Cynthia Underwood v. Margaret Miller d/b/a Nashville Design Center, LLC

02/13/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
November 7, 2019 Session
CYNTHIA UNDERWOOD, ET AL. V. MARGARET MILLER d/b/a
NASHVILLE DESIGN CENTER, LLC
Appeal from the Circuit Court for Williamson County
No. 2015-441 James G. Martin, III, Judge
No. M2019-00269-COA-R3-CV
This is an action to pierce the corporate veil. In a previous action in which the limited
liability company was the only defendant, the plaintiffs received a default judgment for
breach of contract in the amount of $709,500. The same plaintiffs subsequently filed this
action against the sole member of the now-defunct limited liability company to pierce the
corporate veil and hold the defendant personally liable for the unsatisfied judgment.
Following discovery, the parties filed cross-motions for summary judgment. The trial
court ruled in favor of the defendant, determining that the undisputed facts weighed
against piercing the corporate veil, and the plaintiffs appealed. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed
FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which RICHARD
R. DINKINS and W. NEAL MCBRAYER, JJ., joined.
Jeffrey Spark, Nashville, Tennessee, for the appellants, Cynthia Underwood and Theresa
Stamps.
Craig V. Gabbert, Jr. and Brian F. Irving, Nashville, Tennessee, for the appellee,
Margaret Miller d/b/a Nashville Design Center, LLC.
OPINION
On March 6, 2006, Cynthia Underwood and Theresa Stamps (“Plaintiffs”) filed a
complaint against Margaret Miller in Davidson County Circuit Court alleging that she
breached her contract to employ Plaintiffs and pay the debts of a previous interior design
business Plaintiffs owned. On November 3, 2006, Ms. Miller filed a motion to dismiss
the lawsuit on the grounds that she was not a proper party because she was not a party to
the contract at issue. She contended that the only parties to the contract were Plaintiffs
and Nashville Design Center, LLC (“NDC”) of which she was the sole member. She also
alleged she was protected from liability for any obligation of NDC because it was a
limited liability company.
Shortly thereafter, Plaintiffs voluntarily dismissed Ms. Miller from the lawsuit
without prejudice and filed an amended complaint asserting similar claims for breach of
contract against NDC as the sole defendant. NDC filed an answer and counterclaim
alleging that Plaintiffs committed fraud by misrepresenting the amount of debt owed by
NDC to vendors and designers.
In August 2007, the case against NDC was removed to the United States
Bankruptcy Court for the Middle District of Tennessee as related to the pending
bankruptcy case of Ms. Underwood. A year later, on September 29, 2008, the Bankruptcy
Court entered a default judgment against NDC awarding Plaintiffs $709,500 in damages
(the “Bankruptcy Court Judgment”). Plaintiffs domesticated the judgment in the
Davidson County Circuit Court.
On September 18, 2015, Plaintiffs commenced this action against Ms. Miller
(“Defendant”) seeking to satisfy the Bankruptcy Court Judgment by piercing the
corporate veil of NDC to hold Defendant personally liable. Defendant filed an answer,
claiming NDC was a separate legal entity from Defendant, and she was not liable for the
debts of NDC.
On October 30, 2017, following extensive discovery, Plaintiffs filed a motion for
summary judgment. The undisputed facts Plaintiffs relied on in support of their motion
arose from the bankruptcy action, specifically the allegations in their amended complaint
and the factual findings in the Bankruptcy Court’s Judgment.1 Based on these facts,
Plaintiffs contended that Defendant’s “sole control over NDC allowed Defendant to hide
behind the LLC in order to breach her contract with Plaintiffs, convert their property and
otherwise commit wrongs against them. . . .” Further, Plaintiffs argued that three factors
established that NDC was Defendant’s alter ego and thus weighed in favor of piercing the
1
In the Bankruptcy Court adversary proceeding, Plaintiffs alleged in the complaint and stated in
their statement of undisputed facts that, inter alia, Plaintiffs established a partnership in 2000 called
Nashville Designer’s Resource, a retail business offering interior design services and, in November 2003,
Defendant and Plaintiffs entered into an oral contract to operate a design business. Plaintiffs stated, per
the agreement, Plaintiffs would manage the business for $30,000 a year and 40% of the profits and
Defendant would satisfy all debts of Nashville Designer’s Resource. Thereafter, Defendant created
Nashville Designer’s Resource, LLC of which Defendant was the sole member, and in April 2004,
Plaintiffs and Defendant opened the showroom to the public. Approximately four months later, Defendant
sent Plaintiffs a letter terminating their employment with the company and changed its name to Nashville
Design Center, LLC (“NDC”) and, among numerous other alleged breaches of their contract, failed to pay
the debts of Nashville Designer’s Resource.
