Opinion of the Court by
This is an appeal from an opinion of the Court of Appeals affirming the decision of the Jefferson Circuit Court. The trial court granted Appellees, General Electric Healthcare Financial Services, Inc., General Electric Company, and General Electric Capital Corporation (hereinafter collectively referred to as “GE”)
I. Background
Schultz served as the president and sole shareholder of Intra-Med, a Kentucky corporation that performed medical diagnostic services. In July 2001, Intra-Med entered into a contract to lease medical equipment from GE. The company subsequently defaulted on the contract by failing to make required payments in 2004. As a result, GE filed a complaint against Intra-Med in Jefferson Circuit Court, which entered a judgment on the pleadings in favor of GE for over $4.7 million on November 15, 2004. GE was able to collect approximately $700,000 of that judgment.
During its collection process, GE learned of certain documents produced in another lawsuit demonstrating that Schultz had used Intra-Med for his own private purposes. GE intervened in this lawsuit and filed a third-party complaint against Schultz seeking to pierce the corporate veil and hold him personally liable for the judgment against Intra-Med.
Schultz subsequently filed an answer to GE’s third-party complaint setting forth several admissions, denials, and affirmative defenses. He admitted GE’s judgment of November 15, 2004 and that he had knowledge of the judgment on or after that date. He also admitted that, on or about December 1998, he purchased real property in his own name using Intra-Med funds and that Intra-Med did not receive any of the proceeds from the subsequent sale of the property in March 2000. Schultz further admitted that, on or about October 2000, he purchased and improved another piece of real property, again in his own name, using Intra-Med funds and that, after entry of the $4.7 million judgment, he sold the property and Intra-Med did not receive any proceeds from the sale. Finally, he admitted that, on or about May 24, 2001, he purchased a marina slip in his own name with Intra-Med funds and that Intra-Med did not receive any of the proceeds from its subsequent sale.
14. The Complaint is barred, in whole or in part, because General Electric knew, at the time it entered into its agreement with Intra-Med in July of 2001, that if there was a default and the acceleration clause was invoked, Intra-Med did not have sufficient assets to pay the full amount that was owed.
15. The Complaint is barred, in whole or in part, because GE had, at the time it entered into the agreements with In-tra-Med in July of 2001, full access to Intra-Med’s financial information, and still proceeded with the transactions.
16. The Complaint is barred, in whole or in part, because GE had, at the time it entered into the agreements with In-tra-Med in July of 2001, the option of asking Thomas Schultz for an individual guaranty to secure these agreements, and it failed to do so.
On September 10, 2007, the trial court entered judgment on the pleadings in favor of GE in the amount of $450,000. In so doing, the court held that Schultz’s ad
On review, the Court of Appeals affirmed the trial court, concluding that none of Schultz’s affirmative defenses negated the fact that he admittedly used corporate funds and property as his own to GE’s detriment. The court held that his admissions fulfilled the requirements for piercing the corporate veil and supported the trial courts judgment on the pleadings. This Court granted Schultz’s motion for discretionary review.
II. Law
A. The Nature of Piercing the Corporate Veil
General principles of corporate law, specifically with respect to piercing the corporate veil, have become axiomatic. For example, it is widely accepted that a corporation should be viewed as a separate legal entity. Dare To Be Great, Inc. v. Commonwealth ex rel. Hancock,
Perhaps because these principles are so akin to a creed, Kentucky case law primarily outlines the factual circumstances in which a court may set aside the corporate veil. See, e.g., White,
Although we have never addressed this underlying issue, the Court of Appeals set forth a well-reasoned argument that “the decision as to whether to pierce the corporate veil is an equitable
In order to resolve whether “piercing the corporate veil” is an equitable action for judicial determination, it is important to review the concept and theories available for “piercing the corporate veil.” First, as previously stated, a corporation is a separate entity from its shareholders. Continuing the inquiry, we cite the definition of “piercing the corporate veil” in 18 C.J.S. Corporations § 14 (2008):
the judicial act of imposing personal liability on otherwise immune corporate officers, directors, and shareholders for the corporation’s wrongful acts, and certain elements must be established!)]
Interestingly, the text refers to “the judicial act.” Further, Kentucky jurisprudence recognizes three basic “theories” to “pierce the corporate veil” and hold the shareholders of a corporation responsible for corporate liabilities....
[[Image here]]
In order to ascertain whether the corporate form should be disregarded, courts weigh various factors, including whether the corporate form was abused and whether the form was used to perpetrate a fraud.
