Green v Freeman
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NO. COA11-548 NORTH CAROLINA COURT OF APPEALS Filed: 4 September 2012 MICHAEL A. GREEN and DANIEL J. GREEN, Plaintiffs, v. Guilford County No. 2006-CVS-12622 JACK L. FREEMAN, JR., CORINNA W. FREEMAN, PIEDMONT CAPITAL HOLDING OF NC, INC., PIEDMONT EXPRESS AIRWAYS, INC., PIEDMONT SOUTHERN AIR FREIGHT, INC., and NAT GROUP, INC. Defendants, v. LAWRENCE J. D AMELIO, III, Third-Party Defendant. Appeal by defendant Corinna Freeman and cross-appeal by plaintiffs from judgment entered 2 June 2010 and order entered 8 July 2010 by Judge Edwin G. Wilson, Jr. and order entered 6 October 2008 by Judge Ronald Spivey in Superior Court, Guilford County. Heard in the Court of Appeals 16 November 2011. Thomas B. Kobrin, for plaintiff-appellants. Forman Rossabi Black, P.A., by T. Keith Black, and Gavin J. Reardon, for defendant-appellant Corinna Freeman. STROUD, Judge. -2Corinna 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.1 Michael A. Green and Daniel J. Green ( plaintiffs ) cross-appeal from the trial court s rulings granting defendant Corinna s verdict, motion and not for partial permitting summary the judgment introduction depositions into evidence at trial. and of directed defendants For the following reasons, we affirm the trial court s orders and judgment. I. Background 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) 1 breach of fiduciary duty; (7) Chapter 75-1.1 unfair or Defendants Piedmont Capital Holding of NC, Inc., Piedmont Express Airways, Inc., Piedmont Southern Air Freight, Inc., individual defendant Jack L. Freeman, Jr., and third-party defendant Lawrence J. D Amelio, III are not parties to this appeal. -3deceptive practices2; business specifically against Nat (8) Group, interference with a contract. breach Inc.; of and contract, (9) tortious After filing their answers to plaintiffs complaint, defendants, on 21 December 2007, moved for leave to file a third-party complaint against Lawrence J. D Amelio, III indemnification ( defendant and Lawrence ), contribution, entered 7 February 2008. which seeking was claims granted by for order By order entered 12 February 2008, plaintiffs were permitted to amend their complaint to insert allegations against third-party defendant Lawrence. By order entered 6 October 2008, the trial court granted partial summary judgment, dismissing plaintiffs claims for fraud, breach of contract, and the Chapter 75-1.1 claim against defendant Corinna but denied her motion as to the claims of conversion, unjust enrichment, breach of fiduciary duty, and piercing the corporate veil. By orders granted plaintiffs entered 31 motions December to amend reconsider its 6 October 2008 order. 2008, their the trial complaint court and to The trial court modified the 6 October 2008 summary judgment ruling to allow plaintiffs 2 We note that although the parties refer to plaintiffs claim as unfair and deceptive trade practices or UDTP, N.C. Gen. Stat. ยง 75-1.1 does not include the word trade in this claim. Therefore, we will refer to this specific claim as a unfair or deceptive business practices or as a Chapter 751.1 claim. -4to proceed against defendant Corinna for fraud, breach of contract and unfair and deceptive [business] practices under the theory of agency[.] On 6 January 2009, plaintiffs filed an amended include complaint to allegations pursuant to the trial court s order. filed their answers to plaintiffs regarding agency, The individual defendants second amended complaint. These claims were tried at the 15 February 2010 Civil Session of Superior Court, plaintiffs Green Guilford tended ( plaintiff ( defendant Jack ) to County. show the Michael ) in 2005. Evidence following: met Plaintiff defendant Defendant presented Jack Jack Michael Freeman, told by Jr. plaintiff Michael that he was looking for investors for an air freight enterprise for which he had secured a contract to work with the United States Department of Defense ( DOD ). Prior to his investment, plaintiff Michael received from defendant Jack and third-party defendant Lawrence, a partner in this new venture, several business summaries and descriptions. These documents stated that this new venture already had necessary agreements and certifications with the DOD and the US Bank to provide transportation for cargo, property and personnel worldwide ; a contract with the United States Postal Service ( USPS ) to transport air cargo a contract to provide passenger air service -5for a casino in Las Vegas, Nevada; a trucking company, Piedmont Express, which was established in 1995, to transport and store ocean containers and projected profits of over $1 million. Defendants Jack and Lawrence told plaintiff Michael that they were turning away business because they did not have the $100,000.00 necessary to secure a surety bond to do business with the DOD or to lease the airplane necessary for the USPS contract. They needed investments to get a surety bond and to encourage other investors. These representations convinced plaintiff Michael to invest in the new venture. 