Chicago Business Litigation Lawyer Blog
A collection of car dealerships operated through independent LLCs but received management services from the same company. The management services company was owned by the same person who owned the majority interest in each of the dealership LLCs. Each dealership had fewer than fifteen employees individually. A salesman with one of the dealership was fired, and later sued the dealership for racial discrimination. The salesman claimed that the dealerships were subject to Title VII because, in aggregate, they employed more than 15 people. The salesman argued that the corporate veil should be pierced because the dealerships were not actually independent entities. The district court rejected these arguments, and the appellate court affirmed. The appellate court found that the management company and the dealerships observed proper corporate formalities and did not demonstrate the degree of integration that would justify piercing the corporate veil for employee aggregation purposes.
Shannon Prince worked as a salesman with Applecars, LLC for several months in 2017 until he was fired. Applecars claimed that Prince was fired for performance issues, while Prince maintained that the defendants discriminated against him because of his race.
Applecars operated a used car dealership in Appleton, Wisconsin. The dealership was affiliated with four other dealerships throughout Wisconsin: in Wausau, Antigo, Green Bay, and La Crosse. Each of the dealerships was independently owned by a separate Wisconsin limited liability company. Robert McCormick owned a majority or outright share in each of the LLCs. Each of the dealerships also received management services from Capital M, Inc., which McCormick also owned. Applecars had fewer than fifteen employees, but in aggregate the dealerships employed more.
The overlap between the dealerships was substantial, as Capital M provided many services to each dealership, and also tracked dealership inventory, held personal employee records, and issued identical employee handbooks for each dealership. Capital M’s operations manager hired, fired, and promoted each dealership’s general manager. The employees for each dealership gathered as one for events and parties several times per year. Each dealership and LLC, however, properly maintained corporate formalities and records. Capital M billed each dealership separately and each paid Capital M individually for services and for the use of the single website and its associated trademark. Each dealership also filed and paid their own taxes, paid their own employees, and entered into their own contracts for business purposes.
Prince initially filed a Wisconsin state law Administrative Complaint in response to his termination. Prince later withdrew the complaint in favor of bringing an action in federal court. The EEOC issued Prince a Right to Sue letter and Prince brought suit alleging Title VII violations against the defendants in the Eastern District of Wisconsin. In the fall of 2019 the parties consented to a magistrate judge’s ability to enter final judgment in the case. In December 2019 the magistrate judge granted the defendants’ motion for summary judgment, finding that Applecars was not liable under Title VII because, with fewer than fifteen employees, it was not an “employer” under the statutory definition. Prince then appealed.
The appellate panel began by noting that Congress exempted small business from the strictures of Title VII. The panel stated that the statute applies only to an “employer,” which it defines as a “person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year.” The panel noted that the parties agreed that Applecars alone never met the fifteen-employee threshold, and that if all dealerships were aggregated the threshold would be met. Therefore, the panel stated, the case turned on the question of whether or not the entities’ corporate veils should be pierced.
Citing Papa v. Katy Industries, Inc., the panel stated that piercing the corporate veil for the purpose of employee aggregation requires a plaintiff show more than a degree of integration of corporate operations. The panel then stated that employee aggregation is appropriate only in certain enumerated circumstances, such as where a creditor of one corporation could, by piercing the corporate veil, sue its affiliate. The panel noted that the companies in question in the instant case respected every formality and were identified as separate dealerships on their shared website, even though they shared many services through Capital M. The panel determined that none of the Wisconsin courts’ bases for veil-piercing applied in the instant case. The panel found that there was no evidence that the defendants neglected corporate forms or risked confusing creditors and that there was therefore no basis to pierce the corporate veil. The panel therefore affirmed the decision of the district court.
You can view the decision here.
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