People v. V&M Industries

     September 9, 1998             Docket NO. 5-97-0352

                             IN THE 

                   APPELLATE COURT OF ILLINOIS

                          FIFTH DISTRICT
_________________________________________________________________

THE PEOPLE OF THE STATE OF ILLINOIS, )  Appeal from the
                                     )  Circuit Court of
     Plaintiff-Appellant,            )  St. Clair County.  
                                     )  
v.                                   )  No. 95-CH-126
                                     )  
V & M INDUSTRIES, INC.,              )
                                     )
     Defendant,                      )
                                     )
and                                  )
                                     )
VERNON LEIRER,                       )  Honorable
                                     )  Robert L. Craig, 
     Defendant-Appellee.             )  Judge, presiding.  
_________________________________________________________________

     JUSTICE GOLDENHERSH delivered the opinion of the court:  
     Plaintiff, the People of the State of Illinois, originally
instituted this action against defendant V & M Industries, Inc.
(V & M), for injunctive relief and civil penalties under the
Illinois Environmental Protection Act (the Act) (415 ILCS 5/1 et
seq. (West 1994)) after approximately 40,000 to 50,000 tires burned
on property owned by V & M.  V & M was dissolved by the time the
suit was filed.  Plaintiff subsequently added defendant Vernon
Leirer (Vernon), personally.  Plaintiff alleged that Vernon was
actually the alter ego of V & M.  The trial court, sitting without
a jury, dismissed the cause as to Vernon, finding that Vernon was
not personally liable for his actions or for violations of the Act. 
V & M was held accountable, so long as plaintiff requested relief
within 14 days after the order was entered.  Plaintiff decided
against pursuing V & M, now a defunct entity with virtually no
assets and no officers.  On appeal, plaintiff contends the trial
court erred (1) in failing to find Vernon responsible for air
pollution and failing to grant injunctive relief and (2) in
refusing to pierce the corporate veil and hold Vernon personally
responsible.  We reverse and remand.
                              FACTS
     To understand the instant case, we must go back to the 1970s
when Vernon was involved in various corporations, including Five
Star Metal Fabricators, Inc., and Five Star Mechanical, Inc.  In
the late 1970s, Industrial Machinings and Metals, Inc. (Industrial
Machinings), was incorporated for the purpose of repairing railroad
cars.  Vernon claimed that Industrial Machinings was 98% owned by
his children and that his wife, Mildred, and he owned 1% each. 
Mildred, on the other hand, testified that Vernon runs Industrial
Machinings.  A review of Mildred's testimony shows that she was in
the dark as to how any of the corporations, including the Five Star
companies, Industrial Machinings, or V & M, actually operate. 
Mildred was sure, however, that Vernon runs the show.  
     On February 11, 1981, Industrial Machinings purchased 14 acres
of property that borders Missouri Avenue in East St. Louis,
commonly known as the Obear-Nester property, from the East St.
Louis Port Authority (Port Authority).  It was a bond-for-deed
transaction.  On October 15, 1986, V & M was incorporated in
Illinois.  At its inception, Vernon owned 99% of the corporation. 
Vernon, a daughter, and a son-in-law were listed as officers. 
After V & M was incorporated, Industrial Machinings transferred the
Obear-Nester property to it.  According to Vernon, V & M was
incorporated for the sole purpose of renting out this property to
various tenants.  V & M had virtually no assets.  It assumed the
bond-for-deed from the Port Authority.  Industrial Machinings
loaned V & M the money to pay the Port Authority.  Exhibit No. 50
shows the sale of the Obear-Nester property to V & M for
$54,869.81, plus the unpaid Port Authority mortgage.  Exhibit No.
