2024 IL App (1st) 231062-U
THIRD DIVISION September 25, 2024 No. 1-23-1062
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). ______________________________________________________________________________
IN THE APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT ______________________________________________________________________________
STOCKBRIDGE 600 WEST JACKSON, LLC, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) Cook County ) v. ) ) No. 20 L 10295 INDUSTRIOUS NATIONAL MANAGEMENT ) COMPANY LLC, INDUSTRIOUS CHI 600 WEST ) JACKSON STREET LLC, and ASSEMBLE JACKSON, ) Honorable LLC, ) Mary Colleen Roberts, ) Judge Presiding. Defendants-Appellants. ____________________________________________________________________________
JUSTICE REYES delivered the judgment of the court. Presiding Justice Lampkin and Justice D.B. Walker concurred in the judgment.
ORDER
¶1 Held: Affirming the judgment of the circuit court of Cook County in favor of a landlord and against the sole member of the tenant limited liability company where veil piercing was proper under applicable law.
¶2 Industrious Chi 600 West Jackson Street LLC (Industrious Jackson), a Michigan limited
liability company, leased commercial space in Chicago from landlord Stockbridge 600 West
Jackson, LLC (Stockbridge Jackson). Pursuant to membership agreements, Industrious Jackson
provided individuals and entities—referred to as “members”—access to the leased space and 1-23-1062
related amenities for a monthly fee. After Industrious Jackson ceased paying rent, Stockbridge
Jackson filed an action in the circuit court of Cook County against three defendants: Industrious
Jackson; Industrious Jackson’s predecessor-in-interest, Assemble Jackson, LLC (Assemble
Jackson); and Industrious Jackson’s sole owner, Industrious National Management Company
LLC (Industrious National). Stockbridge Jackson alleged that the defendants breached the lease
and that assets of Industrious Jackson—i.e., the members—were fraudulently transferred to
Industrious National. Following a bench trial, the circuit court entered a $2.35 million judgment
jointly and severally against the defendants.
¶3 The defendants acknowledge that Industrious Jackson and Assemble Jackson are liable to
Stockbridge Jackson for the unpaid rent and related amounts. The defendants maintain,
however, that the circuit court erred in finding Industrious National liable under veil-piercing and
fraudulent transfer theories. As discussed below, we affirm the judgment of the circuit court.
¶4 BACKGROUND
¶5 The Building and the Lease
¶6 Convention Center Drive, LLC (CCD) owned a commercial building at 600 West
Jackson Street in Chicago (the 600 building). In 2015, CCD executed a lease of the first floor of
the 600 building with the predecessor of tenant Assemble Jackson.
¶7 Stockbridge Jackson, a Delaware limited liability company which operates in Illinois,
purchased the building from CCD in 2017. Stockbridge Jackson is a subsidiary of Stockbridge
Capital Group, a multi-billion-dollar firm which invests in commercial real estate on behalf of
entities such as pension funds and teachers’ unions.
¶8 After various amendments, Assemble Jackson (as tenant) agreed to pay approximately
$34,000 per month for more than 12,000 square feet of commercial space in the 600 building.
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The lease term was set to expire in September 2030.
¶9 The Assignment of the Lease
¶ 10 Industrious National, a Delaware limited liability company, is a flexible workspace
provider, which offers office space to individuals and organizations referred to as “members.”
In 2018, Assemble Jackson and two other Assemble entities were purchased by Industrious
National or one of its subsidiaries.
¶ 11 Stockbridge Jackson was approached by Industrious National regarding the possibility of
a lease assignment, i.e., replacing Assemble Jackson as the tenant. Industrious National provided
financial documents to Stockbridge Jackson, including profit/loss statements and balance sheets.
In an email sent on June 15, 2018, Industrious National employee Olivia Feldman represented, in
part:
“To give additional context, we do not have debt or credit lines. Our mature units are
cash flow positive and average 92 to 94% occupancy across the portfolio with greater
than 30% margins. All new equity is going towards capex (new locations), which means
in a downturn we can turn off growth like a faucet and continue operating our portfolio
without raising additional capital since each unit is cash flow positive.”
