Saft America, Inc. v. Plainview Batteries, Inc.

659 S.E.2d 39, 189 N.C. App. 579, 2008 N.C. App. LEXIS 694

• Court: Court of Appeals of North Carolina
• Decided: April 15, 2008
• Docket: COA07-823
• Status: Published

Opinions

TYSON, Judge.

Energex Batteries, Inc., and Bernie R. Erde (collectively, “defendants”) appeal from order entered denying their motions to dismiss for lack of personal jurisdiction. We affirm in part, reverse in part, and remand.'

I.Background

Saft America Inc. (“plaintiff’), is a corporation engaged in the manufacture of batteries and other energy storage cells. Plaintiff conducts its business in Burke County, North Carolina. Plainview Batteries, Inc. (“Plainview”), and Energex Batteries, Inc. (“Energex”), are also involved in the battery and energy storage business. Plainview and Energex are corporations organized under the laws of the state of New York. Bernie R. Erde (“Erde”) served as President and CEO of Plainview and Vice President of Energex. Erde owns forty-nine (49%) percent of Plainview’s stock and fifty-one percent (51%) of Energex’s stock. Russell Bleeker (“Bleeker”) served as a corporate officer for both Plainview and Energex. In addition to overlapping management and ownership, Plainview and Energex share a common mailing address in Plainview, New York.

Beginning in the 1990s, plaintiff established a business relationship with Plainview in which plaintiff sold Plainview several million dollars worth of goods. Until 2005, plaintiff dealt with Erde as Plainview’s representative. In January 2005, Bleeker became more involved in the transactions between Plainview and plaintiff. Contracts and purchase orders executed by the parties identify Plainview as the purchaser. However, in correspondence with plaintiff, Bleeker and Erde made references to Plainview and Energex, which tended to group the companies together, including the following:

1. The 14 March 2005 email from Bleeker in which he describes himself as V.P. of Business Development (Principal] as well) on the Energex side of the business.

2. The 27 July 2005 email from Erde seeking assurance that Plainview/Energex really gets the best possible price[.]

3. The 15 February 2006 email from Bleeker referring to “business transference and asset purchase of .Plainview” by Energex.

Between July and November 2005, the business relationship between the parties became antagonistic due to conflicts over payments Plainview owed to plaintiff. On 20 October 2006, plaintiff filed suit against Plainview, Energex, Erde, and Bleeker, seeking damages under the following claims for relief: (1) recovery of the balance due plus interest, under plaintiff’s contracts with Plainview; (2) breach of contract; (3) unjust enrichment; and (4) piercing the corporate veil.

Plaintiff’s complaint identified seven specific purchase orders for which plaintiff was owed “$244,850.54 plus accrued interest].]” Plaintiff contended that when it tried to obtain the amounts owed under its contracts with Plainview, Bleeker told plaintiff’s representatives that Energex had “acquired the assets of Plainview and that Plainview had been dissolved.” Bleeker asserted the purchase of Plainview’s assets by Energex served to insulate Energex from any responsibility for Plainview’s debt due to plaintiff. Plaintiff also alleged that during 2005 “Erde and Bleeker repeatedly represented Energex and Plainview to be parts of the same organization, at least with regard to purchasing goods from [plaintiff.]”

Bleeker filed an answer admitting that he was an officer of Energex, and that personal jurisdiction was properly exercised by North Carolina. Bleeker conceded that he had “made representations regarding the connections of Plainview and Energex[,]” but denied specifically saying the companies were “part of the same legal corporate organization.” Bleeker also admitted that “Plainview owes some amount [of money] to [plaintiff] for past due accounts.” Bleeker denied any individual personal liability under plaintiff’s claim seeking to pierce the corporate veil. Plainview filed an answer and denied the material allegations of the complaint. Plainview also filed a motion to dismiss for lack of personal jurisdiction, which it later withdrew. Neither Bleeker nor Plainview are parties to this appeal.

Defendants filed motions to dismiss for lack of personal jurisdiction and attached an affidavit by Erde to each motion. On 5 April 2007, the trial court denied the motions by Plainview, Energex, and Erde to dismiss for lack of personal jurisdiction, in an order concluding in pertinent part that:

2. Plaintiff has properly pleaded and alleged a claim for piercing the corporate veil against the Defendants in this Matter;

3. This Court has personal Jurisdiction over the Defendants; and

4. The Court’s exercise of personal jurisdiction over these Defendants does not violate their rights to Due Process.

Defendants appeal.

II. Issue

Defendants argue the trial court erred by denying their motions to dismiss for lack of personal jurisdiction.

