State ex rel. Cooper v. Ridgeway Brands
| Decision Date | 17 July 2007 |
| Docket Number | No. COA06-422.,COA06-422. |
| Citation | 646 S.E.2d 790 |
| Court | North Carolina Court of Appeals |
| Parties | STATE of North Carolina, ex rel. Roy COOPER, Attorney General of North Carolina, Plaintiff, v. RIDGEWAY BRANDS MANUFACTURING, LLC, a North Carolina corporation; Ridgeway Brands, Inc.; James C. Heflin; Fred A. Edwards; and Carl B. White, Defendants. |
Attorney General Roy Cooper, by Special Deputy Attorneys General Richard L. Harrison, Karen E. Long, and Melissa L. Trippe, for plaintiff-appellant, State of North Carolina.
Poyner & Spruill, LLP, by J. Nicholas Ellis and Timothy W. Wilson, Rocky Mount, for defendant-appellees, Ridgeway Brands Manufacturing, LLC and James C. Heflin.
When the dismissal of a suit affects the plaintiff's right to avoid two trials on the same issue, the plaintiff's appeal is not interlocutory. When a plaintiff fails to amend his complaint to add a party defendant until after the expiration of the applicable statute of limitations as to that defendant, the claim cannot relate back to circumvent the statute of limitations. 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. Further, when the application of both N.C. Gen.Stat. § 75-1.1 and N.C. Gen.Stat. § 66-291 creates overlapping supervision, enforcement and liability in a particular area of law, the rationale of Lindner v. Durham Hosiery Mills, Inc., 761 F.2d 162 (4th Cir. 1985), and Skinner v. E.F. Hutton & Co., 314 N.C. 267, 333 S.E.2d 236 (1985), precludes the application of N.C. Gen.Stat. § 75-1.1 to cases of noncompliance with N.C. Gen.Stat. § 66-291. Finally, when the allegations in a plaintiff's complaint, taken as true, are sufficient to state a claim for civil conspiracy, including the allegation that a corporate agent has an independent personal stake in achieving a corporation's illegal objective, the trial court's grant of defendant's motion to dismiss is improper.
In November 1998, the State of North Carolina ("plaintiff") entered into a Master Settlement Agreement ("MSA") with major domestic cigarette manufacturers. Cigarette manufacturers in North Carolina were required to either sign the MSA or comply with the provisions of N.C. Gen.Stat. § 66-291, which obligated cigarette manufacturers to deposit funds into a qualified escrow account for sales of cigarettes in North Carolina.
Because the trial court dismissed the claims against James C. Heflin ("Heflin") under N.C. Gen.Stat. § 1A-1, Rule 12(b)(6), we treat the allegations in the complaint as true. The complaint sets forth the following allegations.
In early 2001, Heflin formed the corporation later named Ridgeway Brands Manufacturing, LLC ("Ridgeway"). Heflin was an owner and member-manager of Ridgeway, which was located in Stantonsburg, North Carolina, and sold tobacco products largely to Ridgeway Brands, Inc. ("Brands"). Brands was a Kentucky corporation, distributing tobacco products for sale in North Carolina and other states. Fred A. Edwards ("Edwards") and Carl B. White ("White") were owners and active managers of Brands. Heflin, Edwards and White "dominated and controlled [Ridgeway] to further [their] own objectives and those of [Brands][.]"
In late 2002, Heflin, Edwards and White hired Lee Welchons ("Welchons") as the general manager of Ridgeway. Welchons had extensive experience in tobacco manufacturing and was familiar with both the payment obligations of manufacturers pursuant to the MSA and North Carolina escrow statutes.
In early 2003, Heflin, Edwards and White announced the merger of Ridgeway and Brands. The merger, although never formally completed, was accomplished de facto between Ridgeway and Brands. In early 2003, Brands became the sole purchaser of cigarettes manufactured by Ridgeway, and Ridgeway became "a corporation without a separate mind, will or existence of its own[,] . . . operated as a mere shell to perform for the benefit of [Heflin] . . . Ridgeway [Brands], Edwards [and] White."
