Steiner Elec. Co. v. Maniscalco

51 N.E.3d 45

401 Ill.Dec. 852

STEINER ELECTRIC COMPANY, Plaintiff–Appellee

v.Leonard J. MANISCALCO and Sackett Systems, Inc., Defendants–Appellants.

No. 1–13–2023

No. 1–13–2024

No. 1–14–0083.

Appellate Court of Illinois, First District, Third Division.

March 2, 2016.

Ayres Law Offices, Ltd., of Schaumburg (James J. Ayres, Sr., and Brian A. Schroeder, of counsel), for appellants.

Richard H. Chapman, Jonathan M. Boulahanis, and Leslie Gutierrez, all of Clark Hill PLC, of Chicago, for appellee.

OPINION

Justice FITZGERALD SMITH delivered the judgment of the court, with opinion.

¶ 1 Plaintiff Steiner Electric Company (Steiner), an Illinois corporation that extended credit to defendant Leonard J. Maniscalco's Delta Equipment Company (Delta) and Sackett Systems, Inc. (Sackett), and was not properly compensated thereafter, obtained a default judgment against Delta. By that time, however, Delta had been dissolved. Steiner then filed suit to pierce the corporate veil, such that Maniscalco, as well as his corporate entity, Sackett, would be held liable for Delta's debt. Following a bench trial, the circuit court pierced the corporate veil and entered judgment in favor of Steiner and against Maniscalco and Sackett, jointly and severally. On appeal, Maniscalco and Sackett contend that the circuit court erred by: (1) holding Maniscalco liable for Delta's debt to Steiner where there is no unity of ownership between Maniscalco and Delta; and (2) holding Sackett liable for Delta's debt to Steiner where there is no unity of ownership between it and Delta. Maniscalco and Sackett also contend that there would be no injustice in preserving the corporate entities here. In a separate but consolidated appeal, Steiner contends, in an issue of first impression, that the circuit court erred in refusing to award attorney fees for fees expended in the suit to pierce the corporate veil where the attorney fees provision was contractual in the underlying, ancillary suit. For the following reasons, we affirm.

¶ 2 I. BACKGROUND

¶ 3 Because the relationships between the parties herein are complex, we briefly discuss them here. Steiner sold electrical products to Maniscalco's companies, Delta and Sackett, on credit. Steiner was not fully paid for the products. Eventually, Steiner brought suit against Delta to enforce the credit contract. In 2009, Steiner won a default judgment against Delta for $226,686, representing the cost of the products, as well as finance charges, attorney fees, expenses, and costs. By that time, however, Delta no longer existed. Steiner then attempted to collect the judgment against Delta by filing the instant action against Maniscalco and Sackett in 2010, asking the circuit court to pierce the corporate veil, alleging that Maniscalco's various improprieties, both individually and through the use of his corporate entity, Sackett, rendered both Maniscalco and Sackett liable for the Delta judgment. After a multi-day trial in which the court heard testimony and entered over 150 exhibits into evidence, the court determined that piercing the corporate veil was the appropriate remedy, and held both Maniscalco and Sackett liable for the Delta judgment.

¶ 4 At trial, Maniscalco testified about the nature of his businesses, the history of his corporations, his relationship with Steiner, his position as shareholder, his family trust agreement, and his business dealings with Steiner. Maniscalco, individually and through his revocable trust, was Delta and Sackett's sole shareholder. He also owned both of the buildings in which Delta and Sackett operated.

¶ 5 Maniscalco owns or has owned three businesses relevant to this case: Delta, Sackett, and Delta Power.

¶ 6 Delta was incorporated in 1972, and was in the business of selling and servicing batteries. When he incorporated Delta, Maniscalco did not contribute any unencumbered capital, but rather loaned $10,000 to Delta upon incorporation. He periodically loaned it additional money thereafter. Around the year 2000, Delta's business changed to selling, installing, and maintaining natural gas powered electric generators sold to Delta by Steiner. The Delta business operated out of a building it leased from Maniscalco.

¶ 7 Initially, Maniscalco was the only corporate officer at Delta. Maniscalco's wife was secretary of Delta until her death in 1986. At that time, Maniscalco appointed his three daughters as secretary, treasurer, and assistant treasurer. They were 22, 20, and 17 years old, respectively, at the time. The daughters had no duties in the company other than to attend one annual meeting. At trial, Maniscalco admitted that the Delta corporate bylaws require the corporation to have a vice president, but that he neither elected nor appointed a vice president.

