Atlantic Tobacco Co. v. Honeycutt

• Decision Date: 18 December 1990
• Docket Number: No. 907SC559,907SC559
• Citation: 101 N.C.App. 160,398 S.E.2d 641
• Parties: ATLANTIC TOBACCO COMPANY, Plaintiff, v. Joseph B. HONEYCUTT and Wife Barbara W. Honeycutt, Individually, Honeycutt Truck Stop, Inc., a North Carolina Corporation, and Hassman Enterprises, Inc., a North Carolina Corporation, d/b/a Honeycutt Travel Store and Payless Cigarette House, Defendants.
• Court: North Carolina Court of Appeals

Page 641

398 S.E.2d 641

101 N.C.App. 160

ATLANTIC TOBACCO COMPANY, Plaintiff, v. Joseph B. HONEYCUTT and Wife Barbara W. Honeycutt Individually, Honeycutt Truck Stop, Inc., a North Carolina Corporation, and Hassman Enterprises, Inc., a North Carolina Corporation, d/b/a Honeycutt Travel Store and Payless Cigarette House, Defendants.

No. 907SC559.

Court of Appeals of North Carolina.

Dec. 18, 1990.

Moore, Diedrick, Carlisle & Hester by J. Edgar Moore, Rocky Mount, for plaintiff-appellant.

Stubbs, Perdue, Chesnutt, Wheeler & Clemmons, P.A., Trawick H. Stubbs, Jr. and by Linda G. Cauffman, New Bern, for defendant-appellee.

Smith, Debnam, Hibbert & Pahl by Bettie Kelly Sousa and Elizabeth B. Godfrey, Raleigh, for defendant-appellee Barbara W. Honeycutt.

DUNCAN, Judge.

The only issue presented on this appeal is whether the trial court erred in directing a verdict for Joseph and Barbara Honeycutt. We hold that the trial court did commit error in directing a verdict in favor of Joseph Honeycutt, but did not err in directing a verdict in favor of Barbara Honeycutt.

Preliminarily, we note that where the question of whether to grant a directed verdict is a close one, it is the better practice for the trial court to allow the case to be submitted to the jury. Manganello v. Permastone, Inc., 291 N.C. 666, 669-70, 231 S.E.2d 678, 680 (1977). In that event, if the jury returns a verdict in favor of the moving party a decision on the motion becomes unnecessary. If, on the other hand the jury finds for the nonmoving party, the judge has an opportunity to reconsider in the context of a motion for judgment notwithstanding the verdict. If, on appeal, it appears that the motion was improvidently granted, the court may then order entry of judgment on the verdict and avoid the expense and delay of a retrial. Id. (citing Comment, G.S. § 1A-1, Rule 50 (1969); 5A Moore's Federal Practice and Procedure § 50.14 (2d ed. 1975)).

On a defendant's motion for a directed verdict, plaintiff's evidence must be taken as true and all the evidence must be considered in the light most favorable to the plaintiff, giving him the benefit of every reasonable inference to be drawn therefrom. Norman v. Banasik, 304 N.C. 341, 283 S.E.2d 489 (1981). Only where the evidence, when considered in that light, is insufficient to support a verdict in the plaintiff's favor should defendant's motion for a directed verdict be granted. Snow v. Duke Power Co., 297 N.C. 591, 256 S.E.2d 227 (1979).

Plaintiff in the instant case is attempting to "pierce the corporate veil" of the two insolvent debtor corporations and reach the individual assets of Joseph and Barbara Honeycutt as owners. This court has recognized that the doctrine that a corporation is a legal entity distinct from the persons composing it is a legal fiction devised to serve the ends of justice. Glenn v. Wagner, 313 N.C. 450, 329 S.E.2d 326 (1985). As an equitable doctrine, it cannot be invoked to subvert the reasons which brought it into existence; thus, a court will disregard the corporate form when necessary to prevent fraud or to achieve equity. Id. at 454, 329 S.E.2d at 330 (citing 18 Am.Jur.2d, Corporations § 15 (1965)).

Our Supreme Court has held that where a corporation is so operated that "[i]t 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...." Henderson v. Security Mortgage & Finance Co., 273 N.C. 253, 260, 160 S.E.2d 39, 44 (1968). In expanding on the "mere instrumentality rule" referred to in Henderson, our Supreme Court has relied on the definition set forth in B-W Acceptance Corp. v. Spencer, 268 N.C. 1, 9, 149 S.E.2d 570, 576 (1966), which requires the following elements:

1. the domination and control of the corporate entity;

2. the use of that domination and control to perpetrate a fraud or wrong;

3. the proximate causation of the wrong complained of by the domination and control.

Factors which have been considered 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.

Wagner, 313 N.C. at 455, 329 S.E.2d at 330 (citing generally, Robinson, North Carolina Corporation Law §§ 2-12, 9-7 to -10 (3d ed. 1983)).

It must be remembered above all that the theory of piercing the corporate veil is an equitable one, and will therefore be flexibly applied to serve the ends of justice. "It is not the presence or absence of any particular factor that is determinative. Rather, it is a combination of factors which, when taken together with an element of injustice or abuse of corporate privilege, suggest that the corporate entity attacked had 'no separate mind, will or existence of its own' and was therefore the 'mere instrumentality or tool' of the dominant [shareholder]." Id. at 458, 329 S.E.2d at 332.

When the above considerations are applied to the facts of this case, it becomes apparent that Barbara Honeycutt did not exercise the requisite degree of control over the activities of either Honeycutt Truck Stop, Inc. or Hassman Enterprises, Inc. to justify piercing the corporate veil with respect to her. Barbara Honeycutt testified that she believed that she was secretary of the two corporations, but was not sure. There is nothing, however, to suggest that she exercised any control over the operations of the businesses as a result of that capacity. Her duties included managing the restaurant, ordering the food, making out the schedules, making out the menus, and ordering the items sold by the cigarette store. All of plaintiff's evidence regarding control is directed at the activities of Joseph Honeycutt, who was the president of the corporations and sole stockholder.

Since there is no evidence establishing the threshhold existence of Barbara Honeycutt's domination and control of the corporate entities, it is not possible to proceed to the further issues of whether that control was used to perpetrate a wrong, or whether the control proximately caused plaintiff's injuries. We therefore hold that the directed verdict as to Barbara Honeycutt was proper.

There was, however, sufficient evidence as to Joseph Honeycutt to take the case against him to the jury. As mentioned above, Joseph Honeycutt was the...