## Facts

- Sea-Land Services, Inc., an ocean carrier, transported shipments of Jamaican sweet peppers for The Pepper Source (PS) and was not paid.
- Sea-Land obtained a default judgment against PS in 1987 for approximately $86,767.70 in unpaid freight charges.
- PS had been dissolved for failure to pay state franchise taxes and had no meaningful assets, leaving Sea-Land unable to collect its judgment.
- Sea-Land sued PS’s sole shareholder, Gerald J. Marchese, and multiple Marchese-controlled corporations (and later a co-owned entity) alleging they were alter egos used to avoid creditor obligations.
- Evidence showed Marchese dominated and controlled the entities, commingled funds, shifted money among corporations, disregarded corporate formalities, used corporate accounts to pay personal expenses (including support obligations), and left PS undercapitalized and judgment-proof.
- Sea-Land sought to hold Marchese personally liable and to reach assets of other Marchese-controlled corporations on an alter-ego theory, including a form of reverse veil piercing.

## Issues

1. Whether PS and Marchese (and related corporations) had such unity of interest and ownership that their separate corporate identities should be disregarded under Illinois law.
2. Whether respecting the corporate form would sanction a fraud or promote an injustice, as distinct from the mere inability to collect an unpaid judgment.
3. Whether, once Marchese was treated as PS’s alter ego, assets of other alter-ego corporations could be reached to satisfy the debt.

## Decision

- In the first appeal, the Seventh Circuit held the “unity of interest and ownership” prong was satisfied but remanded because the record did not yet establish the required additional “wrong” showing that limited liability would sanction a fraud or promote an injustice.
- On remand, the district court found that Marchese used the corporate structure to avoid creditors and enrich himself, and entered judgment for Sea-Land in an increased amount (approximately $118,132.61).
- In the second appeal, the Seventh Circuit affirmed, concluding that the evidence satisfied both prongs of Illinois veil-piercing doctrine and permitted Sea-Land to collect from Marchese and the alter-ego entities.

## Legal Principles

- Under Illinois law, veil piercing requires proof of: (1) unity of interest and ownership such that separate personalities no longer exist; and (2) circumstances where maintaining limited liability would sanction a fraud or promote an injustice.
- Unity of interest may be shown by commingling of funds, failure to observe corporate formalities and records, undercapitalization, and use of corporations as a façade for the shareholder’s personal dealings.
- The “fraud or injustice” prong requires more than an uncollected debt; it requires an additional wrong such as deception, unjust enrichment, or use of the corporate form to evade existing obligations.
- When the evidence shows a shareholder uses multiple corporations as interchangeable conduits to defeat creditors, courts may disregard separateness not only between the debtor corporation and the shareholder but also among the shareholder’s alter-ego entities to allow collection.

## Conclusion

Sea-Land established that PS and Marchese-operated entities functioned as alter egos and that Marchese’s manipulation of corporate funds and structure to defeat creditors and enrich himself supplied the required “wrong” beyond nonpayment; the Seventh Circuit therefore affirmed veil piercing (including reaching related alter-ego corporations) under Illinois law.


Sea-Land Servs., Inc. v. Pepper Source, 993 F.2d 1309 (7th Cir. 1993)