CONSTRUCTION LAWLETTERS

FOR INDUSTRY PROFESSIONALS, MANAGERS, TRADES & SUPPLIERS

J. NORMAN STARK, ATTORNEY-AT-LAW

JURIS DOCTOR, B. ARCHITECTURE, B.F.A

Vol. 2001-4  April, 2001

PIERCING THE CORPORATE VEIL

Corporations are artificial beings, created by law, for stated business purposes, with certain privileges and immunities  unavailable to individual proprietorships, partnerships, and joint ventures.  Where, however the corporate entity operates or commits acts other than those permitted by law, or commits unlawful acts in the name and guise of the corporation, attempting to veil or shield its directors, officers, and shareholders from personal liability for such acts, the law permits a claimant to reach through and beyond the corporate shield of (personal) immunity, piercing the corporate veil, in order to punish the wrongdoers.

In one recent case considered and determined in the Ohio Court of Appeals, the Director of the Environmental Protection Agency (EPA) could pierce the landowner's corporate veil and order the sole shareholder and officer of the corporations to remove over 1 million scrap tires from the property.  The facts showed that the corporations were inactive and owned the land as their sole asset, and the shareholder, having owned the property for twelve years, knew of the tires, and had transferred the property to his shell corporation after the Attorney General had notified him that the dump was unlawful.

"…sham corporations are legal fictions, and the fiction may be disregarded when asserted for a purpose not within the reasons and policy of corporate law."  Kays v. Schregardus (2000), 138 Ohio App.3d 225, 230.

"The corporate form may be disregarded and individual shareholders held liable for wrongs committed by the corporation when (1) control over the corporation by those to be held liable were so complete that the corporation has no separate mind, will, or existence of its own, (2) control over the corporation by those to be held liable was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong."  Belvedere Condominium Unit Owners Assn. v. R.E. Roark Cos., Inc. (1993), 67 Ohio St.3d 274, Syll. Para.3.

In this case, the Court held that to permit continued existence of the tire dump seriously affected public health and safety. The Court also held that permitting a sham corporation to shield the wrongdoer could seriously affect Ohio's environmental protection laws, in that it would permit property owners to trash their properties, transfer ownership to a shell corporation, and escape all responsibility and personal liability.  The Court denied such immunity to the property owner, confirming the decision of the Trial Court.

Experienced legal counsel can assist individuals, and business entities in planning and implementation to avoid such violations of law, and adverse claims and litigation.

Author:  J. NORMAN STARK is an Attorney-at-Law, a Registered Architect, (AIA, NCARB) Registered Landscape Architect, Interior Designer, Planner and Senior Appraiser (ASA), admitted to practice law before the Bar of Ohio, the US District Courts, Ohio and Illinois (Central Dist.), the US Court of Appeals, and the United States Supreme Court. He has had experience in business, Construction, Real Property, Litigation and Construction-Legal Project and Crisis Management.

 


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