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Amsted Industries v. Pollak Industries

OPINION FILED OCTOBER 4, 1978.

AMSTED INDUSTRIES, INCORPORATED, PLAINTIFF-APPELLEE,

v.

POLLAK INDUSTRIES, INC., ET AL., DEFENDANTS. — (FRED R. POLLAK, DEFENDANT-APPELLANT.)



APPEAL from the Circuit Court of Cook County; the Hon. DANIEL P. COMAN, Judge, presiding.

MR. JUSTICE SIMON DELIVERED THE OPINION OF THE COURT:

Plaintiff, Amsted Industries, Inc. (Amsted), brought this action against Fred R. Pollak (Pollak), Pollak Industries, Inc. (Industries), and Pollak Leasing Co., Inc. (Leasing). Plaintiff alleged that its former division, South Bend Lathe (South Bend), had entered into several contracts with Industries for the sale of machinery, and that $64,975 was due plaintiffs for machinery South Bend had delivered pursuant to these contracts. Plaintiff moved for a summary judgment against all three defendants, alleging that the two corporations were in reality operated as one entity and no more than a vehicle for the personal dealings of Pollak. In support of its motion, plaintiff relied primarily on Pollak's deposition and the documents submitted at that deposition. The defendants submitted no evidence of their own in opposition to the motion but contended that summary judgment was not properly granted on the evidence submitted by the plaintiff.

The trial judge granted plaintiff's motion and entered judgment against all three defendants. In relation to the liability of Mr. Pollak, the trial judge stated: "I think there only can be one interpretation from all of the documents, the deposition, my reading of the deposition, and that these corporations were so interrelated that they were actually affected and controlled by Mr. Pollak." Although the corporate defendants have not appealed, Pollak has appealed that part of the judgment holding him personally liable. The only issue is whether summary judgment was proper.

Plaintiff contends the evidence it submitted conclusively established several facets of the business operations of the three defendants which together indicate that the two corporate defendants were mere alter egos for Pollak and cannot shield him from personal liability. In order to clarify this opinion, the facts which plaintiff cited to support its motion will be presented under each of these facets.

Pollak's Total Control and Domination of the Corporate Defendants. Plaintiff contends that Pollak had total control over the corporate defendants and that this is a reason for holding him personally liable. Plaintiff argues that the following demonstrates Pollak's total control over the corporate defendants. Pollak is the sole shareholder of the corporate defendants and was the president and sole director of Leasing. The corporate defendants both admitted in their pleadings that they were under the control and domination of Pollak, and Pollak stated in his deposition that all employees consulted him before entering into any significant transaction.

The Interwoven Affairs of the Two Corporate Defendants. Plaintiff argues another reason for holding Pollak liable is that the two corporate defendants in reality ran their affairs as one business. In support of this contention plaintiff relies on evidence that Industries sold new and used machine tools, that Leasing's business was the lease financing of the purchase of this type of tool, that forty percent of Industries' customers obtained their financing through Leasing, and that whenever an Industries' customer inquired about financing, Leasing was suggested. Plaintiff claims this demonstrates that the two corporations "worked hand-in-hand."

Plaintiff cites other facts it contends demonstrate a high degree of interrelation between the two corporations. They shared a common address, common office space, common telephone number, and maintained joint insurance policies. They had common shareholders, common directors and common officers, and both companies rented space from Pollak through a trust.

The Financial Interrelation Between Pollak and the Corporate Defendants. Plaintiff claims the facts show a total financial interdependence between Pollak and the two corporations. Plaintiff directs our attention to the circumstances of a loan Leasing made to Pollak. Plaintiff notes that Pollak could not recall at his deposition whether there was a written instrument reflecting the loan or whether he was paying interest on the loan. Plaintiff places great reliance on the following response Pollak gave in his deposition to an inquiry as to whether he gave security for that loan: "No, it's all my money anyway. I don't have to." Plaintiff characterizes this statement as an admission of total financial interdependence between Pollak and the two corporations.

Plaintiff emphasizes that Pollak instructed one of his office managers to pay South Bend for a machine with a Leasing check rather than an Industries' check. When pressed during his deposition for an answer as to which corporation's check was actually used, Pollak replied: "I don't know what the hell check I gave them." Plaintiff argues that this is an admission by Pollak that it did not matter who paid Amsted because it was all his own money.

As further evidence of the alleged financial interrelationship, plaintiff notes that Pollak was the only source of equity financing for both Industries and Leasing, that Industries leases office equipment worth $30,000 from Pollak for the sum of $100 per month, and that Pollak rents buildings he owns to the two corporations. Plaintiff also notes that Industries had no petty cash fund and that if any corporate need for petty cash arose, Pollak would pay it out of his own pocket.

The Involvement of Pollak and of Leasing in the Transaction. The plaintiff argues that the personal involvement of Pollak in its transactions with Industries was extensive and that this is a reason for holding him personally liable. Plaintiff relies on a letter signed by Pollak to South Bend in which Pollak asked for a "personal" meeting with South Bend "in order to keep a good working relationship between South Bend Lathe Company and Fred Pollak." Plaintiff also cites evidence that when South Bend asked for financial statements from its distributors, Pollak told South Bend that he was going to send his personal statement along with the statements of the corporations.

Plaintiff relies heavily on evidence that the stationery containing the different letterheads of the two corporations were intermingled in the transactions with plaintiff and that credit memos and other correspondence were sent by South Bend to Leasing without objection by Leasing. Plaintiff claims this demonstrates that both corporations, not just Industries, were involved in the transactions, and urges this as a reason for holding Pollak personally liable.

• 1 Summary judgment is properly granted when the evidence submitted to support the motion establishes that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. (Heller v. Sullivan (1978), 57 Ill. App.3d 190, 194, 372 N.E.2d 1036.) Although inferences may be drawn from undisputed facts, the motion should not be granted unless those facts are susceptible of but a single inference. Where reasonable men could arrive at different results, questions of fact cannot be determined as a matter of law. (Doran v. Pullman Standard Car Manufacturing Co. (1977), 45 Ill. App.3d 981, 986, 360 N.E.2d 440.) If a material question of fact does exist, an order granting summary judgment must be reversed. Econo Lease, Inc. v. Noffsinger (1976), 63 Ill.2d 390, 393, 349 N.E.2d 1.

• 2, 3 We are dealing here with a so-called close corporation, one in which the stock is held in a few hands, and is not frequently bought or sold. (Galler v. Galler (1964), 32 Ill.2d 16, 27, 203 N.E.2d 577.) There is no specified or required minimum number of stockholders for a valid corporate existence, and corporations with a single shareholder have received judicial sanction. (See Byrd v. Brand (1976), 140 Ga. App. 135, 230 S.E.2d 113; Nursing Home Building Corp. v. DeHart (1975), 13 Wn. App. 489, 535 P.2d 137; Elliott v. Smith (1973), 47 Mich. App. 236, 209 N.E.2d 425; Cole v. Golemi (La. App. 1972), 271 So.2d 65; 1 F.H. O'Neal, Close Corporations § 1.05, at 8-9 (1971).) In line with the concept of a close corporation, the Business Corporation Act was expressly amended to permit a single director in corporations which have a sole stockholder. (Ill. Rev. Stat. 1975, ch. 32, par. 157.34.) Although the Close Corporation Act was enacted after the relevant time period of this lawsuit, it reaffirms the concept of close corporations in Illinois. (Ill. Rev. Stat. 1977, ch. 32, pars. 1021-1216.) Section 12 ...


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