Reeger Builders, Inc. v. J.C. Demo Ins. Grp., Inc.

• Court: Court of Appeals of North Carolina
• Decided: March 4, 2014
• Docket: 13-622
• Status: Unpublished

Opinion

An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority.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 -2- 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. -3- 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. -4- 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 -5- 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. -6- 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 -7- 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 -8- 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. -9- 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 -10- 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 -11- 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.” -12-

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. -13- 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 -14- 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 -15- 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).