The Journal of The DuPage County Bar Association

Piercing the Corporate Veil During the Time of COVID-19

By Azam Nizamuddin

With the current COVID-19 crisis, the effects on the economy have been dramatic. Monthly government figures have been surprisingly devastating. The private sector lost more than 20 million jobs in April of this year alone.1


In order to stave off any devastation of small business, Congress recently enacted the CARES Act to provide low interest loans and the Paycheck Protection Program (PPP) through the Small Business Administration, to small businesses so that they can keep running.2 What is uncertain at this time is to what degree the COVID-19 pandemic will impact operators of small businesses and companies. In particular, what if businesses and companies are unable to meet their contractual or financial obligations? Does this mean more litigation and bankruptcies are inevitable? These concerns led this author to consider the impact of foreseeable litigation on individual and family-owned businesses.


A basic foundation of the modern corporate enterprise system is that a business operating as a legally recognized entity is separate and distinct from its owners.3 Under current law, this principle is not limited to corporations, but extends to limited liability companies, limited liability partnerships, and limited partners in limited partnerships. The corporate form was created to allow shareholders to invest without incurring personal liability for the acts of the corporation.4


It has become a natural business practice for people to operate a business through the corporate vehicle of a corporation or limited liability company (“LLC”). Transaction lawyers and accountants will typically advise their clients to form a corporation or LLC in order to limit, or in most instances eliminate, personal liability, and for tax benefits.


What is often forgotten, or not discussed, is that the separation of a corporate entity from its shareholders or directors from the avoidance of liability for the debts of the corporation or LLC can be overcome through an exception. That exception is broadly known as Piercing the Corporate Veil (“PCV”).


The PCV doctrine is a creature of common law and is an equitable doctrine which permits a claimant to seek personal liability for the debts and financial obligations of a corporation or LLC. Each state has its own variation of the PCV doctrine. The doctrine of PCV was fully discussed by the Illinois Supreme Court in Superior Coal Co v. Department of Finance,5 whereby the Court refused to disregard the corporate entity to reach the shareholders by stating: “The doctrine of corporate entity is one of substance and validity; it should be ignored with caution, and only when the circumstances clearly justify it. The theory of the alter ego has been adopted by the courts to prevent injustice, in those cases where the fiction of a corporate entity has been used as a subterfuge to defeat public convenience or to perpetrate a wrong; it should never be invoked to work an injustice, or to give an unfair advantage.”6 But note that the PCV doctrine actually stems much further back in Illinois legal history.7


In reviewing dozens of cases in Illinois, it appears that the result of applying the PCV doctrine runs the gamut of application. A recent commentator argued that Illinois courts have applied the PCV in a “conservative manner.”8 But is this really the case? According to various studies, the national average whereby courts pierce the corporate structure is under 50 percent.9 Illinois courts generally operate a range of 42% to 52%.10 This article is not an exhaustive analysis of Illinois courts with respect to PCV, but is limited to the Second District in Illinois. Of the 18 cases analyzed in the Second District which discussed PCV since the late 1970s, courts pierced the corporate veil ten times. This represents a rate of about 55%, much higher than the national average. It also clearly contradicts the statement that Illinois courts apply the PCV doctrine in a “conservative” manner.11


One of the early cases to allow piercing and to discuss the PCV doctrine in the Second District was B. Kreisman & Co v. First Arlington Nat. Bank of Arlington Heights.12 In Kreisman, the plaintiff entered into a contract worth approximately $208,000 with a restaurant to install and supply restaurant equipment. The corporation which operated the restaurant was unable to pay the full amount of the contract and ultimately filed bankruptcy. However, the plaintiff also filed the claim against the sole shareholder under the doctrine of piercing the corporate veil. The trial court dismissed the claim against the individual shareholder, but the appellate court reversed. Kreisman was really the first Second District case to lay out the elements of piercing the corporate veil in Illinois. In order for a claimant to pierce the corporate veil with respect to a corporation or a limited liability company, there must be: “(1) [A] unity of interest in ownership that the separate personalities of the corporation and the individual no longer exist; and (2) circumstances must exist that adherence to the fiction of separate corporation existence would sanction a fraud or promote injustice.”13 The Second District viewed the following facts as evidence for piercing, including the fact that:


A. The individual defendant was the dominant force controlling the transaction with Kreisman and the restaurant construction;


B. She was the principal beneficiary of the trust holding legal title to the restaurant property which the trustee furnished as security for the construction loan from which the improvements and equipment costs were to have been paid;


C. She also entered into the escrow agreement on behalf of the trustee under which all disbursements of funds required her approval;


D. The corporation had filed for bankruptcy protection; and


E. She filed a counterclaim and third-party action against other parties describing herself as “Ruth Mayer, individually and d/b/a Le Grand Chalet,” and sought personal damages for incomplete and defective work in the construction delays and for injury to her business reputation.