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 -6Piedmont Southern Air Freight, Inc. ( the Piedmont companies ) was entered into to start this new venture.3 This agreement listed officers for the Piedmont companies as follows: defendant Jack as chief executive officer; defendants Corinna and Jack as Chairperson[;] defendant Lawrence as president, treasurer, and chief operating president. officer; and plaintiff Michael It also listed shareholders as follows: as vice defendant Corinna, with a majority of 33 shares; plaintiff Michael with 12 shares; and plaintiff Daniel with 5 shares.4 On the same date, plaintiffs and defendants Lawrence and Jack, on behalf of the Piedmont companies, entered into a loan agreement, stating that the investment monies were only for the security bond, operational expenses were not to exceed $100,000.00, salaries were only to be paid when the company was making money[,] and the investment monies were to be put into an account to which only plaintiff Michael had access. defendant 3 Lawrence, as president Also, on the same date, of the Piedmont companies, This operating agreement also states that the Piedmont companies are a limited liability company[.] However, in August of 2005, articles of incorporation were filed with the North Carolina Department of the Secretary of State for business corporations Piedmont Capital Holding of NC, Inc. and Piedmont Express Airways, Inc. listing defendant Lawrence as the registered agent. 4 Elizabeth F. D Amelio also owned 25 shares and Beth Clay owned 25 shares, but are not parties to this action. -7signed two promissory notes to plaintiffs Michael and Daniel for $200,000.00, respectively.5 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, which was to be used to encourage further investment but not for operational expenses. Wachovia business Airways[.] checking There was also an additional account for Piedmont Express This account was opened by defendant Corinna s late husband Jack Freeman, Sr., and defendant Corinna, signing as CEO/OWNER[.] American There Express were business also credit business credit card defendant in cards, an Corinna Freeman s name C. Freeman PSA Airline and a Wachovia credit card in the name of C. Freeman. Plaintiff Michael testified that he was given a sales job with the Piedmont companies but learned that there were not any DOD contracts, USPS contracts, or 5 any warehouse storage for ocean containers. He was We recognize that as plaintiffs were investing in the Piedmont companies with the intention of becoming shareholders, there would appear to be no reason for these funds to be treated as a loan or for any promissory note to be executed. Despite the legal and logical inconsistency of these acts, this is what the evidence shows and is thus part of the failure of the defendants to observe proper corporate formalities in the formation of the Piedmont companies. -8repeatedly told by defendants Jack and Lawrence that $100,000.00 of his money would be to get the plaintiffs would Defendant could Jack lose was CEO and be ran surety bond and all that $100,000.00 the for business and the bond. defendant Lawrence controlled the finances and accounts for the Piedmont companies. Based on the promise by defendant Jack of a big sales account, on 26 January 2006, the ownership interests in the Piedmont companies were amended as follows: defendant Corinna owned 88 shares; plaintiff Michael owned 10 shares, and plaintiff Daniel owned 4 shares. This change of ownership interest was signed by plaintiffs and defendant Jack on behalf of defendant Corinna. plaintiff Michael s After this change in ownership interest, name was taken off the business bank accounts. Shortly after the plaintiffs money was deposited into the First Citizens business defendants Jack and accounts, Lawrence plaintiff were paid weekly Michael, and 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 -9of 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. card records and bank records showed that most Credit 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 companies and companies also in by the June never business 2006 accounts at it was insolvent. obtained the surety the The bond. Piedmont Piedmont 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 -10plaintiffs loan. evidence, the At the end of the presentation of plaintiffs 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 bank; defendant Lawrence kept track of the business accounts for the Piedmont companies; he did not accounts; approve the all Wachovia of the checking checks written account was out for of those Piedmont Southern Air Freight, opened by his parents, and was used as his -11personal checking account, since he had filed bankruptcy and could not get an account in his name; the Wachovia checking account was not part of the new venture with plaintiffs; the expenses paid by the First Citizen s checking accounts on the credit cards were reimbursements for business expenses incurred while he was working in North Carolina and Florida, not for personal expenses; Piedmont companies he was through able to a deal get an with airplane Nat. for Group, the Inc.; defendant Lawrence would not approve the money for the surety bond needed for the DOD contracts; he did not know about the withdrawals from the First Citizens money market account; and he had made sales for the Piedmont companies but did not know what happened to the proceeds from these sales or why they were not deposited in the business account. He admitted that he lived in a house owned in part by his mother and his ex-wife and he paid the mortgage for this property, Direct TV bills, power bills, and insurance from the Piedmont companies business accounts. He further admitted that several checks from Nat Group, Inc., as part of a deal that was never finalized, were deposited in the Wachovia account for him, while he still was earning a salary from the Piedmont companies. As to his mother defendant Corinna, defendant Jack testified that she never used the credit -12cards; the credit cards, along with the Wachovia account, were set up prior to the new venture; she was the owner of Piedmont Southern Air Freight, for a time, but had given him control of the company in 2001; and he never consulted his mother defendant Corinna before putting her in the operating agreement for the Piedmont companies. 