Illinois Appellate Court Reverses Dismissal of Injured Plaintiff’s Case Who Sued the Wrong Entity, Allowing Piercing of Corporate Veil

A Will County judge rejected Diana Angell’s attempt to use veil-piercing to overcome a mistake made in suing the wrong defendant. Her attorney sued Santefort Family Holdings LLC when she should have targeted an affiliated company known as Midwest Home Rentals LLC. Having done so, the circuit court judge dismissed the case; however, the Illinois Appellate Court for the Third District reversed with a dissent.

Angell was inspecting a mobile home that was for sale or lease at Tri-Star Estate when she walked into an unlit bathroom and stepped into a hole. She was seriously injured and sued Tri-Star’s owner, Santefort Family Holdings. Even though Santefort Family Holdings owned the real estate, the mobile home was owned by Midwest Home Rentals LLC.

To make matters worse, Santefort Family 2012 Irrevocable Trust reportedly owned numerous affiliates, including Santefort Real Estate Group LLC (which owned the defendant, Santefort Family Holdings), Midwest Home Rentals LLC, Santefort Services LLC, Santefort Property Management Inc. (called SPMI) and an array of single purpose entities.

When Santefort Family Holdings moved for summary judgment, it argued it owed no duty to Angell because it did not own the mobile home; her response argued for corporate veil-piercing. As an alternative, she asked for permission to submit an amended complaint adding Midwest Home Rentals as a party defendant. However, Angell failed to submit a motion with the proposed amendment as required for relation back under Section 2-616(d) of the Illinois Code of Civil Procedure.

Applying de novo review on appeal from summary judgment, the majority appeals panel concluded that testimony — when viewed in the light most favorable to Angell — was sufficient to justify a reversal. The majority opinion concluded that nothing in the ruling precluded the amendment of Angell’s complaint on remand.

In Illinois, “the doctrine of piercing the corporate veil is an equitable remedy.” Fontana v. TLD Builders, Inc., 362 Ill. App. 3d 491 (2005). It “is not itself a cause of action but rather is a means of imposing liability on an underlying cause of action, such as a tort or breach of contract.” In re Rehabilitation of Centaur Insurance Co., 238 Ill. App. 3d 292.

Courts are reluctant to pierce the corporate veil. Benzakry v. Patel, 2017 IL App (3d) 160162. A party asserting the doctrine has the burden of making a substantial showing that the entities are not separate and distinct.

The asserting party will be successful where “(1) there is such a unity of interest and ownership that the separate personalities of the corporations no longer exist and (2) circumstances exist so that adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences.” Gajda Steel Solutions Firm, Inc., 2015 IL App (1^st) 142219.

To determine if there is a unity of ownership and interest, the courts have considered: (1) inadequate capitalization; (2) failure to issue stock; (3) failure to observe corporate formalities; (4) nonpayment of dividends; (5) insolvency of the debtor corporation; (6) non functioning of the other officers or directors; (7) absence of corporate records; (8) commingling of funds; (9) diversion of assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors; (10) failure to maintain arm’s-length relationships among related entities; and (11) whether, in fact, the corporation is a mere façade for the operation of the dominant stockholders.” Id. Par. 24.

In this case, the majority stated that the manifest weight of the evidence shows that defendant and Midwest were not acting as separate and distinct entities when Angell was injured. The testimony of a witness showed that the two entities exist only to facilitate the operations of the irrevocable trust. The witness testified that commercial real estate industry lenders require property owners to be single-purpose entities. He explained that this requirement is in place to take advantage of the bankruptcy laws, allowing for “a simpler path to recovering their collateral than if there are other businesses involved in the single-purpose entity.”

The majority found that the entities failed to maintain an arm’s-length relationship and maintain proper corporate records. This was based on the witness testimony alone followed by speculations by the majority and not a substantial showing by plaintiff, as stated in the dissent. There must be evidence that “observance of the fiction of separate existence would, under the circumstances, sanction a fraud or promote injustice.” Main Bank of Chicago v. Baker, 86 Ill. 2d 188 (1981). The dissenting justice stated, “I cannot find any evidence that Midwest was under-capitalized or stripped of its assets at the time of this suit. Had plaintiff sued the proper defendant, she presumably would have received any compensation awarded.”

The dissent went on to state that no fraud or injustice existed here. The analysis of the majority failed to convince this justice that there has been a substantial showing by the plaintiff that requires piercing of the veil.

The fact of the matter is that plaintiff’s counsel failed to name the correct party in the lawsuit. During a witness’s deposition the following exchanges took place:

“Q: Okay. Who owned the trailer back in April of 2014?

A: I believe it would have been Midwest Home Rentals.

Q: So when the accident happened, Santefort Family Holdings LLC would have owned that trailer?

A: No. Midwest Home Rentals would have owned it.”

With the knowledge Angell was suing the wrong party, plaintiff pushed onward without attempting to amend. Compounding this error, plaintiff failed to file a motion for leave to amend her complaint. These errors prevented relation back to name Midwest as a party defendant.

If plaintiff would have filed a motion for leave to amend with the proposed amended pleading, she would likely have been able to establish Midwest had constructive notice and relation back to her original complaint would have been allowed.

What a majority decision does is not “a means of imposing liability on an underlying cause of action,” but instead is a way to overcome plaintiff’s failure to follow proper procedure and give her another bite at the apple. In that way, the doctrine of piercing the veil has been improperly turned into a cause of action in this case. The majority rewards plaintiff’s legal errors. “It is not our job to act as plaintiff’s attorneys. Affirming the court’s grant of summary judgment would not result in fraud or promote injustice,” the dissenting justice stated.

Accordingly, the majority’s ruling led to the reversal of the dismissal by summary judgment and the matter was remanded for further disposition.

Angell v. Santefort Family Holdings, 2020 IL App (3d) 180724 (March 17, 2020).

Kreisman Law Offices has been handling commercial litigation, catastrophic injury lawsuits and wrongful death cases for individuals, families and loved ones who have been injured, harmed or killed by the carelessness or negligence of another for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Wheeling, Winfield, Tinley Park, Elmhurst, Calumet City, Hanover Park, Hinsdale, New Lenox, Lansing, Lemont, Orland Park, Chicago (Lawndale, Englewood, Austin, Logan Square, Rogers Park, Bronzeville, Albany Park, South Shore, Hegewisch, East Side, Garfield Park), Glenview, Northfield, Worth, Wheaton, Aurora, Waukegan and Joliet, Ill.

Robert D. Kreisman has been an active member of the Illinois and Missouri bars since 1976.