51 shows the sales amount as $1,300, plus the unpaid mortgage.  It
is unclear why there are two sets of corporate minutes involving
the sale of the Obear-Nester property.  What is clear is that at
the time of the purchase of this property, Vernon was president and
secretary of Industrial Machinings and 100% owner of V & M.  He
later sold 1% of V & M to Abb Rhodes and 1% to James Rodriguez for
$50 each.  Secretary of State records confirm the addition of
Rhodes and Rodriguez and the deletion of Vernon's family members. 
     One of the renters of the Obear-Nester property was David
Mullinex.  It was Mullinex who brought onto the property the tires
that caught fire.  A lease agreement was signed on March 9, 1989,
between Mullinex and Vernon of V & M.  Mullinex testified that
Vernon was the only person he dealt with in negotiating the lease. 
According to Mullinex, Vernon told him that he owned the property. 
There was no mention of V & M.  Mullinex and Vernon intended to
start a tire-shredding operation at the site.  According to
Mullinex, Vernon offered to be a third partner with him and his
brother, Mike.  Mullinex and Vernon went to a St. Louis company to
investigate tire shredders and to a tire seminar in the Ozarks. 
The agreement between Mullinex and Vernon fell apart, and the tire-
shredding operation never materialized.  Mullinex then abandoned
the tires, but Vernon indicated continuing interest in the tire-
shredding operation, as evidenced by the letters he sent to the
Illinois Environmental Protection Agency (the Agency).  
     After Mullinex defaulted on the contract, the Agency got
involved.  The Agency wanted the tires removed and filed suit
against V & M Industries and against Vernon individually.  Vernon
and the Agency negotiated a tire-removal agreement, incorporated
into a court order in No. 90-MR-178.  Vernon signed all the
documents in conjunction with this agreement as an authorized
representative of V & M.  Notwithstanding his signature as an
authorized representative of V & M, the record reflects that no one
else from V & M conferred with the Agency except Vernon and that
Vernon consulted with no other corporate officers about the tire-
removal agreement.  The agreement was signed on November 30, 1992. 
Vernon admits that V & M did not have the assets to remove the
tires as agreed.  In September 1993, the tire-removal agreement was
in place, but when Doug Hayward of the Agency's used-tire program
inspected the site in question, he found the site to be in
noncompliance.  Forty percent of the tires were to be removed at
that time, but they were not.  He estimated that there were 50,000
tires present on the property.
     Abb Rhodes, who was president of V & M at the time of
negotiations between Mullinex and Vernon, stated that he was aware 
of the agreement between Vernon and Mullinex to bring tires on the
property; however, Vernon made all the arrangements.  There was
never a corporate meeting on this issue.  Rhodes testified that he
received no stock certificates.  Vernon could not remember any
stock being issued either.  Rhodes also testified that corporate
meetings consisted of standing around the yard and talking. 
According to Rhodes, no minutes were ever recorded.  Rhodes was not
aware how much money was being collected from various renters. 
Rhodes testified that Industrial Machinings took care of V & M
financially for at least five years because V & M had no money. 
Vernon signed all the checks and had complete control of the
checkbook.
     Vernon testified that he transferred his 98% ownership in
V & M around October 1, 1993, to James Rodriguez for $1.  On
January 8, 1994, Rodriguez transferred almost all of the 14 acres
back to Vernon for no money.  The 150-foot-by-150-foot area where
the tires burned was not transferred back to Vernon but remained an
asset of V & M.  Rodriguez is now deceased and could not be called
as a witness.  
     On October 6, 1993, a meeting was conducted between Rhodes and
Vernon.  Rodriguez was not present.  Minutes were recorded at this
meeting, the only V & M minutes ever discovered during the
litigation.  The minutes show that Vernon proposed to use any money
available to pay the Port Authority $51,000 as final payment for
the property.  The resolution passed with votes by Vernon and
Rhodes.  However, according to the Secretary of State's records and
Vernon's own testimony, Vernon was no longer an officer or a
shareholder of the corporation.  Vernon sold his ownership interest
in V & M to Rodriguez for $1 by this time.  Vernon testified that
V & M did not have the money to pay the loan, so the money was
borrowed from Industrial Machinings.  Vernon wrote a check for
$51,000 from the Industrial Machinings account, and the Port
Authority released V & M from the bond for deed.  
