United States District Court, N.D. Illinois
March 24, 2004.
LABORERS' PENSION FUND and LABORERS' WELFARE FUND OF THE HEALTH AND WELFARE DEPARTMENT OF THE CONSTRUCTION AND GENERAL LABORERS' DISTRICT COUNCIL OF CHICAGO AND VICINITY, and JAMES S. JORGENSEN, Administrator of the Funds, Plaintiffs;
PARAGON PAVING, INC., an involuntarily dissolved Illinois corporation, and JOHN W. MOZAL, individually, Defendants
The opinion of the court was delivered by: ROBERT GETTLEMAN, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs Laborers' Pension Fund and Laborers' Welfare Fund for the
Health and Welfare Department of the Construction and General Laborers'
District Council of Chicago and Vicinity and James Jorgensen
(collectively, the "Funds"), filed the instant suit against defendants
Paragon Paving, Inc. ("Paragon") and its President and sole shareholder,
John Mozal, seeking monies owed pursuant to a collective bargaining
agreement. Defendant Paragon, which was involuntarily dissolved by the
Illinois Secretary of State on February 1, 2003, is in default: its
attorney was granted leave to withdraw on May 13, 2003, and the company
failed to obtain new representation. Defendant Mozal does not dispute
that Paragon owes the Funds $17,624.88 in unpaid contributions, dues,
interest, liquidated damages and audit costs for the period of January
22, 2001, through September 30, 2002.
Plaintiffs have moved for summary judgment against Mozal, arguing that
he disregarded the corporate form and thus is personally responsible for
Paragon's debt to the Funds, as well as attorneys' fees. For the reasons
stated below, plaintiffs' motion for summary judgment is granted.
Paragon was incorporated in 1986 and performed asphalt paving work and
sewer reconstruction. Paragon ceased working on projects in January 2002,
and was dissolved by the Illinois Secretary of State in February 2003.
The record presented by the parties in connection with plaintiffs'
motion for summary judgment reflects that prior to its dissolution,
numerous individuals received loans from Paragon without any formal
documentation and without any terms of repayment or interest. For
example, Dennis Doyle, who was a joint shareholder of Paragon with Mozal
until June 2000, received approximately $159,384 in loans from Paragon
without any formal documentation and without any terms of repayment or
interest charged. When Doyle gave up his interest in Paragon to Mozal, he
received, among other things, forgiveness of that $159,384 debt.
Similarly, Paragon loaned $150,000, interest free, to its
attorney, Martin Litwin, without any formal documentation regarding the
terms of that loan. As of the date of the instant motion, the Litwin loan
also has not been repaid.
The Transaction Detail by Account of Paragon Paving, Inc. for the
fiscal years September 2000 through August 2001 and September 2001
through August 2002, lists payments totaling
$498,757.07 "due from Shareholder." An examination of Mozal's
deposition testimony reveals that these payments from Paragon's corporate
accounts which included cash advances as well as payments to a
host of payees, including Honda Financial Corp., US Bank Home Mortgage,
John Mozal personally, and St. Charles Rec Center, among others
were intended to cover Mozal's personal expenses, such as Mozal's wife's
car payments and the financing of his condominium in Florida.
Mozal contends that these payments were actually a repayment by Paragon
of debts owed to him and his wife, Linda Morgan. According to Mozal, he
and Morgan loaned approximately $140,000 to Paragon, and Paragon repaid
this debt through payments of assessments on the condominium and car
payments. As evidence of these loans, Mozal submitted an affidavit and
two "cash loan" registers chronicling his and Morgan's loans to Paragon.
Mozal further maintains that Morgan made an additional $75,000 in loans
to Paragon; in support of that contention, Mozal attached handwritten
exhibits chronicling Morgan's contributions, as well as copies of some of
Morgan's credit card statements.
Mozal also contends that he and his wife routinely used their personal
credit cards for business purchases on behalf of Paragon, and that
numerous payments to their credit card company by Paragon were intended
to reimburse Mozal and his wife for those purchases. As evidence of these
credit card transactions made on behalf of Paragon, Mozal references the
same copies of Morgan's credit card statements mentioned above,*fn2
A movant is entitled to summary judgment under Fed.R.Civ.P. 56 when
the pleadings, depositions, answers to interrogatories, and admissions on
file, together with any affidavits, show that there is no genuine issue
of material fact and the movant is entitled to judgment as a matter of
law. See Fed.R.Civ.P. 56(c); Celotex Corp. v.
Catrett. 477 U.S. 317, 322 (1986); Unterreiner v. Volkswagen of
America, Inc., 8 F.3d 1206, 1209 (7th Cir. 1993). Once a moving
party has met its burden, the nonmoving party must go beyond the
pleadings and set forth specific facts showing there is a genuine issue
for trial. See Fed.R.Civ.P. 56(e); Becker v. Tenenbaum
Hill Assoc. Inc.. 914 F.2d 107, 110 (7th Cir. 1990). The
nonmoving party "must do more than simply show that there is some
metaphysical doubt as to the material facts." Matsushita Elec.
