Consumer’s Co-op v. Olsen

ECO, a corporation, was founded by Chris Olsen (defendant) in January 1980. Olsen held roughly half the shares of stock and was the president and general manager. His parents, Jack and Nancy Olsen (defendants) held the remainder of the shares and were the other two members of the board of directors. ECO’s initial capitalization was roughly $7,000. The directors met informally several times a week to discuss business, but only had records of two formal meetings. ECO’s primary customer was Consumer’s Co-op (plaintiff). In 1977, Chris Olsen opened a charge account with Consumer’s Co-op in his personal name. Soon after ECO’s incorporation, Olsen changed the account to be in ECO’s name. The Olsens took many steps to ensure that all business was conducted in ECO’s name and that the company’s name appeared on equipment and correspondence. ECO’s financial condition deteriorated beginning in 1981 and by the end of 1983 the corporation had a negative shareholder equity of almost $150,000. From July 1983 forward, ECO failed to remain current in its account with Consumer’s Co-op. Despite its policy of terminating credit after 60 days of delinquency, Consumer’s Co-op continued to extend credit to ECO until March 1984. The Olsens contributed significant personal assets to ECO during its struggles and did not siphon funds from the corporation for personal expenses. Consumer’s Co-op sued the Olsens, seeking to pierce ECO’s corporate veil and recover the amounts owed to it by ECO. The trial court ruled in Consumer’s Co-op’s favor. It found that veil-piercing was appropriate due to ECO’s undercapitalization and Chris Olsen’s control of the company. The Olsens appealed.