Reeger Builders, Inc. v. J.C. Demo Ins. Grp., Inc. ( 2014 )

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.
NO. COA13-622
NORTH CAROLINA COURT OF APPEALS
Filed: 4 March 2014
REEGER BUILDERS, INC. and KITCHEN
CREATIONS OF GASTONIA, INC.,
Plaintiffs,
v. Gaston County
No. 08 CVS 5609
J.C. DEMO INSURANCE GROUP, INC.,
JCD INSURANCE GROUP, LLC, J.C.
DEMO & ASSOCIATES, J.C. DEMO &
ASSOCIATES, INC., JEFFREY C. DEMO,
individually, CENTRAL MUTUAL
INSURANCE COMPANY and ALL AMERICA
INSURANCE COMPANY,
Defendants.
Appeal by plaintiffs from order entered 1 February 2013 by
Judge Yvonne Mims Evans in Gaston County Superior Court. Heard
in the Court of Appeals 22 October 2013.
Gray, Layton, Kersh, Solomon, Furr, & Smith, P.A., by
William E. Moore, Jr., and Marcus R. Carpenter, for
plaintiff-appellants.
Weaver, Bennett & Bland, P.A., by Trent M. Grissom, for
defendant-appellees.
BRYANT, Judge.
Where the trial court entered a default judgment against
defendant Jeffrey C. Demo as to all of plaintiffs’ claims and
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plaintiffs’ allegations were sufficient to establish that
defendant J.C. Demo Insurance Group Inc. operated as an alter-
ego of defendant Jeffrey C. Demo, the trial court erred in
granting defendant J.C. Demo Insurance Group Inc.’s Rule
12(b)(6) motion to dismiss.
On 31 October 2008, in Gaston County Superior Court,
plaintiffs Reeger Builders Inc. (Reeger Builders) and Kitchen
Creations of Gastonia Inc. (Kitchen Creations) filed a verified
complaint against defendants J.C. Demo & Associates, Inc.;
Jeffrey C. Demo, individually; and Central Insurance Companies.
Plaintiffs sought recovery for losses sustained as a result of a
fire occurring on 6 June 2006 at 154 Superior Stainless Road, a
property owned by plaintiff Reeger Builders and occupied by
plaintiff Kitchen Creations.
In their complaint, plaintiffs alleged that in October
2003, defendants acting through J.C. Demo and J.C. Demo &
Associates, Inc. issued two insurance policies: one policy for
Kitchen Creations and one for Reeger Builders. Each policy had
an aggregate limit of $1,000,000.00. The policies were renewed
annually and were both in effect on 6 June 2006. No limitations
as to coverage were disclosed.
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Between October 2003 and June 2006, plaintiff Kitchen
Creations leased several pieces of large equipment. Kitchen
Creations’ insurance policy was amended to cover potential
damage to the equipment and the financiers were also listed as
insured under the same policy. Plaintiffs alleged that J.C.
Demo gave his assurance that the insurance policy, as modified,
was sufficient to cover the replacement of the leased equipment
in the event of loss.
On 6 June 2006, a fire broke out at 154 Superior Stainless
Road. The building and its contents were completely destroyed.
Kitchen Creations, which operated a business on the property,
asserted $32,532.00 in business income losses. Reeger Builders,
which owned the building, asserted $816,894.01 in losses. When
notified, defendants informed plaintiffs that losses for
business income under Kitchen Creation’s policy were capped at
$25,000.00 and that the applicable limit for damage to the
building under Reeger’s policy was capped at $358,448.00.
Plaintiffs alleged uninsured damages amounting to $465,978.00.
In their complaint, plaintiffs sought recovery for breach
of contract/negligence, breach of fiduciary duty,
fraud/constructive fraud, negligent misrepresentation, and
unfair insurance practices/unfair or deceptive trade practices.
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On 25 November 2008, plaintiffs amended their complaint to
include a claim for punitive damages.
The record before us reflects that on 16 January 2008,
Articles of Incorporation were filed with the Department of the
Secretary of State for J.C. Demo Insurance Group Inc., the
defendant-appellant in this action. On 14 April 2009, Articles
of Dissolution were filed with the Department of the Secretary
of State for JC Demo and Associates, Inc., the defendant
insurance broker that plaintiffs allege sold them their
respective policies.