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corporate veil: (1) Defendant was the sole member and had sole control of NDC; (2)
NDC was grossly undercapitalized as evidenced by Defendant’s failure to set aside
enough money to satisfy the debts of Plaintiffs’ previous design business; and (3)
Defendant failed to deposit the auction proceeds into NDC’s bank account and diverted
the money for her personal use. In so doing, Defendant used NDC as an instrumentality
or business conduit for herself.
Defendant filed a response in opposition to Plaintiffs’ motion for summary
judgment, and thereafter, on February 1, 2018, Defendant filed a cross-motion for
summary judgment. In her response and cross-motion for summary judgment, Defendant
disputed the factual findings in the Bankruptcy Court Judgment and allegations in the
amended complaint. She argued that because she was not a party to the Bankruptcy Court
action, she never admitted those facts as true. Nevertheless, Defendant argued that even if
these facts were undisputed, she was entitled to summary judgment, because the
undisputed facts showed that NDC was a separate legal entity from Defendant and not
Defendant’s alter ego. In making this argument, Defendant relied on the following
undisputed facts:
(1) NDC obtained two lines of credit to provide the business with sufficient
operating capital, one from Prime Trust Bank and the other from SunTrust
Bank, and Defendant personally guaranteed these loans, which amounted to
more than one million dollars;
(2) All company transactions were conducted from NDC’s separate
business accounts;
(3) NDC hired its own employees and paid each of its employees a salary
and benefits from NDC’s business accounts; and
(4) NDC operated out of a showroom, and paid rent from NDC’s business
accounts.
Defendant conceded that she deposited the auction proceeds from the sale of
NDC’s assets into her personal account instead of NDC’s business account. She
contended, however, that this was proper because NDC owed her more than $200,000,
and as a creditor of NDC, she was entitled to the auction proceeds to partially satisfy
NDC’s debt to her.
In Plaintiffs’ response to the cross-motion, they did not dispute the foregoing facts,
but argued the facts were irrelevant “except to demonstrate that NDC operated as a
business, which Plaintiffs have never denied.” Plaintiffs claimed the fact that Defendant
deposited the proceeds from the auction into her personal account showed that Defendant
used NDC as an “instrumentality or business conduit” for Defendant. Plaintiffs further
argued that “[i]n creating the LLC just before breaching her contract with Plaintiffs,
[Defendant] clearly used the LLC to transfer her personal liability under the contract
formed in November of 2003 and reaffirmed after the creation of [NDC] to protect
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herself from the consequences of her breaching that contract in August of 2004.”
Accordingly, Plaintiffs argued that this warranted piercing the corporate veil.
After a hearing on December 7, 2018, the court determined that NDC was an
independent and separate legal entity from Defendant based on the following undisputed
facts:
(1) Defendant personally guaranteed loans to NDC from SunTrust Bank
and Prime Trust Bank for more than one million dollars to provide
sufficient operating capital;
(2) NDC hired its own employees and paid those employees from NDC’s
bank accounts;
(3) NDC leased its own showroom using funds from NDC’s bank accounts;
(4) NDC conducted “thousands” of transactions using its separate business
accounts; and
(5) NDC owed Defendant more than $200,000 at the time of the auction,
and as a creditor of NDC, Defendant was entitled to the auction proceeds to
satisfy NDC’s debt to her.
The court also found that Plaintiffs failed to present any evidence showing Defendant
used the corporate form to commit fraud. Thus, the court ruled that the undisputed
material facts did not provide a sufficient basis for piercing the corporate veil and
summarily dismissed Plaintiffs’ action.
Plaintiffs appealed.
STANDARD OF REVIEW
This court reviews a trial court’s decision on a motion for summary judgment de
novo without a presumption of correctness. Rye v. Women’s Care Ctr. of Memphis,
MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015) (citing Bain v. Wells, 936 S.W.2d 618, 622
(Tenn. 1997)). Accordingly, this court must make a fresh determination of whether the
requirements of Tenn. R. Civ. P. 56 have been satisfied. Id.; Hunter v. Brown, 955
S.W.2d 49, 50 (Tenn. 1997). In so doing, we consider the evidence in the light most
favorable to the non-moving party and draw all reasonable inferences in that party's
favor. Godfrey v. Ruiz, 90 S.W.3d 692, 695 (Tenn. 2002).