     On November 1, 1993, the Agency sent Vernon a letter
concerning noncompliance with the tire-removal agreement.  On
November 15, 1993, a land trust was created for the 14 acres of
V & M property, commonly referred to the Obear-Nester property,
excluding, however, the 150-foot-by-150-foot area where the tires
later burned.  Vernon is the sole beneficiary of this land trust. 
Prior to transferring the deed from V & M to Vernon's land trust,
Rodriguez signed a $25,000 mortgage to Industrial Machinings dated
November 15, 1993.  It was notarized on January 8, 1994.  On
January 18, 1994, a warranty deed from V & M to a land trust, with
Paul Chapman as the designated trustee, was notarized and signed by
James Rodriguez and Abb Rhodes.
     On November 18, 1993, V & M and Urioste Companies, Inc.
(Urioste, Inc.), entered into a contract for the recycling of steel
from a V & M building on the Obear-Nester property.  The contract
provided that Urioste, Inc., would pay $100,000 for the right to
remove the steel.  Vernon signed the contract as treasurer of V & M
but listed his home address under the signature block.  According
to the Secretary of State's records and Vernon's own testimony,
Vernon was not the treasurer of V & M on this date.  Michael
Urioste of Urioste, Inc., testified that he talked with only Vernon
and no one else concerning the contract between V & M and Urioste,
Inc.  According to Urioste, Vernon made it very clear that he owned
everything.  On the date the contract was signed, Urioste gave
Vernon a check made out to Vernon personally for $50,000 as a first
installment.  Another check for $49,000 was given to Vernon from
Urioste on January 7, 1994.  On February 5, 1994, two checks
totaling $1,000 were paid to Vernon from Urioste.  On March 7,
1994, a $1,500 check was given to Vernon from Urioste to pay for a
trailer which had incorrectly been cut apart as part of the salvage
operation.  Deposit slips were introduced into evidence to show
that the checks for $49,000 and %50,000 were later deposited into
Industrial Machinings' account.  
     Urioste testified that when he started the salvage operation
at the V & M building, tires were scattered throughout the building
and were a problem.  Eventually, Vernon told him to move the tires
to a site in the corner of the property.  According to Urioste: 
"[Vernon] was going to sell off this property eventually and *** if
he would deed this property over to somebody else, it would become
the problem of the State ***.  [Vernon] said that if [the tires]
caught on fire, it wouldn't be his problem, it would be a good way
to get rid of them."  Urioste explained that he argued with Vernon
over the terms of the contract and told Vernon that he had only
agreed to remove the tires from the building, not to load them in
a specific area.  Eventually, two weeks prior to the fire, Willie
Rone came to the site and struck a deal with Vernon to move the
tires to the 150-foot-by-150-foot area where they burned.
     Plaintiff produced evidence that Mildred received over
$500,000 from Industrial Machinings from 1992 through 1995 by way
of several monthly checks.  Mildred was unaware of these payments. 
As previously stated, Mildred's testimony indicates that she was
completely unaware of Vernon's business dealings in V & M or any of
his other businesses.  
     A bank signature card for a V & M account, dated March 6,
1987, shows that only Vernon and Mildred are authorized to write
checks on the account.  Likewise, Vernon wrote all checks and
withdrawals on the Industrial Machinings account.  On March 17,
1994, Vernon signed a check on V & M's account made payable to
Industrial Machinings for $1,000.  At this time, Vernon was not an
officer of V & M.
     On April 8, 1994, approximately 40,000 to 50,000 tires that 
were stacked in the 150-foot-by-150-foot area previously discussed
caught fire.  It took numerous firefighters approximately one week
to extinguish the fire.  Exhibits showing huge black smoke clouds
hovering over the East St. Louis area were introduced into
evidence.  Also introduced into evidence was convincing expert
testimony concerning the human carcinogens and deadly poisons
emitted into the lower level of the atmosphere due to this fire and
testimony concerning the long- and short-term effects on human
health.  
