Trade Secrets: Buckley v. Abuzir, 2014 IL App (1st) 130469
“You’re Hired: Now Hand Over the Goods”
In addition to potential tax advantages, the principal reason to create a corporation is limited personal liability, which means that the debts and liabilities of the corporation are distinct from those of its shareholders. However, in certain circumstances, courts are empowered to ‘pierce the corporate veil’ and impose personal liability on the officers and potentially even the shareholders of a corporation if there has been gross undercapitalization of the corporation, or if corporate funds have been improperly comingled with non-corporate funds, or if it finds that a ‘sham’ corporation has been designed to improperly shield the individual directors or shareholders from personal liability.
What if, in order to obtain proprietary information, an employer created a sham corporation, hired you as an employee, and then claimed your former business’s lifeblood — all its proprietary trade secrets? That is what is alleged in the April 2014 Illinois appellate case, Buckley v. Abuzir, 2014 IL App (1st) 130469.
Plaintiffs Mama Gramm’s Bakery, Inc. and John Buckley alleged that Defendants Silver Fox Pastries, Inc. and Haitham Abuzir violated the Illinois Trade Secrets Act by allegedly stealing proprietary customer lists and recipes.
In the initial action, the circuit court had entered a $421,582.50 default judgment in the Plaintiffs’ favor for Silver Fox’s alleged violation of the Illinois Trade Secrets Act (765 ILCS 1065/1 et seq. (West 2010)), including Silver Fox’s alleged wrongful acquisition of Mama Gramm’s recipes and customer lists. Unable to collect from Silver Fox Pastries, Inc., Plaintiffs looked to collect from Defendant Haitham Abuzir in his individual capacity.
In their appeal, Plaintiffs sought to pierce the corporate veil of Silver Fox Pastries, Inc., (a business Abuzir alleged was owned and managed by his sister and brother-in-law) and to collect a judgment directly from Abuzir, who had provided funds to start Silver Fox, negotiated Silver Fox’s lease, and arranged accounts and sales agreements for Silver Fox. Abuzir had argued in the initial action that the corporate veil could not be pierced, because he was never a director, officer, shareholder, or employee of Silver Fox.
Plaintiffs argued on appeal that their complaint should not have been dismissed because they had alleged sufficient facts to show that Abuzir created Silver Fox as an alleged dummy corporation through which he violated the Illinois Trade Secrets Act (765 ILCS 1065/1 et seq. (West 2006)).
In the appeal, the First District Appellate Court pierced the corporate veil of Silver Fox Pastries, Inc. and imposed personal liability on Haitham Abuzir, who was neither a shareholder nor corporate officer, but who nonetheless was deemed to have held an equitable ownership interest in Silver Fox, Inc.
Buckley goes to show that corporate shareholders and officers, and even non-shareholders, should not rely on corporate limited liability. In certain contexts, if the corporate structure is allegedly abused, Illinois courts will pierce corporate veil and impose personal liability. In fact, the Buckley court pointed out in its decision that Illinois courts pierce the corporate veil in approximately 42% to 52% of cases.
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