Opinion ID: 664929
Heading Depth: 2
Heading Rank: 1

Heading: Unity of interest

Text: 16 Stock control and the existence of common officers and directors are generally prerequisites to the piercing of the corporate veil although these factors alone will not suffice. C M Corp. v. Oberer Dev. Co., 631 F.2d 536, 539 (7th Cir.1980). To determine whether there is sufficient unity of interest and ownership between two corporations, Illinois focuses on four factors: (1) the failure to maintain adequate corporate records or to comply with corporate formalities, (2) the commingling of funds or assets, (3) undercapitalization, and (4) one corporation treating the assets of another as its own. Van Dorn, 753 F.2d at 570. 17 Richard Kuzma, MNP's financial vice-president and American Hydraulics' vice-president and secretary, was largely responsible for running the American Hydraulics operation. His salary was paid by MNP. At trial, Kuzma testified about MNP's relationship to American Hydraulics. Following MNP's acquisition of the American Hydraulics stock in 1984, all of American Hydraulics' accounting and check-writing functions were moved from American Hydraulics' Gurnee location to MNP's headquarters in Utica. No person on the American Hydraulics payroll had authority to disburse funds to suppliers or to borrow money for American Hydraulics. MNP employees, who were not on the American Hydraulics payroll, wrote all American Hydraulics' checks; prepared American Hydraulics' monthly P & L statements and balance sheets; and submitted American Hydraulics' payroll information to a payroll service for processing. MNP mailed all American Hydraulics' checks from the Utica office, but did not charge American Hydraulics for postage. 18 Although American Hydraulics maintained its own operating account, Kuzma testified that the account basically kept a zero balance. None of the American Hydraulics receivables were deposited into this account. Instead, all receivables went to Walter Heller, which financed American Hydraulics through advances on receivables. When checks needed to be written on the American Hydraulics account, an MNP employee would telephone Heller and request that funds be transferred into the American Hydraulics account. 19 MNP also transferred funds totalling $1,300,000 from its operating account into the American Hydraulics checking account to cover expenses. These transfers were similarly made on the basis of telephone calls requesting money, and the only records were entries made by an MNP accountant in a log book. There were no promissory notes in evidence of advances nor was interest charged. Although MNP requested repayment of the loans, no check was ever cut for this purpose. Instead, Kuzma would occasionally transfer funds back to MNP if Heller had transferred excess funds into the American Hydraulics account. While the American Hydraulics balance sheet showed the $1,300,000 debt to MNP, the loans did not appear as accounts receivable on the MNP balance sheets. Rather, Kuzma testified, MNP's accountants did not expect American Hydraulics to repay the debt and recorded it as an uncollectible loss. 20 The jury heard other evidence that MNP and American Hydraulics did not observe corporate formalities. Neither Kuzma nor Timothy Hart, a manager at American Hydraulics, knew if there had been an annual stockholders' meeting of American Hydraulics after it was acquired by MNP. Afer acquisition, American Hydraulics prepared no separate financial statements. 21 The jury also heard the deposition testimony of Larry Berman, the president, chief executive officer, sole shareholder and sole director of MNP and president, treasurer and sole director of American Hydraulics. Hystro's counsel, Mr. Denny, trying to prove that MNP ran American Hydraulics as a department rather than as a subsidiary, asked Berman about MNP subsidiaries: 22 Q. About how many plants or facilities does it [MNP] have today? 23 MR. MURPHY: Does your question exclude subsidiaries?MR. DENNY: 100 percent subsidiaries I guess they are a piece of MNP. 24 MR. MURPHY: Include in your answer subsidiary corporations so that it is clear on the record. 25 A: I don't think we have any subsidiaries. 26 This evidence was clearly sufficient for a jury to find that American Hydraulics did not maintain a corporate identity separate from MNP. In particular, MNP's close control of American Hydraulics' finances; the fact that MNP paid the salaries of American Hydraulics' officers; the informal transfers of cash between the organizations; and the absence of other corporate formalities all supported the jury's findings that American Hydraulics was the alter-ego of MNP.