STROUD, Judge.
Corinna Freeman ("defendant Corinna") appeals from the trial court's partial denial of her motions for directed verdict and the denial of her motion for judgment notwithstanding the verdict.
On 6 December 2006, plaintiffs filed a complaint against Jack. L. Freeman, Jr., and Corinna W. Freeman, individually; Piedmont Capital Holding of NC, Inc.; Piedmont Express Airways, Inc.; Piedmont Southern Air Freight, Inc.; and Nat Group, Inc. (referred to herein collectively as "defendants"). Plaintiffs alleged claims for (1) piercing the corporate veil; (2) fraud; (3) breach of contract; (4) conversion; (5) unjust enrichment; (6) breach of fiduciary duty; (7) Chapter 75-1.1 unfair or deceptive business practices
Plaintiff Michael decided to invest $200,000.00 in the new venture and his brother plaintiff Daniel Green ("plaintiff Daniel") also invested $200,000.00, based on plaintiff Michael's representations about the new venture. An investment proposal given to plaintiff Michael stated that his investment would be used first to obtain the surety bond necessary for the DOD contract and then they would "begin the process of implementing airline routes to move USPS mail." Also, in exchange for their investment, plaintiffs were to get an ownership interest in the new venture and plaintiff Michael was to get a sales job.
On 22 November 2005, an operating agreement for Piedmont Capital Holding of NC, Inc.; Piedmont Express Airways, Inc.; and Piedmont Southern Air Freight, Inc. ("the Piedmont companies") was entered into to start this new venture.
The investment money was deposited by defendant Lawrence under the corporate name Piedmont Capital Holding of NC Inc. into two First Citizen Bank accounts, with $200,000 in a business checking account and $200,000 in a money market savings account,
Shortly after the plaintiffs' money was deposited into the First Citizens business accounts, plaintiff Michael, and defendants Jack and Lawrence were paid weekly salaries. In addition to his salary, defendant Lawrence was also paid from December 2005 until March 2006 out of the First Citizen accounts over $40,000, including approximately $4,000 in "reimbursement" of expenses and a $10,000 "loan." In addition to his salary, defendant Jack was paid from December 2005 until April 2006 out of the Piedmont companies accounts around $36,000.00, including over 24 "reimbursements" for expenses. Also, from January 2006 until May 2006, the business First Citizen account was used to pay over $20,000.00 charged to the American Express credit card and over $11,000.00 charged to the Wachovia credit card. Credit card records and bank records showed that most of these reimbursement and expenses charged to the credit cards were for food and entertainment. From December 2005 until July 2006, there were expenditures of over $34,000.00 in food expenses, $3,600 in tips, and $1,000 for entertainment. Defendant Jack reassured plaintiff Michael that the company was doing well but he had doubts because there was no money coming in and the assets were being depleted at a rapid rate. Plaintiff Michael stopped drawing a salary in May 2006 because of concerns that they were not making sales. Even though the Piedmont companies made some ground shipment sales, no money from any sales was ever deposited in the business accounts at the Piedmont companies and by June 2006 it was insolvent. The Piedmont companies also never obtained the surety bond. Plaintiff Michael never received any stock certificates from the Piedmont companies and no shareholder meetings were ever held. Neither the individual defendants nor the Piedmont companies ever repaid plaintiffs' loan. At the end of the presentation of plaintiffs' evidence, the trial court dismissed the individual claim of conversion against defendant Corinna.
Defendant Jack testified that in 2005 he and defendant Lawrence started talking about going into business together. He met plaintiff Michael in 2005, who was interested in investing in the new venture. Defendant Lawrence was to find investors and defendant Jack was to acquire an airplane to secure the postal and DOD contracts, which would require a $100,000 bond that they did not have; they worked out of office space provided by defendant Lawrence in his law offices. Defendant Jack stated that defendant Lawrence made the representations to plaintiff Michael prior to his investment; he did not tell plaintiff Michael that they had contracts before his investment; he did not sign the promissory notes or give permission, as CEO, to defendant Lawrence to sign the promissory notes on behalf of the Piedmont companies; it was defendant Lawrence that opened the business accounts at First Citizens
Defendant Lawrence testified that it was defendant Jack's idea to put the ownership of the Piedmont companies in defendant Corinna's name, so it would look like it was a minority-owned company. However, defendant Lawrence stated that defendant Corinna did not exercise any authority or control over the company and he reported to defendant Jack, who was running the company as CEO. There were no shares of stock issued, no elections of officers, no shareholder meetings or directors meetings, and no corporate books kept. He turned over control of the Piedmont companies' bank accounts to defendant Jack in mid-January 2006 after he resigned as President; he did not know about the credit cards or the Wachovia business account; defendant Jack would not allow him to pay the $100,000.00 to get the surety bond; defendant Jack authorized him to sign the promissory notes; and the $10,000.00 from the First Citizen's account was to reimburse him for expenses that he had fronted for the companies such as health insurance, dental insurance, and computer and phone expenses. Defendant Corinna was present at trial but did not testify.
At the end of the presentation of all evidence, plaintiffs dismissed their claims against defendant Nat. Group. Inc. Also, defendant Corinna moved for directed verdict on all claims. The trial court granted in part her motion, dismissing all claims against her for fraud, breach of contract, and unfair or deceptive business practices under a theory of agency and the unjust enrichment claim, but denied her motion regarding plaintiffs' claims against her for piercing the corporate veil and breach of fiduciary duty.