On 18 May 2011, having been granted a motion to allow for
joinder of additional parties, plaintiffs filed a second amended
complaint naming as defendants J.C. Demo Insurance Group Inc.;
JCD Insurance Group LLC; J.C. Demo & Associates; J.C. Demo &
Associates Inc.; Jeffrey C. Demo, individually; Central Mutual
Insurance Company; and All America Insurance Company.
The record before us shows that on 23 September 2011,
plaintiffs filed a motion for entry of default judgment as to
defendants JCD Insurance Group LLC, J.C. Demo & Associates, J.C.
Demo & Associates Inc., and Jeffrey C. Demo. Entry of default
against the named defendants was entered the same day.
Following a hearing on the matter, the trial court entered a 24
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October 2011 order in which it found that the named defendants
each failed to file an answer or other responsive pleadings to
plaintiffs’ second amended complaint. The trial court entered
default judgment against defendants JCD Insurance Group LLC,
J.C. Demo & Associates Inc., J.C. Demo and Associates, and
Jeffrey C. Demo, individually, and found each jointly and
severally liable to plaintiffs for damages in the amount of
$465,978.00. Furthermore, as plaintiffs claimed that
defendants’ actions in or affecting commerce were unfair or
deceptive in violation of General Statutes, section 75.1-1, the
trial court determined that plaintiffs were entitled to treble
damages on the asserted claims for $465,978.00, amounting to
$1,397,934.00, plus attorney fees in the amount of $12,670.50,
and court costs of $3,331.93.
Defendant J.C. Demo Insurance Group Inc. submitted a motion
to dismiss plaintiffs’ second amended complaint pursuant to Rule
12(b)(6) for failure to state a claim for which relief may be
granted. The matter came on for hearing during the 14 January
2013 civil session of Gaston County Superior Court, the
Honorable Yvonne Mims Evans, Judge presiding. On 1 February
2013, the trial court filed its order granting defendant J.C.
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Demo Insurance Group Inc.’s motion to dismiss plaintiffs’
claims. Plaintiffs appeal.
_________________________________
Initially, we note that plaintiffs appeal from a trial
court order dismissing one but not all of the parties to the
action. The record before us indicates that plaintiffs’ claims
as to defendants Central Mutual Insurance Company and All
America Insurance Company are still outstanding. In their brief
to this Court, plaintiffs state in a footnote that on 26 October
2011, defendants Central Mutual Insurance Company and All
America Insurance Company entered into a settlement agreement
with plaintiffs. And, on 26 October 2011, plaintiffs entered a
voluntary dismissal with prejudice as to those defendants.
However, the record contains no evidence of a voluntary
dismissal of defendants Central Mutual Insurance Company and All
America Insurance Company. Thus, plaintiffs’ appeal appears to
be interlocutory. See Veazey v. Durham, 231 N.C. 357, 362, 57
S.E.2d 377, 381 (1950) (“An interlocutory order is one made
during the pendency of an action, which does not dispose of the
case, but leaves it for further action by the trial court in
order to settle and determine the entire controversy.”).
Presuming such, we consider plaintiffs’ brief as a petition for
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writ of certiorari. See N.C.R. App. P. 21 (2013) (“The writ of
certiorari may be issued in appropriate circumstances by either
appellate court to permit review of the judgments and orders of
trial tribunals when the right to prosecute an appeal has been
lost by failure to take timely action, or when no right of
appeal from an interlocutory order exists, or for review
pursuant to N.C.G.S. § 15A-1422(c)(3) of an order of the trial
court denying a motion for appropriate relief.”); Legacy Vulcan
Corp. v. Garren, ___ N.C. App. ___, ___, 731 S.E.2d 223, 225
(2012) (“We believe that dismissing this appeal as interlocutory
would likely waste judicial resources. . . . We exercise our
authority under Rule 2 to consider Plaintiff's appeal as a
petition for certiorari, and we grant certiorari to review the
trial court's interlocutory order.” (citation omitted)).
Plaintiffs argue that the trial court erred in granting
defendant J.C. Demo Insurance Group Inc.’s Rule 12(b)(6) motion
to dismiss plaintiffs’ claims for failure to state a claim upon
which relief may be granted. We agree.
