaintiffs." The trial court held those allegations insufficient to pierce the corporate veil. Hundley

Procedural Argument Rejected: Seeking to sustain the dismissal on appeal, defendant first
argued that imposing liability on him for a judgment in an action in which he had not been named as a
party would violate his rights. The court rejected that argument, stating that under Illinois law "[p]iercing
the corporate veil is not a cause of action, but, rather, a means of imposing liability in an underlying cause
of action" and a party may bring a separate action to pierce the veil for a judgment already obtained
against a corporation.

Moving to the merits of the veil-piercing claim, which it called "the most litigated issue in corporate
law," the panel said veil-piercing was not uncommon in Illinois, being applied in 42% to 52% of the cases
in which it is sought. However, the panel noted that it "occurs almost exclusively in closely held
corporations, especially one-person corporations."

Two-Part Test For Veil-Piercing: The panel said that courts may pierce the corporate veil
"where the corporation is so organized and controlled by another entity that maintaining the fiction of

●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●
Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
advice on your particular situation, contact a Sharp lawyer at the phone number or one of the addresses provided on page 2 of this newsletter.