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08/11/89 Kelsey Axle & Brake v. Presco Plastics

August 11, 1989





KELSEY AXLE & BRAKE DIVISION, a division of Kelsey-Hayes

543 N.E.2d 239, 187 Ill. App. 3d 393, 135 Ill. Dec. 4 1989.IL.1237

Appeal from the Circuit Court of Cook County; the Hon. Howard M. Miller, Judge, presiding.


PRESIDING JUSTICE EGAN delivered the opinion of the court. McNAMARA and LaPORTA, JJ., concur.


The plaintiff, Kelsey Axle & Brake Division (Kelsey), sued three corporations, Presco Plastics, Inc. (Presco), Bob Goltermann & Associates, Inc. , and KI Industries, Inc., which during the time pertinent to this appeal, 1978-1980, was Knobs, Inc. (Knobs). The plaintiff claimed that it had contracted with Presco to manufacture plastic pistons which were to be incorporated into brake cylinders produced by the plaintiff which it sold to Harley-Davidson to be used in rear brakes in motorcycles. The plastic pistons were defective, and the plaintiff was damaged in that it was required to participate in a recall campaign with Harley-Davidson and to expend substantial sums of money in settlements and judgments arising out of lawsuits against it and for attorney fees in defense of those lawsuits.

Presco, however, became insolvent and was dissolved. Consequently, the plaintiff also sued KI Industries, formerly Knobs, and BGA on a "piercing the corporate veil" theory, alleging that Presco was the alter ego of BGA and Knobs. The Judge first heard evidence on the plaintiff's claim against BGA and Knobs. He held that the plaintiff had failed to establish that Presco was the alter ego of BGA and Knobs and entered judgment for BGA and KI Industries.

The Judge then heard the claim against Presco and entered judgment for the plaintiff on two counts and for Presco on the two remaining counts. He denied the plaintiff's claim for attorney fees incurred in defending the various lawsuits filed against it.

The plaintiff appeals from the judgment in favor of BGA and KI Industries, from the judgment in favor of Presco on two of the counts of the complaint and from the order denying attorney fees. Presco appeals from the judgment in favor of the plaintiff on two of the counts of the complaint.

We will first consider the plaintiff's appeal of the judgment in favor of BGA and KI Industries. It contends that the Judge's finding was against the manifest weight of the evidence.

As in most, if not all, cases involving the issue of manifest weight of the evidence, a rather detailed recitation of the evidence is required. Presco, a Wisconsin corporation, was a custom molding machine shop with approximately five employees operating in Milwaukee. Knobs, an Illinois corporation, was in the business of manufacturing knobs for an appliance industry. Robert Goltermann (Robert) and his wife, Marsha Goltermann, were the sole shareholders of Knobs. Robert was the chairman and treasurer of Knobs, his wife was the secretary and his brother, Carl Goltermann (Carl), was the president.

BGA was a manufacturer's representative. Robert was the sole shareholder, the chairman, president and treasurer; and his wife was the secretary.

Sometime before February 5, 1975, Carl and Robert discussed purchasing a custom molding company that could do molding work for Knobs and would operate as a separate company. Presco was purchased and later capitalized by Knobs with $50,000. Knobs added another $35,000 through a loan to Presco, several days after the purchase. Carl, the president of Knobs, also became the president of Presco.

The plaintiff emphasizes the following facts in support of its argument that the manifest weight of the evidence establishes that Presco was the alter ego of Knobs and BGA:

(1) The officers of Knobs held the same positions in Presco. Robert and his wife were the sole shareholders of Knobs, and Robert was the sole shareholder of BGA.

(2) Carl supervised the daily running of Presco and determined what equipment Presco needed. He made the decision not to purchase product liability insurance.

(3) Knobs paid Carl's salary as president of Presco and his traveling expenses.

(4) Forty to fifty percent of Presco's revenue was to Knobs, and Knobs purchased approximately one-third of its products from Presco.

(5) From 1976 through 1980 all three companies filed consolidated tax returns; and Knobs received tax credits from Presco's business operating losses.

(6) Robert and Carl were signators on Presco's bank account.

(7) From 1976 to 1978, Presco leased all its equipment from BGA, which was not in the business of equipment leasing.

(8) Between 1975 and 1979 both BGA and Knobs loaned money to Presco, but there was no note, no collateral and no repayment schedule.

(9) On September 30, 1975, BGA loaned Presco $23,000 and on the same day Presco paid Knobs $23,000. In February 1978 Knobs paid Presco $60,000, and Presco paid BGA $60,000. In June 1978 Presco received $20,000 from BGA, which Presco then paid to Knobs. In 1979, of Presco's $200,000 in liability, $110,000 was owed to BGA and Knobs.

(10) After the initial corporate meeting of Presco in 1975, there were no other minutes in Presco's corporate minute book. As of March 28, 1979, Presco's last meeting was February 1975. From 1978 through 1980 there are no entries in Knob's corporate minute books regarding Presco.

(11) Presco lost money from 1975 to 1978. In 1979 Carl was discouraged about Presco ever becoming a "successful venture" and concluded that Knobs should stop buying from Presco. There was no Presco corporate resolution to terminate Presco's existence; nor was there any corporate resolution by Knobs, Presco's sole shareholder, to terminate Presco's existence. Presco's assets were simply sold. The remaining $17,000 Presco owed to BGA was never repaid. BGA never instituted any legal proceedings to recover the remainder of the money due from Presco.

The plaintiff also presented expert testimony from Donald Brenner. It was his opinion that Robert controlled, owned and managed the three corporations, employed other people and operated all three corporations as if they were one entity; and that the corporate separateness of the three was largely ignored.

The defendants refer to the following evidence as support for their position:

(1) Carl's activities with respect to Presco were to oversee the management and financial condition of the company. They did not entail day-to-day supervision over the company. Presco was run by a general manager, and Carl traveled from Illinois to Presco only about once a week. Robert's sole role with respect to Presco was to confer with Carl on the financial condition of Presco.

(2) At the time that Knobs purchased Presco, Presco did not have product liability insurance. The decision not to obtain such insurance was ...

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