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Macaluso v. Jenkins

OPINION FILED APRIL 28, 1981.

FRANK MACALUSO ET AL., PLAINTIFFS-APPELLANTS AND CROSS-APPELLEES,

v.

JOHN JENKINS ET AL., DEFENDANTS-CROSS-APPELLANTS. — (PAULETTE ZECCA, DEFENDANT-APPELLEE.)



APPEAL from the Circuit Court of Du Page County; the Hon. BRUCE R. FAWELL, Judge, presiding.

MR. JUSTICE VAN DEUSEN DELIVERED THE OPINION OF THE COURT:

The plaintiffs, Frank Macaluso and Image II, Inc., brought suit to recover payment of an amount due under a contract for artwork and printing completed by plaintiffs in 1977. The defendants named in the suit include: Industrial Police Association, a nonprofit corporation; John Jenkins, individually, and as chairman of the board and treasurer of the Industrial Police Association; Paulette Zecca, individually, and as secretary of the Industrial Police Association, and Shirley Blanford, individually, and as agent of International Cleaning Services, Inc.

Trial by jury commenced on October 2, 1979. At the close of plaintiffs' case, the trial court granted Paulette Zecca's and Shirley Blanford's motion to dismiss them as defendants. The case went to the jury as to the defendants John Jenkins and the Industrial Police Association. On October 12, 1979, the jury rendered a verdict for the plaintiffs and against the defendants John Jenkins, individually, and the Industrial Police Association. The verdict awarded to the plaintiffs the sum of $28,860.71. The plaintiffs take this appeal from the dismissal of Paulette Zecca as a defendant. The defendant, Jenkins, cross-appeals from the jury verdict holding him personally liable. International Police Association has not appealed the jury verdict.

In 1973 the defendant, John Jenkins, founded Continental Security (Continental), a corporation. Jenkins was not only the founder of Continental, but also the president and chairman of the board. Continental provided armed guards and night watchmen for various offices and industrial sites. At that time, Jenkins was also employed as a police officer and ran his own private investigation firm. In 1975, Jenkins employed the defendant, Paulette Zecca, as a guard with Continental. Her prior employment had been as a secretary. Initially, Ms. Zecca also did secretarial work at Continental. Within a year, she became an assistant director of security for Continental.

During this time, Jenkins conducted both of his businesses out of offices located at 1127 South Mannheim Road in Westchester, Illinois. In January of 1977, Zecca, who continued to work for Jenkins at the 1127 Mannheim Road address, founded a janitorial service for commercial buildings, the International Cleaning Service (International). She had about four or five employees and she states that she originally operated her business out of her home and that she later moved that business to Downers Grove. In a recent telephone directory, however, the address for International was listed as 1127 Mannheim Road, Westchester, Illinois. Moreover, Zecca indicated that she spent a considerable amount of time, sometimes 7 days a week, working at that address.

The evidence also indicated that International often paid the rent for the offices at the Mannheim Road address. These offices contained three desks. One desk was used by Jenkins, another by Zecca and a third by Shirley Blanford. Mrs. Blanford did secretarial work, including answering the phones, for International. As late as 1978, a phone call to the 1127 Mannheim Road address would enable the caller to hire a security guard, to contract with a cleaning service or to join the Industrial Police Association.

In February of 1977, Jenkins founded the Industrial Police Association (I.P.A.), a nonprofit, professional organization for security guards. I.P.A.'s offices are also located at 1127 Mannheim Road, Westchester, Illinois. Jenkins is not only the founder of I.P.A., but also the treasurer and chairman of the board of directors. Zecca is the secretary and also a member of the board of directors of I.P.A. Officially, I.P.A. has no salaried employees; Jenkins and Zecca volunteer their time to I.P.A. Membership dues are the primary source of income for I.P.A.

In early 1977, the plaintiff, Macaluso, and Jenkins engaged in several discussions, which led to the contract at issue in this case. As a result of these discussions, Macaluso and his firm, Image II, Inc., designed, printed and delivered numerous printed materials to the I.P.A. At trial, the jury found that under this contract, I.P.A. and Jenkins owed $28,860.71 to Macaluso and firm. Neither I.P.A. nor Jenkins challenges the jury's finding that $28,860.71 was due on the contract. The only issue Jenkins raises on appeal is whether he can be held personally liable.