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. Corinna However, did not defendant exercise any Lawrence stated authority or that defendant control over the company and he reported to defendant Jack, who was running the company as elections CEO. of There officers, were no no shares shareholder meetings, and no corporate books kept. of stock meetings issued, or no directors 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 -13for 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: 6. Did the defendant Corinna W. Freeman control Piedmont Capital Holding of NC, Inc. or Piedmont Express Airways, Inc., or Piedmont Southern Air Freight, Inc., with regard to the acts or omissions that damaged the plaintiffs? ANSWER ___YES . . . . 18 Were the plaintiffs damaged by the failure of the defendant Corinna W. Freeman to discharge her duty as a corporate director or officer? -14ANSWER: ____YES 19. What amount are the plaintiffs entitled to recover from the defendant Corinna W. Freeman? ANSWER: __$400,000 On 5 March 2010, plaintiffs filed a motion requesting that the trial court reconsider its dismissal of plaintiffs Chapter 751.1 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 -15from (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. II. On appeal, Defendant Corinna Freeman s 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 complained of by plaintiffs in this action. cause of any loss Defendant Corinna requests that this Court reverse the trial court s denial of those motions, and remand the matter with instructions that JNOV -16be entered in her favor on both such issues, and that all claims against her be dismissed with prejudice. A. Standard of Review The standard of review of the denial of a motion for a directed verdict and of the denial of a motion for JNOV are identical. We must determine whether, upon examination of all the evidence in the light most favorable to the non-moving party, and that party being given the benefit of every reasonable inference drawn therefrom and resolving all conflicts of any evidence in favor of the non-movant, the evidence is sufficient to be submitted to the jury. A motion for either a directed verdict or JNOV should be denied if there is more than a scintilla of evidence supporting each element of the non-movant s claim. A scintilla of evidence is defined as very slight evidence. 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 plaintiff s than prima a scintilla facie case. of evidence (citation and to support quotation the marks omitted)), disc. review denied, 362 N.C. 509, 668 S.E.2d 28 (2008). Evidence which tends to contradict the plaintiff s -17evidence must be disregarded in this analysis. On a motion for JNOV any of defendant s evidence which tends to contradict or refute plaintiff s evidence is not to be considered, but the plaintiff is entitled to the benefit of defendant s evidence which is favorable to plaintiff, Overman v. Products Co., 30 N.C. App. 516, 227 S.E.2d 159 (1976), or which tends to clarify plaintiff s case, Home Products Corp. v. Motor Freight, Inc., 46 N.C. App. 276, 264 S.E.2d 774, disc. review denied, 300 N.C. 556, 270 S.E.2d 105 (1980). Koonce v. May, 59 N.C. App. 633, 634, 298 S.E.2d 69, 71 (1982). Therefore, a motion for judgment notwithstanding the verdict is cautiously and sparingly granted. Hodgson Constr., Inc., 187 N.C. App. at 411, 654 S.E.2d at 10 (citation and quotation marks omitted). We have further stated that our review of [a] motion for judgment notwithstanding the verdict is de novo. Therefore, we consider the matter anew and . . . freely substitute our judgment for that of the trial court[.] Id. at 412, 654 S.E.2d at 11. B. Breach of Fiduciary Duty 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 -18wrongful 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 one in which there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence . . . , [and] it extends to any possible case in which a fiduciary relationship exists in fact, and in which there is confidence reposed on one side, and resulting domination and influence on the other. 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 creditor or stockholder. rather than any individual 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 -19fiduciary duty to minority shareholders. Meiselman v. Meiselman, 58 N.C. App. 758, 774-75, 295 S.E.2d 249, 259-60 (1982) (reversing plaintiff minority the trial court shareholder s ruling argument and that affirming the 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: Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest. -20The occasions for the determination of honesty, good faith and loyal conduct are many and varied, and no hard and fast rule can be formulated. The standard of loyalty is measured by no fixed scale. 