The March 31, 2007 opinion in Symons International v. Continental Casualty Company, et al., 2007 U.S. Dist. LEXIS 27356 (S.D. Ind.) discusses Indiana’s common law theory of piercing the corporate veil. (SymonsOpinion.pdf). The legal principle, not unlike the principles in Indiana’s Uniform Fraudulent Transfer Act, which also is analyzed in the case, provides a method for collecting a debt from someone other than the actual, named borrower. If applicable, the piercing doctrine provides a nice remedy for Indiana creditors victimized by shady debtors hiding behind the corporate shield.
Piercing the corporate veil. It’s frustrating when a lender knows that there are assets to cover the debt but that the assets are protected from collection because they are in the hands of the individual owners of a corporate entity or by entities separate from the borrowing entity. The theory of “piercing the corporate veil,” in rare circumstances, will permit lenders/creditors to chase the assets of the individuals or entities who actually have the money.
Persons/Owners. “Indiana courts are reluctant to disregard a corporate entity and extend the liabilities of one corporation and its affiliates, shareholders and/or officers; however, they may do so to prevent fraud or injustice to a third party.” Symons at 56. The issue is “highly fact sensitive.” Id. With regard to targeting individuals, here are eight factors Indiana courts look to, but the factors are not exhaustive or ranked:
2. Absence of corporate records;
3. Fraudulent representation by a corporation’s shareholders or directors;
4. Use of the corporation to promote fraud, injustice or illegal activities;
5. Payment by the corporation of individual obligations;
6. Commingling of assets and affairs;
7. Failure to observe required corporate formalities; and
8. Other shareholder acts or conduct ignoring, controlling or manipulating the corporate forum.
Other entities. In addition to these eight factors, Indiana courts look to at least four other factors when a plaintiff seeks to pierce the corporate veil in order to hold a corporation (or LLC, etc.) liable for another corporation’s debt:
1. Similar corporate names;
2. Common principal corporate officers, directors and employees;
3. Similar business purposes; and
4. The same offices, telephone number and business cards.
Id. at 57. Again, this is not an exhaustive or ranked list. On pages 57-62 of Judge Young’s opinion, he addresses many of the factors in detail and provides an excellent analysis of the remedy should you want a better understanding of what it takes to pierce the corporate veil. He held there to be questions of fact and denied the defendants’ motion for summary judgment. Symons is a favorable opinion for Indiana creditors.