The Second District concluded that not piercing the corporate veil would sanction a fraud upon the creditor. What exactly was the fraud here? The court never bothered to explain whether there were any misrepresentations or even the failure of following corporate formalities by the sole shareholder.14 It appears that the court seemed determined to punish Mayer (the individual shareholder) for merely being a single and dominant shareholder and for trying to avoid responsibility for paying the amount owed for services and equipment. But should that be the sole concern when courts pierce the corporate structure? Why should the claims for breach of contract and mechanic liens not suffice to accord relief to the claimant?


Compare Kreisman with a much later case called Fiumetto v. Garret Enterprises,15 where the court reversed the denial of partial summary judgment by the trial court with respect to piercing the corporate veil. In Fiumetto, the plaintiff filed claims relating to her filing unemployment benefits, which included retaliatory discharge and tortious interference. In order to determine whether the unity of interest of ownership prong was met, the court looked at eight separate factors including: (1) inadequate capitalization; (2) failure to issue stock; (3) failure to observe corporate formalities; (4) nonpayment of dividends; (5) insolvency of the debtor corporation at the time; (6) nonfunctioning of other officers or directors; (7) absence of corporate records; and (8) whether the corporation was a mere facade for the operation of dominant stockholders.


The court focused its analysis on capitalization of the defendant company. It determined that an initial capitalization of $1,000 with a payroll of five employees was wholly inadequate. Furthermore, the corporation did not hold any directors’ meetings, albeit there was only one shareholder and director. Plus, many corporate documents were not executed until after the litigation began. The court then concluded that the lack of corporate formalities indicated corporate neglect which created an inference that the corporation was a mere facade through which Garrett, as the dominant stockholder, conducted business.


Relevant for our purposes, the court made an interesting distinction between claims brought for breach of contract and tort by citing the 10th Circuit Federal Appeals Court. It quoted from Cascade Energy & Metals Corp. v. Banks, where the 10th Circuit stated, “the fact that a company is undercapitalized can be overcome in many contractual settings, because the parties can allocate a risk of financial failure as they see fit. But in nonconsensual cases, there is ‘no element of voluntary dealing, and the question is whether it is reasonable for businessmen to transfer a risk of loss or injury to members of the general public through the device of conducting business in the name of a corporation that may be marginally financed.’”16 (Emphasis added).


In other words, in Fiumetto, the Second District felt the case for piercing was more compelling because the claims involved a statutory violation and a tort which were non-consensual. Whereas, if the claim was a negotiated contractual arrangement which was subsequently breached, the case for piercing the corporate veil would be less decisive. The author agrees with this important discussion, particularly in today’s uncertain economic climate.


In another Second District case, the trial court pierced the corporate veil by focusing on both prongs of the PCV doctrine.17 In Fontana, the trial court determined that the defendant corporation lacked adequate capitalization, failed to observe certain corporate formalities, failed to pay dividends, commingled corporate and personal assets, provided a non-functioning officer or director in the defendant’s wife, affirmatively caused insolvency of the corporation, and failed to have adequate corporate records. Second, the trial court concluded that failure to pierce the corporate veil would be tantamount to sanctioning fraud or injustice. The Second District affirmed and noted that the defendant began selling off the remaining assets of the corporation while the underlying lawsuit was pending in order to avoid liability. In fact, when the lawsuit began, the corporation had assets of $1.8 million, but ended the year with virtually no assets.18 The trial court then concluded:


I think that all of these factors taken together are clear and convincing that Mr. DiCosola is the dominant force behind this corporation, that the corporation is little more than a shell which was established to shield him from liability. I think the fact that he signed the contract with his own individual signature in two places, while it is certainly not dispositive, it is just one more indication that this business is Mr. DiCosola and that the corporation, in the words of the Macaluso case, should be disregarded and the veil of limited liability pierced because it would be an obstacle to the protection of private rights and because the corporation is merely the alter ego or business conduit of Mr. DiCosola who is the governing and dominating personality in this business enterprise.19


In Fontana, the defendant had argued that as he was not a shareholder of the corporation, but merely an officer, and as such, he could not be held personally liable. The Second District rejected this argument and affirmed the piercing of the corporate veil of limited liability. Clearly what irked the trial court and the Second District was that the defendant failed to complete the construction project, placed his wife as signatory of many documents on behalf of the corporation, but with little to no authority, and then began to dissipate assets as legal liability mounted.