On appeal, Jenkins asserts that the contract is only between I.P.A., a nonprofit corporation, and Macaluso or his firm and, therefore, Jenkins is not personally liable. Macaluso on the other hand asserts that due to Jenkins' method of handling I.P.A.'s assets, the corporate existence should be disregarded and Jenkins should be held personally liable.

• 1 Under Illinois law, a corporation is a legal entity that exists separate and distinct from its shareholders, officers and directors. As a general rule, the officers and directors are not liable for the corporation's debts and obligations. (Gallagher v. Reconco Builders, Inc. (1980), 91 Ill. App.3d 999, 1004; Stap v. Chicago Aces Tennis Team, Inc. (1978), 63 Ill. App.3d 23, 27. See also Bevelheimer v. Gierach (1975), 33 Ill. App.3d 988; Divco-Wayne Sales Financial Corp. v. Martin Vehicle Sales, Inc. (1963), 45 Ill. App.2d 192.) However, a corporate entity will be disregarded and the veil of limited liability pierced where it would otherwise present an obstacle to the protection of private rights, or when the corporation is merely the alter ego or business conduit of a governing or a dominating personality. (Stap v. Chicago Aces Tennis Team, Inc. (1978), 63 Ill. App.3d 23, 27.) Thus,

"For the doctrine of traditionally known as the `piercing of the corporate veil' to apply two requirements must be met: first, there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; and second, circumstances must be such that an adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice." Gallagher v. Reconco Builders, Inc. (1980), 91 Ill. App.3d 999, 1004; People ex rel. Scott v. Pintozzi (1971), 50 Ill.2d 115, 128-29; see also Central States Southeast & Southwest Areas Pension Fund v. Gaylur Products, Inc. (1978), 66 Ill. App.3d 709.

• 2 Jenkins contends that because I.P.A. is a not-for-profit corporation organized under the General Not For Profit Corporation Act (Ill. Rev. Stat. 1977, ch. 32, par. 163a et seq.), the remedy of piercing the corporate veil is not available to the plaintiffs. In his brief, Jenkins points out that the General Not For Profit Corporation Act contains no exception to the limitation of directors' liabilities similar to the exception found in section 42 of the Business Corporation Act. (Ill. Rev. Stat. 1977, ch. 32, par. 157.42.) We note that this section of the Business Corporation Act merely creates statutory liabilities that are an addition to those already imposed by law; moreover, piercing the corporate veil is an equitable remedy which "completely disregards this statutory network creating and supporting corporate structures." (Brioda, The History of the Development of the Remedy of "Piercing the Corporate Veil", 65 Ill. B.J. 522, 523 (1977).) I.P.A.'s status as a not-for-profit corporation in and of itself should not bar a court from applying the equitable remedy of piercing the corporate veil. In the case of People ex rel. Brown v. Illinois State Troopers Lodge No. 41 (1972), 7 Ill. App.3d 98, the court pierced the corporate veil of a nonprofit corporation in order to avoid the evasion of a statutory duty imposed by the State.

In Illinois State Troopers Lodge No. 41, however, the court did not address the issue of ownership of a not-for-profit corporation and, under Gallagher and Pintozzi, the first requirement of piercing the corporate veil is finding a "unity of interest and ownership." Thus, it can be argued that because a not-for-profit corporation has no shareholders and Jenkins, therefore, cannot and does not own the I.P.A., the ownership aspect of the first requirement, at least from a technical standpoint, cannot be met. However, piercing the corporate veil is essentially equitable in character (Stap v. Chicago Aces Tennis Team, Inc. (1978), 63 Ill. App.3d 23), and an equitable remedy looks to the substance rather than to form (People ex rel. Scott v. Pintozzi (1971), 50 Ill.2d 115, 131).

There is evidence that Jenkins exercised ownership control over the corporation. While Jenkins testified that there was a president and one or more vice-presidents of I.P.A., and that there were six other directors of I.P.A., he failed to introduce evidence which would indicate that these persons played any role in the management of the organization. Rather, Jenkins indicates that he made most or all of the decisions concerning the I.P.A. At trial, he testified that even Zecca, who was both an officer and on the board of directors, had no input into the decisions he made concerning I.P.A. His testimony also indicates that when the contract was being negotiated with plaintiffs, he was the sole representative for I.P.A. The evidence also shows that Jenkins made all the decisions concerning seminars held by the I.P.A. and that Jenkins had the power to authorize loans to I.P.A. Apparently, without holding an ...


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