site
stats

You have no items in your shopping cart.

Subtotal: Call for Quote


Concise Memo on Illinois CorporateLaw

(I) Illinois cases that support the argument that a shareholder or officer of a corporation cannot be held personally liable for injuries sustained by an employee of that corporation:

1. JMH PROPERTIES, INC., D/B/A QUINCY BUILDING MATERIALS v. THE INDUSTRIAL COMMISSION et al 332 Ill. App. 3d 831 (2002)

An employee was injured in a work-related accident and he filed two claims for workers’ compensation benefits: the first seeking compensation from the company that employed him and the second seeking compensation from the principal stockholder of that company. An arbitrator awarded the employee temporary benefits and medical expenses, but denied the employee’s claim against the stockholder. Six months later, the employee filed a lawsuit against the company and the stockholder, alleging that he had not been paid. The trial court entered judgment against the company, but it refused to pierce the corporate veil and dismissed the employee’s action against the stockholder.

The employee appealed the judgment dismissing his claim against the stockholder, but abandoned his appeal. Thereafter, the employee filed a new complaint with the Industrial Commission that asked it to pierce the corporate veil. The Commission agreed and issued an order holding the stockholder personally liable for the judgment against his company. The appellate court held that the Commission exceeded its authority under the Illinois Worker’s Compensation Act, 820 Ill. Comp. Stat. Ann. 305/1 et seq. (West 2000). The Court of Appeals held that the Illinois Act specifically provides for the award of additional compensation and attorney fees when an employer delays or fails to make payments pursuant to an award. 820 Ill. Comp. Stat. Ann. 305/16, 19(k), (l) (West 2000).

However, the Act does not grant the Illinois Industrial Commission the power to grant equitable relief, such as the piercing of the corporate veil when an employer does not pay an award, nor does the Act provide for individual liability against a corporation’s officers and directors or its shareholders. Any alteration in the Act so as to allow the piercing of the corporate veil and reaching officers, directors, and shareholders must come from the legislature and not the courts.

2. WEBB v. WEBB 180 Ill. App. 3d 619 (1989)

The claimant obtained a judgment against a corporation for workers’ compensation benefits, which included sanctions and attorney fees. The corporation became insolvent and the claimant filed an action against the sole stockholder of the corporation to collect on the unsatisfied award. The trial court dismissed his complaint for failure to state a claim and he challenged the decision. On appeal the court affirmed and held that claimant failed to prove that corporation was an alter ego of the stockholder. There was no statutory authority for holding a corporate officer or stockholder responsible for the workers’ compensation claims against a corporation and the claimant failed to show any factors that would justify piercing the corporate veil.

3. JACOBSON v. BUFFALO ROCK SHOOTERS SUPPLY 278 Ill. App. 3d 1084 (1996)

Two employees were killed in an explosion while working for the corporate employer. The employees’ survivors sought recovery from the corporation’s shareholders, two of which were also killed. The Court of Appeals found that the evidence did not support piercing the corporate veil and imposing liability on the shareholders. Thus, the trial court’s ruling was not against the manifest weight of the evidence. The court did not agree with the survivors that the employer did not observe corporate formalities. The bare fact that two businesses owned by a shareholder operated out of the same building did not show that corporate funds or assets were commingled with the funds or assets of the shareholder’s separate businesses. The court concluded that the employer was adequately capitalized. There was no evidence presented that the employer minimized its assets to the detriment of its creditors or was undercapitalized in relation to the amount of business conducted or its corporate obligations. Also, the employer’s failure to obtain workers’ compensation insurance was not an adequate basis for piercing the corporate veil.

4. MAX SHEPARD, INC. v. THE INDUSTRIAL COMMISSION, et al 348 Ill. App. 3d 893 (2004)

The Court of Appeals held that The Illinois Workers’ Compensation Act, 820 Ill. Comp. Stat. Ann. 305/1 et seq. (1998), does not provide for individual liability against corporate officers and directors, and the Illinois Industrial Commission lacks the power to pierce the corporate veil even in circumstances where a corporate employer does not, or cannot, pay an award.

5. LYLE PEDERSON v. PARAGON POOL ENTERPRISES 214 Ill. App. 3d 815 (1991)

The facts of the case were that the victim was injured while he was cleaning a condominium’s pool and filter. The victim filed an action but failed to attach a summons, the action was never served on the defendant, and over a year later, the victim obtained a voluntary dismissal of the action. A year after the dismissal, the victim refiled the action, but it was dismissed for want of prosecution. A month after that dismissal, the trial court reinstated the action. The pool company filed a motion raising the issue of forum non convenience, then filed an answer. The pool company filed a motion for summary judgment, and the victim responded by attempting to persuade the court to pierce the pool company’s corporate veil. The trial court granted the summary judgment motion and denied the victim’s motion. The victim sought review. The court held that the victim did not present evidence that would have justified piercing of the corporate veil, and that the trial court properly entered summary judgment in favor of the pool company.