Further guidance on whether the issue is for judicial or jury determination is provided in Poyner v. Lear Siegler, Inc.,542 F.2d 955 , 959 (6th Cir.1976), wherein the federal court explained:
Whether it is appropriate to disregard the corporate entity, and whether Poyner would have to litigate both liability for the injuries and LSI’s liability for Erma’s obligations in order to recover from LSI, are clearly questions of law. Whether an arrangement works an “unfair” hardship is similarly a question of law. If a determination concerns whether the evidence showed that something occurred or existed, it is a finding of fact. However, if a determination is made by processes of legal reasoning from, or of interpretation of the legal significance of, the evidentiary facts, it is a conclusion of law. Galena Oaks Corp. v. Scofield,218 F.2d 217 , 219 (5th Cir.1954). See also Kippen v. Am. Automatic Typewriter Co.,324 F.2d 742 , 745 (9th Cir.1963) (whether there was “good cause” to discharge); Campbell Soup Co. v. Wentz,172 F.2d 80 (3rd Cir.1948) (whether carrots are “unique,” permitting the remedy of specific performance). The issue whether a corporate arrangement works a hardship which is “unfair,” and which therefore warrants denial of corporate entity treatment, is a question about the legal consequences which follow from the arrangement. It is therefore a conclusion of law.
To summarize, the Poyner Court reasoned that a decision about whether to disregard the corporate entity and whether the issue is one of fairness or equity are questions for the court.
Id. at 211-212.
We adopt the reasoning of the Daniels decision and hold that the doctrine of piercing the corporate veil arises in equity. As the Court of Appeals aptly noted, per
Support for the proposition that the issue of veil piercing is an equitable matter is found in other sources: See Fletcher Cyclopedia of Law of Corporations § 41.29 at p. 177 (2006) stating:
Since the doctrine of piercing the corporate veil is an equitable one that is particularly within the province of the trial court, some courts take the position that the right to a jury trial on the issue of piercing the corporate veil does not exist, (internal footnotes omitted).
See also Bangor Punta Operations, Inc. v. Bangor & A. R. Co.,417 U.S. 703 , 713,94 S.Ct. 2578 , 2584,41 L.Ed.2d 418 (U.S.Me.1974) (stating that “courts of equity” decide whether to pierce the corporate veil); Koch Refining v. Farmers Union Cent. Exchange, Inc.,831 F.2d 1339 , 1345 (7th Cir.1987) (stating that “disregard of the corporate entity is essentially an equitable doctrine”); In re Air Crash Disaster at Stapleton Intern. Airport, Denver, Colo.,720 F.Supp. 1467 , 1484 (D.Colo.1989) (stating that “the ultimate decision of whether to disregard the corporate form ... lies in equity”); United States v. Golden Acres, Inc.,684 F.Supp. 96 , 103 (D.Del.1988) (concluding that, under the law of Delaware, piercing the corporate veil is equitable relief for which a federal jury trial is unavailable); and International Financial Services Corp. v. Chromas Technologies Canada, Inc.,356 F.3d 731 , 737 (7th Cir.2004) (opining that “[i]t follows that veil-piercing must be an exercise of equitable power.”).
Id. at 213. Moreover, because the very act of piercing the corporate veil requires the decision maker to set aside a legal fiction based upon notions of fairness and hardship, we would have to stretch the boundaries of common sense and engage in linguistic gymnastics to describe veil piercing as anything but an equitable action.
Having better defined the nature of the piercing doctrine, we must next examine the wisdom of piercing the corporate veil based solely on the pleadings.
B. Piercing the Corporate Veil on the Pleadings
Civil Rule 12.03 provides that any party to a lawsuit may move for a judgment on the pleadings. In City of Pioneer Village v. Bullitt County ex rel. Bullitt Fiscal Court,
The purpose of the rule is to expedite the termination of a controversy where the ultimate and controlling facts are not in dispute. It is designed to provide a method of disposing of cases where the allegations of the pleadings are admitted and only a question of law is to be decided. The procedure is not intended to delay the trial in any respect, but is to be determined before the trial begins. The basis of the motion is to test the legal sufficiency of a claim or defense in view of all the adverse pleadings. When a party moves for a judgment on the pleadings, he admits for the purposes of his motion not only the truth of all his adversary’s well-pleaded allegations of fact and fair inferences therefrom, but also the untruth of all his own allegations which have been denied by his adversary. Archer v. Citizens Fidelity Bank & Trust Co., Ky.,365 S.W.2d 727 (1963). The judgment should be granted if it appears beyond doubt that the nonmoving party cannot prove any set of facts that would entitle him/her to relief. Cf. Spencer v. Woods, Ky.,282 S.W.2d 851 (1955).
We are persuaded that a permanent injunction should be granted by means of summary judgment only in those cases where the showing is very clear and convincing and that in such case as we are confronted with here, to afford relief by means of a permanent injunction where the actual question to be determined is whether or not a judgment on the pleadings should be granted and where as here the pleadings under the notice theory of pleading particularly raised factual issues, the determination to grant a permanent injunction must be characterized as unwarranted.