Industrious National also sent news articles touting its financial strength, e.g., an article entitled
“Industrious raises $80 million to grow its premium coworking spaces across the U.S.”
¶ 12 In August 2018, the lease was assigned in writing from Assemble Jackson to a subsidiary
of Industrious National: Industrious Jackson, a single-member limited liability company which
was organized under Michigan law in June 2018. Stockbridge Jackson executed a document
consenting to the assignment.
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¶ 13 The Default
¶ 14 After the lease assignment in 2018, Industrious Jackson paid its monthly rent to
Stockbridge Jackson through March 2020, which coincided with the implementation of
restrictions related to the COVID-19 pandemic in the United States. On April 30, 2020,
Stockbridge Jackson sent a notice of default to Industrious Jackson which acknowledged the
impact of the pandemic and noted that “reasonable accommodations may be possible.” The
parties then engaged (unsuccessfully) in negotiations regarding accommodations. Stockbridge
Jackson sent another notice of default on May 29, 2020, which stated, in part, that it intended to
enforce the provisions of the lease which required the payment of its attorney fees and costs.
¶ 15 Following additional negotiations, Stockbridge Jackson was informed in August 2020
that the Industrious Jackson location in the 600 building would be “shut down.”
Industrious National denied any responsibility under the lease—as it was not a party to the
lease—and indicated that Industrious Jackson effectively had no assets.
¶ 16 The Lawsuit
¶ 17 On September 25, 2020, Stockbridge Jackson filed a verified complaint in the circuit
court of Cook County against the defendants. After multiple amendments, the verified second
amended complaint was the operative complaint.
¶ 18 In the operative complaint, Stockbridge Jackson alleged that Industrious Jackson failed to
observe corporate formalities and was an alter ego of its sole member, Industrious National.
According to Stockbridge Jackson, Industrious Jackson did not have its own employees or hold
corporate meetings, and its operations were completely controlled by Industrious National.
Stockbridge Jackson also alleged that the signatory on the lease assignment had been represented
to be Industrious National—a well-capitalized company—whereas the agreement was ultimately
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executed by Industrious Jackson. As alleged in the operative complaint, Industrious Jackson and
Industrious National “freely and frequently move[d] money” between the two entities.
¶ 19 Stockbridge Jackson further alleged that, once the decision was made to shut down
operations at the 600 building, the members (i.e., the individuals and entities which paid
Industrious Jackson to utilize the coworking space in the 600 building) were informed that they
should leave the 600 building and instead work out of one of the other seven offices operated by
Industrious National in Chicago. Industrious National retained a local moving company to move
members to other locations. Based on the foregoing, Stockbridge Jackson alleged that
Industrious National “horizontally siphoned assets” between Industrious Jackson and other
subsidiaries by communicating to its members, who were the primary source of revenue for rent
payments to Stockbridge Jackson, to move from the 600 building to other Industrious locations.
¶ 20 The operative complaint included three counts. Count I asserted a claim for violation of
the Uniform Fraudulent Transfer Act (740 ILCS 160/1 et seq. (West 2020)) (UFTA) against
Industrious National. Count II—filed against Industrious Jackson and Assemble Jackson—
alleged breach of the lease and/or the assignment. Count III was a breach of contract claim
against Industrious National, based on an alter ego theory, i.e., that Industrious Jackson was the
mere alter ego of Industrious National and thus they shared contractual obligations under the
lease and assignment. The parties agree that Industrious Jackson and Assemble Jackson are
liable on count II.
¶ 21 Industrious National filed a motion to dismiss the operative complaint pursuant to section
2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2020)). As to the alter ego
count, Industrious National noted that there were no allegations that Industrious Jackson lacked
governing documents or operating agreements or that it failed to keep records and file annual
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reports. Industrious National noted that Industrious Jackson had paid the rent from 2018 until
the start of the pandemic in 2020. According to Industrious National, Industrious Jackson was
funded by its own operations and, if needed, received capital infusions from Industrious
National, its sole member. Industrious National also observed that the default notices from
Stockbridge Jackson were directed to Industrious Jackson, and not Industrious National.
