Sea-Land Services, Inc. v. Pepper Source

United States Court of Appeals for the Seventh Circuit · 1993 · Corporations

993 F.2d 1309 (1993)

Updated August 1, 2026

Corporationsveil piercingunity of interestIllinois lawfraud or promote injusticeunjust enrichmentcreditor avoidancereverse piercing

Facts

Sea-Land shipped peppers for Pepper Source in 1986 and 1987, but Pepper Source failed to pay and was later dissolved with no assets, leaving Sea-Land unable to collect its default judgment. Marchese owned Pepper Source and several other corporations, and the earlier appeal had already established the first veil-piercing prong: unity of interest and ownership between Marchese and the corporations. On remand, Sea-Land introduced bank records, personal financial statements, and accountant testimony showing that Marchese used corporate funds to pay personal expenses and expenses of other corporations, took shareholder loans, and manipulated corporate finances so the corporations lacked funds to pay creditors. Evidence also showed that these practices left Pepper Source and other corporations unable to satisfy obligations to Sea-Land, other creditors, and tax authorities.

Issue

Whether Sea-Land produced sufficient evidence on remand to satisfy the second prong of Illinois veil piercing by showing a wrong beyond mere inability to collect its judgment, such that respecting Pepper Source's separate corporate existence would sanction a fraud or promote injustice. The court also considered whether the district court misapplied Illinois law in relying on Marchese's conduct.

Rule

Under Illinois law, a plaintiff seeking to pierce the corporate veil must show both (1) such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice. To satisfy the second prong, an unsatisfied judgment alone is not enough; the plaintiff must prove some additional wrong, such as unjust enrichment or the use of corporate facades to avoid responsibilities to creditors, and there must be a nexus between the plaintiff's injury and the fraud or injustice.

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

North Harbor Freight obtained a $92,000 judgment against Lakeview Produce LLC after shipping equipment to it in Milwaukee. The company has since dissolved and has no assets, and the creditor can already prove unity of interest between the company and its sole owner, Evan Cole. There is no evidence that Evan diverted funds, paid personal expenses from company accounts, shifted assets, or otherwise manipulated the company's finances.

Under Illinois veil-piercing doctrine as applied here, is the second prong satisfied?

Explanation. The second prong requires more than the creditor's inability to collect. The majority opinion held that an unsatisfied judgment alone is insufficient; the plaintiff must prove some additional wrong, such as unjust enrichment or use of corporate facades to avoid responsibilities to creditors, plus a nexus to the injury. Here, there is no evidence beyond nonpayment and dissolution.