## Facts

- Kinney Shoe Corporation subleased an industrial building to Industrial Realty Company, a West Virginia corporation wholly owned by Lincoln M. Polan.
- Industrial was formed alongside another Polan-owned corporation, Polan Industries, Inc., which conducted operations and had assets.
- Industrial observed virtually no corporate formalities: no organizational meetings, no officers elected, and no meaningful corporate governance.
- Industrial had no paid-in capital and effectively no assets beyond the sublease; the initial rent payment to Kinney was made from Polan’s personal funds.
- After one payment, Industrial defaulted on the sublease, and Kinney remained liable on its own long-term lease obligations for the building.
- Industrial subleased part of the premises to Polan Industries for roughly half the rent owed to Kinney, allowing the operating company to benefit from the premises while the rent obligation remained with assetless Industrial.
- Kinney obtained a money judgment against Industrial but could not collect; Industrial later entered bankruptcy.
- Kinney sued Polan personally to pierce Industrial’s corporate veil; the district court denied relief, reasoning that Kinney had a “duty” to investigate Industrial’s capitalization and thus assumed the risk of undercapitalization.

## Issues

1. Under West Virginia law, whether Industrial and Polan had such unity of interest and ownership that their separate personalities no longer existed.
2. Whether respecting Industrial’s separate corporate existence would sanction a fraud or produce an inequitable result.
3. Whether a contracting creditor’s failure to investigate a corporation’s capitalization or creditworthiness bars veil-piercing relief.

## Decision

- The Fourth Circuit reversed the district court.
- The court held that Industrial’s corporate veil should be pierced and that Polan was personally liable for the unpaid rent owed to Kinney.
- The court rejected any rule imposing a creditor “duty to investigate” capitalization or creditworthiness as a prerequisite to veil piercing.

## Legal Principles

- A court may disregard the corporate form under West Virginia law when (1) there is unity of interest and ownership such that separateness has ceased, and (2) treating the acts as those of the corporation alone would sanction a fraud or produce an inequitable result.
- Grossly inadequate capitalization, when combined with disregard of corporate formalities and resulting unfairness, supports veil piercing.
- A shareholder seeking limited liability must observe basic corporate formalities and provide legitimate capitalization; an empty shell entity used as a liability screen may not shield the shareholder.
- Veil piercing is an equitable inquiry focused primarily on the defendant’s misuse of the corporate form, not on whether the plaintiff conducted pre-contract diligence into the corporation’s finances.

## Conclusion

Because Industrial was an uncapitalized, nonfunctioning shell used to place lease liabilities on an assetless entity while a related operating company received benefits, the court held that equity required piercing the veil and imposing personal liability on Polan, without conditioning relief on Kinney’s pre-contract investigation.


Kinney Shoe Corp. v. Polan, 939 F.2d 209 (4th Cir. 1991)