The court affirmed the trial court’s findings and held that:

“Piercing a corporate veil is a task which courts should undertake reluctantly. In order to pierce the corporate veil: (1) there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, (2) and circumstances must be such that an adherence to the fiction of a separate corporate existence would promote injustice or inequitable consequences. A party seeking to have a corporate identity disregarded must come forward with a substantial showing that one corporation is really a dummy or sham for another.”

(II) Illinois cases that support the “piercing of the corporate veil” concept.

1. ELEANOR GALLAGHER v. RECONCO BUILDERS, INC.
91 Ill. App. 3d 999 (1980)

The court held personal liability should be imposed upon a shareholder operating a corporate contracting firm which failed to complete a construction job as agreed. The court stated that a corporate entity will be disregarded where it would otherwise present an obstacle to the protection of private rights and where the corporation is merely the alter ego of a dominating personality. The court went on to say that the decision to disregard the corporate entity involves the consideration of many factors, such as

Inadequate capitalization;
failure to issue stock;
failure to observe corporate formalities;
nonpayment of dividends;
insolvency of the debtor corporation at the time;
nonfunctioning of other officers or directors;
absence of corporate records; and
whether in fact the corporation is only a mere facade for the operation of the dominant stockholders.

2. PEOPLE v. V& M INDUS., 298 Ill. App. 3d 733 (1998)

In this case the Plaintiff state brought an action against a corporation for civil penalties under the Illinois Environmental Protection Act (IEPA), 415 Ill. Comp. Stat. 5/1 et seq. (1994), for burning 40,000 tires. The corporation was then dissolved. Plaintiff then brought an action against defendant individual, as the corporation’s alter ego. The trial court dismissed the action because defendant was not personally liable for his actions or for violations of the IEPA. Plaintiff appealed from the decision, arguing that the trial court erred in failing to find defendant responsible for air pollution. The court reversed, holding that the trial court’s refusal to pierce the corporate veil and refusal to hold defendant personally responsible was against the manifest weight of the evidence.

The court found that the corporation was undercapitalized. No stock was issued. The corporation failed to observe corporate formalities. No dividends were paid. The corporation was insolvent at the time of the trial. The corporate officers and directors were nonfunctioning. There were no corporate records. And the corporation was a mere facade for the operation of the dominant stockholder, defendant. Therefore the court reversed the lower court’s judgment that defendant individual was not liable for a corporation’s violation of the Illinois Environmental Protection Act by burning 40,000 tires. The court held that the lower court’s refusal to pierce the corporate veil and refusal to hold defendant personally responsible was against the manifest weight of the evidence.

It further held that in determining whether to disregard a corporate entity, a court should consider the following variables, with no single factor being determinative:

Inadequate capitalization;
failure to issue stock;
failure to observe corporate formalities;
nonpayment of dividends;
insolvency of the debtor corporation at the time;
nonfunctioning of other officers or directors;
absence of corporate records; and
whether in fact the corporation is only a mere facade for the operation of the dominant stockholders.

3. EASTERN SEAFOOD CO. v. BARONE 252 Ill. App. 3d 871 (1993)

In this case, the court held in favor of piercing the corporate veil. Defendant argued that he cannot be held personally liable for the debts because he was acting as an officer of the restaurant. Plaintiff, a supplier who was owed money from the restaurant sued Defendant in his personal capacity. The Court of Appeals held that the evidence at the trial court evidenced that plaintiff satisfied its burden of establishing that Defendant exercised dominion and control over the restaurant individually rather than in a corporate capacity.

The Court explained that for the doctrine to apply, two requirements must be met: First, there must be such a unity of interest and ownership that the separate personalities of the corporation and the dominating individual or entity no longer exist. Second, the facts must be such that an adherence to the fiction of separate corporate existence would endorse a fraud or promote injustice.

The Court noted that the trial court had found that plaintiff’s witnesses were convincing and that defendants’ were not. Plaintiff’s witnesses testified to the effect that the operation of the restaurant during the relevant period was at least a partnership, if not Defendant’s sole proprietorship. The Court reasoned that Defendant used the restaurant for his personal benefit as well (e.g., taking money from the cash register at will), without regard for the corporations’ separate identities. The Court ultimately held:

“In short, although sole stockholders in close corporations may play an active role the management of the corporation’s affairs, Barone’s [Defendant] conduct was inconsistent with the existence of the separate corporate personality required for limited liability, so to adhere to the fiction in this case would promote injustice.”

Id. at 879.