Pederson v. Paragon Pool Enterprises

• Decision Date: 24 May 1991
• Docket Number: No. 1-90-1049,1-90-1049
• Parties: , 158 Ill.Dec. 371 Lyle PEDERSON, Plaintiff-Appellant, v. PARAGON POOL ENTERPRISES, Defendant-Appellee (American Titan Company, Defendant).
• Court: United States Appellate Court of Illinois

Page 165

574 N.E.2d 165

214 Ill.App.3d 815, 158 Ill.Dec. 371

Lyle PEDERSON, Plaintiff-Appellant, v. PARAGON POOL ENTERPRISES, Defendant-Appellee (American Titan Company, Defendant).

No. 1-90-1049.

Appellate Court of Illinois First District, Sixth Division.

May 24, 1991.

Michael W. Rathsack, Chicago (Louis S. Goldstein, Cindy G. Fluxgold and Michael

W. Rathsack, of counsel), for plaintiff-appellant.

McKenna, Storer, Rowe, White & Farrug, Chicago (James P. DeNardo, Gregory L. Cochran and Christine L. Olson, of counsel), for defendant-appellee.

Justice LaPORTA delivered the opinion of the court:

Plaintiff Lyle Pederson appeals an order granting defendant Paragon Pool Enterprises' motion for summary judgment on the ground that Paragon Pool Enterprises did not manufacture, sell or install the pool and filter system which allegedly caused plaintiff's injury.

Plaintiff raises two issues on appeal: 1) whether the trial court erred in holding that defendant Paragon Pool Enterprises, Inc. was not liable as a matter of law for the installation of the pool or filter which caused plaintiff's injury; and 2) whether Paragon's 4 1/2-year delay in asserting its defense barred or estopped it from raising that defense.

Plaintiff was injured on July 25, 1980, while cleaning a swimming pool and filter at a condominium complex in Waukegan, Illinois. He filed suit against defendant on July 26, 1982, which sounded in negligence and product liability. He did not place summons with the sheriff for service and on October 27, 1983, he sought and obtained a voluntary dismissal of the action. On October 29, 1984, plaintiff refiled his action, alleging liability against Paragon Pool Enterprises and American Titan Company. The record does not disclose that plaintiff placed summons with the sheriff for service. The case was dismissed for want of prosecution on April 15, 1985, but on plaintiff's motion the court reinstated the action May 20, 1985. Defendant was served April 21, 1985, by special process server and by motion raised the issue of forum non-conveniens. The record is silent as to any disposition of this motion by the court. On July 16, 1985, the court granted defendant's motion to vacate any and all defaults against him, technical or otherwise, and granted defendant leave to file an appearance and an extension of time to file its answer to September 16, 1985.

Count 1 alleged that Paragon Pool Enterprises negligently installed a pool and filtering system and failed to warn persons that a ring on the filter might prematurely disengage, causing injury. Count 2 alleged that the swimming pool and filtering system was designed, manufactured and sold by Paragon Pool Enterprises and was defective, unreasonably dangerous and unsafe. Counts 3 and 4 alleged the same liability on the part of American Titan Company with regard to the filtering system only. Plaintiff never served American Titan Company and the company is not part of this appeal.

In its answer Paragon stated a general denial of its involvement in the manufacture, sale or installation of the pool and filter allegedly involved in plaintiff's injury. A subsequent motion filed by defendant indicates that the answer was filed on September 16, 1985.

On July 16, 1986, defendant Paragon moved to dismiss the action pursuant to Supreme Court Rule 103(b), (134 Ill.2d R. 103(b).) which provides that an action may be dismissed with prejudice where a plaintiff fails to exercise reasonable diligence to obtain service after the expiration of the applicable statute of limitations. On February 19, 1987, the trial court denied defendant's motion to dismiss, finding that although plaintiff failed to exercise diligence in service of summons defendant had waived its objection to late service by filing its general appearance and answer to the complaint.

The parties participated in discovery until December 8, 1989, when defendant moved for summary judgment pursuant to section 2-1005 of the Illinois Code of Civil Procedure. (Ill.Rev.Stat.1989, ch. 110, par. 2-1005.) Section 2-1005 permits a court to dismiss an action if it determines that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law.

In its motion for summary judgment, defendant again stated that it was in no way a participant in the manufacture, sale or installation of the pool and filter system at issue. Defendant noted that it first made this denial in its answer to the second complaint, timely filed five months after defendant was served with summons.

In support of its motion defendant submitted the affidavit of Ronald Atlas who was the president and sole shareholder of Paragon Pool Enterprises Inc. at the time of plaintiff's injury on July 25, 1980. Atlas' affidavit stated that Paragon Pool Enterprises, Inc. was incorporated solely to hold and protect the patent of a particular mooring device called a star dock, a device used in a harbor to moor boats. However plaintiff is alleged to have been injured by a pool filtering system in a residential setting and not by a mooring device.

