Background
55 East Washington Development LLC agreed to sell part of Chicago’s Pittsfield Building to Adam David Partners I, LLC (ADP) for $55 million. Adam David Lynd, ADP’s manager, signed the agreement for ADP. After ADP failed to make a required $3.5 million escrow deposit, litigation followed, and 55 East Washington obtained a $1,205,743.86 judgment against ADP for breach of contract.
55 East Washington then sued Lynd personally, seeking to pierce ADP’s corporate veil and collect the judgment from him. It alleged that Lynd used an undercapitalized, assetless entity as a façade and led the seller to believe ADP had the financial backing and development experience of other Lynd family businesses. On cross-motions for summary judgment, the Cook County Circuit Court ruled for Lynd, concluding that the alleged injustice was not distinct from ADP’s underlying breach of contract.
The Court’s Holding
The appellate court held that a genuine issue of material fact existed over whether Lynd’s alleged conduct constituted an injustice distinct from ADP’s contractual breach. Under Delaware law, which governed because ADP was a Delaware LLC, veil piercing requires fraud or injustice arising from inequitable use of the entity itself, rather than merely from the underlying claim.
Testimony that 55 East Washington believed ADP was affiliated with financially established Lynd entities, but later learned Lynd was acting “solo” and ADP lacked that backing, could support a finding that Lynd induced the seller to contract with a financially incapable entity. Because that alleged deception preceded and was distinct from the later breach, summary judgment for Lynd was improper.
The court nevertheless affirmed the denial of 55 East Washington’s own summary-judgment motion because the disputed facts did not establish veil piercing as a matter of law. It reversed summary judgment for Lynd and remanded for the circuit court to determine whether the evidence satisfies Delaware’s multifactor veil-piercing analysis.
Key Takeaways
- For a Delaware LLC, veil-piercing fraud or injustice must arise from misuse of the entity form and cannot consist solely of the underlying breach of contract.
- Evidence that a manager used one entity while allegedly creating the impression that financially stronger affiliated businesses stood behind the transaction can raise a factual question distinct from a later contractual default.
- Cross-motions for summary judgment do not eliminate genuine factual disputes or require judgment for either party.
Why It Matters
The decision allows the seller to continue attempting to hold Lynd personally responsible for the judgment against ADP, but it does not decide that ADP’s veil should be pierced. The seller must still establish the required Delaware factors, including circumstances justifying disregard of the LLC’s separate legal existence.
The Rule 23 order is nonprecedential except in the limited circumstances permitted by Illinois Supreme Court Rule 23(e)(1), but it illustrates the distinction between damages caused by a company’s breach and a separate injustice allegedly produced through misuse of the company form.