¶ 22 The circuit court denied the motion to dismiss and Industrious National’s subsequent
motion for reconsideration. The matter eventually proceeded to a bench trial, where the
testimony and other evidence included the following.
¶ 23 Trial Testimony
¶ 24 Elizabeth Kirley (Kirley), senior vice president at Stockbridge Capital Group, testified
regarding Stockbridge’s agreement to the assignment of the lease from Assemble Jackson to
Industrious Jackson. Based on Industrious National’s communications and financial documents,
Stockbridge assumed it was “getting a tenant that had strong credit” and $70 million in the bank.
¶ 25 Kirley was questioned regarding various Slack messages—produced during discovery—
which had been transmitted among Industrious National employees when the parties were
negotiating financial concessions in the summer of 2020. 1 The Slack messages suggested that
certain Industrious National employees believed that Stockbridge was “playing ball” and had
offered “insane” (i.e., very generous) terms, but that the Industrious strategy was to suggest a
“BS proposal” and to “make them an offer they won’t accept.” Kirley opined that the
600 building location was not performing strongly even before the pandemic; she believed that
Industrious did not negotiate in good faith and instead used the pandemic as an “excuse.”
1 Industrious National employee Rebecca Kaufman testified that Slack, a business messaging app, served as “an informal communication channel for us to *** talk internally and collaborate a bit more easily.” 6 1-23-1062
¶ 26 Kirley also testified regarding Slack messages among Industrious National employees
about a moving company which had been retained to potentially move members. The employees
indicated that, when asked to assess the space and to provide an estimate, the movers were
directed to wear plain clothing and to be discreet. One message indicated that a mover suggested
he would falsely represent himself to be an insurance adjuster.
¶ 27 According to Kirley, other Slack messages among Industrious National employees
indicated that the pandemic did not cause the financial issues at the 600 building location.
One employee wrote: “It’s not so much a COVID-specific issue, but that the COVID-induced
economic downturn has exposed deals that were weak to begin with, and they cannot weather
downturn without significant resource drain.” Kirley testified that Industrious National prepared
a “strategy and shutdown script” dated July 2, 2020, wherein company management stated they
were “comfortable sacrificing landlord relationships,” including the relationship with
Stockbridge Jackson.
¶ 28 Kirley also testified regarding a Slack message from an in-house attorney for Industrious
National which discussed legal advice received by the company for retaining customers by
moving them from underperforming locations to other locations. The message referred to two
options: (1) assigning the membership agreements and transferring the related security deposits;
and (2) terminating the membership agreements, returning the security deposits, and asking the
members to sign new agreements. The in-house attorney relayed that the second option
presented fewer veil-piercing concerns than the first option, but the way to “eliminate” the
concerns was for the subsidiaries to pay or to receive, as applicable, the fair market value of the
membership agreements.
¶ 29 Rebecca Kaufman (Kaufman), a former senior director of strategy and business
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development at Industrious National, testified regarding “Project Blue.” Project Blue was a code
name for a company initiative to support the execution of shutdowns for multiple locations,
including the 600 building location. According to Kaufman, an internal Project Blue document
stated, in part: “Notifying members and moving them to other Industrious locations prior to
beginning termination discussions with the landlord in order to retain members is not an option.”
Kaufman testified that if a member intended to relocate to another Industrious location,
Industrious Jackson would refund their security deposits (and not transfer the deposit to another
Industrious location).
¶ 30 Kerry Butz (Butz), a former employee of an Industrious National subsidiary who was
previously employed by Assemble, worked as a community manager at the shared office space at
the 600 building from late 2016 until its closure in late 2020. She was responsible for the day-to-
day operations at Industrious Jackson. Butz testified that Industrious National, which was
located in New York, coordinated all building repairs and coordinated and paid for the telephone
service, computers, and other technology for Industrious Jackson. She confirmed that
Industrious Jackson did not perform its own marketing or have its own human resources
department.
