Semande v. Estes

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Semande v. Estes

State: Illinois

Court: 3rd District Appellate

Docket No: 3-06-0452 Rel

Case Date: 06/29/2007

Preview:No. 3--06--0452 _________________________________________________________________ Filed June 29, 2007. IN THE APPELLATE COURT OF ILLINOIS THIRD DISTRICT A.D., 2007 CHARLES H. SEMANDE, ) Appeal from the Circuit Court ) of the 9th Judicial Circuit Plaintiff-Appellant, ) McDonough County, Illinois ) v. ) 05--CH--31 ) NICHOLAS H. ESTES, ) Honorable ) David F. Stoverink Defendant-Appellee. ) Judge, Presiding. _________________________________________________________________ PRESIDING JUSTICE LYTTON delivered the Opinion of the court: _________________________________________________________________ Plaintiff, Charles Semande, obtained a judgment against After

Heartland Pottery Company in the amount of $294,340.80.

discovering that Heartland had no assets, Semande filed a complaint against defendant, Nicholas Estes, alleging that Estes was the alter ego of Heartland and, thus, liable for the judgment Semande obtained against Heartland. Estes filed a motion to dismiss

plaintiff's complaint, asserting that plaintiff lacked standing to bring an alter ego action against him. motion. We affirm. The trial court granted the

In 1995, Semande and Estes entered into several written agreements for the purpose of forming a corporation, Heartland Pottery Company. Estes agreed to provide the financing necessary

for Heartland to perform a pottery manufacturing operation, and Semande agreed to be Heartland's president and chief executive officer with full responsibility for all of Heartland's operations. The parties agreed that Semande would receive a salary of $110,000 per year, plus bonuses. According to the agreements between Estes and Semande, Estes was to be the primary shareholder of Heartland and possess 500 shares of stock in exchange for a payment of $5,000. Semande was

to pay Heartland $50.00 and receive five shares of stock initially. Semande was also given the option to purchase up to 50% of

Heartland's shares of stock by a specified date or all of its shares if he was terminated as president. Semande and Estes agreed to elect themselves as the only members of Heartland's board of directors. In 1998, Heartland terminated all of its employees, except plaintiff. Soon thereafter, Semande filed an action against

Heartland for unpaid salary and expense reimbursements owed to him. In 2001, Heartland was administratively dissolved by the Illinois Secretary of State for failing to file necessary reports and pay franchise taxes. Heartland has never been reinstated.

In 2002, Estes provided deposition testimony in connection with Semande's case against Heartland. At his deposition, Estes

admitted that no shares of Heartland stock were ever issued to anyone, including Semande. Estes also admitted that Heartland 2

never held a formal annual meeting and executed only one corporate resolution, which allowed him to open a Heartland bank account. The trial court entered judgment in favor of Semande and against Heartland for $294,340.80. Semande then filed a citation Under oath, Estes testified

to discover assets against Heartland. that Heartland had no assets.

Thereafter, Semande filed a complaint against Estes, alleging that Estes was the alter ego of Heartland and should be liable for the $294,340.80 judgment Semande obtained against Heartland. In

his complaint, Semande alleged that although he held the titles of "director" and "president" of Heartland, Estes controlled all

aspects of the company.

According to Semande, "Heartland was a

mere facade for the [d]efendant's business operations" such that "adherence to the fiction of a separate corporate existence for Heartland would sanction a fraud and promote injustice or

inequitable consequences."

Semande alleged that Estes took income

and assets from Heartland and placed them in his personal accounts. Estes filed a motion to dismiss the complaint, asserting that Semande, as an officer and director of Heartland, lacked standing to assert an alter ego action against him. Estes' motion to dismiss. Semande argues that the trial court should not have granted Estes' motion to dismiss because Semande was a director and officer of Heartland in name only and, therefore, had standing to pursue 3 The trial court granted

his alter ego action. In Illinois, lack of standing is an affirmative defense. Greer v. Illinois Housing Development Authority, 122 Ill. 2d 462, 494, 524 N.E.2d 561, 575 (1988). We review a trial court's Scachitti v.

dismissal order based on a lack of standing de novo.

UBS Financial Services, 215 Ill. 2d 484, 493, 831 N.E.2d 544, 549 (2005). A corporation is a legal entity separate and distinct from its shareholders, directors, and officers. In re Rehabilitation of

Centaur Insurance Co., 158 Ill. 2d 166, 172, 632 N.E.2d 1015, 1017 (1994). However, a court may find corporate officers, directors

or shareholders personally liable for corporate obligations through a remedy known as piercing the corporate veil. People v. V & M

Industries, Inc., 298 Ill. App. 3d 733, 739, 700 N.E.2d 746, 750 (1998). Piercing the corporate veil is an equitable remedy invoked to assist third parties who have been defrauded. See Crum v. Krol,

99 Ill. App. 3d 651, 661, 425 N.E.2d 1081, 1088 (1981). A corporate entity will be disregarded, and the corporate veil pierced, where the corporation is an alter ego or business conduit of the governing or dominant personality. V & M Industries, 298

Ill. App. 3d at 739, 700 N.E.2d at 751. The alter ego doctrine was developed for and has historically been used by third persons injured by their reliance on a distinct corporate entity. Centaur

Insurance Co., 158 Ill. 2d at 173, 632 N.E.2d at 1018; see also 4

Sinquefield v. Sears Roebuck and Company, 209 Ill. App. 3d 595, 598, 568 N.E.2d 325, 327 (1991). According to the supreme court:

"The doctrine of alter ego fastens liability on the individual who uses to such a corporation his or merely own as an

instrumentality business, and

conduct

her

personal fraud or

liability

arises

from

injustice perpetrated not on the corporation but on third persons dealing with the corporation. The corporate form may be disregarded only where equity requires the action to assist a third party." Ill. 2d at 173, 632 Centaur Insurance Co., 158 at 1018, quoting 1 W.

N.E.2d

Fletcher, Private Corporations

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