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, 68, 628 S.E.2d 15, 20 (2006) (citations and quotation marks omitted). 1. Fiduciary Duty Defendant Corinna argues that plaintiffs failed to show any evidence of two fiduciary duty: essential elements necessary to establish a (1) that plaintiff actually reposed confidence in her, the alleged fiduciary and (2) that confidence resulted in her having Defendant domination Corinna argues and that influence plaintiffs over never plaintiffs. 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 -21representations 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 decisions. shareholder Defendant without Corinna the ability argues further to force even any 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 individuals), have no fiduciary creditors, or to duties other to shareholders directors except (as under special circumstances, none of which apply in the present case. Defendant Corinna argues that if she was an officer it was as Chairperson organizing but her meetings authority and she was did not specifically have any limited to discretionary authority over any operations, financial or voting rights, which would not counter that rise that to there defendant any was Corinna fiduciary sufficient was an relationship. evidence officer or Plaintiffs presented director showing in the Piedmont companies to establish a fiduciary duty and to support -22the 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 Piedmont [a]s directors, Companies[.] officers Although and defendant employees of the 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 minority shareholders and of plaintiffs the Piedmont shares and 5 shares, respectively. Michael and Daniel as companies, owning 12 Later, defendant Corinna became the exclusive majority owner with 86% of the shares on 26 January 2006, with plaintiffs Michael and Daniel owning the -23remaining shares. company In an application to Wachovia Bank for a checking account in 2005, defendant Corinna listed herself as CEO of Piedmont Express Airways, Inc., one of the Piedmont companies. as CEO. No evidence was presented that she resigned 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. that she was Likewise, this would further the inference 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 Piedmont Corinna companies and was a an officer majority or director shareholder and in the therefore, owed a fiduciary duty to plaintiffs as minority shareholders. Springs, ___ N.C. App. at ___, 704 S.E.2d at 322 23; Meiselman, 58 N.C. App. at 774-75, 295 S.E.2d at 259-60. 2. Breach Defendant Corinna argues that there was also no showing by plaintiffs that she breached any fiduciary duty owed to them -24because evidence representations showed to them, that she never made wrongfully failed to any false disclose any information to them, used her influence in any manner contrary to their interests, wrongfully, or otherwise[,] or took part in direct[ing], plaintiffs or control, complain. any Plaintiffs of the counter actions that of which 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 coowned 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 -25presented evidence that defendant Corinna was involved in the finances of the Piedmont evidence at trial, companies. showed that Documents she as allowed CEO/Owner into 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 presented defendant that Jack defendants to use Jack them. and Evidence Lawrence was diverted also 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 other officers of the wastage corporation, fiduciary duty as an officer or Piedmont companies. at 568. and malfeasance thereby by breaching majority shareholder the her of the See Meiselman, 309 N.C. at 308, 307 S.E.2d 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. -263. Proximate Causation 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 -27plaintiffs claim, see Springs, ___ N.C. App. at ___, 704 S.E.2d at 322 23, the trial court did not error in denying defendant Corinna s motions for directed verdict and JNOV for this claim, and defendant Corinna s arguments are overruled. C. Piercing the Corporate Veil Defendant Corinna next contends that the trial court erred in denying her plaintiffs plaintiff motions claim failed for to for directed piercing adduce the verdict and corporate sufficient competent JNOV veil as to because 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: Our courts will disregard the corporate form and pierce the corporate veil where an individual exercises actual control over a corporation, operating it as a mere instrumentality or tool. Under these circumstances, the controlling individual is liable for the torts of the corporation. The instrumentality rule has been set forth by our Supreme Court as follows: When a corporation is so operated that it is a mere instrumentality or alter ego of the sole or dominant shareholder and a shield for his activities in violation of the -28declared public policy or statute of the State, the corporate entity will be disregarded and the corporation and the shareholder treated as one and the same person, it being immaterial whether the sole or dominant shareholder is an individual or another corporation. Liability may be imposed on an individual controlling a corporation as an instrumentality when he had: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of plaintiff s legal rights; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. 