Harrelson v. Soles

380 S.E.2d 528, 94 N.C. App. 557, 1989 N.C. App. LEXIS 541

• Court: Court of Appeals of North Carolina
• Decided: July 5, 1989
• Docket: 8810IC1358
• Status: Published

Opinion

ARNOLD, Judge.

In his first assignment of error defendant contends that the Deputy Commissioner erred in determining as a fact and concluding as a matter of law that the plaintiff was employed by defendant Tate Soles d/b/a Tate’s Auto Sales, a sole proprietorship, and not by Tate’s Auto Sales, Inc., a North Carolina corporation.

Chairman Pearson frames the issue in his dissent. Summarizing, Chairman Pearson objects to the identification of the defendant as “Tate Soles d.b.a. Tate’s Auto Sales, a sole proprietorship” with the necessary result that the judgment is against Tate Soles, an individual. Chairman Pearson concludes:

I find that plaintiff-appellee has failed to name his true employer as defendant, and as such, this Commission is without jurisdiction in the matter. The exercise of jurisdiction in this case results in a de facto piercing of the corporate veil of Tate Auto Sales, Inc. without proper pleadings and facts, and with total disregard for the importance of the corporate form.

“[T]o maintain a proceeding under the Workmen’s Compensation Act the claimant must have been an employee of the alleged employer at the time of his injury. . . Lucas v. Stores, 289 N.C. 212, 218, 221 S.E. 2d 257, 261 (1976). The question of whether an employee-employer relationship exists between the named parties is jurisdictional, therefore it is reviewable on appeal. Hicks v. Guilford County, 267 N.C. 364, 365, 148 S.E. 2d 240, 241 (1966). A corporation is a type of employer under the terms of N.C.G.S. § 97-2(3), and a corporation is a legal entity “distinct from its in dividual members or stockholders.” 9 Am. Jur. Proof of Facts 57 Alter Ego of Corporation § 1. Before the enactment of N.C.G.S. § 55-3.1, at least three stockholders were required to form a corporation. 3 N.C. Index 3d, Corporations § 1.1. By the enactment of N.C.G.S. § 55-3.1 “acquisition of the entire capital stock of a corporation by one person does not affect the corporate entity. . . .” Id. However, when

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 will be disregarded and the corporation and shareholder treated as one and the same person, it being immaterial whether the sole or dominant shareholder is an individual or another corporation.

Henderson v. Security Mortgage and Finance Co., 273 N.C. 253, 260, 160 S.E. 2d 39, 44 (1968). The corporate veil may be pierced “to prevent fraud or to achieve equity.” Glenn v. Wagner, 313 N.C. 450, 454, 329 S.E. 2d 326, 330 (1985). See 9 Am. Jur. Proof of Facts 57 Alter Ego of Corporation § 4.

In his opinion and award, the Deputy Commissioner concludes, without any findings, that Tate Soles d/b/a Tate’s Auto Sales was Harrelson’s employer and not Tate’s Auto Sales, Inc. We remand for findings on the question whether Tate Soles is in fact the alter ego of Tate’s Auto Sales, Inc., and thus is properly named as the liable employer in this action.

Three elements support an attack on separate corporate identity under the instrumentality rule:

(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.

Glenn at 455, 329 S.E. 2d at 330 (citation omitted). In his civil complaint defendant alleges that Tate’s Auto Sales Inc. was subject to the Workers’ Compensation Act, “but it did not keep in effect a policy of insurance against compensation liability” as required by N.C.G.S. § 97-93. If proved, the fact that Tate’s Auto Sales Inc. violated its statutory duty to maintain Workers’ Compensation Insurance for its employees would go to the second of the three elements to be proved to support an attack on the separate corporate entity.

Factors dispositive as to whether a court should pierce the corporate veil include: inadequate capitalization; noncompliance with corporate formalities; complete domination and control of the corporation so that it has no independent identity, “non-payment of dividends, insolvency of the debtor corporation, siphoning of funds by the dominant shareholder, non-functioning of other officers and directors, absence of corporate records.” Id. at 455, 458, 329 S.E. 2d 330-31, 332. Each case is “treated as sui generis with the burden on the plaintiff to establish the existence of factors that would justify disregarding the corporate entity.” Id. at 459, 329 S.E. 2d at 333.

We have reviewed defendant’s two remaining assignments of error and find that they are without merit.

The opinion and award of the Industrial Commission is remanded for further findings as required by this opinion.

Remanded.

Chief Judge HEDRICK and Judge WELLS concur.