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Keywords

contractbreach of contractplaintiffliabilityappealsummary judgmentwillcorporation
contractbreach of contractplaintiffliabilitywillcorporation

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Wilton Corp. v. Ashland Castings Corp., 188 F.3d 670, 44 Fed.R.Serv.3d 1035, 1999 Fed.App. 0304P

Facts

Wilton Corporation, a Colorado corporation with its principal place of business in Illinois, required metal castings from Ashland Castings, an Ohio corporation owned by Keith A. Brown, its sole shareholder. After a fire at Ashland's facility, the company raised prices, leading Wilton to sue for breach of contract. Wilton later amended its complaint to include Brown personally, seeking to pierce the corporate veil. The district court granted summary judgment in favor of Brown, concluding that Wilton failed to provide sufficient evidence to pierce the corporate veil.

Wilton, a Colorado corporation with its principal place of business in Illinois, has a manufacturing facility located in Winchester, Tennessee. Wilton required certain metal castings to be supplied for use as product components. Ashland Castings, an Ohio corporation with its principal place of business in Ohio, produced the castings used in production by Wilton under a contract.

Issue

Whether Wilton Corporation could pierce the corporate veil of Ashland Castings to impose personal liability on its sole shareholder, Keith A. Brown, based on a breach of contract claim.

Whether a simple breach of contract was sufficient under Ohio law to pierce the corporate veil and impose liability on sole shareholder.

Rule

Under Ohio law, the corporate veil may be pierced only 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 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.

In accordance with Ohio law, the corporate form may be disregarded only 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 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.

Analysis

The court applied the three-prong test from Belvedere Condominium Unit Owners' Assoc. v. R.E. Roark Companies, Inc. to determine if the corporate veil could be pierced. It found that Wilton failed to establish the second prong, as a simple breach of contract does not constitute fraud. The court noted that Brown's actions did not rise to the level of fraud or manipulation of the corporate form, and thus, the corporate veil could not be pierced.

The court reasoned that, assuming that Ashland had breached its contract with Wilton, 'breach of contract standing alone is insufficient to constitute fraud and to justify the extraordinary remedy of piercing the corporate veil.'

Conclusion

The court affirmed the district court's decision, granting summary judgment in favor of Brown and sanctioning Wilton for filing a frivolous appeal.

We agree that a simple breach of contract cannot suffice as the type of 'illegal' or fraudulent act intended by the court in Belvedere under the plain circumstances here.

Who won?

Keith A. Brown prevailed in the case because the court found that Wilton did not provide sufficient evidence to pierce the corporate veil, and the appeal was deemed frivolous.

Brown argues that Wilton has not put forth even a scintilla of evidence to suggest that Ashland did not have a valid existence separate from Brown himself.

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