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)). piercing the corporate veil include: Factors to consider in 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 -29into separate corporations. at 330-31. Glenn, 313 N.C. at 455, 329 S.E.2d Additional, factors to be considered to determine whether sufficient control and domination is present to satisfy the first prong instrumentality of the rule three-pronged include rule non-payment known of as the dividends, insolvency of the debtor corporation, siphoning of funds by the dominant shareholder, non-functioning of other directors, [and] absence of corporate records. S.E.2d at 332. officers or Id. at 458, 329 However, [i]t is not the presence or absence of any particular factor that is determinative. Rather, it is a combination of factors which, when taken together with an element of injustice or abuse of corporate privilege, suggest that the corporate entity attacked had no separate mind, will or existence of its own and was therefore the mere instrumentality or tool of the dominant [shareholders] or corporation. Id. (citations and quotation marks omitted). 1. Domination or Control Defendant presented that Corinna argues would establish that that there she was had no evidence 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; she did not know that she was an officer in the Piedmont companies; as -30 Chairperson her only authority was to organize and conduct meetings; no evidence presented that she ever invested in the companies or was issued any shares of stock; and there was no evidence counter she that Corinna s performed they any presented dominion and managerial sufficient control of the duties. Plaintiffs evidence of defendant Piedmont companies to support their claim for piercing the corporate veil. Plaintiffs pursued the claim of piercing the corporate veil against all Corinna. against the individual including defendant A piercing the corporate veil claim can be brought multiple control. defendants parties or shareholders involved in the 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 Piedmont companies. companies were To mere support the instruments claim of all that the 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 undercapitalized; or and kept; by the the time Piedmont of companies trial, the were Piedmont companies were insolvent. As to defendant Corinna, as discussed above, over she had control the finances of the Piedmont -31companies, as checking owner or CEO[;] accounts were opened in her name as 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, believed neither of them. it is likely that the jury 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, Inc., 149 N.C. App. at 790-91, 561 S.E.2d at 908; Springs, at 322 23. ___ N.C. App. at ___, 704 S.E.2d -322. Breach 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 accounts. plaintiffs, directly out of the Piedmont companies checking Viewing this evidence in the light most favorable to 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. 561 S.E.2d at 908; See Becker, 149 N.C. App. at 790-91, Springs, ___ N.C. App. at ___, 704 S.E.2d at 322 23. 3. Proximate Causation Defendant Corinna further argues that any breach was not a proximate cause of injuries to plaintiffs. If defendant Corinna -33used 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. at 634, 298 S.E.2d at 71. See Koonce, 59 N.C. App. 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 piercing the corporate veil. Thus, we overrule defendant Corinna s arguments. III. Plaintiffs Appeal 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. trial court s dismissal of Plaintiffs also appeal from the their claims against defendant Corinna based on agency and ruling that plaintiffs could not introduce depositions of defendants at trial. A. Standard of Review We apply a de novo review from a trial court s rulings for either summary judgment or directed verdict. -34Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law. A trial court s grant of summary judgment receives de novo review on appeal, and evidence is viewed in the light most favorable to the non-moving party. 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 is whether upon examination of all the evidence in the light most favorable to the non-moving party, and that party being given the benefit of every reasonable inference drawn therefrom and resolving all conflicts of any evidence in favor of the non-movant, the evidence is sufficient to be submitted to the jury. We apply de novo review to . . . a trial court s denial of 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). B. Chapter 75-1.1 Claims Plaintiffs argue that there was sufficient evidence regarding its claim for unfair or deceptive business practices to survive defendant Corinna s summary judgment motion. -35Plaintiffs further argue that since there was sufficient evidence to support claims for breach of fiduciary duty and fraud, there was evidence of practices as a matter of law. unfair or deceptive business 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 directed judgment verdict at