When reviewing a trial court’s dismissal of a complaint
pursuant to Rule 12(b)(6) of our Rules of Civil Procedure, we
conduct a de novo review. See State Employees Ass'n of N.C.,
Inc. v. N.C. Dep't of State Treasurer, 364 N.C. 205, 210, 695
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S.E.2d 91, 95 (2010). “[W]e determine whether, as a matter of
law, the allegations of the complaint, treated as true, are
sufficient to state a claim upon which relief may be granted
under some legal theory. In ruling upon such a motion, the
complaint is to be liberally construed . . . .” Id. (citation
omitted).
Dismissal under Rule 12(b)(6) is proper when
one of the following three conditions is
satisfied: (1) the complaint on its face
reveals that no law supports the plaintiff's
claim; (2) the complaint on its face reveals
the absence of facts sufficient to make a
good claim; or (3) the complaint discloses
some fact that necessarily defeats the
plaintiff's claim.
Schlieper v. Johnson, 195 N.C. App. 257, 261, 672 S.E.2d 548,
551 (2009) (citation omitted).
On appeal, defendant J.C. Demo Insurance Group Inc. asserts
that the trial court’s dismissal of plaintiffs’ complaint as to
them was proper because J.C. Demo Insurance Group Inc. did not
exist at the time of the fire which damaged plaintiffs’ property
and business interests. Articles of Incorporation for J.C. Demo
Insurance Group, Inc. were filed with the Secretary of State on
16 January 2008, after the 6 June 2006 fire which damaged
plaintiffs’ respective properties. Furthermore, defendant J.C.
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Demo Insurance Group Inc. argues that all of plaintiffs’ claims
are barred by statutes of limitation.
In response, plaintiffs argue that defendant J.C. Demo
Insurance Group Inc. like all of the “Demo-defendants,” is an
alter-ego of defendant Jeffrey C. Demo. As an alter-ego,
plaintiffs contend they may “reverse-pierce” the corporate veil
to reach the assets of any Demo-defendant, including defendant
J.C. Demo Insurance Group Inc., to satisfy Jeffrey C. Demo’s
liability.
Though beyond the pleadings, the record before us shows
that the trial court has already entered judgment against
defendants JCD Insurance Group LLC, J.C. Demo & Associates Inc.,
J.C. Demo and Associates, and Jeffrey C. Demo, individually,
finding for plaintiffs as to each claim as a matter of law and
finding these defendants jointly and severally liable for
plaintiffs’ damages. The trial court awarded plaintiffs damages
of $465,978.00 and due to the asserted claim of unfair or
deceptive trade practices, trebled this amount to $1,397,934.00.
We reiterate that defendant J.C. Demo Insurance Group Inc. was
not incorporated until after the fire that damaged plaintiffs’
respective properties. Based on this record evidence, we do not
consider whether defendant J.C. Demo Insurance Group Inc. is
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liable to plaintiffs for the claims asserted. Rather, we
consider whether the corporate veil of defendant J.C. Demo
Insurance Group Inc. can be disregarded by reverse piercing to
satisfy the obligations of the remaining Demo Defendants. We
hold that it can be.
“The doctrine of piercing the corporate veil is not a
theory of liability. Rather, it provides an avenue to pursue
legal claims against corporate officers or directors who would
otherwise be shielded by the corporate form.” Green v. Freeman,
___ N.C. ___, ___, ___ S.E.2d ___, ___ (8 Nov. 2013)
(No.424A12). “The general rule is that in the ordinary course
of business, a corporation is treated as distinct from its
shareholders.” State v. Ridgeway Brands Mfg., LLC, 362 N.C.
431, 438, 666 S.E.2d 107, 112 (2008) (citation omitted).
However, “courts 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) (citation omitted); see also Acceptance Corp. v.
Spencer, 268 N.C. 1, 9, 149 S.E.2d 570, 576 (1966) (discussing
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the basis for disregarding the corporate form or piercing the
corporate veil, the “Instrumentality Rule”).
[I]f “the 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 declared public policy or statute of the
State . . . the corporate entity [may] be
disregarded and the corporation and the
shareholder treated as one and the same
person.
Ridgeway Brands Mfg., LLC, 362 N.C. at 440-41, 666 S.E.2d at
113-14 (citation and quotations omitted).
To pierce the corporate veil by establishing that a
corporate entity is a mere instrumentality or alter ego of a
sole or dominate shareholder, a plaintiff must prove the
following three elements:
(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.”