On 24 February 2010, a jury returned verdicts in favor of plaintiffs. Specifically, the jury found the following:
On 5 March 2010, plaintiffs filed a motion requesting that the trial court reconsider its dismissal of plaintiffs' Chapter 75-1.1 claims as the jury result mandated a finding of "unfair and deceptive [business] practices" and requesting the trial court to enter judgment in conformity with the jury verdict and award treble damages. On 10 March 2010, defendant Corinna filed a motion for judgment notwithstanding the verdict ("JNOV") and in the alternative for a new trial. On 2 June 2010, the trial court entered a judgment consistent with the jury's verdict, ruling that individual defendants Jack Freeman, Jr., Corinna Freeman, and Lawrence D'Amelio were jointly and severally liable to plaintiffs for the sum of $400,000.00 with interest. By order entered 8 July 2010, the trial court denied plaintiffs' motion to reconsider and defendant Corinna's motions for a JNOV or a new trial. On 17 August 2010, defendant Corinna Freeman filed a notice of appeal from (1) the trial court's 2 June 2010 judgment; and (2) the 8 July 2010 order denying the parties' post-trial motions. On 26 August 2010, plaintiffs' appealed from (1) the 8 July 2010 order denying the parties' post-trial motions; (2) the 6 October 2008 order granting in part and denying in part defendant Corinna's motion for summary judgment; and (3) the 2 June 2010 judgment. We will address defendant Corinna's appeal first.
On appeal, defendant Corinna Freeman contends that the trial court erred in denying her motions for a directed verdict and JNOV. She argues that as to the claim of breach of fiduciary duty "plaintiffs failed to adduce competent evidence" that she (a) owed them a fiduciary duty, (b) that she breached any such duty, or (c) that any wrongful action or inaction by her "was the proximate cause of any injury to [plaintiffs.]" As to plaintiffs' claim for piercing the corporate veil, she argues that (a) she was not in a position of domination or control of any of the defendant companies; (b) she did not use any position of dominance or control to breach any duty to plaintiffs; and (c) her actions were not the proximate cause of any loss complained of by plaintiffs in this action. Defendant Corinna requests that "this Court reverse the trial court's denial of those motions, and remand the matter with instructions that JNOV be entered in her favor on both such issues, and that all claims against her be dismissed with prejudice."
Springs v. City of Charlotte, ___ N.C.App. ___, ___, 704 S.E.2d 319, 322-23 (2011) (citations and quotation marks omitted); see Hodgson Constr., Inc. v. Howard, 187 N.C. App. 408, 412, 654 S.E.2d 7, 11 (2007) (emphasizing that "[t]he standard is high for the party seeking a JNOV: the motion should be denied if there is more than a scintilla of evidence to support the plaintiff's prima facie case." (citation and quotation marks omitted)), disc. review denied, 362 N.C. 509, 668 S.E.2d 28 (2008). Evidence which tends to contradict the plaintiff's evidence must be disregarded in this analysis. On a motion for JNOV
Defendant Corinna argues that the trial court erred in denying her motions for directed verdict and JNOV, as plaintiffs did not present any evidence that she (a) owed them a fiduciary duty, (b) that she breached any such duty, or (c) that any wrongful action or inaction by her "was the proximate cause of any injury to [plaintiffs.]"
"For a breach of fiduciary duty to exist, there must first be a fiduciary relationship between the parties." Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001) (citations omitted). A fiduciary relationship has been defined as
Id. at 651, 548 S.E.2d at 707-08 (quoting Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931) (emphasis in original)). "Under North Carolina law, directors of a corporation generally owe a fiduciary duty to the corporation, and where it is alleged that directors have breached this duty, the action is properly maintained by the corporation rather than any individual creditor or stockholder." Governors Club, Inc. v. Governors Club Ltd. P'ship, 152 N.C. App. 240, 248, 567 S.E.2d 781, 786-87 (2002) (emphasis omitted) (citations omitted), aff'd per curiam, 357 N.C. 46, 577 S.E.2d 620 (2003). However, this Court has held that directors, officers, and majority shareholders owe a fiduciary duty to minority shareholders. Meiselman v. Meiselman, 58 N.C. App. 758, 774-75, 295 S.E.2d 249, 259-60 (1982) (reversing the trial court ruling and affirming the plaintiff minority shareholder's argument that the majority shareholder, director, and officer had a fiduciary duty not to enter into a contract providing for profits only to the majority shareholder), affirmed in part and modified in part by, 309 N.C. 279, 307 S.E.2d 551 (1983). The Supreme Court in Meiselman further defined part of that duty, in the corporate opportunity doctrine, as follows:
309 N.C. at 308, 307 S.E.2d at 568 (quoting Guth v. Loft, Inc., 23 Del.Ch. 255, 270, 5 A.2d 503, 510 (1939)). "This Court has held that breach of fiduciary duty is a species of negligence or professional malpractice. Consequently, these claims require[] proof of an injury proximately caused by the breach of duty." Farndale Co., LLC v. Gibellini, 176 N.C. App. 60,
Defendant Corinna argues that plaintiffs failed to show any evidence of two essential elements necessary to establish a fiduciary duty: (1) that plaintiff actually reposed confidence in her, the alleged fiduciary and (2) that confidence resulted in her having domination and influence over plaintiffs. Defendant Corinna argues that plaintiffs never offered any evidence they reposed any confidence in her as they admitted she never made any representations to them, she never spoke or provided them with any written communications, and they never met her; but it was plaintiff Daniel that reposed confidence in his brother plaintiff Michael, who relied exclusively on representations from defendants Jack or Lawrence. Likewise, defendant Corinna argues that plaintiffs presented no evidence of dominion and control, as plaintiffs never "claimed that [she] had any influence over them" and her only interest if any "was as a minority shareholder without the ability to force any decisions." Defendant Corinna further argues even though a director of a corporation would have a fiduciary duty, that "the issue of director liability should not have been allowed to go to the jury because there was no evidence that [she] even was a director." (Emphasis in original.) Defendant Corinna further contends that even if she were a director or officer, "directors and officers have no fiduciary duties to shareholders (as individuals), creditors, or to other directors except under special circumstances, none of which apply in the present case." Defendant Corinna argues that if she was an officer it was as "Chairperson" but her authority was specifically limited to organizing meetings and she did not have any discretionary authority over any operations, financial or voting rights, which would not rise to any fiduciary relationship. Plaintiffs counter that there was sufficient evidence presented showing that defendant Corinna was an officer or director in the Piedmont companies to establish a fiduciary duty and to support the denial of defendant's motion for a directed verdict and JNOV.
