Piercing the Corporate Veil - The Sequel
Recently the Ohio Supreme Court issued yet another opinion regarding "piercing the corporate veil". According to the Ohio Supreme Court's syllabus in Minno v. Pro-Far, Inc., 2009-Ohio-1247:
A corporation's veil may not be pierced in order to hold a second corporation liable for the corporate misdeeds of the first when the two corporations have common individual shareholders but neither corporation has any ownership in the other.
Well, duh. As long-time followers of this blog know, I have something of a fascination with corporate veil piercing cases so this post on the Ohio Supreme Court's latest puttering with this legal concept should come as no surprise.
When last we considered the issue, the Ohio Supreme Court had just muddied the waters of the standard for determing if veil piercing was appropriate in a particular case by ruling in Dombroski v. Wellpoint, Inc., 2008-Ohio-4827, that the second prong of the famous test enunciated in Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Co., Inc. (1993), 67 Ohio St.3d 274, 617 N.E.2d 1075 included not just illegal acts, but also "similarly unlawful" acts, but did not encompass merely unjust or inequitable acts. The Court found that insurance bad faith was not sufficent. For more detailed analysis of Dombroski, visit my previous post "Potato, Potahto, Illegal, Unllawful - Dombroski and New Rules for Piercing the Corporate Veil".
While Dombroski involved a parent-subsidiary corporate relationship (and refused to allow veil piercing), Minno involved two small privately held companies owned by the same set of shareholders. When Minno fell 19 feet while at a work site, he sued his employer See-Ann for failing to provide a safe working environment. He also sued Pro-Fab, Inc., an affilated corporation, owned by the same shareholders as See-Ann, alleging that it was in control of the work site and was the alter ego of See-Ann.
Although the two companies had different incorporation dates, they shared common owners and officers, had identical business addresses, and engaged in similar lines of work. See-Ann, Minno's employer, did not have any general liability insurance; Pro-Fab, Inc. did. The trial court nevertheless granted summary judgment in favor of Pro-Fab, refusing to permit veil piercing. The Court of Appeals reversed.
The Supreme Court began by reciting the Belvedere test, as modified (?) by Dombroski. It then upheld the trial court's determination that veil piercing was not appropriate, saying:
In contrast to a shareholder's ownership of a corporation or a parent corporation's ownership of another corporation, the common shareholder ownership of sister corporations does not provide one sister corporation the inherent ability to exercise control over the other. Any wrongful act committed by one sister corporation might have been instigated by the corporation's owners, but it could not have been instigated by the corporation's sister....
Despite the element of common shareholder identity, sister corporations are separate corporations and are unable to exercise control over each other in the manner that a controlling shareholder can. This lack of ability of one corporation to control the conduct of its sister corporation precludes application of the piercing-the-corporate-veil doctrine.
I am pleased to see a trend by the Ohio Supreme Court of respecting well established principles of corporate law concerning the relationship between, and separateness of, affiliated companies. At the same time, however, veil piercing is supposed to be an equitable remedy and if ever there was a case justifying treating two corporations as one, this might have been it. Corporations can only act through their officers, directors and shareholders, and if those are few and identical, it stands to reason that the true decisionmakers really are the same.
it is also interesting that there is no discussion about whether bank accounts and finances were comingled, something i've always thought was key to a determination of whether to permit veil piercing. Nor is their any discussion of the extent to which the two companies followed corporate governance rules by hainv shareholder and director meetings, something else that has been important in prior veil piercing decisions.
Does this signal a more conservative formalistic approach to veil piercing cases? Maybe. We'll have to wait and see.
The decision is relatively short, but for those with a very short atttention span, there is the usual excellent synopisis of the case prepared by the Ohio Supreme Court Office of Public Information.