Indus. Co. Ltd, v. Zenith Radio Corp.. 475 U.S. 574, 586 (1986),
"The mere existence of a scintilla of evidence in support of the
[nonmoving party's] position will be insufficient; there must be evidence
on which the [finder of fact]*fn3 could reasonably find for the
[nonmoving party]." Anderson v. Liberty Lobby. Inc.,
477 U.S. 242, 252 (1986).
Plaintiffs maintain that they are entitled to summary judgment on the
issue of whether Mozal disregarded the corporate form and treated
Paragon's assets as his own, rendering him liable for the moneys owed to
plaintiffs by Paragon. Under Illinois law, a corporation is a legal
entity separate and distinct from its shareholders, directors, and
officers and, generally from other corporations with which it may be
affiliated. Van Dorn Co. v. Future Chemical and Oil Corp.,
753 F.2d 565, 569 (7th Cir. 1985) (citations omitted). A corporate
identity may be disregarded, and the corporate veil pierced, however, if,
(1) there is such unity of interest and ownership that the separate
personalities of the corporation and the individual no longer exist, and
(2) "adherence to the fiction of separate corporate existence would
sanction a fraud or promote injustice." Id., at 569-570. To determine
whether a unity of interest exists, Illinois law looks to the following
four factors: (1) the failure to maintain adequate corporate records or
to comply with corporate formalities; (2) the commingling of funds or
assets; (3) under capitalization; and (4) treating the assets of
the corporation as the individual's own. Id. at 570.
In the instant case, defendant essentially acknowledges the commingling
of corporate and personal assets by conceding that his condominium
payments and Morgan's car payments were made from corporate accounts.
Defendant defends these transactions by asserting that the payments were
reimbursement for loans made to Paragon by defendant and his wife.
Assuming arguendo the admissibility of the cash loan
registers (a highly dubious assumption given defendant's failure to
establish that they fall within the business records exception under Fed.
R. Evid. 803(6) and his failure to provide supporting documentation), the
court concludes that Mozal disregarded the corporate veil and no
reasonable factfinder, including this court, could conclude otherwise.
Even accepting defendant's representation that he and Morgan loaned
$215,000*fn4 to Paragon, the record reflects that Paragon made more than
in payments "due from Shareholder" in its last two fiscal years
alone. Moreover, even if these payments were somehow justified as the
result of some agreement between Paragon and defendant to repay monies
owed to him and his wife (and then some), the fact remains that Paragon
failed to memorialize the terms of any such agreement in writing and
maintain adequate corporate records.
The interest free, undocumented loans made by Paragon to Litwin
and Doyle fall into the same category. The terms of these loans, or lack
thereof, were not reduced to writing or recorded in any other meaningful
manner. These failures to keep adequately detailed records of Paragon's
finances support the court's conclusion that there is a unity of interest
that warrants the piercing of the corporate veil in the instant case. See
Chicago District Council of Carpenters Pension Fund v. Ceiling Wall
Systems, Inc., 1999 WL 47078, at *9 (N.D.Ill. Jan. 20, 1999)
(characterizing failure to document loans as a failure to observe
The court further concludes that plaintiffs have satisfied the second
prong of the corporate veil piercing analysis, that adherence to
the fiction of a separate corporate existence would sanction a fraud or
promote an injustice. Defendant continuously converted corporate assets
for his own personal use even after plaintiffs filed the instant suit.
When asked at his deposition why he converted assets of the corporation
for his own use rather than pay his obligations to the plaintiff Funds,
defendant responded, "Well, I figured I might as well take my money. My
money was outstanding a lot longer than the union's." As noted above,
however, Paragon made payments on defendant's behalf totaling more than
twice the amount allegedly owed to defendant and his wife.
Cognizant of Paragon's debt to the Funds, defendant persisted in
converting Paragon's assets for his personal use through August 2002,
well after Paragon ceased working on projects. After intentionally
diverting funds from Paragon to cover his personal expenses, including
payments on his and his wife's luxury cars, defendant cannot now use
Paragon as a shield to avoid liability. See Sea Land
Services. Inc. v. Pepper Source. 993 F.2d 1309, 1312 (Cir. 1993)
("Since Marchese was enriched unjustly by his intentional manipulation
and diversion of funds from his corporate entities, to allow him to use
these same entities to avoid liability' would be to sanction an
injustice.'") (quoting Gromer, Wittenstrom & Meyer, P.C. v.
Strom, 140 Ill. App.3d 349, 354 (Ill.App.2d Dist. 1986)).
Accordingly, the court concludes that piercing the corporate veil is
warranted in the instant case and grants plaintiffs' motion for summary
For the reasons stated herein, plaintiffs' motion for summary judgment
is granted. Plaintiffs are directed to prepare and submit by the close of
business this date a judgment order reflecting the amount currently due.
Any petition for attorneys' fees shall be governed by Local Rule 54.3.