Plaintiffs' claims for breach of fiduciary duty were based on a duty owed to plaintiffs "as shareholders and investors" and defendants "[a]s directors, officers and employees of the Piedmont Companies[.]" Although defendant Corinna did not testify at trial, there were several documents introduced into evidence illustrating her involvement in the Piedmont companies. In the operating agreement for Piedmont Capital Holding of NC, Inc.; Piedmont Express Airways, Inc.; and Piedmont Southern Air Freight, Inc., defendant Corinna, in a listing of corporate "officer[s,]" is specifically named as the "Chairperson[.]" A reasonable inference from this evidence would be that defendant Corinna was in an corporate officer position named "Chairperson" or it could also be inferred that she was "Chairperson" for the board of directors or in this case shareholders. This same operating agreement listed defendant Corinna owning a majority interest of 33 shares and plaintiffs Michael and Daniel as minority shareholders of the Piedmont companies, owning 12 shares and 5 shares, respectively. Later, defendant Corinna became the exclusive majority owner with 86% of the shares on 26 January 2006, with plaintiffs Michael and Daniel owning the remaining shares. In an application to Wachovia Bank for a company checking account in 2005, defendant Corinna listed herself as "CEO" of Piedmont Express Airways, Inc., one of the Piedmont companies. No evidence was presented that she resigned as CEO. This designation would further the inference that she was an officer in the Piedmont companies. On documents filed with the North Carolina Secretary of State, she used the designation "Owner/Chairperson" when she signed and filed those documents for Piedmont Southern Air Freight, Inc., one of the Piedmont companies. Likewise, this would further the inference that she was chairperson of the directors or shareholders. Viewing this evidence in the light most favorable to plaintiffs and giving plaintiffs the benefit of every reasonable inference drawn therefrom, we hold that a juror could reasonably infer that defendant Corinna was an officer or director in the Piedmont companies and a majority shareholder and therefore, owed a fiduciary duty to plaintiffs as minority
Defendant Corinna argues that there was also no showing by plaintiffs that she breached any fiduciary duty owed to them because evidence showed that she never made any false representations to them, wrongfully failed to disclose any information to them, used her influence "in any manner contrary to their interests, wrongfully, or otherwise[,]" or took "part in direct[ing], or control, any of the actions of which plaintiffs complain." Plaintiffs counter that evidence was presented that defendant Corinna improperly diverted for her own personal use corporate funds from the Piedmont companies and failed to do anything to stop "the complete wastage of the corporate assets[.]"
At trial, evidence was presented that mortgage payments, Direct TV bills, and other utility bills for real property co-owned by defendant Corinna were paid directly out of checking accounts belonging to the Piedmont companies. The jury could easily and reasonably draw an inference that defendant Corinna knew how her own personal financial obligations were being paid. Certainly, she knew that she herself was not paying them, yet her house was not foreclosed and her utilities were not shut off for nonpayment. This would support an inference that defendant Corinna breached her fiduciary duty by using her "position of trust and confidence to further [her] private interests." See Meiselman, 309 N.C. at 308, 307 S.E.2d at 568. Also plaintiff presented evidence that defendant Corinna was involved in the finances of the Piedmont companies. Documents allowed into evidence at trial, showed that she as "CEO/Owner" opened a Wachovia business account for Piedmont Express Airways, Inc. in January 2005 checks were signed by defendant Corinna from that account; a PSA American Express credit card was in the name of "C. Freeman/PSA Airlines" and she knew of the credit cards and she allowed defendant Jack to use them. Evidence was also presented that defendants Jack and Lawrence diverted money loaned to the Piedmont companies for their own personal uses. A juror could reasonable infer that although defendant Corinna had some control over the finances of the Piedmont companies, she did nothing to prevent the "wastage" and malfeasance by the other officers of the corporation, thereby breaching her fiduciary duty as an officer or majority shareholder of the Piedmont companies. See Meiselman, 309 N.C. at 308, 307 S.E.2d at 568. Viewing this evidence in the light most favorable to plaintiffs and giving plaintiffs the benefit of every reasonable inference drawn therefrom, we hold that a jury could reasonable infer that defendant Corinna breached her fiduciary duty as an officer or majority shareholder in the Piedmont companies. See Springs, ___ N.C.App. at ___, 704 S.E.2d at 322-23.
Defendant Corinna further argues that plaintiffs did not put forth any evidence that the breach of her fiduciary duty was a proximate cause of injury to plaintiffs but their own testimony showed that "if they were wrongfully injured Jack's actions, and not Corinna's, were the proximate cause of those injuries." (Emphasis in original.) But if defendant Corinna breached her fiduciary duty, it would be easy for a juror to infer that her use of the Piedmont companies funds for her personal expenses and failing to stop further "wastage" of the assets of the Piedmont companies by other company officers did proximately cause damage to plaintiffs in the form of loss of their investment monies, which are the subject of this action. Accordingly, we hold that the trial court did not err in denying defendant Corinna's motions for a directed verdict and JNOV as to plaintiffs' claims for breach of fiduciary duty.