or trial granting defendants dismissing motions plaintiffs for 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, proximately caused injury to the plaintiff. at 656, 548 S.E.2d at 711 (citation and (3) the act Dalton, 353 N.C. omitted). Before a practice can be declared unfair or deceptive, it must first be determined that the practice or conduct which is complained of -36takes place within the context of pertaining to trade or commerce. Slavin, 147 N.C. App. 52, 62, [ยง 75-1.1 s] language Oberlin Capital, L.P. v. 554 (citation and quotation marks omitted). S.E.2d 840, 848 (2001) N.C. Gen. Stat. ยง 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. Subsection (b) of this section of the Act defines the term commerce to mean business activities. Business activities is a term which connotes the manner in which businesses conduct their regular, day-to-day activities, or affairs, such as the purchase and sale of goods, or whatever other activities the business regularly engages in and for which it is organized. Hajmm Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 594, 403 S.E.2d 483, 493 (1991). Our Supreme Court has explained that the General Assembly did not intend for [North Carolina s unfair and deceptive practices act s] protections to extend to a business s internal operations. . . . [T]he Act is not focused on the internal conduct of individuals within a single market participant, that is, within a single business. To the contrary, . . . the General Assembly intended the Act s provisions to apply to interactions between market participants. As a result, any unfair or deceptive conduct contained solely within a single business is not covered by the Act. As the foregoing indicates, this Court has further -37previously determined that the General Assembly did not intend for the Act to intrude into the internal operations of a single market participant. 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, promissory notes. specifically the loan agreement and 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. 848. See Oberlin, 147 N.C. App. at 62, 554 S.E.2d at Therefore, plaintiffs have failed transaction was in or affecting commerce. to show that the Accordingly, the -38trial court properly dismissed plaintiffs Chapter 75-1.1 claims and plaintiffs argument is overruled. C. Agency and Defendants Depositions Plaintiffs reversible next error contend by that granting the defendant trial court Corinna s committed motion for directed verdict and dismissing their claims against her based on agency because there was sufficient evidence presented to show that Plaintiffs defendant further Jack was that contend defendant the Corinna s trial court agent. committed reversible error by not permitting plaintiffs to introduce the depositions of defendants. plaintiffs admit that Yet as to both of these arguments, 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 orders and judgment. AFFIRMED. reasons, we affirm the trial court s -39Judge BRYANT concurs. Judge CALABRIA dissents in a separate opinion. NO. COA11-548 NORTH CAROLINA COURT OF APPEALS Filed: 4 September 2012 MICHAEL A. GREEN, AND DANIEL J. GREEN Plaintiffs v. Guilford County No. 2006 CVS 12622 JACK L. FREEMAN, JR., CORINNA W. FREEMAN, PIEDMONT CAPITAL HOLDING OF NC, INC., PIEDMONT EXPRESS AIRWAYS, INC., PIEDMONT SOUTHERN AIR FREIGHT, INC., AND NAT GROUP, INC. Defendants v. LAWRENCE J. D AMELIO, III Third-Party Defendant 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 and JNOV on the issue of extending her liability for corporate -2obligations beyond the confines of a corporate separate entity by piercing the corporate veil. Therefore, I respectfully dissent. I. Standard of Review 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.... omitted). Id. (internal quotations and citation The same standard of review applies to a JNOV motion as to a motion for directed verdict. Id. II. Fiduciary Duty I agree with Corinna that the trial court committed reversible error by denying her motions for directed verdict and JNOV on plaintiffs the issue failed of to director/officer adduce evidence liability of a because fiduciary relationship, or evidence that Corinna personally breached any duty to plaintiffs proximately resulting in their harm. A. Fiduciary Relationship -3While 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). breach of fiduciary duty to exist, there must fiduciary relationship between the parties. For a first be a 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. S.E.2d v. (2001). Slavin, 147 However, individually liable N.C. an App. 52, officer for torts 57, of a in 554 corporation which he 840, 845 may be actively -4participates. 