TIL Standard of Review

“The standard of review of an order determining personal jurisdiction is whether the findings of fact by the trial court are supported by competent evidence in the record; if so, this Court must affirm the order of the trial court.” Replacements, Ltd. v. Midwesterling, 133 N.C. App. 139, 140-41, 515 S.E.2d 46, 48 (1999) (citations omitted).

Either party may request that the trial court make findings regarding personal jurisdiction, but in the absence of such request, findings are not required.... Where no findings are made, proper findings are presumed, and our role on appeal is to review the record for competent evidence to support these presumed findings.

Bruggeman v. Meditrust Acquisition Co., 138 N.C. App. 612, 615, 532 S.E.2d 215, 217-18 (citations omitted), disc. rev. denied, 353 N.C. 261, 546 S.E.2d 90 (2000).

IV. Personal Jurisdiction

This Court has stated:

The resolution of the question of in personam jurisdiction involves a two-fold determination: (1) do the statutes of North Carolina permit the courts of the jurisdiction to entertain this action against defendant, and (2) does the exercise of this power by the North Carolina courts violate due process of law.

Green Thumb Industry v. Nursery, Inc., 46 N.C. App. 235, 239-40, 264 S.E.2d 753, 755 (1980) (citing Dillon v. Funding Corp., 291 N.C. 674, 231 S.E.2d 629 (1977)). N.C. Gen. Stat. § 1-75.4 (2005) sets forth twelve grounds upon which a court may assert personal jurisdiction over a person.

Defendants argue no statutory grounds exist for the trial court’s assertion of personal jurisdiction over them, and argue the trial court’s exercise of personal jurisdiction over them “violates their due process rights.”

If the exercise of personal jurisdiction is challenged by a defendant, a trial court may hold an evidentiary hearing including oral testimony or depositions or may decide the matter based on affidavits. If the court takes the latter option, the plaintiff has the initial burden of establishing prima facie that jurisdiction is proper. Of course, this procedure does not alleviate the plaintiff’s ultimate burden of proving personal jurisdiction at an evidentiary hearing or at trial by a preponderance of the evidence.

Bruggeman, 138 N.C. App. at 615, 532 S.E.2d at 217 (internal citations omitted).

Here, the trial court decided the issue of personal jurisdiction without an evidentiary hearing. Plaintiff was required to show the uncontroverted allegations of its complaint were sufficient to state a claim for personal jurisdiction. Id., at 615, 532 S.E.2d at 217-18. See also Spinks v. Taylor, 303 N.C. 256, 264, 278 S.E.2d 501, 505-06 (1981) (citation and quotation omitted) (“A verified complaint may be treated as an affidavit if it (1) is made on personal knowledge, (2) sets forth such facts as would be admissible in evidence, and (3) shows affirmatively that the affiant is competent to testify to the matters stated therein.”).

Plaintiff asserts that personal jurisdiction is proper under several statutory provisions including: (1) N.C. Gen. Stat. § l-75.4(l)d, permitting exercise of jurisdiction over a defendant “engaged in substantial activity within this State, whether such activity is wholly interstate, intrastate, or otherwise” and (2) N.C. Gen. Stat. § l-75.4(5)d, which states jurisdiction is proper where action “[r] elates to goods, documents of title, or other things of value shipped from this State by the plaintiff to the defendant on his order or direction.” The allegations of plaintiffs complaint support the exercise of personal jurisdiction under either provision, particularly when considered in the context of plaintiffs claim to pierce the corporate veil.

Having found that “the statutes of North Carolina permit the courts of this jurisdiction to entertain this action against defendant[s][,]” we now decide whether “the exercise of this power” would violate due process. Dillon, 291 N.C. at 675, 231 S.E.2d at 630. Our Supreme Court has stated:

The constitutional standard to be applied in determining whether a State may assert personal jurisdiction over a nonresident defendant is found in the landmark case of International Shoe Co. v. Washington, 326 U.S. 310, 90 L.Ed. 95, 66 S.Ct. 154 (1945): “[D]ue process requires only that in order to subject a [nonresident] defendant to a judgment in personam, ... he have certain minimum contacts with [the forum State] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ ”

Buying Group, Inc. v. Coleman, 296 N.C. 510, 515, 251 S.E.2d 610, 614 (1979).

To generate minimum contacts, the defendant must have purposefully availed itself of the privilege of conducting activities within the forum state and invoked the benefits and protections of the laws of North Carolina. The relationship between the defendant and the forum state must be such that the defendant should reasonably anticipate being haled into a North Carolina court. The facts of each case determine whether the defendant’s activities in the forum state satisfy due process.