Id. at 591, 593.
We believe the rule-of-thumb set forth by the La Vielle decision — that a judgment’ on the pleadings should rarely be granted against a defendant who has filed a proper and contesting answer in an equity action — applies with equal, if not greater, force when a party seeks to pierce the veil based solely on the pleadings. In light of their obligation to respect the legal fiction of corporate separateness, trial courts should be very reticent to pierce at this juncture of litigation. And, though we do not completely foreclose such action, we simply cannot conceive of a scenario in which a trial court could appropriately pierce the corporate veil based solely on pleadings raising a multitude of equitable issues.
With this in mind, we now address the case before us.
III. Analysis
Schultz argues that the trial court erred in piercing Intra-Med’s veil based solely on the pleadings.
In this case, the trial court allowed GE to pierce Intra-Med based upon the instrumentality theory of veil piercing. In White, the Court of Appeals succinctly outlined this theory:
Under the instrumentality theory three elements must be established in order to warrant a piercing of the corporate veil: (1) that the corporation was a mere instrumentality of the shareholder; (2) that the shareholder exercised control over the corporation in such a way as to defraud or to harm the plaintiff; and (3) that a refusal to disregard the corporate entity would subject the plaintiff to unjust loss.
Although we acknowledge that only the denial of material facts will be effective in defeating a motion for judgment on the pleadings and that denial of legal conclusions will not, Archer v. Citizens Fidelity Bank & Trust Co.,
In light of its obligation to evaluate the fairness and hardship and the absence of material facts definitively showing harm, fraud, or unjust loss, we hold that the trial court erred in piercing Intra-Med based solely on the pleadings. On remand, we direct the trial court to resolve this matter at a more appropriate juncture in the litigation. In so doing, the court should consider our recent decision in Inter-Tel Technologies, Inc., et al. v. Linn Station Properties, LLC, et al.,
IV. Conclusion
For the foregoing reasons, the decision of the Court of Appeals is hereby reversed and we remand this matter to the trial court for proceedings consistent with this Opinion.
Notes
. Our collective reference to General Electric Healthcare Financial Services, Inc., General Electric Company, and General Electric Capital Corporation as "GE” is merely for convenience and should not be construed otherwise.
. In its brief, GE also notes that Schultz admitted that he instructed Intra-Med to disregard the November 15, 2004 judgment and to pay Intra-Med’s creditors other than GE. Schultz, though, denied this allegation to the extent it implied that he had an obligation to see that GE’s judgment was satisfied.
. GE initially requested a partial judgment on April 17, 2007 in the amount of $1,150,000, allegedly the amount of Intra-Med funds improperly used by Schultz. Although the trial court held that his admissions supported the conclusion that Schultz improperly used In-tra-Med’s funds and that none of his affirmative defenses would preclude entry of judgment, the court found that Schultz might have been entitled to receive some payments from Intra-Med because he personally loaned the company $700,000. As a result, the court denied GE’s initial motion.
GE next filed a motion in which it stated it would settle for $450,000 — the difference between $1,150,000 and the $700,000 loan. GE also stipulated that it would voluntarily dismiss its remaining claims against Schultz if the court entered the $450,000 judgment. The court granted this motion.
. "[I]n Kentucky, equitable issues are not triable by juries unless agreed to by the parties.” Daniels v. CDB Bell, LLC,
. The appellees actually had moved for 'Findings of Facts and Conclusions of Law' rather than judgment on the pleadings pursuant to CR 12.03. La Vielle,
. Schultz also argues that GE's failure to ask him for a personal guarantee precludes it from ever piercing Intra-Med’s corporate veil. We decline to address this argument, as this goes to the substance of veil piercing and can better be addressed by the trial court. We also need not respond to his alternative argument as to the amount of the judgment, as we agree that the trial court erred by entering any judgment at this juncture.
. CR 12.03 is the Kentucky counterpart of Fed.R.Civ.P. 12(c). Archer v. Citizens Fidelity Bank & Trust Co.,
. Interestingly, GE suggested in its brief that de novo review is inappropriate in this case because matters of equity and equitable remedies are traditionally within the discretion of the trial court. However, this contention ignores that this case was resolved strictly on the pleadings. More importantly, in making such an argument GE acknowledges that the doctrine of piercing the corporate veil arises in equity.
.We note that the admitted transactions by Schultz occurred before Intra-Med entered into its contract with GE in July 2001. Specifically, Schultz admitted that he, individually, used Intra-Med's funds on or about, December 1998, October 2000, and May 24, 2001. Thus, absent a record, one would assume Intra-Med's financial records — which were alleged to have been available to GE— would not have reflected these amounts (or assets) as Intra-Med’s at the time of the loan.