Summary judgment should be granted when “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 the moving party is entitled to a
judgment as a matter of law.” Tenn. R. Civ. P. 56.04. When the party moving for
summary judgment does not bear the burden of proof at trial, it may satisfy its burden of
production “either (1) by affirmatively negating an essential element of the nonmoving
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party’s claim or (2) by demonstrating that the nonmoving party’s evidence at the
summary judgment stage is insufficient to establish the nonmoving party’s claim or
defense.” Rye, 477 S.W.3d at 264 (emphasis in original).
When a motion for summary judgment is made and supported as provided in
Tenn. R. Civ. P. 56, the nonmoving party may not rest on the allegations or denials in its
pleadings. Id. Instead, the nonmoving party must respond with specific facts showing that
there is a genuine issue for trial. Id. A fact is material “if it must be decided in order to
resolve the substantive claim or defense at which the motion is directed.” Byrd v. Hall,
847 S.W.2d 208, 215 (Tenn. 1993). A “genuine issue” exists if “a reasonable jury could
legitimately resolve that fact in favor of one side or the other.” Id.
ANALYSIS
The dispositive issue on appeal is whether the trial court erred in granting
Defendant’s motion for summary judgment and denying Plaintiffs’ motion.2
“A corporation is presumptively treated as a distinct entity, separate from its
shareholders, officers, and directors.” Oceanics Sch., Inc. v. Barbour, 112 S.W.3d 135,
140 (Tenn. Ct. App. 2003). In this way, the corporate form acts as a veil or shield,
protecting its shareholder from personal liability for the debts of the corporation. See id.
“In appropriate circumstances, however, the corporate veil may be pierced and the acts of
a corporation attributed to a shareholder.” Rogers v. Louisville Land Co., 367 S.W.3d
196, 214 (Tenn. 2012). In order to pierce the corporate veil, the party seeking to do so
must establish that “the separate corporate entity ‘is a sham or a dummy’ or that
disregarding the separate corporate entity is ‘necessary to accomplish justice.’” CAO
Holdings, Inc. v. Trost, 333 S.W.3d 73, 88 (Tenn. 2010) (quoting Barbour, 112 S.W.3d at
140); Rogers, 367 S.W.3d at 215. “Despite the inapplicability of the remedy’s name, the
‘corporate veil’ of a Tennessee limited liability company may also be pierced, [using] the
same standards.” Edmunds v. Delta Partners, L.L.C., 403 S.W.3d 812, 829 (Tenn. Ct.
App. 2012) (quoting In re Steffner, 479 B.R. 746, 755 (Bkrtcy. E.D. Tenn. 2012)).
To determine whether piercing the corporate veil is appropriate, Tennessee courts
apply the factors articulated in Federal Deposit Insurance Corporation v. Allen, 584 F.
Supp. 386, 397 (E.D. Tenn. 1984), also known as the Allen factors. Rogers, 367 S.W.3d
at 215. In Allen, the court stated:
2
Both parties made arguments regarding whether this court should accept the factual findings in
the Bankruptcy Court Judgment and the allegations in Plaintiffs’ amended complaint in the bankruptcy
action as undisputed; however, we do not need to address that issue because we have determined that
Plaintiffs’ “undisputed facts” are immaterial, as we explain in the ensuing analysis.
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Factors to be considered in determining whether to disregard the corporate
veil include not only whether the entity has been used to work a fraud or
injustice in contravention of public policy, but also: (1) whether there was a
failure to collect paid in capital; (2) whether the corporation was grossly
undercapitalized; (3) the nonissuance of stock certificates; (4) the sole
ownership of stock by one individual; (5) the use of the same office or
business location; (6) the employment of the same employees or attorneys;
(7) the use of the corporation as an instrumentality or business conduit for
an individual or another corporation; (8) the diversion of corporate assets
by or to a stockholder or other entity to the detriment of creditors, or the
manipulation of assets and liabilities in another; (9) the use of the
corporation as a subterfuge in illegal transactions; (10) the formation and
use of the corporation to transfer to it the existing liability of another person
or entity; and (11) the failure to maintain arms length relationships among
related entities.