     As to the procedural history of this case, on January 25,
1995, plaintiff filed the instant lawsuit against V & M.  A default
judgment was entered on February 29, 1996.  Plaintiff amended its
complaint on October 9, 1995, to add Vernon personally.  A second
amended complaint was filed on May 17, 1996.  After hearing five
days of testimony over a three-month period, beginning in August
1996, and after allowing time for briefs to be filed, the trial
court took the case under advisement.  On May 13, 1997, the trial
court entered judgment for Vernon and against plaintiff in a three-
page order in which it found that plaintiff "failed to sustain its
burden of demonstrating that the individual defendant, Vernon
Leirer, was the alter ego of V & M Industries, Inc., or that Leirer
or V & M engaged in any fraud, injustice[,] or attempts to defraud
creditors, or that V & M was undercapitalized for its purpose." 
While V & M was held accountable, plaintiff decided against
pursuing V & M because it had already been dissolved and had
virtually no assets.  Plaintiff filed a timely notice of appeal as
to Vernon.  
                             ANALYSIS
     The issue we are asked to consider is whether the evidence
presented warrants piercing the corporate veil and imposing
personal liability on Vernon.  Plaintiff contends that Vernon's
dealings, including those cloaked in the corporate fiction of
Industrial Machinings, should be subjected to rigorous scrutiny and
that when they are, they show that V & M was not separate and
distinct from Vernon and, thus, we must reverse the ruling of the
trial court and impose personal liability upon Vernon.  Plaintiff
specifically refers us to the tire-removal agreement negotiated by
Vernon with the Agency, the Urioste contract negotiated by Vernon,
allegedly for V & M, the checks from Urioste deposited into
Industrial Machinings' account, rather than a V & M account, and
Vernon's ultimate ownership of the Obear-Nester 14-acre site,
"minus the offensive tire fire debris area."  Vernon replies that
the trial court's ruling that the corporate veil between V & M and
Vernon should not be pierced is not against the manifest weight of
the evidence.  Vernon insists that the requirements for piercing
have not been met.  After reviewing the record before us and
considering the law with regard to piercing the corporate veil, we
agree with plaintiff that the evidence warranted piercing the
corporate veil.  
     A court may find corporate officers personally liable for
corporate obligations, through a remedy known as piercing the
corporate veil.  Ted Harrison Oil Co. v. Dokka, 247 Ill. App. 3d
791, 617 N.E.2d 898 (1993).  In order to pierce the corporate veil,
there must be (1) such unity of interest and ownership that the
separate personalities of the corporation and the individual no
longer exist and (2) circumstances which exist such that adherence
to the fiction of a separate corporate existence would sanction a
fraud, promote injustice, or promote inequitable consequences.  Ted
Harrison Oil Co., 247 Ill. App. 3d at 795, 617 N.E.2d  at 901,
citing People ex rel. Scott v. Pintozzi, 50 Ill. 2d 115, 128-29,
277 N.E.2d 844, 851-52 (1971).  A corporate entity will be
disregarded if it would otherwise present an obstacle to the
protection of private rights or if the corporation is an alter ego
or business conduit of the governing or dominant personality. 
Import Sales, Inc. v. Continental Bearings Corp., 217 Ill. App. 3d
893, 904, 577 N.E.2d 1205, 1212 (1991).  More succinctly, "[s]ome
element of unfairness, something akin to fraud or deception, or the
existence of a compelling public interest must be present in order
to disregard or pierce the corporate veil."  Berlinger's, Inc. v.
