The Laya test raises two issues in piercing the corporate veil for breach of contract. First, is the unity of interest and ownership such that the separate personalities of the corporation and the individual shareholder no longer exist. Second, does an equitable result occur if the acts are treated as those of the corporation alone. Numerous factors have been identified as relevant in making this determination.
Plaintiff-appellant Kinney Shoe Corporation brought action against Lincoln M. Polan seeking to recover money owed on a sublease between Kinney and Industrial Realty Company. Polan is the sole shareholder of Industrial. Finding two prong test in Laya satisfied, the district court found that Polan was not personally liable on the lease between Kinney and Industrial. Kinney appealed asserting that the corporate veil should be pierced.
Could the corporate veil be pierced?
Although agreeing that two-part Laya test was met, Court reversed and remanded because, under totality of the circumstances, district court clearly erred applying Laya's permissive third prong since even if it applied to creditors like Kinney, it did not prevent Kinney from piercing the corporate veil in this case. Because Polan failed to follow corporate formalities and invested nothing in his company, appellant could pierce the corporate veil.