Tejal Vyas, LLC v. Carriage Park Ltd. P’ship, 166 N.C. App. 34, 38-39, 600 S.E.2d 881, 885-86 (2004) (internal citations and quotations omitted), aff'd, 359 N.C. 315, 608 S.E.2d 751 (2005). Several factors are reviewed in determining minimum contacts including: “1) the quantity of the contacts; 2) the nature and quality of the contacts; 3) the source and connection of the cause of action with those contacts; 4) the interest of the forum state; and 5) the convenience to the parties.” Fox v. Gibson, 176 N.C. App. 554, 560, 626 S.E.2d 841, 845 (2006) (citation omitted). These factors must be considered “in light of fundamental fairness and the circumstances of the case.” Id. (citation omitted).

1. Defendant Erde

In Erde’s affidavit, he admitted that: (1) he was the president of Energex and vice president of Plainview and (2) he had visited plaintiff’s factory in North Carolina “in [his] role as a corporate officer of Plainview Batteries, Inc.” Erde also stated that “any dealings I had with Plaintiff were solely in my capacity as an officer of Plainview Batteries Inc.” Erde argues he lacked sufficient minimum contacts for the trial court to exercise personal jurisdiction over him as an individual based upon the acts alleged in plaintiff’s complaint. We agree.

“[P]ersonal jurisdiction over an individual officer or employee of a corporation may not be predicated merely upon the corporate contacts with the forum.” Robbins v. Ingham, 179 N.C. App. 764, 771, 635 S.E.2d 610, 615 (2006) (citing Godwin v. Walls, 118 N.C. App. 341, 348, 455 S.E.2d 473, 479 (1995)), disc. rev. denied, 361 N.C. 221, 642 S.E.2d 448 (2007). Corporate officers are subject to personal jurisdiction when “in addition to their roles as officers, [they] complete [] an act in their individual capacities . . . .” Id. (emphasis supplied). In Robbins, this Court distinguished the case before it from prior precedent now cited in the dissenting opinion:

Plaintiffs cite three cases in their brief in an attempt to prove that Hegg’s, Ingham’s and Trinity Court’s contacts should be imputed to Gamble: Better Business Forms, Inc., 120 N.C. App. 498, 462 S.E.2d 832 [(1995)]; Centura Bank [v. Pee Dee Express, Inc.], 119 N.C. App. 210, 458 S.E.2d 15 [(1995)]; and Buying Group, Inc. v. Coleman, 296 N.C. 510, 251 S.E.2d 610 (1979). All three of these cases are easily distinguished from the instant case because in all three cases the individual defendants, in addition to their roles as officers, completed an act in their individual capacities that would make them subject to personal jurisdiction. For example, in Better Business Forms, Inc., we found sufficient minimum contacts existed as to two individual defendants who owned a corporate buyer, but we noted that both individuals had obligated themselves to purchase a business by signing personal guarantees. Better Business Forms, Inc., 120 N.C. App. at 501, 462 S.E.2d at 834. Similarly, in Centura Bank, we found individual defendants subject to personal jurisdiction in North Carolina, but we also noted that the individuals were individual guarantors. Centura Bank, 119 N.C. App. at 214, 458 S.E.2d at 19. Finally, in Buying Group, Inc., the Supreme Court of North Carolina decided the State had personal jurisdiction over an individual defendant partly because the defendant had signed a promissory note in his individual capacity, had attended trade shows in North Carolina, and had a continuing relationship with a North Carolina corporation. Buying Group, Inc., 296 N.C. at 516, 251 S.E.2d at 614.

In the instant case, a review of the record does not compel us to conclude that North Carolina has personal jurisdiction over Gamble. Unlike the cases discussed, we believe the facts of this case do not show Gamble acting in his individual capacity to a point where North Carolina has personal jurisdiction over Gamble. We affirm the trial court.

Id. at 772, 635 S.E.2d at 616 (emphasis supplied).

This Court recently addressed this issue and held under markedly similar facts that a defendant lacked sufficient minimum contacts with North Carolina to satisfy the due process prong of personal jurisdiction. See Rauch v. Urgent Care Pharm., Inc., 178 N.C. App. 510, 518-19, 632 S.E.2d 211, 217-18 (2006). In Rauch, the individual defendant’s actions in the forum state were performed in his official capacity as president of the corporate defendant:

Defendant Burns signed and submitted defendant Urgent Care’s 2002 application to the North Carolina Board of Pharmacy, seeking privileges for Urgent Care to conduct pharmacy business in this state, however he signed the application in his capacity as president of defendant Urgent Care. There is no evidence in the record which suggests that defendant Bums participated in the filling of any prescriptions or compounding activities at Urgent Care during 2002 when the contaminated methylprednisolone injections were compounded. Similarly, defendant Bums had no direct involvement with the day-to-day operations of defendant Urgent Care in 2002. He also had no contact with anyone in North Carolina regarding Urgent Care’s compounding methylprednisolone injections, and in fact, was unaware that Urgent Care was compounding the drug until after Urgent Care was notified about the possible contamination. Defendant Burns then spoke, via telephone, to physicians and other individuals in North Carolina regarding the investigation and the recall of the contaminated injections, however he did so in his capacity as president of defendant Urgent Care. Defendant Burns also does not own any real or personal property in this state, nor has he lived here since he was eighteen years old. The evidence does suggest that he may have visited the state for personal reasons prior to 2002, and that during such visit he delivered Urgent Care’s application to the North Carolina Pharmacy Board.

Id. at 518, 632 S.E.2d at 217-18. Upon these facts, this Court held that “defendant Bums did not have sufficient minimum contacts with the state of North Carolina, such that a court in our state could exercise personal jurisdiction over him individually without violating his due process rights.” Id. at 518, 632 S.E.2d at 217.

We hold the analyses in Robbins and Rauch are directly on point to the facts at bar and are clearly distinguishable from the cases cited in the dissenting opinion. See Buying Group, Inc., 296 N.C. at 510, 251 S.E.2d at 614; Centura Bank, Inc., 119 N.C. App. at 213, 458 S.E.2d at 18.

Here, plaintiff wholly failed to allege any act Erde committed occurred within his individual capacity to subject him to personal jurisdiction. The trial court erred by denying Erde’s motion to dismiss. That portion of the trial court’s order is reversed.

2. Defendant Energex

Energex argues that it cannot be subject to personal jurisdiction because the relevant contracts, correspondence, orders, and invoices all reference Plainview rather than Energex. “However, plaintiff does not allege that [Energex] had such contacts, but rather, asserts jurisdiction based on disregard of the corporate entity, or veil-piercing.” Strategic Outsourcing, Inc. v. Stacks, 176 N.C. App. 247, 252, 625 S.E.2d 800, 803 (2006).

i. Piercing the Corporate Veil

Where the corporate veil is pierced, personal jurisdiction may be imputed to a defendant entity on the basis of the actions of its alter ego. “Our courts will ‘disregard the corporate form’ and ‘pierce the corporate veil’ where [a party] exercises actual control over a corporation, operating it as a mere instrumentality or tool.” Becker v. Graber Builders, Inc., 149 N.C. App. 787, 790, 561 S.E.2d 905, 908 (2002).

Our Supreme Court has articulated the instrumentality rule as follows:

[W]hen . . . 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 the 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. Finance Co., 273 N.C. 253, 260, 160 S.E.2d 39, 44 (1968).

To impose liability based upon the instrumentality rule, three elements are required to be present:

(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) Súch 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.

Strategic Outsourcing, 176 N.C. App. at 253, 625 S.E.2d at 804 (emphasis omitted) (quoting Glenn v. Wagner, 313 N.C. 450, 455, 329 S.E.2d 326, 330 (1985)).

“Factors to consider in determining whether to pierce the corporate veil include: (1) inadequate capitalization; (2) non-compliance with corporate formalities; (3) complete domination and control of the corporation so that it has no independent identity; and (4) excessive fragmentation of a single enterprise into separate corporations.” State ex rel. Cooper v. Ridgeway Brands Mfg., 184 N.C. App. 613, 621-22, 646 S.E.2d 790, 797 (2007) (citing Glenn, 313 N.C. at 455, 329 S.E.2d at 330-31).

ii. Plaintiff’s Burden

“[When] jurisdiction is challenged [by a defendant, the] plaintiff has the burden of proving prima facie that a statutory basis for jurisdiction exists.” Inspirational Network, Inc. v. Combs, 131 N.C. App. 231, 235, 506 S.E.2d 754, 758 (1998) (citation and quotation omitted). “Where unverified allegations in the complaint meet plaintiff’s ‘initial burden of proving the existence of jurisdiction ... and defendants ... do not contradict plaintiff’s allegations in their sworn affidavit,’ such allegations are accepted as true and deemed controlling.” Id. (quoting Bush v. BASF Wyandotte Corp., 64 N.C. App. 41, 45, 306 S.E.2d 562, 565 (1983)) (emphasis supplied). “When the allegations in a plaintiff’s complaint, taken as true, are sufficient to state a claim for piercing the corporate veil, the trial court’s grant of defendant’s motion to dismiss is improper.” State ex rel. Cooper, 184 N.C. App. at 622, 646 S.E.2d at 793.

