Brief Fact Summary. Kenny and Peggy Baatz (Baatz) attempt to pierce the corporate veil of Arrow Bar, Inc., to hold the individual shareholders, Defendants, Edmond and LaVella Neuroth personally liable for their injuries.
Synopsis of Rule of Law. A summary judgment motion will be granted only there exists no genuine issues of material fact. A corporation is considered a separate legal entity until there is a sufficient reason to indicate that the corporate veil should be pierced.
Issue. Whether there is a genuine issue of material fact based on the above four arguments that supports that the corporate veil should be pierced making Edmond and LaVella personally liable to Baatz?
Held. No. The trial court’s grant of summary judgment to dismiss the individual defendants is affirmed because there are no facts to support that the corporate veil should be pierced based on the four arguments above.
Dissent. The corporation is an instrumentality of “three shareholders, officers, and employees.” Thus, the “corporation has no separate existence,” but was incorporated as a “shield against individual liability.”
Discussion. Factors that courts will consider to determine whether to pierce the corporate veil are: “1) fraudulent representation by corporation directors; 2) undercapitalization; 3) failure to observe corporate formalities; 4) absence of corporate records, 5) payment by the corporation of individual obligations; or 6) use of the corporation to promote fraud, injustice, or illegalities.”
A personal guarantee that imposes individual liability for a corporate obligation supports the recognition of a corporate entity. Further, the personal guarantee of a loan is a contractual agreement and cannot be used to impose tort liability.
Baatz fails to demonstrate how the corporation is Edmond and LaVella’s alter ego because he fails to show how the corporation was “an instrumentality through which [they were] conducting [their] personal business.”
Baatz fails to show that the corporation was undercapitalized because he offers no evidence that the corporation’s capital was inadequate for the operation of the business.
The corporation did not fail to adhere to corporate formalities simply for its failure to indicate that it was a corporation on its signs and advertising. It is sufficient that the corporate name includes the abbreviation of incorporated.
There is no evidence in the record to support factors 1), 4), or 6) above.