Kinney Shoe Corp. v. Polan

United States Court of Appeals for the Fourth Circuit · 1991 · Corporations

939 F.2d 209 (1991)

Updated August 1, 2026

Corporationsveil piercingundercapitalizationcorporate veilpiercingcorporate formalitiesshell corporationsole shareholder

Facts

Polan formed Industrial Realty Company and Polan Industries, Inc., owned both corporations, and used Industrial to sublease a building from Kinney and then sublease part of it to Polan Industries. Industrial had no paid-in capital, no assets other than the sublease, no bank account, no stock issued, no officers elected, and no corporate organizational meetings or minutes. The first rent payment to Kinney was made from Polan's personal funds, and no further payments were made. Kinney obtained a judgment against Industrial for unpaid rent and then sought to pierce Industrial's veil to hold Polan personally liable.

Issue

Whether Kinney could pierce the corporate veil of Industrial Realty Company and hold its sole shareholder, Polan, personally liable for the unpaid sublease debt. Also at issue was whether Kinney, as a contract creditor, had assumed the risk of Industrial's gross undercapitalization so as to bar veil piercing.

Rule

In a breach of contract case under West Virginia law, the corporate veil may be pierced when (1) there is such a unity of interest and ownership that the separate personalities of the corporation and the individual shareholder no longer exist, and (2) an equitable result would follow from treating the acts as those of the shareholder rather than the corporation alone. Grossly inadequate capitalization combined with disregard of corporate formalities, causing basic unfairness, is sufficient to pierce the corporate veil to hold an actively participating shareholder personally liable. The Laya third prong concerning a contract creditor's assumption of the risk of undercapitalization is permissive, not mandatory.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Columbus, Ohio, Maya Rios formed Harbor Lofts, Inc. to lease warehouse space from Buckeye Storage LLC. Maya contributed no capital, issued no stock, held no organizational meeting, elected no officers, and kept no minutes. Harbor Lofts immediately subleased half the space to Maya’s separately owned operating company, which held all inventory and cash, and Harbor Lofts then stopped paying rent.

If Buckeye Storage obtains a judgment against Harbor Lofts and then sues Maya personally, which is the strongest basis for piercing the corporate veil?

Explanation. The majority applied the two-prong contract veil-piercing test: unity of interest and ownership, and whether equity requires disregarding the entity. It emphasized that grossly inadequate capitalization combined with disregard of corporate formalities, causing basic unfairness, is sufficient to pierce the veil against an actively participating shareholder. The inserted shell and concentration of assets in an affiliate strengthen the equitable case.