We note that most of defendant Corinna's arguments point us to evidence refuting plaintiffs' contentions and evidence, but we are not to consider this evidence in our review from a trial court's ruling on directed verdict or JNOV. See Koonce, 59 N.C.App. at 634, 298 S.E.2d at 71. As noted above, because there was "more than a scintilla of evidence supporting each element of" plaintiffs' claim, see Springs, ___ N.C.App. at ___, 704 S.E.2d at 322-23, the trial court did
Defendant Corinna next contends that the trial court erred in denying her motions for directed verdict and JNOV as to plaintiffs' claim for piercing the corporate veil because plaintiff failed to "adduce sufficient competent evidence to show" that (1) she had domination and control over the Piedmont companies; (2) she used any position of domination or control to breach any duty to plaintiffs; or (3) her actions were the proximate cause of any loss to plaintiffs.
This Court summarized liability based upon piercing of the corporate veil as follows:
Becker v. Graber Builders, Inc., 149 N.C. App. 787, 790-91, 561 S.E.2d 905, 908 (2002) (quoting Glenn v. Wagner, 313 N.C. 450, 455, 329 S.E.2d 326, 330 (1985)). Factors to consider in piercing the corporate veil include: Inadequate capitalization, non-compliance with corporate formalities, complete domination and control of the corporation so that it has no independent identity, and excessive fragmentation of a single enterprise into separate corporations. Glenn, 313 N.C. at 455, 329 S.E.2d at 330-31. Additional, factors "to be considered to determine whether sufficient control and domination is present to satisfy the first prong of the three-pronged rule known as the instrumentality rule" include "non-payment of dividends, insolvency of the debtor corporation, siphoning of funds by the dominant shareholder, non-functioning of other officers or directors, [and] absence of corporate records." Id. at 458, 329 S.E.2d at 332. However,
Id. (citations and quotation marks omitted).
Defendant Corinna argues that there was no evidence presented that would establish that she had domination and control of the Piedmont companies because evidence showed that she did not have authority to sign on behalf of the company; she never provided instruction to the CFO of the companies;
Plaintiffs pursued the claim of piercing the corporate veil against all the individual defendants including defendant Corinna. A piercing the corporate veil claim can be brought against multiple parties or shareholders involved in the control. See Glenn, 313 N.C. at 454-56, 329 S.E.2d at 330-31. The jury found that all individual defendants did have control of the Piedmont companies. To support the claim that the Piedmont companies were mere instruments of all of the defendants, evidence showed that the Piedmont companies never became legal entities; no shareholders or directors meetings were held; no stock was issued; no corporate minute books or forms were made or kept; the Piedmont companies were undercapitalized; and by the time of trial, the Piedmont companies were insolvent. As to defendant Corinna, as discussed above, she had control over the finances of the Piedmont companies, as checking accounts were opened in her name as "owner" or "CEO[;]" checks were signed by defendant Corinna from business accounts; and one of the Piedmont companies credit cards was in her name. Also, defendants were the majority shareholders in the company, as defendant Corinna became the majority owner with 86% of the shares on 26 January 2006. In addition, all of the evidence as to what defendant Corinna did or did not know is based upon testimony of other witnesses — mainly defendants Jack and Lawrence — as defendant Corinna did not testify at the trial. The jury is the sole judge of the credibility of the evidence, see Anderson v. Hollifield, 345 N.C. 480, 483, 480 S.E.2d 661, 664 (1997), and given the conflicting stories told by defendants Jack and Lawrence, each attempting to blame the other, it is likely that the jury believed neither of them. Viewing the evidence in the light most favorable to plaintiffs and giving plaintiffs the benefit of every reasonable inference drawn therefrom, we hold that a jury could reasonable infer that defendant Corinna and the other defendants exercised sufficient domination and control over the Piedmont companies. See Becker, 149 N.C.App. at 790-91, 561 S.E.2d at 908; Springs, ___ N.C.App. at ___, 704 S.E.2d at 322-23.
Defendant Corinna argues that assuming arguendo that she had domination and control, plaintiffs "adduced no evidence whatsoever that [she] personally did anything wrongful[,]" she was "never even called upon to perform her minimal ministerial duties[,]" and "[t]he only evidence before the jury of alleged acts of wrongdoing suggested wrongful acts done solely by [defendants] Jack and [Lawrence.]"
As noted above, evidence was presented that defendant Corinna's mortgage payments, Direct TV bills, and utility bills were paid directly out of the Piedmont companies' checking accounts. Viewing this evidence in the light most favorable to plaintiffs, a juror could easily and reasonably draw an inference that defendant Corinna was using her control of the companies' finances to her personal benefit, "in contravention of plaintiff's legal rights" as investors and shareholders in the Piedmont companies. See Becker, 149 N.C.App. at 790-91, 561 S.E.2d at 908; Springs, ___ N.C.App. at ___, 704 S.E.2d at 322-23.
Defendant Corinna further argues that any breach was not a proximate cause of injuries to plaintiffs. If defendant Corinna used her control of the Piedmont companies to divert monies for her personal benefit, it would be easy for a juror to infer that her breach did proximately cause damage to plaintiffs in the form of loss of their investment monies, which are the subject of this action. As noted above, we disregard defendant Corinna's arguments based on contrary evidence. See Koonce, 59 N.C.App. at 634, 298 S.E.2d
Plaintiffs appeal from the trial court's order granting defendant Corinna's summary judgment motion and defendants Jack, Corinna, and Lawrence's motions for directed verdict dismissing their Chapter 75-1.1 claims. Plaintiffs also appeal from the trial court's dismissal of their claims against defendant Corinna based on agency and ruling that plaintiffs could not introduce depositions of defendants at trial.
We apply a de novo review from a trial court's rulings for either summary judgment or directed verdict.
Mitchell, Brewer, Richardson v. Brewer, ___ N.C.App. ___, ___, 705 S.E.2d 757, 764-65 (citations and quotation marks omitted), disc. review denied, 365 N.C. 188, 707 S.E.2d 243 (2011). As noted above, the standard of review for a ruling entered upon a motion for directed verdict
Denson v. Richmond County, 159 N.C. App. 408, 411, 583 S.E.2d 318, 320 (2003) (citations and quotation marks omitted).
