## Facts

- ECO of Elkhorn, Inc. (ECO), a closely held corporation formed in 1980, was controlled by Christian E. Olsen; his parents, Jack and Nancy Olsen, were the other shareholders and directors.
- ECO purchased fuel and related products on credit from Consumer’s Co-op of Walworth County (Consumer’s Co-op) and later became seriously delinquent, owing about $38,851.42.
- After ECO’s incorporation, a prior personal account was converted to an account in ECO’s name, and the parties conducted business in the corporate name (e.g., invoices, checks, and credit account).
- ECO’s financial condition deteriorated; by the end of 1983, shareholder equity was substantially negative.
- Despite a credit policy that generally terminated credit after 60 days of delinquency, Consumer’s Co-op continued extending credit to ECO until March 1984.
- The Olsens injected personal funds to keep ECO operating and did not commingle corporate and personal funds or divert corporate assets for personal use.
- Consumer’s Co-op obtained a judgment against ECO and then sued Chris and Jack Olsen personally, seeking to pierce ECO’s corporate veil to collect the corporate debt.
- The circuit court entered judgment against Chris and Jack Olsen, finding veil-piercing appropriate; Chris Olsen appealed.

## Issues

1. Whether ECO’s corporate veil should be pierced to hold Chris and Jack Olsen personally liable for ECO’s unpaid trade debt.
2. Whether thin capitalization and imperfect observance of corporate formalities, without fraud or other inequitable misuse of the corporate form causing the creditor’s loss, satisfies Wisconsin’s veil-piercing standard.
3. Whether a voluntary trade creditor’s decision to continue extending unsecured credit despite known delinquency affects the equity analysis.

## Decision

- The Wisconsin Supreme Court reversed the circuit court’s judgment and declined to pierce ECO’s corporate veil.
- The court held that the evidence did not show misuse of the corporate form (fraud, illegality, or other unjust conduct) that proximately caused Consumer’s Co-op’s loss.
- The court concluded that undercapitalization and informal corporate governance, without more, did not justify imposing personal liability on shareholders/directors.
- The court emphasized that Consumer’s Co-op knowingly continued to extend credit to ECO and could have limited exposure or sought personal guarantees.

## Legal Principles

- Veil-piercing is an equitable remedy applied cautiously; the corporate entity is not disregarded absent exceptional circumstances.
- Wisconsin requires proof of: (1) complete domination of the corporation with respect to the challenged transaction; (2) use of that control to commit fraud or wrong, violate a legal duty, or accomplish a dishonest or unjust act; and (3) proximate causation of the creditor’s injury.
- Undercapitalization is a relevant factor but, standing alone, is insufficient to pierce the corporate veil.
- Failure to observe corporate formalities is not dispositive where the corporation maintains a separate identity and there is no commingling, self-dealing, or diversion of assets.
- Nonpayment of a debt, without additional inequitable conduct tied to the corporate form, does not constitute the “injustice” required for veil-piercing.
- A voluntary creditor’s ability to investigate, limit credit, or demand guarantees bears on whether equity supports shifting the loss from the corporate debtor to individual shareholders.

## Conclusion

The court refused to impose personal liability for ECO’s unpaid account because Consumer’s Co-op did not prove that the Olsens used domination of ECO to commit a fraud or comparable wrong that caused the loss; thin capitalization and imperfect formalities, especially in the context of continued voluntary credit extension, were insufficient to justify veil-piercing.


Consumer’s Co-op of Walworth Cnty. v. Olsen, 142 Wis. 2d 465, 419 N.W.2d 211 (Wis. 1988)