Kinney Shoe Corp. v. Polan

Polan, defendant, formed two corporations, Industrial and Polan Industries, Inc. In November 1984 Polan and Kinney began negotiating the sublease of a building. Polan used Industrial to sublease the building to Polan Industries. Polan signed the subleases on beahlf of the respective companies. Other than the sublease with Kinney, Industrial had no assets, no income, and no bank account and did not practice any corporate formalities. The first rental payment to Kinney was made by Polan from his personal funds. No further rental payments were made.

(1) Piercing the corporate veil is an equitable remedy, and the burden rests with the party asserting such claim. (2) A totality of the circumstances test is used in determining whether to pierce the veil. In this case the court applies a two prong test, which raises two issues: "first, is the unity of interest and ownership such that the separate personalities of the corporation and the individual shareholder no longer exist; and second, would an equitable result occur if the acts are treated as those of the corporation alone." The court decides for Kinney on both of those issues and overturns a third prong to the analysis which was misapplied by the district court. The third prong applied by the district court was that the creditor responsible for investigating the deal and then asserts assumption of risk if investigation was reasonable under the circumstances.

Corporate Formation & Form | Veil Piercing