¶ 31 According to Butz, there were between 100 and 200 members at the 600 building
location in 2019, and each member paid between $500 and $6000 per month for access to the
shared office space. Butz testified that she and her colleagues continued to sign up new
members in the summer of 2020 when they knew that the location was going to shut down.
When asked if “the reason for signing those new members up and not telling them this location
would soon be shut down was because you all knew you could transfer them to other Industrious
locations down the street or across the river,” Butz responded in the affirmative.
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¶ 32 During cross-examination, Butz clarified the shutdown process. The memberships were
terminated at the 600 building location. Any member who wished to join another Industrious
location was required to sign a new membership agreement at the other location. The terminated
members had a choice whether to sign with another location; Butz confirmed that “a few”
members signed with other locations.
¶ 33 Clem Turner (Turner), chief legal counsel for Industrious National, testified that
Industrious Jackson was created for the purpose of acquiring the assets of Assemble Jackson, the
prior tenant of the 600 building. The acquired assets included the lease and the fees generated
from the members. He acknowledged that Industrious National was the sole member of
Industrious Jackson and had the ability to exercise complete authority over Industrious Jackson.
According to Turner, approximately 100 different limited liability companies (including
Industrious Jackson) “roll up” into Industrious National. Turner testified that Industrious
National’s business strategy included the creation of a limited liability company at each location.
¶ 34 During cross-examination, Turner testified that Industrious Jackson initially informed its
members on September 28, 2020, that the company was planning to terminate the memberships.
According to Turner, the terminations—which occurred on October 30, 2020—relieved the
members of “any and all obligations” to Industrious Jackson.
¶ 35 Justin Stewart (Stewart), the president and cofounder of Industrious National, testified the
company had made “tens of millions of dollars” in member fees, and that the company leased
millions of square feet of real estate at 160 different locations throughout the United States.
¶ 36 According to Stewart, Industrious Jackson had sufficient funds to pay rent in April 2020
but made a conscious decision not to pay. He testified that the location was “bleeding cash,”
and, in hindsight, the acquisition of the Assemble entities—including Assemble Jackson at the
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600 building location—was a poor business decision. Stewart referred to the pandemic as “one
variable” which contributed to the closing, but he acknowledged that Industrious Jackson was
losing money prior to the pandemic. He confirmed that Project Blue shut down between 8 and
10 locations. When questioned about the employee Slack messages regarding the “discreet”
movers, he testified that the employees’ conduct was dishonest.
¶ 37 During cross-examination, Stewart testified that the pandemic was “catastrophic” to the
Industrious portfolio. According to Stewart, the occupancy at some locations dropped to zero
and averaged 15% to 20% “on the high end.”
¶ 38 After the court denied the defendants’ motion for a directed finding as to the UFTA count
(count I), Ashley Robinson (Robinson), the vice president and controller for Industrious
National, testified. She testified that Industrious Jackson had its own federal tax identification
number and maintained its own bank account at Wells Fargo, as did each of the subsidiaries of
Industrious National. While Industrious Jackson had separate financials, it was not subject to a
“standalone” audit; rather, the company was audited in conjunction with a consolidated audit.
According to Robinson, Stockbridge Jackson never asked for a standalone audit of Industrious
Jackson or a guarantee by another entity.
¶ 39 Robinson testified that Industrious National placed “a lot of casual funding” into
Industrious Jackson at the beginning of 2020, as the parent was trying to help the subsidiary pay
its rent. According to Robinson, Industrious National infused $430,000 into Industrious Jackson
in 2020.
¶ 40 During cross-examination, Robinson was questioned regarding a newsletter article in
October 2020 which reported that an Industrious entity had newly leased 52,000 square feet of
space in Willis Tower in Chicago—the same month that the 600 building operations ceased.
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¶ 41 The deposition testimony of M. Todd Henderson (Professor Henderson) was provided to
the circuit court. Professor Henderson, a professor at the University of Chicago Law School,
was retained by Industrious National to provide an expert report regarding veil piercing.