Allen, 584 F. Supp. at 397. No single factor is dispositive, nor is it necessary that all
factors support piercing the corporate veil. Rogers, 367 S.W.3d at 215. However, “the
equities must ‘substantially favor’ the party requesting relief, and the presumption of the
corporation’s separate identity should be set aside only ‘with great caution and not
precipitately.’” Id. (citations omitted) (emphasis added).
Additionally, even if a plaintiff presents evidence sufficient to pierce the corporate
veil under the Allen factors, Tennessee law also requires a showing of fraud or injustice.
Southeast Texas Inns, Inc. v. Prime Hosp. Corp., 462 F.3d 666, 673 (6th Cir. 2006)
(quoting IBC Mfg. Co. v. Velsicol Chem. Corp., No. 97–5340, 187 F.3d 635, 1999 WL
486615 (6th Cir. July 1, 1999) (“Tennessee law still requires an element of fraud in order
to pierce a corporate veil.”).
The parties agree that two factors are inapplicable: factor three, “non-issuance of
stock certificates,” and factor eleven, “the failure to maintain arms length relationships
among related entities.” Allen, 584 F. Supp. at 397. Accordingly, we will consider the
other nine factors and whether Plaintiffs’ undisputed facts established that Defendant
used the corporate form to commit fraud or to cause an injustice.
A. THE ALLEN FACTORS
1. Failure to Collect Paid-in Capital
Plaintiffs claim the first enumerated Allen factor—“whether there was a failure to
collect paid in capital”—weighed in their favor because it was undisputed that Defendant
failed to deposit the auction proceeds from the sale of NDC’s assets into NDC’s business
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account. See id. But as Defendant correctly asserts, paid-in capital is “[t]he money paid
for the capital stock of a corporation.” Black’s Law Dictionary (10th ed. 2014).
The trial court held that according to NDC’s 2008 financial statement, the auction
proceeds were accounted for as income, and Plaintiffs proffered no authority suggesting
that auction proceeds are paid-in capital and not income to the business. Accordingly, the
trial court correctly held that “the auction proceeds were income to NDC. As such, NDC
did not fail to collect paid-in capital.” Therefore, this factor does not favor Plaintiffs.
2. Grossly Undercapitalized
Plaintiffs argued that NDC was grossly undercapitalized as evidenced by NDC’s
inability to pay the debts incurred by Nashville Designer’s Resource, which NDC
acquired from Plaintiffs and agreed to assume as part of its obligation under NDC’s
contract with Plaintiffs.3 Plaintiffs supported their contention with the finding of the
Bankruptcy Court that NDC failed to pay Plaintiffs’ business debt totaling $146,193.79.
A corporation’s “legitimacy is suspect” if, from the time of its formation, the
“corporation [was] unable to pay its costs of doing business because of grossly
inadequate capitalization.” 18 Am. Jur. 2d Corporations § 56. Thus, gross
undercapitalization means that, at its inception, the corporation did not have enough
capital to operate. See id.
Plaintiffs, however, do not dispute Defendant’s factual assertion that in NDC’s
first year of business, NDC obtained a line of credit from Prime Trust Bank in the amount
of $364,000. Nor do Plaintiffs dispute Defendant’s factual assertion that NDC
subsequently obtained a line of credit from SunTrust Bank, and for four years, both banks
made loans to NDC on an as-needed basis amounting to more than one million dollars.
The undisputed facts show that NDC had sufficient capital to operate, irrespective
of whether it paid Plaintiffs’ debts as agreed. See Canter v. Ebersole, No. E2005-02388-
COA-R3-CV, 2006 WL 1627288, at *3 (Tenn. Ct. App. May 13, 2006) (determining that
the business was adequately capitalized through a bank loan). As the trial court correctly
held:
3
Plaintiffs also argue that by firing Plaintiffs, NDC was undercapitalized in terms of “human capital”
because, without Plaintiffs, Defendant did not know how to operate a design business. However,
Plaintiffs do not cite to any authority which provides that this court should consider “human capital”
under this factor, and we are not aware of any. Therefore, we will not consider it.
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Here, NDC operated independently from April 2004 to February 2008. . . .
Ms. Miller personally guaranteed the company’s lines of credit and loaned
the company her own money. Over the lifespan of the company, it had lines
of credit totaling more than one million dollars. As such, the Court finds no
evidence that NDC was undercapitalized.
(Footnote omitted). Therefore, this factor does not favor Plaintiffs.
3. Non-issuance of Stock Certificates
The parties agree that the third factor is inapplicable.