Plaintiffs argue that there was sufficient evidence regarding its claim for unfair or deceptive business practices to survive defendant Corinna's summary judgment motion. Plaintiffs further argue that since there was sufficient evidence to support claims for breach of fiduciary duty and fraud, there was evidence of unfair or deceptive business practices as a matter of law. Plaintiffs conclude that since the trial court committed reversible error, this Court should remand to the trial court to enter judgment that all defendants committed unfair or deceptive business practices, and for the award of treble damages and attorney's fees. Defendant Corinna counters that the trial court did not err in granting her motion for summary judgment or granting defendants' motions for directed verdict at trial dismissing plaintiffs' claims for unfair or deceptive business practices, as plaintiffs failed to allege or present any evidence supporting that any breach by defendants was "in or affecting commerce[.]"
In order to establish a Chapter 75-1.1 unfair or deceptive business practices claim "a plaintiff must show: (1) defendant committed an unfair or deceptive act or practice, (2) the action in question was in or affecting commerce, and (3) the act proximately caused injury to the plaintiff." Dalton, 353 N.C. at 656, 548 S.E.2d at 711 (citation omitted). "Before a practice can be declared unfair or deceptive, it must first be determined that the practice or conduct which is complained of takes place within the context of [§ 75-1.1's] language pertaining to trade or commerce." Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 62, 554 S.E.2d 840, 848 (2001) (citation and quotation marks omitted). N.C. Gen.Stat. § 75-1.1(b) (2007) defines "commerce" as "all business activities, however denominated, but does not include professional services rendered by a member of a learned profession."
HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 594, 403 S.E.2d 483, 493 (1991). Our Supreme Court has further explained that
White v. Thompson, 364 N.C. 47, 53, 691 S.E.2d 676, 680 (2010) (citations omitted); See also Oberlin, 147 N.C.App. at 62, 554 S.E.2d at 848 (where the Court held that because the loan agreement was primarily a capital-raising device, it was not in or affecting commerce).
Plaintiffs brought claims for unfair or deceptive business practices against defendants based on allegations of fraud or misrepresentations in getting plaintiffs to invest in or lend money to the Piedmont companies; as officers and directors of the Piedmont companies in breaching their fiduciary duty to plaintiffs as shareholders and investors; and based on their breach of contracts, specifically the loan agreement and promissory notes. Therefore, plaintiffs' claims are based on transactions between plaintiffs and defendants occurring within Piedmont companies' business and based on investments or loans plaintiffs provided for defendants to start the new venture. However, raising capital is not a business activity contemplated within the Act. See Oberlin, 147 N.C.App. at 62, 554 S.E.2d at 848. Therefore, plaintiffs have failed to show that the transaction was "in or affecting commerce." Accordingly, the trial court properly dismissed plaintiffs' Chapter 75-1.1 claims and plaintiffs' argument is overruled.
Plaintiffs next contend that the trial court committed reversible error by granting defendant Corinna's motion for directed verdict and dismissing their claims against her based on agency because there was sufficient evidence presented to show that defendant Jack was defendant Corinna's agent. Plaintiffs further contend that the trial court committed reversible error by not permitting plaintiffs to introduce the depositions of defendants. Yet as to both of these arguments, plaintiffs admit that these errors would amount to harmless error if this Court affirms the trial court's judgment on the grounds discussed above, as their recovery would be the same either way. As we have affirmed the trial court's judgment, we agree with plaintiffs that there is no need to address these additional arguments as we are affirming the judgment for the reasons stated above and consideration of these issues would have no effect upon the outcome.
For the foregoing reasons, we affirm the trial court's orders and judgment.
AFFIRMED.
Judge BRYANT concurs.
Judge CALABRIA dissents in a separate opinion.
CALABRIA, Judge, dissenting.
I agree with the majority that the trial court properly dismissed Michael A. Green's ("Michael") and Daniel J. Green's ("Daniel") (collectively "plaintiffs") Chapter 75-1.1 claims. However, I find that the trial court erred by denying Corinna W. Freeman's ("Corinna") motions for directed verdict and JNOV on the issue of breach of fiduciary duty. I find the trial court also erred by denying Corinna's motions for directed verdict
Upon a defendant's motion for directed verdict, the question "is whether the evidence, considered in the light most favorable to [the] plaintiff, is sufficient to take the case to the jury and to support a verdict for [the] plaintiff." Barnard v. Rowland, 132 N.C. App. 416, 421, 512 S.E.2d 458, 463 (1999). The motion should be denied "[i]f there is more than a scintilla of evidence to support plaintiff's prima facie case in all its constituent elements...." Id. (internal quotations and citation omitted). The same standard of review applies to a JNOV motion as to a motion for directed verdict. Id.
I agree with Corinna that the trial court committed reversible error by denying her motions for directed verdict and JNOV on the issue of director/officer liability because plaintiffs failed to adduce evidence of a fiduciary relationship, or evidence that Corinna personally breached any duty to plaintiffs proximately resulting in their harm.
While normally a jury question, the plaintiff must provide sufficient evidence that a fiduciary relationship exists between the parties. Tin Originals, Inc. v. Colonial Tin Works, Inc., 98 N.C. App. 663, 665-66, 391 S.E.2d 831, 832-33 (1990). "For a breach of fiduciary duty to exist, there must first be a fiduciary relationship between the parties." Harrold v. Dowd, 149 N.C. App. 777, 783, 561 S.E.2d 914, 919 (2002). In North Carolina, essentially one party has to "figuratively [hold] all the cards" for example, "all the financial power or technical information" to find that "the special circumstance of a fiduciary relationship has arisen." S.N.R. Mgmt. Corp. v. Danube Partners 141, LLC, 189 N.C. App. 601, 613, 659 S.E.2d 442, 451 (2008).