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. Stat. ยง 55-8-40(a) (2011). N.C. Gen. Each officer has the authority and duties set forth in the bylaws.... N.C. Gen. Stat. ยง 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 officer of Piedmont. indicated that a chairperson was an According to the Operating Agreement, she -5had 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. [Corinna s counsel]: All right, and there s two people listed as chairpersons, correct? [Michael]: Yes. [Corinna s counsel]: And Corinna Freeman is listed there, correct? [Michael]: [Corinna s Freeman. [Michael]: Correct. counsel]: Along with Jack Right. [Corinna s counsel]: There was never a meeting where my client ran it on behalf of the companies, was there? [Michael]: remember. Not that I attended. [Corinna s counsel]: received notice of one. [Michael]: Well, Not that I you never Pardon? [Corinna s counsel]: You never received notice of a meeting that she called on behalf of the officers or shareholders that allegedly existed, correct? [Michael]: like that. Yeah, I don t remember anything -6[Corinna s counsel]: She never did anything pursuant to being the chairperson, correct? [Michael]: No. She did other things, but not what s in there. [Corinna s counsel]: Well, this gives her position. She s not listed as having any other position in the company, is she? [Michael]: No. Neither stockholders nor directors meetings were ever held nor was stock ever issued. Corinna was aware of Plaintiffs produced no evidence that 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. by plaintiffs, In addition, the Operating Agreement, signed 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 -7in 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. never No stock certificates were ever issued and Corinna signed any documents, either the original Operating Agreement or the Amendment that designated her as a shareholder. -8Since 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. B. Breach of Fiduciary Duty Even assuming, arguendo, plaintiffs failed prove Plaintiffs suggest to the that that breach a fiduciary Corinna of duty duty breached is existed, that evidenced duty. 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, Northstate Communication bills and utility bills from a house Corinna coowned located on Burrows ( Burrows Road house ). Road in Jamestown, North Carolina Initially, there were two bank accounts for PEA, an account at First Citizen s Bank ( PEA account ) and a Wachovia account ( Wachovia account ) that had been set up by Jack s parents. Jack L. Freeman, Sr. deposited $20,000 in the Wachovia account for Jack and Jack used the account as his own personal checking account. When Jack drew a paycheck, he would -9deposit it into the Wachovia account. Plaintiffs funds were deposited into two separate accounts with First Citizen s Bank, a money market account and a business checking account. accounts were in PCH s name. Both The bills from the Burrows Road house were not paid from the PCH accounts at First Citizen s where plaintiffs money was deposited. Furthermore, while Corinna lived in the Burrows Road house at that time and coowned the house, Jack testified that she had no knowledge of his actions and that he was living there and using those services for his own benefit. 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 -10and 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. Jack had been paying the mortgage and Since 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. between David February everything at Noble 2006 Jack s and ( Noble ), June direction, an 2006, as attorney indicated did the at that other Piedmont he did company -11employees. the In addition, Noble never observed Corinna working in 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 parties property interested; and, for when the mutual such benefit directors of receive all 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, modified 295 in S.E.2d part 249, by, (citation omitted). 259 (1982) 309 N.C. 279, affirmed 307 in S.E.2d part 551 and (1983) 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 with were deposited into two separate accounts First -12Citizen s Bank in PCH s name. D Amelio transferred funds from PCH s business checking account into the PEA account. Crystal Byrd, the assistant treasurer, transferred funds from the money market account to the PEA account. There is no evidence that Corinna had access to either PCH account. 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. indicated that while he believed people Michael also would present information about Corinna s use of the card, he did not know -13any 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. III. Piercing the Corporate Veil 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 operating which the exercises latter as a actual mere control over instrumentality or another, tool, liable for the torts of the corporation thus controlled. is In -14such instances, the separate identities corporations may be disregarded. Id. of...affiliated (citations omitted). The elements necessary to pierce the corporate veil under the instrumentality rule are: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. 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 single enterprise into separate corporations. of a 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, -15plaintiffs 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. The majority contends that in the light most favorable to plaintiffs, the evidence supported piercing the corporate veil in regards to Corinna. Corinna was not However, the evidence indicated that involved plaintiffs investment. with Piedmont at the time of Plaintiffs claim that Corinna was the dominant voice of the business yet plaintiffs witness, Michael, indicated he never met her prior to his investment: [Corinna s counsel]: In the 10 to 20 times that you met personally with Jack face-toface, you never met my client, Corinna Freeman, did you? [Michael]: No, I didn t [Corinna