Professor Henderson represented that “everybody” in the commercial real estate industry uses
special purpose entities (SPEs)—companies created to fulfill a specific, narrow purpose—like
Industrious Jackson. According to Professor Henderson, landlords enter long-term leases with
entities with “very few assets, no separate business operations, and those tenants are limited to
just that particular entity.” He noted that the landlords are also typically corporations “created
solely for this purpose.” Professor Henderson testified that “the Industrious SPE” (Industrious
Jackson)—like the Stockbridge SPE (Stockbridge Jackson)—had the building address in its
name “to reinforce with absolute certainty this is just about this place, there’s nothing else.”
¶ 42 Professor Henderson rejected the proposition that the failure to pay debts could constitute
“abuse” for purposes of a veil-piercing analysis. After noting that corporate formalities are not
the same for a corporation as a limited liability company, he opined that the aim of a limited
liability company is “a more flexible governance structure.” Professor Henderson also testified
that the funds in this case flowed the wrong way for a veil-piercing analysis: “I don’t think I’ve
ever seen any case ever anywhere in which there were not substantial financial movements of
monies from subsidiaries, that is the parties seeking to preserve its limited liability, up to
shareholders.”
¶ 43 Posttrial Submissions and Judgment
¶ 44 In its posttrial submission, Stockbridge Jackson maintained that Industrious National
utilized Industrious Jackson as a mere instrumentality to conduct its business and fraudulently
transferred Industrious Jackson’s sole revenue-generating assets—its members—to its other
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locations. The defendants’ submission characterized the matter as “a simple case of landlord
regret,” i.e., Stockbridge Capital Group, a sophisticated real estate business, made a calculated
decision for its subsidiary Stockbridge Jackson to enter a lease with Industrious Jackson, an SPE,
without securing a parental guarantee from Industrious National.
¶ 45 The circuit court entered a judgment in favor of Stockbridge Jackson and jointly and
severally against the defendants. As to the fraudulent transfer count against Industrious National
(count I), the circuit court found that Industrious Jackson transferred its members to other
Industrious entities without receiving reasonably equivalent value in exchange for the transfer.
The circuit court further found that the transfer left Industrious Jackson with “unreasonably
small” assets. As to the breach of contract count against Industrious National (count III), the
circuit court found that (a) Industrious Jackson was a “mere instrumentality” of Industrious
National; (b) Industrious Jackson was used to commit a wrong or fraud, e.g., the disguised
movers, the “BS proposals” and negotiation offers “they won’t accept,” and the transfer of the
members from the 600 building; and (c) Stockbridge Jackson suffered an unjust injury, i.e., but
for the transfer of the assets from Industrious Jackson to Industrious National, the rent could
have been paid. The circuit court thus concluded that the “[c]orporate [v]eil is pierced and
liability is assigned” to Industrious National.
¶ 46 The circuit court awarded back rent in the amount of $1,624,059, which reflected the
mitigation from a subsequent lease with a third party. Stockbridge Jackson was also awarded
$735,000 in attorney fees and costs pursuant to the lease. The defendants filed this appeal.
¶ 47 ANALYSIS
¶ 48 The defendants contend that the circuit court erred in ruling in favor of Stockbridge
Jackson and against Industrious National on both its veil-piercing and fraudulent transfer claims.
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Stockbridge Jackson argues that the evidence presented during the bench trial proved that the
defendants engaged in a “coordinated scheme to fraudulently transfer assets and otherwise abuse
the corporate form.” As discussed below, we affirm the circuit court’s judgment with respect to
the breach of contract count against Industrious National based on an alter ego/veil piercing
theory (count III), and we thus need not address the defendants’ contentions as to the fraudulent
transfer count (count I).
¶ 49 Standard of Review
¶ 50 The standard of review of a circuit court’s judgment following a bench trial is whether
that judgment is against the manifest weight of the evidence. Northwestern Memorial Hospital
v. Sharif, 2014 IL App (1st) 133008, ¶ 25. “Under the manifest weight standard, a trial court’s
decision in a bench trial is subject to considerable deference.” In re Z.L., 2021 IL 126931, ¶ 82.
