Minno v. Pro-Fab, Inc.

[Cite as Minno v. Pro-Fab, Inc., 121 Ohio St.3d 464, 2009-Ohio-1247.]
MINNO ET AL., APPELLEES, v. PRO-FAB, INC., APPELLANT, ET AL.
[Cite as Minno v. Pro-Fab, Inc., 121 Ohio St.3d 464, 2009-Ohio-1247.]
A corporation’s veil may not be pierced in order to hold a second corporation
liable for the corporate misdeeds of the first when the two corporations
have common individual shareholders but neither corporation has any
ownership interest in the other corporation.
(No. 2008-0170 — Submitted October 14, 2008 — Decided March 25, 2009.)
APPEAL from the Court of Appeals for Trumbull County,
No. 2007-T-0021, 2007-Ohio-6565.
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SYLLABUS OF THE COURT
A corporation’s veil may not be pierced in order to hold a second corporation
liable for the corporate misdeeds of the first when the two corporations
have common individual shareholders but neither corporation has any
ownership interest in the other corporation.
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CUPP, J.
{¶ 1} The issue to be determined in this appeal is whether the doctrine of
piercing the corporate veil applies to a situation in which two corporations are
owned by common individual shareholders but neither corporation owns an
interest in the other corporation. Because this situation does not involve the
owner of a corporation misusing his control over that corporation, we conclude
that the doctrine does not apply. Accordingly, the decision of the court of appeals
is reversed.
I
SUPREME COURT OF OHIO
{¶ 2} This case began in 2004 when James Minno, his wife, his
stepdaughter, and his son, plaintiffs-appellees, filed a complaint against Pro-Fab,
Inc., and See-Ann, Inc. In the complaint, Minno alleged various claims, generally
asserting that See-Ann had failed to provide a safe working environment. Minno
alleged that while in the scope of his employment as an ironworker, See-Ann’s
actions caused him to fall from a height of 19 feet and, as a consequence, to suffer
serious injuries. Minno also asserted a claim against Pro-Fab, alleging that Pro-
Fab had been in control of the work site, was the alter ego of See-Ann, and was,
therefore, also liable for his injuries. Minno did not allege any individual claims
against the shareholders of Pro-Fab or See-Ann, and he acknowledged that Pro-
Fab and See-Ann were sister companies.
{¶ 3} Pro-Fab and See-Ann answered that they are separate legal entities,
a fact that is evidenced by different incorporation dates. Pro-Fab and See-Ann
also responded that although they have common owners and officers, engage in a
similar line of work, and have the same business address, neither corporation has
an ownership interest in the other. As relevant to Minno’s complaint, See-Ann
carries no general-liability insurance.
{¶ 4} In the trial court, both Pro-Fab and See-Ann filed motions for
summary judgment. See-Ann’s motion was denied on the ground that a material
issue of fact existed regarding whether See-Ann committed an intentional tort
against Minno. This claim remains pending in the trial court. However, Pro-
Fab’s motion was granted because the trial court concluded that Pro-Fab had no
dominion or control over Minno in the performance of his duties while he worked
for See-Ann.
{¶ 5} A divided appellate court reversed the summary judgment in favor
of Pro-Fab. It concluded that Minno had presented sufficient evidence to
demonstrate a genuine issue of material fact regarding whether Pro-Fab was
fundamentally indistinguishable from See-Ann and whether Minno could,
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January Term, 2009
therefore, pierce the corporate veil of See-Ann and reach Pro-Fab’s assets
pursuant to the test set forth in Belvedere Condominium Unit Owners’ Assn. v.
R.E. Roark Cos., Inc. (1993), 67 Ohio St.3d 274, 617 N.E.2d 1075, paragraph
three of the syllabus. Specifically, Minno wanted to pierce See-Ann’s corporate
veil in order to reach Pro-Fab’s general-liability insurance.
{¶ 6} Thereafter, Pro-Fab appealed from the decision of the appellate
court, and we accepted review under our discretionary jurisdiction. Minno v. Pro-
Fab, Inc., 117 Ohio St.3d 1496, 2008-Ohio-2028, 885 N.E.2d 954.
II
{¶ 7} As acknowledged in Belvedere, 67 Ohio St.3d at 287, 617 N.E.2d
1075, and recently restated in Dombroski v. WellPoint, Inc., 119 Ohio St.3d 506,
2008-Ohio-4827, 895 N.E.2d 538, one purpose of incorporation is the ability to
limit the liability of the individual shareholders. See also Section 3, Article XIII,
Ohio Constitution. “The corporate form is useful primarily because it creates a
division between shareholders and their business concerns: ‘[The corporate form]
has been introduced for the convenience of the company in making contracts, in
acquiring property for corporate purposes, in suing and being sued, and to
preserve the limited liability of the stockholders, by distinguishing between the
corporate debts and property of the company, and of the stockholders in their
capacity as individuals.’ ” Dombroski at ¶ 16, quoting State ex rel. Atty. Gen. v.