Affiant stated that defendant had no employees and was not in the business of manufacturing, selling or installing pools. Affiant acknowledged that in 1980 he was also a 50% shareholder in a company called Paddock of the Midwest and that he became sole shareholder of that company in 1982. Affiant stated that his review of the books and records of Paddock of the Midwest indicated that the pool and filtering system in the Waukegan condominium complex where plaintiff was injured was installed by Paddock of the Midwest prior to 1980.

On February 14, 1990, plaintiff filed his response to defendant's motion for summary judgment in which he urged the court to deny the motion on two grounds. Plaintiff argued first that Paragon Pools Enterprises was merely the "alter ego" of Paddock of the Midwest and that therefore the court should pierce the corporate veil between the two companies. Plaintiff also argued that defendant was estopped from contending that it was an improper party to the suit because it waited nearly five years to raise the argument and because defendant concealed the existence and possible involvement of Paddock of the Midwest.

In response defendant contended plaintiff failed to provide evidence to justify piercing the corporate veil. Defendant argued that Illinois law provides that common officers and directors and common ownership alone does not justify destroying the protection of corporate ownership. Defendant argued that plaintiff was on notice from the date the answer was filed that he had sued a party who had not manufactured, sold or installed the pool and filter involved. Defendant argued that it did not "conceal" information about the proper defendant or commit fraud by not volunteering information earlier about Paddock of the Midwest. Defendant argued that it should not be penalized for plaintiff's failure to properly investigate the facts which support his case and had he done so he would have learned that Paragon was not the proper defendant.

On March 7, 1990, the trial court granted defendant's motion for summary judgment and dismissed the action against defendant with prejudice. Plaintiff appeals.

On appeal plaintiff contends that the "close ties" between Paragon Pool Enterprises and Paddock of the Midwest are such that the trial court was in error to find the two corporations should not be treated as one by piercing the corporate veil. Plaintiff contends the trial court erred in holding as a matter of law that defendant Paragon was not liable for the installation of the pool and filter.

Piercing a corporate veil is a task which courts should undertake reluctantly. (Sumner Realty Co. v. Willcott (1986), 148 Ill.App.3d 497, 501-02, 101 Ill.Dec. 966, 969, 499 N.E.2d 554, 557.) In order to pierce the corporate veil: (1) there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, (2) and circumstances must be such that an adherence to the fiction of a separate corporate existence would promote injustice or inequitable consequences. (McCracken v. Olson Cos. (1986), 149 Ill.App.3d 104, 109, 102 Ill.Dec. 594, 500 N.E.2d 487.) A party seeking to have a corporate identity disregarded must come forward with a substantial showing that one corporation is really a dummy or sham for another. Kelsey Axle & Brake Division v. Presco Plastics Inc. (1989), 187 Ill.App.3d 393, 401, 135 Ill.Dec. 4, 9, 543 N.E.2d 239, 244. Illinois courts have found several factors that weigh in favor of piercing the corporate veil. Among them: failure to comply with corporate formalities such as electing officers and holding board meetings,(Northwest Suburban Congregation Beth Judea, Inc. v. Rosen (1982), 103 Ill.App.3d 1137, 1143, 59 Ill.Dec. 751, 432 N.E.2d 335) mixing assets of two corporations, (McCracken, 149 Ill.App.3d at 110, 102 Ill.Dec. 594, 500 N.E.2d 487) undercapitalizing one of the corporations, (McCracken, 149 Ill.App.3d at 111, 102 Ill.Dec. 594, 500 N.E.2d 487) and permitting one corporation to act as a business conduit for a dominant corporation. Central National Bank in Chicago v. Fleetwood Realty Corp. (1982), 110 Ill.App.3d 169, 181, 65 Ill.Dec. 730, 738, 441 N.E.2d 1244, 1252.

The use of common officers and directors in and of itself does not render one corporation liable for the obligations of another, (Main Bank of Chicago v. Baker (1981), 86 Ill.2d 188, 204, 56 Ill.Dec. 14, 21-22, 427 N.E.2d 94, 101-02) nor does the sharing of office space. Sumner Realty Co., 148 Ill.App.3d at 502, 101 Ill.Dec. 966, 499 N.E.2d 554; Logal v. Inland Steel Industries, Inc. (1991), 209 Ill.App.3d 304, 154 Ill.Dec. 152, 568 N.E.2d 152.

In Kelsey Axle & Brake Division the appellate court affirmed a trial court's refusal to pierce the corporate veil between two companies. The court noted that plaintiff...