See also Vician v. Vician, 2016 IL App (2d) 160022, ¶ 27 (noting that a trial judge is the trier of
fact in a bench trial and is “in a superior position to observe witnesses, judge their credibility,
and determine the weight their testimony should receive”). A judgment is against the manifest
weight when it appears from the record that the judgment is unreasonable, arbitrary, not based on
evidence, or the opposite conclusion is apparent. Northwestern Memorial Hospital, 2014 IL App
(1st) 133008, ¶ 25. We will not disturb the findings and judgment of the trial court if there is any
evidence in the record to support such findings. Staes and Scallan, P.C. v. Orlich, 2012 IL App
(1st) 112974, ¶ 35. Accord Vician, 2016 IL App (2d) 160022, ¶ 27 (observing that “if the record
contains evidence to support the trial court’s judgment, that judgment should be affirmed”).
¶ 51 Veil Piercing
¶ 52 According to Stockbridge Jackson, Industrious National fraudulently and wrongfully
abused the limited liability company form such that it is liable for the breach of the lease and the
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assignment agreement. We agree with the parties that Michigan law governs our analysis of this
veil-piercing claim, as Industrious Jackson is a limited liability company organized under
Michigan law. E.g., Westmeyer v. Flynn, 382 Ill. App. 3d 952, 957 (2008) (applying Delaware
law to analyze a veil-piercing claim involving a Delaware limited liability company).
¶ 53 Under the Michigan Limited Liability Company Act, unless the articles of organization
state that the business of the limited liability company is to be managed by managers, “the
business of the limited liability company shall be managed by the members.” M.C.L.A.
450.4401. As noted above, the sole member of Industrious Jackson is Industrious National.
The same act states: “Unless otherwise provided by law or in an operating agreement, a person
that is a member or manager, or both, of a limited liability company is not liable for the acts,
debts, or obligations of the limited liability company.” M.C.L.A. 450.4501. The default rule
under Michigan law is thus that Industrious National would not be liable for the debts of
Industrious Jackson, i.e., there is a presumption that the limited liability company form will be
respected. See Ryan Racing, LLC v. Gentilozzi, 231 F. Supp. 3d 269, 275 (W.D. Mich. 2017).
¶ 54 The law of veil piercing, however, provides a mechanism for penetrating Industrious
Jackson’s limited liability company shield to hold its sole member, Industrious National, liable
for its debt to Stockbridge Jackson. Lakeview Commons v. Empower Yourself, LLC, 290 Mich.
App. 503, 509 (2010) (noting that a court “can ignore this corporate fiction when it is invoked to
subvert justice”); Green v. Ziegelman, 310 Mich. App. 436, 452 (2015) (observing that when an
entity is operated as a mere instrumentality by its owner, a court will intervene to prevent an
injustice).
¶ 55 To justify the piercing of a corporate veil under Michigan law, (1) the entity must be a
mere instrumentality of another individual or entity; (2) the entity must have been used to
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commit a wrong or fraud; and (3) there must have been an unjust injury or loss to the plaintiff.
Florence Cement Co. v. Vettraino, 292 Mich. App. 461, 469 (2011). Accord Ryan Racing,
231 F. Supp. 3d at 275. Michigan courts have made clear that the same rules apply to determine
whether the corporate veil of a limited liability company should be pierced. Florence Cement,
292 Mich. App. at 468-69 (citing Lakeview Commons, 290 Mich. App. at 510 n. 1).
¶ 56 Mere Instrumentality
¶ 57 As noted above, a plaintiff “must show that the entity was the mere instrumentality of the
owner and that the owner used the entity to commit a fraud or wrong resulting in an unjust loss
or injury.” Green, 310 Mich. App. at 455-56. To determine whether one entity is the mere
instrumentality of another, courts applying Michigan law have examined “(1) whether the
corporation is undercapitalized, (2) whether separate books are kept, (3) whether there are
separate finances for the corporation, (4) whether the corporation is used for fraud or illegality,
(5) whether corporate formalities have been followed, and (6) whether the corporation is a
sham.” Ryan Racing, 231 F. Supp. 3d at 277 (quoting Glenn v. TPI Petroleum, Inc., 305 Mich.
