Kinney Shoe Corp v. Polan explained

Litigants:	Kinney Shoe Corp v. Polan
Courtseal:	Seal of the United States Court of Appeals for the Fourth Circuit.svg
Arguedate:	March 6,
Argueyear:	1991
Decidedate:	July 17,
Decideyear:	1991
Fullname:	Kinney Shoe Corporation v. Lincoln M. Polan
Citations:	939 F.2d 209
Judges:	Kenneth Keller Hall, Robert F. Chapman, Hiram Hamilton Ward (M.D.N.C.)
Majority:	Chapman
Keywords:	Piercing the corporate veil

Kinney Shoe Corp v. Polan, 939 F.2d 209 (4th Cir. 1991),^[1] is a US corporate law case, concerning piercing the corporate veil.

Facts

Kinney Shoe Corp sued Mr Lincoln M Polan to pay money outstanding on a sub-lease by the "Industrial Realty Company". Polan wholly owned "Industrial", but had never held any corporate meetings or elected officers.

The question is whether Kinney could pursue Mr Polan for the debt.

Judgment

Chapman J quoted from Sanders v Roselawn Memorial Gardens, Inc.^[2] that the "fiction" of separate legal personality,

It emphasized that each case should be decided on its facts, and pointed to a number of relevant factors.

• that Industrial was not adequately capitalized (no capital had been paid in)^[3]
• no corporate formalities, such as taking minutes or electing officers, had been observed^[4]
• it appeared that the company was deliberately used to carry out transactions to benefit another of Mr Polan's companies, which had assets but would be shielded from liability

He concluded by saying,

See also

• United States corporate law
• Texas Industries Industries Inc v DuPuy, 227 So. 2d 265 (La. Ct. App. 1969) "Inadequate capitalization is not of itself a badge of fraud... The general rule is that an individual may incorporate his business for the sole purpose of escaping individual liability for the corporate debts."

Notes and References

1. Kinney Shoe Corp v. Polan . 939 . F.2d . 209 . 4th Cir. . 1991 . https://law.justia.com/cases/federal/appellate-courts/F2/939/209/31699/ . 2018-05-28 .
2. 152, W. Va 91, 159 S.E.2d 784, 786 (1968)
3. quoting, Laya v Erin Homes, Inc., 352 SE2d 93, 101-2 (W Va 1986) "grossly inadequate capitalization combined with disregard of corporate formalities, causing basic unfairness, are sufficient to pierce the corporate veil in order to hold the shareholder(s) actively participating in the operation of the business personally liable for a breach of contract to the party who entered into the contract with the corporation."
4. quoting, Labadie Coal Co v Black 672 F2d 92, 96-8 (DD Cir 1982) "Individuals who wish to enjoy limited personal liability for business activities under a corporate umbrella should be expected to adhere to the relatively simple formalities of creating and maintaining a corporate entity"