In North Carolina, "directors of a corporation generally owe a fiduciary duty to the corporation ...." Keener Lumber Co. v. Perry, 149 N.C. App. 19, 26, 560 S.E.2d 817, 822 (2002). "[A] director, officer, or agent of a corporation is not, merely by virtue of his office, liable for the torts of the corporation or of other directors, officers, or agents." Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 57, 554 S.E.2d 840, 845 (2001). However, "an officer of a corporation may be individually liable" for torts "in which he actively participates." White v. Collins Bldg., Inc., ___ N.C.App. ___,___, 704 S.E.2d 307, 310 (2011) (citation omitted). "A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws." N.C. Gen.Stat. § 55-8-40(a) (2011). "Each officer has the authority and duties set forth in the bylaws...." N.C. Gen.Stat. § 55-8-41 (2011).
In the instant case, plaintiffs produced no evidence that Corinna was a director of Piedmont Capital Holding Of NC, Inc. ("PCH"), Piedmont Express Airways, Inc. ("PEA"), and Piedmont Southern Air Freight, Inc. ("PSAF") (collectively "Piedmont"). The Operating Agreement did not list her, or anyone else, as a director. Jack L. Freeman, Jr. ("Jack") indicated that Corinna was not a director of the company. Therefore, there is no evidence that Corinna breached her fiduciary duty as a director of Piedmont.
As the majority concludes, plaintiffs presented some evidence from which a reasonable inference could have been drawn that Corinna was an officer of the company. In the Operating Agreement, Corinna was designated as a chairperson of Piedmont. The Operating Agreement indicated that a chairperson was an officer of Piedmont. According to the Operating Agreement, she had the authority and responsibility to organize, conduct, serve as Chair and run meetings of the shareholders or officers. No other duties were listed for Corinna in the Operating Agreement.
However, Michael's testimony showed that Corinna did not perform any duties as chairperson.
Neither stockholders nor directors meetings were ever held nor was stock ever issued. Plaintiffs produced no evidence that Corinna was aware of her role as chairperson of Piedmont. Therefore, plaintiffs failed to show an existence of a fiduciary relationship based on Corinna's role as a "chairperson" of Piedmont.
Plaintiffs and the majority rely on Corinna's signature on several documents as "chairperson" and her signature on the January 2005 Wachovia deposit account application as "CEO" to maintain that she had a fiduciary duty to plaintiffs. Plaintiffs produced no evidence that Corinna ever signed any documents as chairperson or "CEO" after plaintiffs' involvement in November 2005. In addition, the Operating Agreement, signed by plaintiffs, listed Jack as the CEO, therefore, even if Corinna acted as CEO prior to November 2005, after plaintiffs invested and the Operating Agreement was executed her sole role in the company was a designation by the Operating Agreement that she was a chairperson.
The majority also concludes that Corinna had a fiduciary duty to plaintiffs as the majority shareholder. It is well established in North Carolina "that a controlling shareholder owes a fiduciary duty to minority shareholders." Farndale Co. v. Gibellini, 176 N.C. App. 60, 67, 628 S.E.2d 15, 19 (2006) (citations omitted). "To constitute the defendant a stockholder, it was necessary to show, not only that the stock had been issued, but that it had been actually or constructively accepted by the defendant." Corp. Comm'n v. Harris, 197 N.C. 202, 203, 148 S.E. 174, 175 (1929). However, the simple fact that the share certificates were never given to the defendant does not conclude that the defendant was not a shareholder. See Marzec v. Nye, 203 N.C. App. 88, 92-3, 690 S.E.2d 537, 541 (2010).
In January 2006, Jack increased Corinna's shareholder interest from 33 units to 88 units, making it appear that she was the majority stockholder in Piedmont. However, there is no evidence she knew of the original issuance of stock or of the increase. No stock certificates were ever issued and Corinna never signed any documents, either the original Operating Agreement or the Amendment that designated her as a shareholder. Since Corinna never knew she was a stockholder, plaintiffs failed to prove that she actually or constructively accepted the stock. Therefore, Corinna did not owe a fiduciary duty to plaintiffs as a majority shareholder.
Even assuming, arguendo, that a fiduciary duty existed, plaintiffs failed to prove that Corinna breached that duty. Plaintiffs suggest the breach of duty is evidenced because Corinna (1) took funds for her own benefit and (2) failed to stop the corporate waste by Jack and Lawrence J. D'Amelio, III ("D'Amelio").
Plaintiffs claim Corinna took funds for her own benefit based on several bills that were paid, allegedly on her behalf. These included mortgage payments, Direct TV bills,
The majority concludes that the evidence supported a reasonable inference that Corinna "knew how her own personal financial obligations were being paid" because "she knew that she herself was not paying them, yet her house was not foreclosed and her utilities were not shut off for nonpayment." According to the evidence at trial, Corinna co-owned the Burrows Road house but Jack lived in the house beginning in 1991 and paid the mortgage payments as rent. Corinna lived in Belmont, North Carolina until November 2004, when she moved back to the Greensboro area and moved in with Jack. Corinna stayed in the Burrows Road house until completion of a handicap accessible house, located on Stafford Oak Drive in Jamestown. The mortgage and utility bills that plaintiffs claim were paid for Corinna's benefit were payments related to the Burrows Road house where Jack lived and he paid those bills for his own benefit. Since Jack had been paying the mortgage and utilities for a significant period of time, he continued those payments for the Burrows Road house even after Corinna moved in with him. Plaintiffs produced no evidence that Corinna knew Jack was using corporate funds to pay those bills. The majority seems to believe that because the bills were paid, Corinna must have known that Jack used corporate funds to pay those bills. However, plaintiffs produced no evidence of this at trial.
