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Sea-Land Servs., Inc. v. Pepper Source - 993 F.2d 1309 (7th Cir. 1993)

Rule:

To pierce a corporate veil under Illinois law, a plaintiff must demonstrate that there is such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice. 

Facts:

Sea-Land, an ocean carrier, provided shipping for Pepper Source (PS), and obtained a default judgment against PS in its action to recover payment for its services. Sea-Land could not collect on the default judgment because PS had been dissolved without assets. Sea-Land then filed the instant action against the individual owner of PS, and four other corporations he owned, to recover on the default judgment on the basis of "reverse piercing" of the corporate veil. The district court granted Sea-Land's motion for summary judgment, which the United States Court of Appeals for the Seventh Circuit reversed, and remanded the case on grounds that Sea-Land failed to show some wrong by the owner and the corporations other than the inability of Sea-Land to collect on the default judgment. On remand, additional discovery was permitted, and the district court entered judgment for Sea-Land. Appellants appealed.

Issue:

Did Sea-Land produce sufficient evidence to support recovery on the basis of "reverse piercing" by establishing wrongs by appellants beyond the inability of Sea-Land to collect on the default judgment against PS?

Answer:

Yes.

Conclusion:

The court affirmed the district court's judgment awarding Sea-Land damages because Sea-Land showed "wrongs" necessary to support a claim of reverse piercing by demonstrating that either the owner used corporate facades to avoid responsibilities to creditors or that it would be "unjustly enriched" where its adherence to separate corporate existence promoted fraud or injustice. To pierce a corporate veil under Illinois law, a plaintiff had to demonstrate that there was such unity of interest and ownership that the separate personalities of the corporation and the individual no longer existed, and that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice. Sea-Land established that the owner used the corporations to avoid responsibilities to creditors and for personal expenses, while leaving the corporations without assets to meet liabilities. The owner's accountant testified regarding the owner's participation in illegal transactions and disregard of the tax code.

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