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Acceptance Corp., 268 N.C. at 9, 149 S.E.2d at 576, as quoted by
Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200 N.C. App.
644, 650, 689 S.E.2d 143, 147 (2009).
On appeal, plaintiffs ask this Court to determine whether
the allegations of their complaint, treated as true, are
sufficient to allow a court to disregard the corporate form of
defendant J.C. Demo Insurance Group Inc. in order to satisfy the
debts of defendant Jeffrey C. Demo. This is known as reverse-
piercing. See Fischer Inv. Capital, Inc., 200 N.C. App. 644,
689 S.E.2d 143.
On 31 October 2008, plaintiffs filed a complaint against
defendants J.C. Demo & Associates, Inc., and Jeffrey C. Demo.
On 25 November 2008, plaintiffs filed an amended complaint to
include a claim for punitive damages. On 18 May 2011,
plaintiffs filed a second amended complaint incorporating the
claims for relief filed in their first amended complaint but
adding additional parties, including defendant J.C. Demo
Insurance Group Inc. In their amended and second amended
complaints, plaintiffs refer to defendants which used some
derivation of J.C. Demo’s name as “Demo Defendants.” Plaintiffs
allege that the Demo Defendants acted interchangeably as
plaintiffs’ insurance broker.
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7(h). Defendants co-mingle and share
employees and assets, and place or produce
insurance policies from e.g. [sic]
Defendants Central and American beginning
with initial contacts with customers such as
Plaintiffs and throughout other phases of
obtaining insurance coverage and claims as
if they were one entity; employees of one or
more of the Demo Defendants are subject to
the direction and control of one or more of
the Demo Defendants are subject to the
direction and control of other Demo
Defendants, and particularly under the
direction, control, and supervision of J.C.
Demo.
7(i). Upon information and belief, [the
Demo Defendants] all engage in significant
financial interactions and debt exchange,
operate out of the same locations, produce,
manage and maintain insurance policies for a
customer using the various and diverse names
of the Demo Defendants as authorized agents
of Central and American.
7(j). [The Demo Defendants] share common
officers, directors, shareholders or
members, and are all owned, operated and/or
managed by J.C. Demo.
. . .
7(l). There is no true corporate
separateness between the Demo Defendants.
7(m). The Demo Defendants are without
separate corporate mind, will or existence,
and are operated as mere shells,
instrumentalities and/or alter egos of, and
to perform solely for the benefit of J.C.
Demo and/or each other.
7(n). The Demo Defendants are a single
enterprise that is excessively fragmented
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into separate legal entities.
Taking plaintiffs’ allegations as true and reading the
instrumentality test liberally, plaintiffs sufficiently contend
that the Demo Defendants were controlled by defendant Jeffrey C.
Demo; that the Demo Defendants represent a single enterprise
excessively fragmented for the improper purpose of obscuring an
agent or broker responsible when policy claims are contested;
and that plaintiffs have been harmed as a result of this
excessive fragmentation. See id. at 650, 689 S.E.2d at 147(discussing three elements of the instrumentality test). As
such, defendant J.C. Demo Insurance Group Inc. may be deemed an
instrumentality within the Demo enterprise and an alter-ego of
Jeffrey C. Demo.
As the trial court has entered a default judgment against
defendants JCD Insurance Group LLC, J.C. Demo & Associates Inc.,
J.C. Demo & Associates, and Jeffrey C. Demo, individually,
finding each jointly and severally liable, we hold that the
corporate veil of defendant J.C. Demo Insurance Group Inc. can
be reverse pierced to satisfy the liability of the remaining
Demo defendants. Because we determine that plaintiffs’
allegations, treated as true, are sufficient to provide an
avenue by which recovery of damages awarded may be acquired, we
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reverse the trial court’s grant of defendant J.C Demo Insurance
Group’s Rule 12(b)(6) motion. See State Employees Ass'n of
N.C., 364 N.C. at 210, 695 S.E.2d at 95 (“[W]e determine
whether, as a matter of law, the allegations of the complaint,
treated as true, are sufficient to state a claim upon which
relief may be granted under some legal theory. In ruling upon
such a motion, the complaint is to be liberally construed . . .
.” (citation omitted)).
Reversed.
Judges McGEE and STROUD concur.
Report per Rule 30(e).