Summary
The Seventh Circuit reviewed whether the corporate veil could be pierced to hold related entities liable for unpaid pension and union obligations of construction companies. The court affirmed liability for Lay-Com, Inc. and Lord & Essex, Inc., affirmed dismissal of John J. Popp Jr., and reversed the imposition of liability on the Lay Trust. The court also addressed the award of attorneys' fees.
Topics
Practice areas
Questions Presented
- Whether Illinois law permitted piercing M.A. King's corporate veil to hold Lay-Com liable for M.A. King's and King & Larsen's pension and union obligations.
- Whether Illinois law permitted piercing M.A. King's corporate veil to hold Lord & Essex liable based on its role in the asset-transfer scheme and its disregard of corporate separateness.
- Whether the evidence supported veil-piercing liability against the Lay Trust.
- Whether John J. Popp Jr. was individually liable for M.A. King's obligations.
- Whether the district court abused its discretion in awarding attorney fees to the funds despite the partial reversal.
Holdings
- Lay-Com was liable through M.A. King's corporate veil because it exercised substantial control over M.A. King's financial affairs, M.A. King was wholly undercapitalized, and preserving the corporate form would promote the injustice of leaving liabilities in one corporation while assets were transferred to another.
- Lord & Essex was properly held liable by piercing M.A. King's veil because it was an integral participant in the transactions that stripped King & Larsen of assets while leaving its pension and union liabilities behind.
- The Lay Trust could not be held liable because the record did not show that it participated in the relevant transaction scheme, controlled M.A. King, disregarded its corporate form, or contributed to its undercapitalization.
- John J. Popp Jr. was not individually liable because his involvement was limited to serving as an officer and director and he did not use M.A. King for personal benefit, commingle personal funds, or otherwise act as a dominant personality.
- The district court did not abuse its discretion in awarding attorney fees to the funds, and the partial reversal on the merits did not require reversal or reduction of the award.
Key quotations
“An exception exists when an "individual or entity uses a corporation merely as an instrumentality to conduct that person's or entity's business."” (at 610)
“The standard test for piercing the corporate veil is two-pronged.” (at 611)
“What is clear, though, is that there must be some equity.” (at 614)
“They cannot have it both ways.” (at 614)
“They cannot avoid liability by hiding behind such an arrangement.” (at 614)
“A court may not make up for a lack of evidence by assigning only contingent liability to an otherwise blameless defendant.” (at 615)
Factual background
King & Larsen, a unionized construction subcontractor, fell behind on pension contributions and union dues. Its assets were transferred through Lord & Essex and Lay-Com to newly formed M.A. King, while King & Larsen retained substantial tax and union liabilities. M.A. King had no actual equity capital, was controlled financially by Lay-Com, operated with the same business infrastructure and personnel, and failed to pay the obligations assigned to it. The Lay Trust made undocumented payments to M.A. King but was not shown to have participated in or controlled the asset-transfer scheme.
Procedural history
The funds obtained default judgments against King & Larsen Construction, M.A. King Construction, and Mike King for unpaid pension and union obligations. After adding Lay-Com, Lord & Essex, the Lay Trust, and John J. Popp Jr. as defendants, the district court granted summary judgment holding Lay-Com, Lord & Essex, and the Lay Trust liable for $2,487,723.62 and dismissed Popp Jr. The Seventh Circuit affirmed the veil piercing as to Lay-Com and Lord & Essex, affirmed dismissal of Popp Jr., reversed as to the Lay Trust, dismissed the trust from the case, and affirmed the attorney-fee award.
Remand instructions
The judgment was affirmed in part and reversed in part. The Lay Trust was to be dismissed from the case. The dismissals of John J. Popp Jr. and the attorney-fee award were affirmed.