While our focus in this article is on the Second District Appellate opinions with respect to the PCV doctrine, the recent First District cases of Buckley v. Abuzir20 and Steiner v. Maniscalo,21 are worth some brief comments. What makes the Buckley case especially worrisome for small business owners is that one can still be personally liable for the debts of a corporation despite not being a shareholder or director or officer of a corporation. After surveying many state jurisdictions, the First District concluded that Illinois authority is in line with the majority of jurisdictions applying the PCV doctrine to non-shareholders, non-officers, and non-directors. In the Steiner case, in reviewing the factors for the unity of interest prong, the court provided a long analysis of the adequate capitalization factor. However, in doing so, the court over-emphasized the opinion of a financial expert. In particular, the court relied upon the financial expert’s understanding of a corporation being inadequately capitalized due to increasingly negative income and retained earnings over the last five years of the sister company’s existence. There was no attempt by the shareholder/director to affirmatively undercapitalize or remove assets of either corporation. Rather, the court was moved by the fact that the corporation at issue suffered financial losses over time. Consequently, the trial court pierced the corporation and the First District affirmed.


It is clear that Illinois courts have broad discretion to utilize the equitable doctrine of piercing the corporate structure of corporations and LLCs. Given that discretion, however, comes a tremendous amount of responsibility. Small or family owned businesses do not have the financial resources or sometimes the corporate sophistication to operate the business as a top 500 financial firm would. It is common that corporate formalities are overlooked, particularly if the enterprise is a one-person operation. Courts would be well advised to avoid piercing the corporate structure, specifically in cases which are based upon a commercial, arms-length transaction based on contract. Many of the foregoing cases where the courts pierced the corporate veil were just these types of situations where no torts were involved, but rather creditors merely trying to enforce or satisfy financial judgments. It is not the job of courts to remedy the risk that businesspeople undertake in engaging in contractual commercial relations. Not every unsatisfied judgment requires personal liability by those that have worked hard to start and sustain a business for many years only to have a court impose personal liability due to financial losses. With the looming threat of thousands of small businesses failing due to the COVID-19 pandemic, courts should observe restraint, and be more stringent in their application of the doctrine of piercing the corporate veil.

1. Ana Swanson, Noam Scheiber, Kate Conger, Ben Casselman, Sapna Maheshwari, Matina Stevis-Gridneff, Adam Satariano, Marc Tracy, Neal E. Boudette, Jack Ewing, Carlos Tejada, Kevin Williams, Niraj Chokshi, Mohammed Hadi, Lin Qiqing, Katie Robertson and Kevin Granville, U.S. Businesses Take Steps to Reopen, The New York Times (May 6, 2020),

2. U.S. Department of the Treasury, The CARES Act Provides Assistance to Small Businesses,

3. Main v. Baker, 86 Ill. 2d 188, 205 (1981).

4. Neil A. Helfman, Establishing Elements for Disregarding Corporate Entity and Piercing Entity’s Veil (American Jurisprudence Proof of Facts 3d, 2013).

5. Superior Coal Co v. Department of Finance, 377 Ill. 282 (1941).

6. Id. at 295-296.

7. See Lachman v. Martin, 139 Ill. 450 (1891); Donovan v. Purtell, 216 Ill. 629 (1905). But also see, Dregne v. Five Cent Cab Co., 381 Ill. 594 (1943); Carrillo v. O’Hara, 400 Ill. 518 (1948); and Tilley v. Shippee, 12 Ill. 2d 616 (1958).

8. Stephen B. Presser, Piercing the Corporate Veil 303 (Thomson Reuters, 2019).

9. See Buckley v. Abuzir, 2014 IL App (1st) 130469.

10. Id.

11. Supra Presser.

12. B. Kreisman & Co., v. First Arlington Nat. Bank of Arlington Heights, 91 Ill. App. 3d 847 (2d Dist. 1980).

13. Id. at 851 (relying on Stap v. Chicago Aces Tennis Team, 63 Ill. App. 3d 23, 27-28 (1st Dist. 1978)).

14. For example, see Fiumetto v. Garrett Enterprises, 321 Ill. App. 3d 946, 959-60 (2d Dist. 2001).

15. Id.

16. Cascade Energy & Metals Corp. v. Banks, 896 F.2d 1557, 1577 (10th Cir. 1990).

17. Fontana v. TLD Builders, 362 Ill. App. 3d. 491 (2d Dist. 2005).

18. Id. at 509.

19. Id. at 500.

20. Buckley v. Abuzir, 2014 IL App (1st) 130469.

21. Steiner v. Maniscalco, 2016 IL App (1st) 132023.


Azam Nizamuddin is General Counsel with the American Trust Corporation and Chief Compliance Officer of Allied Asset Advisors in Oak Brook, Illinois. Previously, he practiced commercial litigation and family law. He also served on the ISBA Corporate Law Section and ISBA ARDC Committee.  He was appointed to the Illinois Supreme Court Access to Justice Commission, Language access Committee.