Lunneborg v. My Fun Life Corp.

Thomas Lunneborg (plaintiff) was the chief operating officer (COO) for My Fun Life Corporation (MFL) (defendant). Lunneborg’s contract called for Lunneborg to receive severance pay if MFL fired him without cause. Dan Edwards (defendant) was MFL’s sole shareholder and director. Dan’s wife, Carrie Edwards (defendant), was MFL’s prior COO and was MFL’s executive vice president. In these roles, Carrie exercised significant financial control over MFL. After MFL fired Lunneborg, Lunneborg sued MFL, seeking severance pay. Lunneborg also sued Dan and Carrie, arguing that he was entitled to pierce MFL’s corporate veil to collect any judgment he might win against MFL from their personal assets. In support of this claim, Lunneborg submitted evidence that MFL did not observe corporate formalities (e.g., it did not issue stock or hold regular corporate meetings) or pay dividends. Rather, MFL paid Dan and Carrie commissions and other monies and made shareholder distributions to them, which they used for personal expenses. MFL, Dan, and Carrie also commingled corporate and personal assets. After ruling that Lunneborg was entitled to severance pay, the district court concluded that piercing MFL’s corporate veil was warranted because (1) MFL, Dan, and Carrie had a unity of interest and ownership such that they did not maintain separate personalities and (2) it would be inequitable not to pierce MFL’s veil. With respect to the first element, the district court cited, among other things, MFL’s lack of corporate formalities, its payments to Dan and Carrie, and the commingling of assets. With respect to the second element, the district court ruled that Lunneborg’s potential inability to collect on a judgment against MFL (which was virtually assetless) was sufficient to show inequity. The district court also ruled that Carrie was personally liable despite not being a shareholder because shareholder status, although relevant, was not dispositive and Carrie exercised significant control over MFL. Dan and Carrie appealed.