Heflin, Edwards and White exhibited control over Ridgeway in the following ways: (1) establishing the pricing structure of cigarettes that Ridgeway sold to Brands; (2) ignoring Welchon's advice that the pricing structure was "grossly inadequate" to satisfy North Carolina's escrow statute requirements; (3) on one occasion, forbidding Welchons to shut down a cigarette line for repairs; (4) determining in which states cigarettes manufactured by Ridgeway would be sold; (5) making hiring decisions for Ridgeway; (6) directing money intended for Ridgeway to Heflin, White, Edwards and Brands; (7) excessively fragmenting Ridgeway; (8) directing the movement of funds to prevent the payment of statutory escrow obligations; (9) disposing of almost all assets of Ridgeway; (10) directing Welchons to send information regarding the value of the equipment, spare parts, and inventory owned by Ridgeway to an employee of Swift Transportation ("Swift"), by whom Heflin had previously been employed; (11) hiring attorneys, Michelle Turpin and Victor Schwartz, in 2004 to assist Ridgeway with its finances; (12) making payments to the attorneys in excess of $1 million, "[without] financial records of how that money was spent"; (13) directing, with Schwartz's aid, the destruction of Ridgeway's paper records, computer hard drives, and tape back-ups; (14) keeping "no corporate financial records or grossly inadequate corporate records"; and (15) informing Welchons that Ridgeway would not file bankruptcy because Heflin "did not want anybody looking back to see what was going on and track the money back to where it came from."
Rather than become a participating manufacturer under the MSA, Ridgeway elected to comply with N.C. Gen.Stat. § 66-291. In April 2003, Ridgeway made its first escrow deposit of $1,220,313.60, as required by N.C. Gen.Stat. § 66-291(b), for sales of cigarettes in North Carolina during 2002. However, in 2003, Ridgeway sold at least 70.6 million cigarettes in North Carolina, which required a deposit of approximately $1.3 million into the escrow account before 15 April 2004. Ridgeway failed to make this deposit. In 2004, Ridgeway sold at least 17 million cigarettes in North Carolina, and despite being notified multiple times by the State of their escrow obligation, Ridgeway again failed to make the required deposit before 15 April 2005. In fall 2004, Ridgeway stopped manufacturing cigarettes, and no escrow was ever deposited by Ridgeway for cigarettes sold during 2003 and 2004.
On 4 May 2004, plaintiff instituted this action seeking to recover from Ridgeway the escrow deposit due in 2004, civil penalties, and also seeking an injunction prohibiting Ridgeway from selling cigarettes in North Carolina for two years. On 19 October 2005, plaintiff filed an amended complaint. This complaint added claims for the escrow deposit due in 2005, together with civil penalties arising from the failure to make the deposit. It further sought to impose liability upon defendants Brands, Edwards, White and Heflin under a piercing the corporate veil theory. Claims were also made against defendants under the North Carolina Unfair and Deceptive Trade Practices Act and for civil conspiracy.
On 25 October 2005, Ridgeway and Heflin moved to dismiss plaintiff's amended complaint. On 9 December 2005, Judge Smith granted the motion to dismiss in part, dismissing the claims for piercing the corporate veil, unfair and deceptive trade practices, and conspiracy as to both Ridgeway and Heflin. The order further dismissed the claims for civil penalties as to Heflin. From this order, plaintiff appeals only as to the dismissal of its claims against Heflin.
We must first determine whether plaintiff's appeal is interlocutory and whether it is properly before this Court. This appeal concerns only Heflin, not the other defendants. The trial court did not certify the judgment pursuant to N.C. Gen.Stat. § 1A-1, Rule 54(b) (2005). Therefore, we must first determine whether this appeal affects a substantial right. We conclude it does.
"The right to avoid two trials on the same or overlapping issues . . . constitute[s] a substantial right[.]" Draughon v. Harnett Cty. Bd. of Educ., 158 N.C.App. 705, 707, 582 S.E.2d 343, 345 (2003); see also Green v. Duke Power Co., 305 N.C. 603, 290 S.E.2d 593 (1982); Liggett Group v. Sunas, 113 N.C.App. 19, 437 S.E.2d 674 (1993). Similarly, the dismissal of plaintiff's claim against Heflin "affects a substantial right to have determined in a single proceeding the issues of whether [plaintiff] has been damaged by the actions of one, some or all defendants, especially since [plaintiff's] claims against all of them arise upon the same series of transactions." Fox v. Wilson, 85 N.C.App. 292, 298, 354 S.E.2d 737, 741 (1987).
In the instant case, since the liability of Edwards, White, and Brands depends on Heflin's joint and several liability, plaintiff faces the possibility of having to undergo two trials on the same issue. We therefore address the merits of this appeal.
A motion to dismiss under N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) (2005), tests the legal sufficiency of the complaint. Grant Constr. Co. v. McRae, 146 N.C.App. 370, 373, 553 S.E.2d 89, 91 (2001) (citation omitted). On appeal, our standard of review "is 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[.]" Bowman v. Alan Vester Ford Lincoln Mercury, 151 N.C.App. 603, 606, 566 S.E.2d 818, 821 (2002) (quotation omitted). The complaint should be "liberally construed, and the court should not dismiss the complaint unless...
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