App. 698, 716 (2014)). “Michigan courts have also considered the commingling of funds and
the extent to which the shareholder controlled the decisions of the entity.” Id.
¶ 58 The foregoing factors, however, are not exhaustive. “[W]hen considering whether to
disregard the separate existence of an artificial entity, a court must first examine the totality of
the evidence surrounding the owner’s use of an artificial entity and, in particular, the manner in
which the entity was employed in the matter at issue.” Green, 310 Mich. App. at 458. See also
S&S Innovations Corp. v. UUSI, LLC, No. 1:18-cv-1377, 2021 WL 2070064, at *3 (W.D. Mich.
May 24, 2021) (noting that “courts must consider all relevant facts that make up the totality of
the circumstances”). “From this evidence, the trial court must determine whether the evidence
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establishes that the owner operated the entity as his or her alter ego—that is, as a sham or mere
agent or instrumentality of his or her will.” Green, 310 Mich. App. at 458.
¶ 59 Industrious National is the sole member and 100% owner of Industrious Jackson.
The trial testimony revealed that Industrious Jackson did not have its own employees or officers,
did not hold meetings, and did not negotiate its own contracts. Industrious National controlled
the day-to-day operations for Industrious Jackson, such as coordinating repairs, handling
technology issues, and preparing marketing materials. While Industrious Jackson had a separate
bank account and financial statements, the testimony suggested that funds flowed freely between
the parent and subsidiary, e.g., the controller testified regarding “a lot of casual funding” from
Industrious National. Industrious National also made the decisions which directly led to this
litigation, including the decisions to not use available funds to pay rent to Stockbridge Jackson,
to create and implement the plan to transfer members to other locations as part of Project Blue,
and to ultimately close the 600 building location. When asked whether Industrious National “has
the ability to exercise complete authority” over Industrious Jackson, the chief legal counsel for
Industrious National responded in the affirmative.
¶ 60 In sum, the trial court’s finding that Industrious Jackson was a “mere instrumentality” of
Industrious National is supported by the record. See Florence Cement, 292 Mich. App. at 460
(stating that “where members do not treat an artificial entity as separate from themselves, neither
will this Court”). We turn to the next element: whether Industrious Jackson was used to commit
a fraud or wrong.
¶ 61 Fraud or Wrong
¶ 62 To prove the “fraud or wrong” element of its veil-piercing claim, Stockbridge Jackson
was required to establish that Industrious National engaged in deliberate wrongful conduct that
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either was designed to or did produce injury to Stockbridge Jackson. See Lim v. Miller Parking
Co., 560 B.R. 688, 705 (E.D. Mich. 2016) (applying Michigan law). A plaintiff is not required
to show fraud to pierce the corporate veil. Ryan Racing, 231 F. Supp. 3d at 282. It is also not
necessary to prove that the parent company caused the subsidiary to directly harm the plaintiff;
it is sufficient that the parent company exercised its control over the subsidiary “in such a
manner as to wrong” the plaintiff. Green, 310 Mich. App. at 458.
¶ 63 The trial testimony supports the conclusion that Industrious National engaged in
obfuscation or deception vis-à-vis Stockbridge Jackson. Despite Industrious Jackson being the
ultimate signatory on the lease assignment in 2018, Stockbridge Jackson was provided with
profit/loss statements and balance sheets for Industrious National. This information, when
coupled with media articles regarding Industrious National’s financial strength, falsely suggested
that Industrious National would become the tenant on the lease. Even Industrious National’s
president acknowledged that an email from employee Olivia Feldman during the assignment
negotiations—regarding each unit being cash-flow positive—contained inaccurate information.
