Schultz was the president and sole shareholder/ owner of Intra-Med [Services, Inc.], a Kentucky corporation that performed medical diagnostic imaging services, such as MRIs and CT scans.

GE [General Electric Healthcare Financial Services, Inc.; General Electric Company; and General Electric Capital Corporation] entered into a contract to lease certain medical equipment to Intra-Med. In 2004, Intra-Med defaulted on the contract by failing to make the required lease payments to GE.

On July 8, 2004, GE fi led a complaint against Intra-Med in Jefferson Circuit Court. On November 15, 2004, the court entered a judgment on the pleadings in favor of GE for over \($4.7\) million. GE was able to collect approximately \($700\),000 of the judgment.

While collecting on its judgment, GE learned of certain documents that Intra-Med had produced in discovery in another lawsuit. Those documents revealed that Mr. Schultz had used Intra-Med assets for his own purposes. For example, Mr.

Schultz bought multiple pieces of property for himself using Intra-Med funds and when some of this property was later sold, Mr. Schultz kept the proceeds. GE intervened in this other lawsuit and fi led a third-party complaint against Mr. Schultz seeking to pierce the corporate veil and hold him personally liable for the judgment against Intra-Med.

On April 17, 2007, GE fi led a motion for partial judgment on the pleadings in which it requested a partial judgment in the amount of

\($1\),150,000. This was allegedly the amount of Intra-Med funds which Schultz used improperly.

On August 10, 2007, the trial court held that Mr. Schultz’s admissions in his answer to GE’s third-party complaint support the conclusion that Schultz improperly used Intra-Med’s funds. It also held that none of Mr. Schultz’s affi rmative defenses would preclude an entry of judgment against him.

However, the court found that Mr.

Schultz might have been entitled to receive some payments from Intra-

Med because he personally loaned the company \($700\),000. Because of this possibility, the court denied GE’s motion.

GE next fi led a motion in which it stated it would settle for \($450\),000, the difference between \($1\),150,000 and the claimed \($700\),000 loan. GE also stipulated that it would voluntarily dismiss its remaining claims against Mr. Schultz if the court entered the \($450\),000 judgment. The court ultimately granted the motion on September 10, 2007. Mr. Schultz fi led a motion to alter or amend, but it was denied. This appeal followed.

* * * *

Mr. Schultz admitted several facts in his answer to GE’s third-party complaint. The relevant admitted facts are: on November 15, 2004, GE was awarded a judgment in the amount of \($4\),746,921.80, plus interest, against Intra-Med; Mr. Schultz had knowledge of the GE judgment on or after November 15, 2005; on or about December of 1998, Mr.

Schultz, individually, purchased real property located at 7405 New LaGrange Road, Louisville, KY 40242, using Intra-Med funds; Intra-

Med did not receive any of the proceeds from the subsequent sale of the New LaGrange Road property in March of 2004; on or about October of 2000, Mr. Schultz, individually, purchased and improved real property located at 8700 Dixie Highway, Louisville, KY 40258, using Intra-

Med funds; after entry of the GE judgment, Mr. Schultz sold the Dixie Highway property, which had been purchased and renovated by Mr.

Schultz with Intra-Med funds, for

\($850\),000; Intra-Med did not receive any of the proceeds from the sale of the Dixie Highway property; on or about May 24, 2001, Mr. Schultz, individually, purchased a marina slip for \($23\),000 with Intra-Med funds; and Intra-Med did not receive any of the proceeds from the subsequent sale of the marina slip.

It is from these admitted facts that GE moved for a judgment on the pleadings.

“Three basic theories have been utilized to hold the shareholders of a corporation responsible for corporate liabilities. These have been labeled (1) the instrumentality theory; (2) the alter ego theory;

and (3) the equity formulation.”

GE focused on the instrumentality theory in its motion.

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. The courts adopting this test have been virtually unanimous in requiring that these three elements co-exist before the corporate veil will be pierced. [Emphasis added.]

* * * *

The admitted facts * * * support the fi nding that the corporate veil should be pierced under the instrumentality theory. Mr. Schultz treated the corporation as a mere instrumentality by using corporate funds for his own individual purposes to purchase real estate and a boat slip. The admitted facts also demonstrate that Mr. Schultz harmed GE by using corporate funds as his own even after GE obtained a monetary judgment against Intra-

Med. Money that could have been used to satisfy that judgment was used by Mr. Schultz for his own purposes. Finally, not piercing the corporate veil would subject GE to an unjust loss. As previously stated, money that could have been used to satisfy GE’s judgment against Intra-

Med was removed from the company and used elsewhere. GE has only been able to recover around

\($700\),000 from a \($4.7\) million judgment.

Piercing the corporate veil appears to be the only method for GE to recover its judgment.

* * * *

For the foregoing reasons we affirm the trial court’s judgment on the pleadings.

Questions:-

1. Schultz argued that even if the corporate veil should be pierced, the \($450\),000 judgment against him was too much and should be reduced. How might the court have responded to this argument?

2. Suppose that Schultz had turned over the proceeds from the sale of his properties to his corporation, Intra-Med, and used them to pay part or all of GE’s judgment. In this situation, if the funds were insuffi cient to cover the debt, would the court have pierced the corporate veil to obtain the balance from Schultz personally? Explain.