Std. Oil Co. (1892), 49 Ohio St. 137, 177, 30 N.E. 279.
{¶ 8} Nevertheless, in certain circumstances the corporate form may be
disregarded, and the corporate veil pierced, for the purpose of reaching the assets
of the corporation’s individual shareholders. “Piercing the corporate veil” is
“[t]he judicial act of imposing personal liability on otherwise immune corporate
officers, directors, or shareholders for the corporation’s wrongful acts.” Black’s
Law Dictionary (8th Ed.2004) 1184.
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SUPREME COURT OF OHIO
{¶ 9} To determine whether a corporation’s veil can be pierced in a
specific situation, a court must apply the three-pronged test set forth in Belvedere,
67 Ohio St.3d 274, 617 N.E.2d 1075, at paragraph three of the syllabus, as
modified by Dombroski, 119 Ohio St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538.1
A plaintiff’s successful proof of each of the three elements will result in
individual shareholders being held liable for corporate misdeeds because “it
would be unjust to allow the shareholders to hide behind the fiction of the
corporate entity.” Belvedere at 287.
III
{¶ 10} The question presented in this appeal, however, is whether a
corporation’s veil may be pierced in order to hold a second corporation liable for
the corporate misdeeds of the first, when the two corporations have common
individual shareholders but neither corporation has any ownership interest in the
other corporation.
{¶ 11} The Belvedere test for piercing the corporate veil has been applied
to determine whether an individual shareholder may be held liable for corporate
wrongdoings. Belvedere, 67 Ohio St.3d at 287, 617 N.E.2d 1075. When a
shareholder exercises such control over a corporation that the corporation
becomes the shareholder’s alter ego, and when the shareholder misuses his control
of a corporation to commit specific, egregious acts that injure a third party, then it
is unjust to allow the shareholder to use the corporate form as a shield to escape
1. This test provides, “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 was 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, [an illegal act, or a similarly unlawful 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, 67 Ohio St.3d 274, 617 N.E.2d 1075, at paragraph three of the syllabus, and
as modified (bracketed language) by the syllabus in Dombroski, 119 Ohio St.3d 506, 2008-Ohio-
4827, 895 N.E.2d 538.
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January Term, 2009
the consequences of those wrongful acts. Id. at 289. The Belvedere test for
piercing the corporate veil has also been applied to ascertain whether a parent
corporation could be held liable for its subsidiary corporation’s misconduct.
Dombroski, 119 Ohio St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538, at ¶ 9, 18-19.
The common element in both of these situations is that the party upon whom
liability is sought to be imposed had a controlling interest through ownership of
more than one-half of the voting stock in the corporation allegedly committing
wrongful acts. See also Black’s Law Dictionary (8th Ed.2004) 367 (defining
“parent corporation”).
{¶ 12} In this case, however, Minno seeks to impose liability upon a
corporation that holds no ownership interest in the corporation that allegedly
committed the wrongful acts. When “two or more corporations [are] controlled
by the same, or substantially the same, owners,” the corporations are called
“sisters.” Black’s Law Dictionary (8th Ed.2004) 368. In contrast to a
shareholder’s ownership of a corporation or a parent corporation’s ownership of
another corporation, the common shareholder ownership of sister corporations
does not provide one sister corporation with the inherent ability to exercise
control over the other. Any wrongful act committed by one sister corporation
might have been instigated by the corporation’s owners, but it could not have
been instigated by the corporation’s sister.
{¶ 13} Thus, we hold that a plaintiff cannot pierce the corporate veil of
one corporation to reach its sister corporation. A corporation’s veil may not be
pierced in order to hold a second corporation liable for the corporate misdeeds of
the first when the two corporations have common individual shareholders but
neither corporation has any ownership interest in the other corporation. Despite
the element of common shareholder identity, sister corporations are separate
corporations and are unable to exercise control over each other in the manner that
a controlling shareholder can. This lack of ability of one corporation to control
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SUPREME COURT OF OHIO
the conduct of its sister corporation precludes application of the piercing-the-
corporate-veil doctrine.
{¶ 14} In the case before us, Pro-Fab and See-Ann have common
individual shareholders and officers, are engaged in similar lines of work, and
possess identical business addresses. However, the corporations are separately
incorporated and neither corporation has an ownership interest in the other.
Under this arrangement of the corporate structures, Pro-Fab and See-Ann are, for
legal purposes, sister corporations, and the doctrine of piercing the corporate veil
is therefore inapplicable. Pro-Fab was entitled to summary judgment.
IV
{¶ 15} For the reasons stated above, the judgment of the court of appeals
is reversed.
Judgment reversed.
MOYER, C.J., and PFEIFER, LUNDBERG STRATTON, O’CONNOR,
O’DONNELL, and LANZINGER, JJ., concur.
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James R. Scher, for appellees James Minno, Ruth Minno, Amy Byrns, and
James Minno Jr.
Pelini, Campbell, Williams & Traub, Craig G. Pelini, and Eric J. Williams,
for appellant.
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