Lower Neuse Pres. Grp. LLC v. Boats, ETC. Inc.
| Decision Date | 28 September 2011 |
| Docket Number | CIVIL ACTION NO. 4:llcv77 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | LOWER NEUSE PRESERVATION GROUP, LLC, Plaintiff, v. BOATS, ETC., INC., CLINTON MIDGETT, And ELIZABETH DOVEL, Defendants. |
SALTY is a 42-foot sport fishing boat which was in need of repair. Plaintiff, Lower Neuse Preservation Group, LLC ("Lower Neuse" or "the Company"), intends to use SALTY as a charter boat and learning tool for a children's summer camp. The Company engaged the Defendants to inspect and then repair SALTY for a contract price of $100,000.00. Problems arose, and this action followed.
The case is now before the Court on the Defendants' motion to dismiss ten of the eleven claims alleged by the Company.1 Considering the facts pled, and fair inferences from those facts, the Court finds four of the ten claims facially plausible and, therefore, DENIES the Defendants' motion to dismiss those four counts. Of the remaining six challenged claims, five rest on conclusory recitations of the elements, or are otherwise insufficient to state a claim. Accordingly, the Court GRANTS the Defendants' motion to dismiss those five claims. The remaining count, alleging breach of contract against all three Defendants, is properly assertedagainst only two, as the facts alleged are insufficient to state a claim to pierce the corporate veil and assert contract liability against Clinton Midgett ("Midgett") and Elizabeth Dovel ("Dovel") as owners of Boats, Etc., Inc. ("Boats, Etc.").
According to the allegations in the Complaint, Lower Neuse is a North Carolina entity, with plans to operate SALTY as a charter boat and learning platform for a children's summer camp. These plans required Coast Guard certification of SALTY which she could not obtain without repair. The Defendants, Midgett and Dovel, husband and wife, own Boats, Etc., Inc., a Virginia corporation engaged in building and repairing boats. Midgett is a wooden boat builder of some renown whom Lower Neuse sought out to assist in its plans to refit the vessel.
The Complaint alleges that Midgett was first engaged as a consultant, to determine whether SALTY's refit was feasible within a defined budget and time period. Midgett inspected the vessel, concluded the refit was possible, and suggested that Lower Neuse retain Boats, Etc. to complete the refit. The exact nature of the refit is not detailed in the pleadings, and neither party has attached any written contract for the inspection, refit or other repairs. However, Lower Neuse alleges that on March 5, 2009, it "entered into a written agreement with Midgett and Boats, Etc. to totally and completely refit SALTY at a cost not to exceed $100,000.00." (Complaint, ¶ 19). The refit was to take no more than one year, and SALTY would be ready for service in the spring of 2010.
Lower Neuse alleges Midgett's representation that the refit could be completed within these parameters was false, that Midgett knew it was false, and that he made it to induce the Company to hire Boats, Etc. The Complaint also asserts that during the refit Dovel and Midgett made false statements concerning its progress and expected completion date; that Midgett andBoats, Etc. performed the work improperly, concealed defects from Coast Guard inspection, and failed to safeguard SALTY, resulting in unspecified damage to the vessel while she was in the Defendants' custody.
By June, 2010, the refit was not complete. Lower Neuse moved the vessel to another yard, and thereafter alleges that Midgett and Boats, Etc. abandoned their work on SALTY. As alleged in the Complaint, the total cost of the expected refit will be $300,000.00. Lower Neuse seeks recovery of $225,000.00 under a variety of legal theories.
The Complaint asserts eleven claims against the Defendants. Count 1 asserts a breach of contract against all the Defendants. Counts 2, 7, 8, 9, and 10 all assert some species of fraud against Defendant Midgett individually. Count 3 is a negligence count against Midgett. Counts 5 and 6 assert breaches of the implied warranty of workmanlike performance and Count 11 claims Midgett breached a fiduciary duty to Lower Neuse. The only count not addressed by the pending motions is Count 5, alleging liability against Midgett and Boats, Etc. for breach of duties arising under a bailment. The Court will address each of the Defendants' arguments in turn.
"A pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). A pleading fails to meet this standard and is subject to dismissal under Rule 12(b)(6) when it does not "contain sufficient factual matter, accepted as true, 'to state a claim that is plausible on its face.'"
Ashcroft v. Iqba,_U.S._, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twomblv, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when the plaintiff pleads factual content "that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949.