Beef's Finest, Inc., 57 Ill. App. 3d 319, 324, 372 N.E.2d 1043,
1048 (1978).  A reviewing court will only reverse a finding of the
trial court on the issue of piercing the corporate veil if it is
against the manifest weight of the evidence.  Ted Harrison Oil Co.,
247 Ill. App. 3d at 796, 617 N.E.2d  at 902.  
     In determining whether to disregard a corporate entity, a
court should consider the following variables, with no single
factor being determinative: (1) inadequate capitalization, (2) the
failure to issue stock, (3) the failure to observe corporate
formalities, (4) the payment of dividends, (5) the insolvency of
the debtor corporation at the time, (6) the nonfunctioning of other
corporate officers or directors, (7) the absence of corporate
records, and (8) whether the corporation is a mere facade for the
operation of dominant stockholders.  Ted Harrison Oil Co., 247 Ill.
App. 3d at 795, 617 N.E.2d  at 902.  In the instant case, we find
that each and every one of these factors are present.  
     First, while Vernon asserts to the contrary, it is clear that
V & M was undercapitalized.  Vernon argues that the purpose of
V & M was to lease property to others and that, accordingly, no
assets were needed.  However, in order to lease property, V & M had
to buy property.  It relied on Industrial Machinings to buy the
property.  Further, Vernon admitted that when he signed the tire-
removal agreement, V & M did not have the assets to remove the
tires.  Vernon contends that there was a renter on the property and
that it was his desire to use that money for the tire removal, but
this never materialized.  Abb Rhodes, who at one time was a
corporate officer, testified that Industrial Machinings actually
paid the debts of V & M for five years, possibly longer.  Under
these circumstances, we find that V & M was inadequately
capitalized. 
     Second, there appears to be a failure to issue stock.  Vernon
testified that he owned 99% of V & M when it started and that his
daughter and son-in-law owned the remaining 1%.  No stock
certificates are on file.  In October 1998, Rodriguez and Rhodes
bought into the corporation for $50 each.  However, Rhodes
testified that he was never issued a stock certificate.  Vernon's
own brief admits that "certificates of ownership may not have been
[issued]."
     Third, we find, contrary to Vernon's assertions, that V & M
failed to observe corporate formalities.  For example, the only
V & M records ever discovered during this litigation were from a
meeting in which Vernon proposed to use any money available to pay
the Port Authority the final $51,000.  The resolution was passed by
Vernon and Rhodes; however, Secretary of State records indicate
that Vernon was no longer a shareholder or a corporate officer when
this meeting was held.  Likewise, when Vernon negotiated the
$100,000 contract with Urioste, he signed as treasurer, yet
Secretary of State records and Vernon's own testimony prove that
Vernon was not the treasurer on this date.  We agree with Vernon
that every corporation acts through its agents, but we cannot agree
that Vernon acted consistently for the benefit of V & M.  Vernon's
business dealings on behalf of V & M during times he was allegedly
not even a part of V & M show such unity of interest and ownership
that Vernon and V & M were for all practical purposes coextensive. 
Vernon exercised ownership, direction, and control over V & M. 
Moreover, Rhodes testified that Vernon ran the show and that no
minutes were ever recorded.  While officers were elected, they
clearly had no authority.  Meetings consisted of nothing more than
standing around the yard and talking.  While articles of
incorporation and annual reports were filed with the Secretary of
State, the record confirms that corporate formalities were
regularly overlooked.  
     Fourth, no dividends were paid. 
     Fifth, V & M was insolvent at the time of trial.  In fact,
V & M was never adequately funded.  By March of 1996, V & M was
totally dissolved. 
     Sixth, the record is replete with references to the fact that
other corporate officers and directors were nonfunctioning.  Vernon
clearly was V & M, as well as Industrial Machinings.  Even after he
sold his shares of V & M to Rodriguez for "a buck," Vernon still
continued to direct the business affairs of V & M.  
     Seventh, as previously set forth, there is an absence of
corporate records.  While V & M was incorporated and papers were
filed with the Secretary of State, only one set of minutes was ever
discovered.  It was alleged that Rodriguez had the other corporate
records, but Rodriguez was dead.  We believe that plaintiff,
through the testimony of witnesses such as Rhodes, Mullinex, and
Urioste, proved an absence of corporate records.
