Veil Piercing is Equitable Remedy to be Decided by a Court, Not a Jury

A recent opinion holds that a decision whether to pierce the corporate veil is an equitable remedy to be determined by the court rather than submitted to a jury. International Financial Services Corporation v. Chromas Technologies Canada, Inc., 356 F.3d 731 (7th Cir. Jan. 23, 2004).

Even though a plaintiff is pursuing a legal remedy (in this case money damages for breach of contract), if the relief sought against a particular defendant also requires piercing of a corporate veil the latter relief can only be provided by a court sitting in equity. International Financial Services, supra.

This is so despite rulings to the contrary by other circuits, some of which involved application of Illinois law. See, e.g., FMC Fin. Corp. v. Murphree, 632 F.2d 413 (5th Cir. 1980) (a diversity case applying Illinois law, holding that the issue of piercing the corporate veil is a matter for the jury); and Wm. Passalacqua Builders v. Resnick Developers, 933 F.2d 131 at 136 (2d Cir. 1991) (applying New York law, holding that the issue of whether to pierce the corporate veil was properly submitted to the jury).

This is the result regardless of the fact that a decision whether the veil should be pierced is essentially factual in nature - depending on whether there was inadequate capitalization, failure to observe corporate formalities, commingling of funds, absence of corporate records, etc. Nevertheless the nature of the remedy dictates that it should be decided by the court exclusively.