s counsel]: You never talked to Corinna Freeman in any of the telephone calls that you had with Jack. [Michael]: No, I didn t [Corinna s counsel]: You never even asked to talk to Corinna Freeman in any of the meetings or telephone calls, did you? [Michael]: No, I did not. [Corinna s counsel]: Corinna Freeman provided no information to you when you were doing this investigation of this investment, -16did she? [Michael]: No. [Corinna s counsel]: You didn t ask her to produce any information for you, did you? [Michael]: No. [Corinna s counsel]: She didn t provide a single document to you, did she? [Michael]: No; not directly. [Corinna s counsel]: She never made any representation to you about this investment at all, did she? [Michael]: No. [Corinna s counsel]: She didn t make any representation to you as to how the companies would be organized, did she? [Michael]: No. [Corinna s counsel]: She didn t make any representation to you how they would be run, did she? [Michael]: No. [Corinna s counsel]: She didn t make any representation as to how your investment would be used, did she? [Michael]: No. [Corinna s counsel]: She never told anything about these companies, did she? [Michael]: you No. [Corinna s counsel]: You never asked, did -17you? [Michael]: No. ... [Corinna s counsel]: And in these meetings with Jack and [D Amelio], [Corinna] was never present, was she? [Michael]: No. [Corinna s counsel]: And you didn t ask for her to be present, did you? [Michael]: No. 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: and 20 May 2005. Although 30 November 2001, 20 January 2005 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 Corinna Services was the Requirements original Agreement. owner of PSAF, Therefore, once although Piedmont was created, Jack and D Amelio s own company, PCH, owned PSAF. The articles of incorporation creating PCH and PEA were not signed -18by 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. that Corinna had control plaintiffs investment. In fact, there was no evidence over the documents signed after 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 Group and PCH, and the Exhibit A amendment to the NAT Group agreement. 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 -19loan 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. and signed percentage an Operating of each Agreement that shareholder. Plaintiffs received listed The the ownership 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. to Exhibit B of the In January 2006, two amendments 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. Freeman by Jack Freeman but Jack did not sign Corinna only by Jack Freeman. In -20addition, 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: [Corinna s counsel]: Okay. So you didn t get something signed by Corinna, did you? [Michael]: No. When I brought this back to Jack and said, Jack, this has never we still haven t even signed this thing, he said, I have I can sign for her. [Corinna s counsel]: All right. My question is you never you still don t have something signed by her, do you? [Michael]: Anything signed by her? [Corinna s counsel]: This document is not signed by Corinna Freeman, is it? [Michael]: Correct; no. [Corinna s counsel]: You said you wanted something signed by Corinna Freeman, correct? [Michael]: Correct. [Corinna s counsel]: Jack Freeman is not -21Corinna Freeman, is he? [Michael]: No. [Corinna s counsel]: You didn t say, Jack, I want it signed by your mother, did you? [Michael]: No. [Corinna s counsel]: You didn t call for a meeting of the shareholders at that time, did you? [Michael]: No. 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 an interest in the company, agreed to accept an increase, or was even aware of it, the purported transfer of 88 units of non-existing stock without her knowledge or permission does not prove that she exercised control over the company or that she used her control to increase her interest in Piedmont. -22Finally, 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 corporate funds by using these accounts. or controlled 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. from D Amelio s office to the After the company relocated new office and funds became scarce, Jack paid salaries and rent for the office from the Wachovia account. request. Corinna wrote all three checks at Jack s -23Additionally, 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 -24exercise dominance or control over Piedmont. majority are correct that factors present in the instant case. Plaintiffs and the articulated in Glenn are Piedmont was undercapitalized, Jack and D Amelio failed to comply with corporate formalities and excessively companies. fragmented a single enterprise into separate 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 Piedmont did not dominate because Corinna exercise control over the Piedmont companies. dominated or controlled Piedmont. In fact, did not Corinna never 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. prove Corinna exercised However, since plaintiffs failed to domination and control over Piedmont -25that 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 directed verdict and JNOV on the issue of piercing the corporate veil should have been granted. IV. Conclusion 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.
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