     Finally, we conclude after a complete review of the record
that the corporation was a mere facade for the operation of the
dominant stockholder, Vernon.  Urioste's checks totaling $100,000
were made payable to Vernon personally.  Later, Vernon deposited
this money into the Industrial Machinings accounts, not V & M
accounts.  While Vernon argues that Industrial Machinings was owned
by his children and not him, the record suggests otherwise. 
Records were introduced showing that Mildred was paid a total of
$533,000 from Industrial Machinings from 1992 through 1995, yet
Mildred herself was completely unaware of such disbursements, an
example of Vernon's control over both V & M and Industrial
Machinings.  The record also shows that Vernon wrote two checks
from his personal account to pay the Port Authority installments
due on the bond-for-deed for the Obear-Nester property.  Other
payments on this property were made from the Industrial Machinings
account.  Vernon argues vehemently that Industrial Machinings is
not a party to this suit and that there is nothing between V & M
and Industrial Machinings to warrant piercing the corporate veil. 
We conclude to the contrary.  Plaintiff presented overwhelming
evidence that Vernon is both V & M and Industrial Machinings and
that the relationship is relevant.  
     Vernon cites Jacobson v. Buffalo Rock Shooters Supply, Inc.,
278 Ill. App. 3d 1084, 664 N.E.2d 328 (1996), in support of his
contention that piercing the corporate veil is not justified in the
instant situation.  In Jacobson, following an explosion, actions
were brought by the estates of two deceased employees of the
corporation.  The estates sought to pierce the corporate veil and
collect from the shareholders on workers' compensation judgments of
$251,750 each.  The corporation had failed to obtain workers'
compensation insurance.  Our colleagues on the Third District
Appellate Court refused to pierce the corporate veil, finding that
the record supported the trial court's finding that the corporation
was a separate entity and not the alter ego of its shareholders. 
278 Ill. App. 3d at 1090-91, 664 N.E.2d  at 332.  We find Jacobson
distinguishable from the instant case.  
     In Jacobson, there were three shareholders, two of whom were
killed in the same explosion as the two deceased employees.  278
Ill. App. 3d at 1086, 664 N.E.2d  at 329.  The corporation had
substantial assets prior to the explosion, including inventory and
equipment, and was not undercapitalized.  278 Ill. App. 3d at 1090,
664 N.E.2d  at 332.  The corporation's failure to obtain workers'
compensation insurance was found not to be an adequate basis for
piercing the corporate veil.  278 Ill. App. 3d at 1090, 664 N.E.2d 
at 332.  The instant case in no way involves workers' compensation
insurance.  Moreover, a thorough reading of Jacobson shows that a
tragedy occurred for all involved, shareholders, officers, and
employees.  Here, the people affected were the residents of the
area where this fire occurred.  The tires were placed in an area
measuring 150 feet by 150 feet and then caught on fire.  The 150-
foot-by-150-foot area was the only asset of V & M at the time of
this fire.  The remaining 14 acres had been put into a land trust
with Vernon as beneficiary.  The circumstances in this case are
overwhelming to the point that adherence to the fiction of a
separate corporate existence would indeed sanction a fraud, promote
injustice, and promote inequitable consequences.  The circuit court
found sufficient evidence to hold V & M accountable, but plaintiff
decided against pursuing a defunct entity whose only asset was the
150-foot-by-150-foot area containing burnt tire debris.  The trial
court's refusal to pierce the corporate veil and refusal to hold
Vernon personally responsible was against the manifest weight of 
the evidence.
     For the foregoing reasons, the judgment of the circuit court
of St. Clair County refusing to hold Vernon personally responsible
is reversed, and the cause is remanded for further proceedings.  

     Reversed and remanded.

     CHAPMAN and MAAG, JJ., concur.