The allegations of plaintiff’s complaint include, inter alia, the following:

46. Upon information and belief, Defendants Erde and/or Bleeker as officers, principal agents and primary shareholders of Energex and Plainview have failed to observe the proper corporate formalities as required by applicable corporate law.

47. Upon information and belief, Defendants Erde and/or Bleeker hold complete domination, not only of finances, but of policy and business practice, in Energex and Plainview.

48. Upon information and belief, Defendants Erde and/or Bleeker have used this control and domination of Energex and Plainview to conceal and/or divert assets away from Plainview to themselves and to Plainview’s alter-ego Energex, thereby leaving Plainview inadequately capitalized and causing Plainview to default on its obligations to SAFT.

49. Upon information and belief, Erde and/or Bleeker have fraudulently concealed and/or diverted Plainview’s assets that would otherwise have been or should have been available to pay outstanding amounts owed to SAFT.

50. Upon information and belief, Plainview’s failure to pay the outstanding amounts owed to SAFT was caused by the actions of Erde and/or Bleeker, in particular their diverting assets from Plainview for personal gain or to the benefit of Plainview’s alter-ego Energex. The actions of Erde and Bleeker were dishonest, unjust and in contravention of SAFT’s legal rights.

51. The actions taken by Erde and/or Bleeker amount to a use of Plainview and/or Energex as shields for activities in express violation of applicable corporate law.

Erde submitted an affidavit in support of Energex’s motion to dismiss for lack of personal jurisdiction. Erde’s affidavit stated that “Energex has never had any dealings with the Plaintiff’ and that all transactions between the parties were made on behalf of Plainview, not Energex. Erde’s affidavit also makes the conclusory statement that “Energex is an independent corporation, completely and totally separate from Plainview Batteries, Inc., also an independent New York corporation . . . These entities are separate corporations, independent of one another.”

Erde’s generalized allegation that Plainview and Energex are independent entities does not state a fact within Erde’s personal knowledge, but is a conclusion to be drawn on the basis of factual allegations. See, e.g., East Mkt. St. Square, Inc. v. Tycorp Pizza IV, Inc., 175 N.C. App. 628, 636, 625 S.E.2d 191, 198 (2006) (discussing the “court’s findings of fact regarding the extent of [defendant’s] control over [codefendant]” and holding that this Court “must now ask whether these findings of fact support the trial court’s conclusions of law that [codefendant] was the alter ego and mere instrumentality of the individual defendant[].”).

As a conclusion rather than a statement of fact, Erde’s contention that the two corporations are “completely separate and independent” was properly ignored by the trial court. “As stated in 3 Am. Jur. 2d, Affidavits § 13 . . . Statements in affidavits as to opinion, belief, or conclusions of law are of no effect.’ ” Lemon v. Combs, 164 N.C. App. 615, 622, 596 S.E.2d 344, 348-49 (2004). See also, e.g., Ward v. Durham Life Ins. Co., 90 N.C. App. 286, 289, 368 S.E.2d 391, 393 (1988) (stating trial courts may not consider legal conclusions stated in an affidavit).

The assertions in Erde’s affidavit do not contradict plaintiff’s allegations that: (1) defendants violated certain corporate laws and formalities; (2) the individual defendants exercised control over the finances, policies, and business practices of both corporate defendants; and (3) assets were diverted from Plainview to Energex, leaving Plainview inadequately capitalized.

We hold that the uncontradicted allegations of plaintiff’s complaint sufficiently state a basis for a claim of piercing the corporate veil, which allows the trial court to exercise personal jurisdiction over Energex. The trial court properly concluded that plaintiff had sufficiently alleged a claim for piercing the corporate veil. The trial court properly denied Energex’s motion to dismiss. State ex rel. Cooper, 184 N.C. App. at 622, 646 S.E.2d at 797. The merits of plaintiff’s claims, if any, are not before us. Our holding is solely limited to the jurisdictional issue. This assignment of error is overruled.

V. Conclusion

Plaintiff wholly failed to allege in its complaint that any act committed by Erde occurred in his individual capacity to subject him to personal jurisdiction. The trial court erred by denying Erde’s motion to dismiss. That portion of the trial court’s order is reversed.

The uncontradicted allegations in plaintiff’s complaint regarding Energex are sufficient to state a claim for piercing the corporate veil. The trial court properly denied Energex’s motion to dismiss. That portion of the trial court’s order is affirmed. The trial court’s order is affirmed in part, reversed in part, and remanded for further proceedings not inconsistent with this opinion.

Affirmed in Part; Reversed in Part; and Remanded.

Judge JACKSON concurs. Judge ARROWOOD dissents by separate opinion.