¶ 64 The evidence presented at trial indicated that Industrious National then continued to
exercise control over Industrious Jackson to wrong Stockbridge Jackson. Although funds were
available to pay rent in April 2020, Industrious National decided that Industrious Jackson would
not make the payment. When Industrious Jackson defaulted, Stockbridge Jackson offered
generous concessions to retain Industrious Jackson as a tenant. The Slack messages exchanged
among Industrious National employees, however, revealed that the company did not engage in
good-faith negotiations. Rather, Industrious National appears to have used delay tactics to buy
time to strategize. The result was Project Blue, a confidential plan to shed underperforming
locations while retaining members.
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¶ 65 The evidence further indicated that Industrious National’s wrongful conduct vis-à-vis
Stockbridge Jackson extended to the closing of the 600 building location. As Ashley Robinson
testified, the member fees were the sole source of revenue for Industrious Jackson. Nevertheless,
Industrious Jackson decided to attempt to move the members from the 600 location to one of the
other seven Industrious locations in Chicago, effectively draining Industrious Jackson of funds
with which to pay rent. The local movers hired to assess the 600 building location for a potential
move were instructed to wear plain clothing and to be discreet, presumably to not arouse
suspicion on the part of Stockbridge Jackson—conduct which the president of Industrious
National testified was dishonest. Despite its knowledge that the location was closing,
Industrious National had Industrious Jackson continue to sign up new members in the summer of
2020, with the seeming expectation that those members could be moved to other locations in
Chicago. Finally, against the advice of counsel, the other locations did not pay fair market value,
or any amount, for those transferred memberships.
¶ 66 In sum, Industrious National caused Industrious Jackson to use the leased space for
months without paying rent while scheming to move the members who provided the sole revenue
for the rent (other than any capital infusions). The evidence at trial provided ample support for
the court’s conclusion that Industrious National exercised its control over Industrious Jackson “in
such a manner as to wrong” Stockbridge Jackson. See Green, 310 Mich. App. at 458.
¶ 67 Unjust Loss or Injury
¶ 68 Finally, the trial court was required to determine whether the fraud or wrong caused
Stockbridge Jackson to suffer an unjust loss. See Florence Cement, 292 Mich. App. at 471.
Here, Stockbridge Jackson suffered a significant loss due to Industrious National treating
Industrious Jackson as a mere instrumentality. See id. As noted above, the president of
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Industrious National testified that a decision was made not to pay the April 2020 rent, despite the
availability of sufficient funds. While engaging in negotiations with Stockbridge Jackson to
ostensibly maintain the lease, Industrious National devised a plan to attempt to move members
and to close the Industrious Jackson location (and other locations). Although “a loss is not
unjust if the complainant had full knowledge of the circumstances surrounding the owner’s use
of the entity and agreed to proceed despite that knowledge” (Green, 310 Mich. App. at 459), the
evidence presented at trial suggested that Stockbridge Jackson did not possess such knowledge.
¶ 69 As the president of Industrious National acknowledged, “the members were paying rent,
Stockbridge was paying its mortgage on the building, and the only one not paying was
Industrious Jackson during that time.” The trial court reasonably concluded that, but for
Industrious National’s conduct, Industrious Jackson would have had adequate funds to pay
¶ 70 CONCLUSION
¶ 71 We recognize that the act of establishing a limited liability company “for the purpose of
avoiding personal responsibility is not by itself a wrong that would warrant disregarding the
entity’s separate existence.” Green, 310 Mich. App. at 459. See also Maki v. Cooper Range
Co., 121 Mich. App. 518, 524 (1982). We also recognize that veil piercing is a remedy which
should be invoked sparingly. S&S Innovations Corp, 2021 WL 2070064, at *6. Under the
specific facts of this case, however, the trial court’s conclusion that Industrious National was
liable for breach of the lease under a veil piercing theory was not against the manifest weight of
the evidence. We thus need not address the parties’ contentions regarding the UFTA.
¶ 72 The judgment of the circuit court of Cook County is affirmed in its entirety.
¶ 73 Affirmed.