In Lunneborg v. My Fun Life, 421 P.3d 187 (2018), the Idaho Supreme Court held that a corporation’s veil may be pierced to reach the assets of a non-shareholder.  Joining the majority of states, including Illinois, the Court explained that the primary consideration in piercing the corporate veil is the degree of influence a defendant has over the corporation.

Thomas Lunneborg sued his former employer, My Fun Life Corporation (“MFL”), asserting that he was entitled to severance pay.  The trial court allowed Lunneborg to add as defendants Dan Edwards, the sole owner and director of MFL, and his wife, Carrie, the company’s Executive Vice President and former Chief Operating Officer, but not a shareholder.  In so doing, the trial court agreed that Lunneborg could potentially pierce the company’s corporate veil to reach not only the personal assets of the shareholder Dan, a traditional veil-piercing target, but also the personal assets of the non-shareholder Carrie, a less traditional target.  At trial’s end, the court found that Lunneborg was entitled to $60,000 in severance pay, which was then tripled to $180,000 pursuant to the Idaho Wage Claims Act, and that the corporate veil would be pierced to hold Dan and Carrie personally liable for the judgment.

On appeal, the Supreme Court of Idaho affirmed, holding as a matter of first impression that Carrie could be reached by piercing the corporate veil, even though she was not a shareholder.  It explained that “generally, every corporation will be regarded as a separate legal entity” liable for its own “acts or debts.”  Id. at 198.  However, “when warranted, courts will pierce the corporate veil and look behind the form of an organization to determine its true character [...] and will disregard corporate form and consider substance rather than form” in pursuit of an equitable result.  Id.  The Court had previously held that the corporate veil can be pierced to reach its shareholders, but had never extended the holding to non-shareholders.

In considering the issue, the Supreme Court of Idaho looked to decisions from Illinois (Buckley v. Abuzir, 380 Ill.Dec. 624 (1st Dist. 2014), New York (Freeman v. Complex Computing Co., Inc., 119 F.3d 1044 (2d Cir. 1997)), Connecticut (Angelo Tomasso, Inc. v. Armor Const. & Paving, Inc., 187 Conn. 544 (1982)), Florida (Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330 (11th Cir. 2011)), Maine (Thibodeau v. Cole, 740 A.2d 40 (Me. 1999)), and North Carolina (Allred v. Exceptional Landscapes, Inc., 227 N.C.App. 229 (2013)).  Lunneborg, 421 P.3d at 202-203.  

The Court ultimately sided with the majority of states, including Illinois, and permitted piercing the corporate veil against non-shareholders.  Id. at 203.  It explained that “in these circumstances, when a claimant seeks to hold a non-shareholder liable for corporate debts, the court may look to a range of evidence to consider whether fairness dictates allowing recovery against a non-shareholder-officer, with the primary consideration being the element of control or influence exercised by that person in the affairs of the corporation.”  Id.

In this case, the Supreme Court of Idaho agreed with the trial court’s findings that “Carrie Edwards was directly involved in the day-to-day management of MFL [...]; Carrie Edwards, as an officer-in-fact of MFL extensively commingled personal and MFL corporate funds [...]; Carrie Edwards used MFL credit cards and bank accounts for a multitude of personal expenses, totaling hundreds of thousands of dollars [...]; Dan and Carrie Edwards regularly treated the assets of MFL as their own personal assets.”  Id.  As a result, it held that “the trial court applied the appropriate standard set forth herein and did not abuse its discretion in piercing the corporate veil to reach Carrie’s separate property.”  Id. at 204.

At Novack and Macey, we have extensive experience advising shareholders involved in closely held company disputes, as well as advising companies on how to avoid disputes in the first place. For more information about our services, please contact Matt Pagano at 312.419.6900 or mpagano@novackmacey.com.