4. Sole Ownership by One Individual
It is undisputed that Defendant was the sole member/owner of NDC. “However, it
is not uncommon for a corporation [or company] to be owned by one individual, and this
fact standing alone does not weigh heavily either way on the question of whether the
corporate veil should be pierced.” F&M Mktg. Servs., Inc. v. Christenberry Trucking &
Farm, Inc., 523 S.W.3d 663, 669 (Tenn. Ct. App. 2017); see Rogers, 367 S.W.3d at 216
(quoting Hadden v. City of Gatlinburg, 746 S.W.2d 687, 689 (Tenn. 1988)) (“[A]lthough
‘the sole ownership of stock by one individual’ is one of the factors that should be
considered in granting the relief she requests, it is not solely determinative. Even if one
stockholder holds all of the stock in a corporation, the corporation and that single
stockholder remain ‘distinct legal entities.’”). Thus, this factor, standing alone, does not
favor Plaintiffs. Nevertheless, we will consider it in conjunction with the other applicable
factors.
5. Same Office or Business Location
As the trial court correctly found, Plaintiffs identified no evidence to dispute the
fact that NDC leased its own showroom using funds from the company’s bank accounts.
Accordingly, this factor does not favor Plaintiffs.
6. Employment of Same Employees
It is undisputed that NDC hired its own employees and paid its employees’
salaries and health insurance premiums from NDC’s business accounts. Furthermore,
Plaintiffs identified no evidence to dispute the fact that no NDC employees were under
Defendant’s personal employ. Therefore, this factor does not favor Plaintiffs.
7. Use of the Entity as an Instrumentality or Business Conduit for an Individual
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It is undisputed that Defendant deposited the net proceeds of $114,617.56 from the
auction into Defendant’s personal banking account, and as the trial court correctly found,
“[t]his is the only transaction Plaintiffs offer to show that NDC was used as an
instrumentality of [Defendant].” It is also undisputed that NDC was in business for four
years, was involved in thousands of business transactions, and all of NDC’s business and
financial transactions, including its lines of credit, were in the company’s name.
Therefore, we agree with the trial court that Defendant did not use NDC as an
instrumentality or business conduit for herself. Accordingly, this factor does not favor
Plaintiffs.
8. Diversion of Assets by or to an LLC Member to the Detriment of Creditors
Based on the foregoing transaction, Plaintiffs also contend Defendant diverted
corporate assets to the detriment of Plaintiffs, who were NDC’s creditors. Defendant
admits depositing NDC’s auction proceeds in the amount of $114,617.56 into her
personal account but contends doing so was not improper because she was a significant
creditor of NDC. Defendant submitted business records showing that NDC owed her
more than $200,000 at the time of the auction in April of 2008. NDC’s business records
also showed that as of December 31, 2007, NDC’s total long-term liabilities amounted to
$1,229,544.12, including a personal loan Defendant made to NDC in the amount of
$204,353.10, an IT credit line in the amount of $29,728.65, and a SunTrust Bank loan for
$995,462.37 that Defendant personally guaranteed.4
Plaintiffs’ contention that this factor weighs against Defendant is based on our
ruling in Pamperin v. Streamline Manufacturing, Inc., 276 S.W.3d 428 (Tenn. Ct. App.
2008). In that case, we found the evidence weighed in favor of piercing the corporate veil
when the owner of the corporation paid himself out of the corporation’s proceeds to
satisfy the corporation’s debt to him before satisfying the corporation’s debt to the
plaintiff. Id. at 441. While Pamperin is instructive, it does not support Plaintiff’s
assertions, because the facts in these two cases are easily distinguished.
In Pamperin, one of the owners of Streamline Manufacturing (“Streamline”),
purchased Streamline’s promissory notes from First Tennessee Bank. Id. at 432. When
Streamline dissolved, the owner liquidated Streamline’s assets to satisfy the notes and
4
While Plaintiffs disputed the authenticity of NDC’s 2008 business records showing the same
liabilities, which the trial court admitted over Plaintiffs’ motion to exclude, Plaintiffs never disputed the
authenticity of the 2007 business records or the information contained therein. Thus, Plaintiffs did not
dispute that Defendant was a creditor of NDC and that NDC owed Defendant more than the amount
realized at the auction. Moreover, Plaintiffs filed a motion to exclude the 2008 business records, arguing
they were not properly authenticated; however, the trial court denied Plaintiffs’ motion, and Plaintiffs do
not take issue with this ruling on appeal.
