Opinion ID: 771749
Heading Depth: 2
Heading Rank: 1

Heading: Sufficiency of Control To Prove The First Belevedere Element

Text: 20 According to Denune, Ohio law requires courts to use a multi-factor test to determine whether a corporation is the alter ego of its shareholder. The factors he points to are: (1)undercapitalization; (2) failure to observe corporate formalities; (3) insolvency of the corporation at the time it incurs liability; (4) whether the shareholder held himself out as personallyliable for the corporation's debts; (5) whether the shareholder diverted corporate funds to his own use; (6)failure to keep corporate records; and (7) whether the corporation was a mere facade for the operations of the dominant shareholder. See LeRoux's Billyle Supper Club v. Ma, 77 Ohio App.3d 417, 422-23, 602 N.E.2d 685, 689 (1991). Here, however, he claims the district court considered only the extent of Denune's control of the illegal transaction at issue in the underlying lawsuit. 21 The decision in Belvedere came down two years after the decision in LeRoux's Billyle. Even after Belvedere, Ohio courts have continued to use a multi-factor approach when deciding whether to pierce the corporate veil. See, e.g., Tandem Staffing v. ABC Automation Packing, Inc., No. 19774, 2000 Ohio App. LEXIS 2366, at -14 (Jun. 7, 2000); Willoway Nurseries v. Curdes, No. 98CA007109, 1999 Ohio App. LEXIS 4819, at -11 (Oct. 13, 1999); Barents Navigation, Ltd. v. Western Overseas, Inc., 41 U.C.C. Rep. Serv.2d (CBC) 426. But because of the equitable nature of the veil-piercing doctrine, no list of factors can be exclusive or exhaustive. In AT&T Global Info. Solutions Co. v. Union Tank Car Co., 29 F.Supp.2d 857 (S.D. Ohio 1998), a CERCLA case involving a veil-piercing analysis under Ohio law, the court held: 22 As noted in LeRoux's, the Ohio Supreme Court endorses the notion that the corporate veil could be pierced if an injustice would result. Several Ohio appellate courts have been even more expansive and chose to disregarded [sic] the corporate entity all together [sic] where evidence of harm, injustice, or fundamental unfairness has been found. 23 Id. at 868 (citations omitted). The court also noted that Congress enacted CERCLA with the intent of ensuring that those responsible for any damage, environmental harm, or injury from chemical poisons bear the costs of their actions. Courts applying state veil piercing law in conjunction with a CERCLA action must keep this statute's broad legislative purpose in mind. Id. (citations and internal quotation marks omitted). 24 Denune's argument, if we adopted it, would straightjacket the courts in situations where equity demands that the fiction of corporate personhood be ignored. Consider, for example, a case in which a corporation with a single shareholder kept immaculate corporate records, observed all the formalities required by corporate law, and was adequately capitalized. The shareholder never commingled funds, and never held himself out as personally liable for the corporation's debts. The corporation even does some legitimate business. Can it be that the shareholder is immunized from personal liability if he causes the corporation to commit an illegal act, no matter the degree of his control over the corporation with regard to the illegal act, no matter the harm to third parties, and no matter the other equities? Neither we nor the Ohio courts hold that such immunity exists. 25 Clearly, the policy underlying Ohio law on veil-piercing--that the veil should be pierced if an injustice would [otherwise] result, AT&T Global Info. Solutions Co., supra at 868- suggests that a wrongdoer should not be permitted to hide behind a legal fiction. Carter-Jones has also cited cases in which Ohio courts have implemented this policy by piercing the veil based solely on the degree of control exercised by the wrongdoer over the corporation. In Janos v. Murduck, 109 Ohio App.3d 583, 672 N.E.2d 1021 (1996), Janos contracted with Murduck, the owner of a construction company, to purchase windows. Janos paid nearly $4,000 to Murduck but never received the windows. Murduck's company declared bankruptcy. Janos sued Murduck and the company. The court found the first prong of Belvedere was satisfied because Murduck ultimately approved the contract with the Janoses because he took theircheck, indicated an order date, and requested payment in full. We believe, the court continued, 26 the state of this evidence demonstrates that Murduck exercised a degree of control over [the corporation] to render it indistinct as a corporate entity. Murduck was the owner, top executive, approved the transaction, and had the authority to represent to the Janoses that an order for the windows would occur. 27 Id. at 589, 672 N.E.2d at 1025. The Janos court pierced the veil based solely on the amount of control Murduck had over the corporation. See John H. Matheson & Raymond B. Eby, The Doctrine of Piercing the Veil In An Era of Multiple Limited Liability Entities, 75 Wash. L. Rev. 147, 179 nn. 142-149 (2000). Janos is distinguishable insofar as there, Murduck may not have disclosed his business's corporate status to Janos, whereas there is no evidence Denune sought to conceal Dixie's corporate status. But the distinction is irrelevant for our purposes, since it goes to the second prong ofBelvedere--whether Murduck used his control of the corporation to deceive Janos--rather than to the first prong, which concerns the extent of his control. 28 It is important to note that in Janos the court focused on control of the single transaction at issue in the case. It was Murduck's control and approval of the window sale that motivated the court's ruling. Janos is thus a stronger case for Carter-Jones's position than either Wiencek v. Atcole Co., Inc., 109 Ohio App.3d 240, 244, 671 N.E.2d 1339, 1342 (1996), or Sintel, Inc. v. Budget Sys., No. 74249, 1999 Ohio App. LEXIS 2774, at -24 (Jun. 17, 1999), two other cases cited to us for the proposition that mere control of a corporation may be sufficient to satisfy the first prong of Belvedere 6 . 29 For the foregoing reasons, the Court rejects Denune's argument that under Ohio law, mere control of a corporation, no matter how complete, is insufficient as a matter of law to trigger veil-piercing.