The Illinois Appellate Court for the First District in Chicago has found that a person can be held liable for a corporation’s debt even if he or she is not an officer or shareholder of the corporation.
In a case that amounts to a decision of wide-ranging implications and one of first impression on Illinois, the appeals court found that a default judgment in the amount of $421,582 against Palos Heights-based Silver Fox Pastries Inc. led to a judgment against an individual corporate “alter ego,” the defendant Haitham Aduzir.
The lawsuit brought against Silver Fox Pastries was for violations of the Illinois Trade Secrets Act. In that lawsuit, first filed in 2006, the plaintiff John Buckley claimed that Silver Fox was a direct competitor of his business, Momma Gramm’s Bakery Inc. and that it had hired away two of its employees.
In addition, it was alleged that Silver Fox also managed to take Momma Gramm’s recipes, trade secrets and customer lists.
Because the plaintiff in the case was unable to recover on its judgment from Silver Fox, the plaintiff John Buckley and Momma Gramm’s filed a separate lawsuit in June 2010 to pierce Silver Fox’s corporate veil. The plaintiffs in that case alleged that Silver Fox was the corporate “alter ego” of the defendant Haitham Aduzir.
Corporations are legally distinct from individuals and the people behind them. Piercing the corporate veil is used to pursue the personal assets of an individual involved with the corporation when protection of the corporation would promote unjust or inequitable result.
According to the Illinois Secretary of State records, Ali Alsahli was the corporation’s registered agent from the time Silver Fox was incorporated in May 2006 until it was dissolved, following the default judgment against it in October 2007. In the complaint filed against the individuals, Buckley claimed that Alsahli is Aduzir’s brother-in-law.
Aduzir filed a motion to dismiss in September 2012. He argued that the corporate veil should not be pierced as he was never a director, officer, employee or shareholder of the corporation. The Circuit Court judge considered the motion and agreed, dismissing the case with prejudice.
The plaintiff, John Buckley, took this appeal arguing that the plaintiff’s complaint should not have been dismissed because it alleged sufficient facts. Aduzir did not contest that there was no separation between himself and Silver Fox. He instead argued that Illinois courts could pierce the corporate veil only to impose liability on shareholders, officers, director or employees. He maintained that he did not fit any of those categories.
The opinion written by Justice James R. Epstein searched other states’ decisions and the federal courts for guidance on this issue. Other jurisdictions and courts are split on who a veiled-piercing claim may reach. Most states allow it against non-shareholders. The appellate court found that Illinois was in the majority by finding that one who does not have shareholder status or officer, director or employee status could still be found liable in a veiled-piercing action.
The appellate court found that shareholder status is only one factor among others in a veil-piercing. In this case, it was decided that Aduzir could not be a shareholder because there were no shareholders. The company never issued stock to anyone. The court went on to rule whether it would be inequitable if Silver Fox and Aduzir were legally indistinct. After considering all of the issues, the court found that the district court’s dismissal of the complaint must be reversed and returned to the trial judge for further disposition allowing a fact finder to determine the outcome.
Kreisman Law Offices has been handling corporation matters, business litigation, partnership law and contract disputes for individuals and businesses for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Rosemont, Riverdale, Rolling Meadows, Westmont, Wheeling, Vernon Hills, Buffalo Grove, Northbrook, Northfield and New Lenox, Ill.
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