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then retained the surplus for his personal benefit. Id. at 434–35. We determined that the
owner violated the public policy of this state, which provides that a secured creditor must
“account to and pay a debtor for any surplus.” Id. at 440 (quoting Tenn. Code Ann. § 47-
9-608(a)(4)). We found:
The value of the property that was transferred to [the owner] clearly
exceeded the lien debt thereon so that an equity interest should have been
available to subject to the payment of legitimate claims, such as that of [the
plaintiff]. Because Streamline’s assets were diverted to [the owner’s] own
personal use, Streamline became unable to fulfill its existing obligations to
creditors and others. It would be unjust, in our opinion, to allow [the owner]
to hide behind an insolvent and defunct corporation when he assumed title
to all the corporation’s assets in contravention of third parties’ rights.
Id. at 441.
What warranted piercing the corporate veil in Pamperin was not that the
corporation first satisfied its debt to the owner above all other creditors, but that the
owner retained the surplus in contravention of the public policy of this state and the rights
of other creditors. Id. Here, Defendant did not retain any surplus, and Plaintiffs do not
cite to any authority supporting the proposition that Defendant violated the public policy
of this state. Moreover, unlike Pamperin, Defendant was paid less than what NDC owed
her. As the trial court noted: “(1) [Defendant] had advanced $300,000 to NDC before the
auction proceeds were realized and was owed more than $200,000 at the time of the
auction; and (2) NDC still owed $995,462.37 to SunTrust for a loan that was personally
guaranteed by [Defendant].” Therefore, this factor does not favor Plaintiffs.
9. Use of the LLC as a Subterfuge in Illegal Transactions
Plaintiffs argued that “[t]o the extent that the breach of contract was illegal, if not
criminally then civilly, the use by [Defendant] of NDC was a subterfuge with respect to
its contract with Plaintiffs.” But Plaintiffs cited no authority to support the contention that
a breach of contract is illegal in the context of this Allen factor, and we are not aware of
any. Therefore, this factor does not favor Plaintiffs.
10. Use of the LLC to Transfer Existing Liability of Another
In their motion for summary judgment, Plaintiffs initially contended this factor
was irrelevant and made no argument that this factor favored piercing the corporate veil.
Months later, in response to Defendant’s cross-motion for summary judgment, Plaintiffs
argued that the undisputed facts established that Defendant contracted with Plaintiffs to
invest in their design business, and thereafter, Defendant formed NDC to transfer her
personal liability under her contract with Plaintiffs to NDC. Plaintiffs referenced the
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allegations in the amended complaint they filed in the Bankruptcy Court action, which
they asserted the court must accept as undisputed.
Significantly, Plaintiffs do not dispute the fact that Defendant personally guaranteed a
loan to NDC from SunTrust Bank for over $995,000. In light of this undisputed fact,
Plaintiffs’ assertion that Defendant formed NDC with the purpose of transferring, and
thus avoiding existing individual liabilities is unsupported by any competent evidence
and is without merit. Therefore, this factor, like all others, does not favor Plaintiffs.5
B. FRAUD OR INJUSTICE
Not only have Plaintiffs failed to establish a single Allen factor that favors them,
they also failed to identify any evidence to support a finding that the breach of contract at
issue here was fraudulent. Plaintiffs’ fraud or injustice claim is premised on the
contention that NDC breached its contract with Plaintiffs. However, as the trial court
noted, citing Southeast Texas Inns, Inc., 462 F.3d at 673, “[t]he law requires that fraud or
injustice be found in the defendants’ use of the corporate form,” which is not the type of
“injustice” or harm that typically flows from a mere breach of contract. Moreover,
Plaintiffs’ argument that Defendant committed fraud by failing to defend NDC in the
bankruptcy action is without merit for several reasons including the obvious fact that
Defendant was not a party in the bankruptcy action.
Therefore, we affirm the trial court’s decision to deny Plaintiffs’ motion for
summary judgment and to grant Defendant’s motion to summarily dismiss Plaintiffs’
action to pierce the corporate veil.
IN CONCLUSION
The judgment of the trial court is affirmed, and this matter is remanded with costs
of appeal assessed against Cynthia Underwood and Theresa Stamps.
________________________________
FRANK G. CLEMENT JR., P.J., M.S.
5
The parties agree that factor eleven, “the failure to maintain arms length relationships among
related entities,” is inapplicable. Allen, 584 F. Supp. at 397.
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