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Baatz v. Arrow Bar | 452 N.W.2d 138 (1990)

A corporation is a separate entity that’s distinct from its individual members or shareholders. However, in certain situations, a court may disregard a corporation’s separate existence and hold its shareholders personally liable for a corporate debt by piercing the corporate veil.2 In the 1990 case Baatz versus Arrow Bar, the South Dakota Supreme Court considered whether a court could pierce the corporate veil to hold a corporation’s shareholders liable for a motorist’s injuries.

Edmond and LaVella Neuroth, husband and wife, owned the Arrow Bar in Sioux Falls, South Dakota, and their daughter, Jacquette, served as the bar’s manager.2 In 1980, the Neuroths formed Arrow Bar, Incorporated, a separate entity that purchased the bar for $155,000 with a $5,000 down payment. Pursuant to the purchase agreement, the Neuroths executed a promissory note personally guaranteeing payment of the $150,000 balance. A few years later, the corporation obtained financing to pay off the debt and the Neuroths again personally guaranteed payment.

In 1982, Ronald McBride was a patron at the Arrow Bar. As McBride became intoxicated, the bar continued to serve him drinks. Subsequently, McBride left the bar and started driving drunk down a street in Sioux Falls. At the time, Kenny and Peggy Baatz were driving their motorcycle down the same street in the opposite direction when McBride’s car crossed the center line of the street and struck their motorcycle, causing them injuries. In addition, at the time of the accident, McBride was uninsured and the corporation didn’t maintain dram shop liability insurance.

Following the accident, the Baatzs sued Arrow Bar, Incorporated, and the Neuroths, individually, in circuit court for negligence. Specifically, the Baatzs claimed that the court should pierce the corporate veil and hold the Neuroths personally liable for their injuries. Prior to trial, the Neuroths filed a motion for summary judgment to dismiss them as individual defendants in the action, which the circuit court granted. The Baatzs appealed to the South Dakota Supreme Court.

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