"Factual allegations must be enough to raise a right to relief above the speculative level" and beyond the level that is merely conceivable. Twomblv, 550 U.S. at 570; Iqbal, 129 S. Ct. at 1951. Legal conclusions and "threadbare recitals of the elements of a cause of action" do not state a claim. Iabal, 129 S.Ct. at 1049.
The Supreme Court has described the motion to dismiss analysis in two parts. First, the Court must accept the allegations of fact as true. Id. at 1949-50 However, a court is not required "to accept as true a legal conclusion couched as a factual allegation," Papasan v. Allain. 478 U.S. 265, 286 (1986), or a legal conclusion unsupported by factual allegations, Iqbal. 129 S. Ct. at 1951. After reviewing the allegations, the Court must consider whether they are sufficient to state a plausible claim for relief - "a context specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal. 129 S.Ct. at 1950.
parties.
Lower Neuse has alleged that it entered into a written contract with "Boats, Etc. and Midgett." (Complaint, ¶ 19). The company also claims, however, that Midgett and Dovel are liable on the contract in their capacity as officers of Boats, Inc. The primary reason the Company asserts personal liability is that Boats, Etc.'s corporate existence had been terminated by the Virginia State Corporation Commission ("SCC"), thus exposing its owners to personal liability. (Complaint, ¶ 34).
Although terminated, Boats, Etc. was reinstated by the SCC on February 23, 2011. (Complaint, ¶ 8). Thereafter, under Virginia law, questions of individual liability for corporate acts must "be determined as if the termination of corporate existence had never occurred." Va. Code § 13.1-754; Sved v. ZH Technologies，, 280 Va. 58, 69, 694 S.E. 2d 625, 631 (2010). Thisstatute, amended in 2004, completely reversed Virginia's previous presumption that reinstatement would have no effect on an officer's personal liability for acts occurring while a corporation was terminated. Syed,280 Va. at 69. As a result, Dovel and Midgett argue reinstatement of Boats, Etc. bars this contract claim against its officers or owners.
Lower Neuse correctly observes that the statutory change did not eliminate the possibility that officers could be held personally liable during such periods, however, its Complaint alleges no facts suggesting that Dovel and Midgett should be held personally liable. In Virginia, piercing the corporate veil requires that the plaintiff prove that the corporation is "the alter ego, alias, stooge, or dummy" of the individual. Cheatle v. Rudds Swimming Pool Supply Co., 234 Va. 207, 212, 360 S.E. 2d 828, 830-31 (1987). In addition, the corporation must have been used to "evade a personal obligation, to perpetrate fraud or a crime, to commit an injustice, or to gain an unfair advantage." O'Hazza v. Executive Credit Union, 246 Va. Ill, 115, 431 S.E. 2d 318, 320 (1993). The Fourth Circuit has observed that by this second requirement, Virginia, unlike some jurisdictions, mandates proof of fraud or a legal "wrong" to recover from corporate owners or agents. Perpetual Real Estate Services. Inc. v. Michaelson Properties. Inc., 974 F.2d 545, 54849 (4th Cir. 1992).
In its effort to hold Midgett and Dovel personally liable, Lower Neuse asserts that the two operated Boats, Etc. as their "alter ego, a sham, and merely an instrumentality or adjunct of themselves." (Complaint, ^ 9). In support of this conclusion, the Company offers five statements, three of which relate directly to the timely-cured termination of corporate existence. The remaining two statements accuse the owners of "failing to observe other corporate formalities," and "abusing the corporate form." Importantly, the Complaint describes no "corporate formalities" which Boats, Etc. failed to observe (other than those directly related to itsinterim termination), nor any other factual basis for its conclusion that Midgett and Dovel abused the corporate form. There is no allegation, for example, that the two failed to capitalize or drained funds from the corporation O'Hazza, 246 Va. at 1116; diverted assets of the corporation to other uses, Richels v. Smith, 163 Bankr. 760 (E.D. Va. 1994); transferred property or equipment in order to evade obligations to creditors; Lewis Trucking Corp. v. Commonwealth, 207 Va. 23, 147 S.E. 2d 747 (1966); or otherwise, used the corporation to "disguise wrongs, obscure fraud, or conceal crime." Cheatle, 360 S.E. 2d at 831. Under these circumstances, Lower Neuse's attempt to assert individual liability against the owners of Boats, Etc. rests on no more than conclusory recitations of the elements of a claim without enough facts to...
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