The opinion of the court was delivered by: Herndon, District Judge
I. Introduction and Background
Now before the Court are cross motions for summary judgment (Docs. 17 & 21). K.C. Pharmaceuticals, Inc., moves the Court to pierce the corporate veil as to Strieter Clinical Testing Laboratories, Inc., to enforce its judgment against Dr. James Strieter individually on the ground that Strieter Clinical Testing Laboratories, Inc., was the alter ego Dr. Strieter. Strieter opposes the motion (Doc. 20). Strieter also filed a motion for summary judgment arguing that he is entitled to summary judgment because the evidence fails to support the elements of K.C. Pharmaceuticals, Inc.'s cause of action. Based on the record, the applicable law, oral arguments held March 20, 2006 and the following, the Court grants K.C. Pharmaceutical's motion for summary judgment and denies Dr. Strieter's motion for summary judgment. The Court denied Plaintiffs Motion to Strike Defendants Affidavit (Doc. 23) during the oral argument on March 20, 2006.
On April 11, 2005, K.C. Pharmaceuticals, Inc. ("K.C.") filed suit against James F. Strieter ("Strieter") based on diversity, 28 U.S.C. § 1332, to pierce the corporate veil as to Strieter Clinical Testing Laboratories, Inc. ("Clinical") to enforce its judgment against Strieter personally on the ground that Clinical was the alter ego of Strieter. (Doc. 1). The complaint alleges that Strieter is the Sole Officer, Shareholder, President and Registered Agent of Clinical. (Doc. 1, ¶ 5). The complaint also alleges that in 2001, Clinical, along with another company, Eurexpan, Ltd. f/k/a Eurexpan Labo, S.A. and Eurexpan (collectively "Eurexpan") filed suit against K.C. in the Madison County, Illinois Circuit Court. (Doc. 1, ¶ 6). The lawsuit contained third party beneficiary and tortious interference claims. (Doc. 1, ¶ 6). On July, 8, 2004, Circuit Court Judge Kardis dismissed with prejudice (a result of discovery violations) all of the claims against K.C. and awarded K.C. judgment jointly and severally for its attorneys' fees and costs in the amount of $81,948.11. (Doc. 1, ¶ 7). The complaint further alleges that Clinical is the alter ego of Strieter; that it failed to observe cooperate formalities and there is an absence of business records, it was inadequately capitalized; it has no assets and paid little or no dividends; and that there are no corporate officers or directors other than Strieter. (Doc. 1, ¶ ¶ 16, 17, 18 and 19).
On June 22, 2005, K.C. filed its motion for summary judgment (Doc. 17). Strieter filed his opposition on July 25, 2005 (Doc. 20). Shortly thereafter, Strieter filed his motion for summary judgment (Doc. 21).*fn1 K.C. responded to Strieter's motion for summary judgment on August 31, 2005 (Doc. 25). Both parties filed reply briefs to the respective motions (Docs. 22 & 26). The Court now turns to address these motions.
Clinical was incorporated in the State of Illinois in 1984. Strieter, he admitted, is the sole shareholder and officer of Clinical. Clinical is, described by Strieter, as "an intellectual corporation." Its primary function is to conduct clinical studies on contact lenses and solutions required by the U.S. Food and Drug Administration for marketing approvals.
On July 8, 1996, the parties seem to agree, Eurexpan and K.C. entered into two agreements known as the Supply and Licensing Agreement ("Supply Agreement") and Manufacturing Agreement. Under the terms of the Supply Agreement, Eurexpan granted a K.C. a non-exclusive license to manufacture a certain contact lens solution and to use certain technical information supplied by Eurexpan to manufacture and sell solution to third parties. In return, K.C. agreed to purchase from Eurexpan a disinfectant known as Solsept for use in manufacturing the lens solution. Bactofungus was an ingredient in Solsept. The Supply Agreement specifically states that "assays of Bactofungus will be performed by Dr. James Strieter and Strieter Laboratories, Inc. ("Strieter") and paid by Eurexpan." It also states that K.C. is obligated to supply Product to Strieter.
On November 21, 1996, Eurexpan and Clinical entered into two agreements, the Agency Agreement and the Distribution Agreement. Under the terms of the Agency Agreement, Eurexpan appointed "Strieter Clinical Testing Laboratories, Inc. d/b/a Eye Care Products" to be its "agent for performing analyses of Product manufactured by KC Pharmaceutical, as provided for in clause 9.05 of the Supply and Licensing Agreement." Under the terms of the Distribution Agreement, "Strieter Clinical Testing Laboratories, Inc., d/b/a Eye Care Products" was appointed Eurexpan's "non-exclusive agent for warehousing and distributing Eurexpan's brand name products at prices and conditions acceptable to Eurexpan." Clinical's compensation under the Agency and Distribution Agreements was based on the amount of sales by Eurexpan to K.C. under the Supply and Licensing Agreement between Eurexpan and K.C.
In 2001, Eurexpan and Clinical filed suit against K.C. in the Madison County, Illinois Circuit Court, Case No. 2001-L-001068 (the "Madison County Case"). Clinical asserted third party beneficiary and tortious interference claims against K.C. based on K.C.'s breach of its agreement with Eurexpan. (Doc. 17, Exhibit 1, Count III, ¶ ¶ 43-45 and Count IV, ¶ ¶ 43-46). Clinical also alleged that K.C. knew that "the assays of Bactofungus would be performed by Dr. James Strieter, and Strieter Laboratories, Inc." (Doc. 17, Exhibit 1, Counts II and IV, ¶ 42).
On July 8, 2004, Madison County Circuit Judge Kardis dismissed with prejudice Eurexpan and Clinical's claims against K.C. for discovery violations and awarded "attorney's fees in the amount of $78,396.30 and costs in the amount of $3,551.81 against the plaintiffs ... jointly and severally." (Doc. 17, Exhibit 8). Thereafter, K.C. filed a Citation to Discover Assets against Clinical. The hearing was held on December 16, 2004 and Strieter appeared on behalf of Clinical without counsel. (Doc. 17, Exhibit 6).
At the Citation hearing, Strieter testified to the following. He is the sole officer, sole shareholder, president and registered agent of Clinical. (Doc. 17, Exhibit 6, ps. 2-5). The only income tax return filed for Clinical was in 2001 because he "failed to file them. All income prior to that time went to Strieter Laboratories which was the group that did all the testing by their personnel and with their equipment, so there was no income to Strieter Clinical Testing Laboratories prior to 2001." (Doc. 17, Exhibit 6, p.4).
Strieter Laboratories did all of the testing that was required under the agreement between K.C. and Eurexpan. All payments for the testing were received from Eurexpan and paid directly to Strieter Laboratories for work done by Strieter Laboratories. Clinical did nothing and received no funds even though Clinical was the entity that signed the contracts with Eurexpan. (Doc. 17, Exhibit 6, ps. 16, 19-21). Clinical did not earn the money. Strieter Laboratories earned the money. Strieter Laboratories also sold solutions it purchased from K.C. (Doc. 17, Exhibit 6, p. 27).
Strieter was the president of Strieter Laboratories and its largest shareholder. He owned approximately 40-50% of the ...