Piercing the Corporate Veil is a Remedy Not a Cause of Action

The Illinois Appellate Court for the First District recently reviewed a case regarding the piercing of a corporate veil. Piercing the corporate veil is a practice in which a lawyer will prove that the corporation that would otherwise protect its shareowners from personal liability is really a façade or fiction that allows for the “piercing” of that veil to recover from the true owners. The appeals panel reversed a trial court’s decision that dismissed plaintiffs’ claim in a case involving whether the plaintiffs were employees or independent contractors.

Piercing the corporate veil is not a cause of action but instead a “means of imposing liability in an underlying cause of action.”

A firmly established corporate entity stands on its own unless its corporate veil is pierced for different reasons. In many cases, once a party obtains a judgment against a corporation, the party then may attempt to pierce the corporate veil of liability protection and hold the dominant shareholders responsible for the corporate judgment.

In piercing the corporate veil, the objective is to reach assets of an affiliated corporation or individual shareholders.

In this case, the plaintiffs alleged in a count that they were piercing the corporate veil. The trial court probably dismissed the claim when the defendants filed a motion under Illinois Code of Civil Procedure Section 2-615.

However, the court in its decision found that the plaintiffs’ factual allegations that the defunct predecessor corporation and its successor were alter egos of each other, commingled one another’s funds and made improper loans to each other were sufficient to state a claim for piercing the corporation’s veil as a remedy (not a separate cause of action).

The court applied Illinois’ established successor liability rules to both the defunct and current employers. A company that purchases another company’s assets normally is not responsible for the purchased company’s debt.

Exceptions to the rule include: (1) where there is an expressed or implied agreement or assumption of liability; (2) where a transaction amounts to a consolidation or merger of the buyer and seller company; (3) where the buying entity is a “mere continuation” of the selling predecessor entity; and (4) where the transaction is fraudulent in that it is done so that the selling entity can evade liability for its financial obligations.

The appellate court reversed the dismissal under Section 2-619 because the motion did not assert an “affirmative matter that would defeat the cause of action.” The court held that an affidavit was not a proper affirmative matter under Section 2-619. As a result, the court found that the trial court erred in granting the defendant’s Section 2-619 motion.

This case stands for a fair analysis of pleading a piercing of a corporate veil as a remedy not a cause of action.

Gajda v. Steel Solutions Firm, Inc., 2015 IL App (1st) 142219.

Kreisman Law Offices has been handling shareholder litigation, commercial litigation, business disputes and trial practice for more than 38 years, in and around Chicago, Cook County and its surrounding areas including, Arlington Heights, Bridgeview, North Riverside, Riverdale, Calumet Park, Blue Island, Oak Lawn, Justice and Brookfield, Ill.

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