¶ 8 Maniscalco's son-in-law, Paul Adank, was employed as the general manager of Delta. As general manager, Adank reported directly to Maniscalco from 2000 to 2009, when the company was dissolved. Maniscalco testified that he had the “last word” on both Delta and Sackett business. Maniscalco made the decision in December 2008 or January 2009 to close Delta.

¶ 9 In 1998, Maniscalco created Delta Power Systems, Inc. (Delta Power), which was a division of Delta. Maniscalco explained at trial that Delta Power was created for his employees, but that the venture was not successful. Delta Power handled Delta's stationary battery charger business. He separated it from Delta in 2003 and eventually sold it to another company, Alpine Power, in 2005.

¶ 10 Sackett was incorporated in 1982. It was and continues to be in the business of manufacturing and selling battery storage systems. It purchased supplies from Steiner. It also operates out of a building leased from Maniscalco that is adjacent to the former Delta premises. Another son-in-law of Maniscalco, Dan Dwyer, is the general manager of Sackett. He reports directly to Maniscalco. Maniscalco testified that the relationship between Sackett and Steiner was “mutually beneficial” and continued from 1989 to late 2008 or January 2009.

¶ 11 Steiner is an Illinois company that distributes electrical products and services, including generators. Steiner began selling electrical supplies to Sackett in 1989. Steiner sold these supplies on credit from 1989 until December 2008 or January 2009.

¶ 12 Delta also purchased supplies from Steiner. Maniscalco testified that, in 1999, he arranged for Delta to purchase natural gas generators from Steiner on credit, and Maniscalco signed a “Steiner Credit Application” defining the terms of sale. In 2005, Delta entered into another credit application with Steiner. This credit application, which is included in the record on appeal, was signed by Maniscalco. The terms of the credit include:

“Confirmation of Information Accuracy and Release of Authority to Verify

* * *

The applicant [Delta] agrees to make payments in accordance with Steiner's terms and conditions of sale as amended from time to time by Steiner, which are herein incorporated by reference, and 1.5% per month on past due invoices plus all reasonable costs of collection including attorney fees and expenses.”

And:

“4. FINANCE CHARGES: Company reserves the right to charge 1.5% per month or 18% annually on all past due accounts. The customer shall be responsible for all costs of collection incurred by Company, including without limitation lien costs and all attorneys' fees and expenses.”

Steiner's invoices to Delta, many of which appear in the record on appeal, include the following statement:

“1.5% per month finance charge will be added to all past due invoices. This is an annual rate of 18.00%”

¶ 13 Maniscalco testified that he alone controlled and supervised all of Delta's financial matters. Evidence presented at trial showed hundreds of thousands of dollars transferring between Delta and Maniscalco and Delta and Sackett. For example, between January 2005 and December 2008, Delta transferred $252,949 to Sackett via paper check or electronic transfers. Maniscalco and Sackett only produced invoices for these transactions totaling $41,472, substantiating payments from Delta to Sackett for purchases of materials, services, and shared expenses. There were also back-and-forth transactions. For example, Maniscalco was asked at trial and unable to explain why $30,000 was transferred out of the Delta account and into the Sackett account and then transferred back to Delta one week later. Maniscalco also admitted to taking money for himself between 2005 and 2009, with no explanation as to why he did so.

¶ 14 Maniscalco testified at trial that he periodically loaned money to Delta and Delta Power, but did not execute promissory notes stating what the loan was for, or have any evidence that “shows where this money came from and where it went to.”

¶ 15 The record includes a number of documents titled “action by sole director of: Delta Equipment Company,” signed by Maniscalco as “the only director of said corporation.” In one particular “action by sole director” dated May 1, 2002, a “shareholder loan” balance of $425,492 appears. The document notes:

“I do further hereby acknowledge the loan payment in the amount of $5,690, which reduced the balance of $431,182 to $425,492 (a 5% change).”

This is the first indication of the loan itself. There is no indication why the loan was taken out, nor was there a promissory note or other documentation regarding the loan.

¶ 16 Maniscalco testified that Delta ceased operations in January 2009. A review of the “action by sole director of: Delta Equipment Company” dated May 1, 2009, however, fails to mention that Delta had ceased operations, nor does it provide any plans for winding up the business. Instead, it reflects that Maniscalco “nominate[d] and appoint[ed]” himself for president and his daughters for the positions of secretary, treasurer, and assistant treasurer, authorized and approved the purchase of a new van, and acknowledged a loan payment.

¶ 17 In January 2003, again in an “action by sole...