In addition, plaintiffs and the majority claim that Corinna breached her fiduciary duty by failing to stop corporate waste. Yet, there is no evidence that Corinna knew of the waste. Plaintiffs' witness, Michael, confirmed that Corinna only worked at the office a few times and her work was limited to training employees in the back office. Michael testified that on the few occasions when Corinna came into the office he might have said "Hello" to her, but never discussed any of the company problems with her. David Noble ("Noble"), an attorney at Piedmont between February 2006 and June 2006, indicated that he did everything at Jack's direction, as did the other company employees. In addition, Noble never observed Corinna working in the offices, there was no indication that she controlled Piedmont, and more importantly, that any actions taken by the company required her authorization. There was no evidence that Corinna actively participated in the management of the office, the assets, or business decisions or had any knowledge about operating Piedmont.
Furthermore, the case law cited by plaintiffs regarding fiduciary duties states the director's duty is to "administer" the corporation's property "for the mutual benefit of all parties interested; and, when such directors receive an advantage to themselves not common to all, they are guilty of a plain breach of trust." Meiselman v. Meiselman, 58 N.C. App. 758, 774, 295 S.E.2d 249, 259 (1982) affirmed in part and modified in part by, 309 N.C. 279, 307 S.E.2d 551 (1983) (citation omitted). Initially, we note that Meiselman was a case about usurpation of corporate opportunities, which is not at issue in the instant case. Meiselman v. Meiselman, 309 N.C. 279, 307, 307 S.E.2d 551, 567 (1983).
In addition, there is no evidence that Corinna "administered" plaintiffs' funds for her benefit. Plaintiffs' funds were deposited into two separate accounts with First Citizen's
While Corinna did have access to the PEA account, the only evidence presented that she removed funds from that account is checks written as "signatory for C. Freeman." These checks were used to pay a Wachovia credit card bill in Corinna's name. Jack testified that Corinna helped him to get the credit card and allowed him to use her name because he had gone through a bad divorce and he had to file for bankruptcy. Jack indicated that even though the credit card was listed in Corinna's name, she never used the credit card and that all the charges on that card were his expenses. The evidence at trial was clear that Jack used the corporate accounts for his benefit, not Corinna's. When questioned about Corinna's use of the card, Michael stated that he was "not sure that [they could] prove that or not. You'll have to ask my lawyer ... I don't know exactly what my attorney's plan is to do with that information." Michael also indicated that while he believed people would present information about Corinna's use of the card, he did not "know any particular exact thing that was hers." Despite Michael's claims that his attorney would admit evidence showing Corinna used the credit card, his attorney admitted that there was "no evidence before the [c]ourt right now that [Corinna] used the card...." Plaintiffs failed to show that Corinna breached her fiduciary duty by wrongfully administering plaintiffs' funds or corporate property. Therefore, I find that the trial court erred in denying Corinna's motions for directed verdict and JNOV on the issue of breach of fiduciary duty.
I agree with Corinna that plaintiffs failed to adduce evidence that she exercised dominion and control over Piedmont, and therefore she was not the party who caused plaintiffs' loss.
"[C]ourts will disregard the corporate form or `pierce the corporate veil' and extend liability for corporate obligations beyond the confines of a corporation's separate entity, whenever necessary to prevent fraud or to achieve equity." Glenn v. Wagner, 313 N.C. 450, 454, 329 S.E.2d 326, 330 (1985). North Carolina uses the "instrumentality rule" which states that "[a] corporation which exercises actual control over another, operating the latter as a mere instrumentality or tool, is liable for the torts of the corporation thus controlled. In such instances, the separate identities of ... affiliated corporations may be disregarded." Id. (citations omitted). The elements necessary to pierce the corporate veil under the instrumentality rule are:
Id. at 454-55, 329 S.E.2d at 330. Factors considered in piercing the corporate veil are "[i]nadequate capitalization ... [n]on-compliance with corporate formalities, [c]omplete domination and control of the corporation so that it has no independent identity," and "[e]xcessive fragmentation of a single enterprise into separate corporations." Id. at 455, 329 S.E.2d at 330-31 (internal citations omitted).
Complete control and domination over a company is only the first requirement that must be met. In the instant case, plaintiffs contend Corinna exercised control over Piedmont in three ways: (1) she "repeatedly told the world that she was the dominant voice in the business," (2) she was the principal owner of Piedmont, and (3) she controlled the finances.
Plaintiffs contend that Corinna's name on several documents prove that she was the dominant voice of the business. However, the plaintiffs' evidence only showed that Corinna's signature appeared on three occasions: 30 November 2001, 20 January 2005 and 20 May 2005. Although the documents listed Corinna as chairperson, CEO or owner, these documents were all signed by Corinna prior to plaintiffs' involvement. When plaintiffs became lenders for Piedmont, it was composed of PCH, PSAF and PEA. When Jack and D'Amelio created the new venture, they determined that PCH owned 100% of PSAF and PEA, as shown in the Flight Services Requirements Agreement. Therefore, although Corinna was the original owner of PSAF, once Piedmont was created, Jack and D'Amelio's own company, PCH, owned PSAF. The articles of incorporation creating PCH and PEA were not signed by Corinna. They were both signed by D'Amelio and indicated the incorporators were Jack and D'Amelio. Plaintiffs produced no evidence that Corinna ever represented to plaintiffs that she was an owner/chairperson/CEO. In fact, there was no evidence that Corinna had control over the documents signed after plaintiffs' investment. Specifically, the 22 November 2005 Loan Agreement and Promissory Notes (which plaintiffs characterized as a loan to Piedmont) in the amount of $400,000, the 22 November 2005 Operating Agreement, the two amended Exhibit Bs to the Operating Agreement, the 22 December 2005 agreement between NAT
Furthermore, an individual's mere position as an officer does not prove the requisite amount of domination and control to subject an officer to individual liability when piercing the corporate veil. See Atl. Tobacco Co. v. Honeycutt, 101 N.C. App. 160, 165, 398 S.E.2d 641, 644 (1990) (where the defendant wife believed she was secretary of the companies and her duties included managing the restaurant and ordering goods, the Court found that the plaintiffs failed to show the requisite amount of control to pierce the corporate veil). In the instant case, Corinna's signature on documents, signed prior to plaintiffs' loan agreement, failed to show that Corinna had the requisite amount of control to dominate the newly created company, Piedmont.
Plaintiffs also claim that Corinna used her dominance and control to increase her ownership interest. Plaintiffs received and signed an Operating Agreement that listed the ownership percentage of each shareholder. The Operating Agreement indicated Corinna owned 33 units of the company. Corinna never signed the Operating Agreement nor did she ever receive stock certificates evidencing her ownership. Corinna testified in her deposition that she had no knowledge that she was considered a shareholder of Piedmont. Plaintiffs produced no evidence that Corinna was aware of her shareholder status or evidence that stock certificates were issued. In January 2006, two amendments to Exhibit B of the Operating Agreement listed Corinna's "CAPITAL CONTIBUTION" [sic] as owning 88 units of something. One listed Michael with 10 units and was signed by Michael. The other document listed Daniel with 4 units and was signed by Daniel. Jack testified that without her knowledge or permission, he signed his own name on both documents on the lines above Corinna's typed name. Jack did not sign "Corinna Freeman by Jack Freeman" but only "by Jack Freeman." In addition, although Jack signed both documents listing Corinna as owning 88 units, Corinna never received any stock certificate or any type of proof that she owned 88 units. Again, plaintiffs produced no evidence that Corinna was aware that she owned 88 units of Piedmont. In fact, the evidence at trial confirmed that although Jack and Michael knew of the transaction, Corinna was unaware. On cross-examination, at trial, Corinna's attorney questioned Michael about the fact that Jack signed the document for Corinna:
Plaintiffs failed to provide a scintilla of evidence that Corinna knew about the 33 units, knew that Jack increased that interest to 88 units, or approved or accepted in the increase. Jack testified that he never asked Corinna's permission to represent that she had any interest in the company or sought her approval to increase her interest. Jack and D'Amelio misrepresented that the company was a minority company by typing Corinna's name on the document because they wanted the company to be eligible for government contracts. Since plaintiffs failed to produce evidence that Corinna approved of
Finally, plaintiffs and the majority conclude that Corinna controlled the finances because her name appeared on some of the corporate accounts and because she benefitted from corporate funds. Although her name appeared on checks and credit cards, there is no indication that she dominated or controlled corporate funds by using these accounts. The checks "signed" by Corinna prior to June 2006 were signed "signatory for C. Freeman." Since Corinna's actual signature does not appear on the checks, the plaintiffs produced no evidence indicating that she signed or had knowledge that the checks were signed without her approval.
The checks Corinna actually wrote from Piedmont accounts were checks that were written in June 2006. There were three checks written to Piedmont employees and the memo section in the corner of the checks indicated that they were written as loans until NAT Group paid. These checks were written from the Wachovia account, not from the First Citizen's accounts where plaintiffs' funds were deposited. After the company relocated from D'Amelio's office to the new office and funds became scarce, Jack paid salaries and rent for the office from the Wachovia account. Corinna wrote all three checks at Jack's request.
Additionally, the plaintiffs produced no evidence that Corinna orchestrated payments for her bills or had knowledge that Jack used corporate funds to pay her bills. The mortgage and utility bills that plaintiffs claim were paid for Corinna's benefit were payments related to the Burrows Road house where Jack lived and those bills were paid for his own benefit. Plaintiffs produced no evidence that Corinna knew Jack was using a corporate account to pay those bills.
Corinna stated that she never saw the credit card statements or made payments towards those accounts. In fact, the bills for the two credit cards in Corinna's name, the American Express credit card and the Wachovia credit card, were sent to Piedmont's post office box. Plaintiffs failed to show that Jack's repeated payments for the mortgage and utilities, as well as the use of his mother's credit cards, were evidence that Corinna exercised dominance and control over Piedmont for purposes of piercing the corporate veil.
Plaintiffs mischaracterize Corinna's argument concerning the reason she claims no liability under the theory of piercing the corporate veil. Plaintiffs claim Corinna argues that Jack and D'Amelio's dominance over Piedmont precludes dominance by her. However, Corinna merely states that she simply did not exercise dominance or control over Piedmont. Plaintiffs and the majority are correct that factors articulated in Glenn are present in the instant case. Piedmont was undercapitalized, Jack and D'Amelio failed to comply with corporate formalities and excessively fragmented a single enterprise into separate companies. Therefore, it was appropriate that the jury found in favor of plaintiffs on the issue of piercing the corporate veil against Jack and D'Amelio. However, despite plaintiffs' claim, Corinna did not dominate Piedmont because Corinna did not exercise control over the Piedmont companies. Corinna never dominated or controlled Piedmont. In fact, Michael testified repeatedly that Jack was in control of the company, "it was [Jack's] way. It was just his company." Michael also indicated that Jack exercised control over financial decisions and was "in charge of everyone." Michael did not even claim that Corinna had control, instead indicating again that Jack was in control and that he believed that Corinna signed over control to Jack, but that she did not control Jack.
Piercing the corporate veil as to Corinna would also require that the control and breach of duty must proximately cause the unjust loss. However, since plaintiffs failed to prove Corinna exercised domination and control over Piedmont that would subject her to individual liability, plaintiffs failed to prove her liability for corporate obligations should extend beyond the confines of a corporate separate entity and Corinna's motions for
I find that the trial court erred by denying Corinna's motions for directed verdict and JNOV on the issue of breach of fiduciary duty. The trial court also erred by denying Corinna's motions for directed verdict and JNOV on the issue of extending her liability for corporate obligations beyond the confines of a corporate separate entity by piercing the corporate veil.
