Magnolia N. Prop. Owners' Ass'n, Inc. v. Heritage Communities, Inc.

• Decision Date: 20 April 2012
• Docket Number: No. 4943.,4943.
• Citation: 397 S.C. 348,725 S.E.2d 112
• Parties: MAGNOLIA NORTH PROPERTY OWNERS' ASSOCIATION, INC., Respondent, v. HERITAGE COMMUNITIES, INC., Heritage Magnolia North, Inc., and BuildStar Corporation, Appellants.
• Court: South Carolina Court of Appeals

397 S.C. 348

725 S.E.2d 112

MAGNOLIA NORTH PROPERTY OWNERS' ASSOCIATION, INC., Respondent,

v.HERITAGE COMMUNITIES, INC., Heritage Magnolia North, Inc., and BuildStar Corporation, Appellants.

No. 4943.

Court of Appeals of South Carolina.

Heard Dec. 5, 2011.

Decided Feb. 15, 2012.

Rehearing Denied April 20, 2012.

C. Mitchell Brown and A. Mattison Bogan, of Columbia; Stephen L. Brown and Jeffrey J. Wiseman, of Charleston, for Appellants.

John P. Henry and Philip C. Thompson, of Conway, for Respondent.

GEATHERS, J.

Appellants, Heritage Communities, Inc. (HCI), Heritage Magnolia North, Inc. (HMNI), and BuildStar Corporation (BuildStar) (collectively, Appellants), seek review of the jury's verdict in this construction defect action.¹ Appellants assign error to the trial court's: (1) finding of an amalgamation of Appellants' corporate interests, entities, and activities so as to blur the legal distinction between the corporations and their activities; (2) admitting evidence of construction defects at other HCI projects; (3) instructing the jury regarding actual and punitive damages; (4) granting of a directed verdict for Respondent Magnolia North Property Owners' Association, Inc. (the POA) on its claims for negligence and breach of the warranty of workmanlike services; (5) denying Appellants' motions for a directed verdict and a judgment notwithstanding the verdict (JNOV); and (6) upholding the jury's punitive damages award. We affirm.

FACTS/PROCEDURAL HISTORY

Construction on Magnolia North, a condominium complex in Horry County, began in 1998; as of March 2000, HCI had sold 41 or more units.² On January 29, 2001, HCI filed for protection under Chapter 11 of the United States Bankruptcy Code. Twenty-one buildings, each with 12, 13, or 15 units, had been completed by the time HCI turned over control of the POA to the unit owners on September 9, 2002. At this time, some of the development's roads, as well as four buildings and four pools, were incomplete. Another developer completed the construction of the four buildings, and the POA completed the construction of the roads and pools.

On May 28, 2003, the POA filed this action against Appellants alleging defects in the construction of Magnolia North. The POA's eighth Amended Complaint included the following causes of action: (1) negligence; (2) breach of express warranty; (3) breach of the warranty of workmanlike services against BuildStar; and (4) breach of fiduciary duty against HCI and HMNI.

The case went to trial on May 11, 2009.³ After the close of the POA's evidence, the trial court directed a verdict for HCI on the express warranty cause of action. At the close of all evidence, the trial court granted the POA's motions for a directed verdict as to liability on the causes of action for negligence and breach of the warranty of workmanlike services. The jury returned a verdict in favor of the POA for $6.5 million in actual damages and $2 million in punitive damages.

On May 29, 2009, Appellants filed the following post-trial motions: (1) motion for a new trial based on the thirteenth juror doctrine; (2) motion for a JNOV; (3) motion for a new trial absolute; (4) motion for a new trial nisi remittitur; and (5) motion to set aside the punitive damages verdict. This appeal followed.

ISSUES ON APPEAL

I. Did the trial court err in ruling that Appellants' entities were amalgamated?

II. Did the trial court err in admitting evidence of construction defects at other Heritage projects?

III. Did the trial court err in instructing the jury (1) it must award the POA damages proximately caused by the negligent construction, and (2) if it found the POA entitled to recover punitive damages, it would have a duty to include such damages in its verdict?

IV. Did the trial court err in granting a directed verdict for the POA on its causes of action for negligence and breach of the warranty of workmanlike services?

V. Did the trial court err in denying Appellants' motions for a directed verdict and JNOV?

VI. Did the trial court err in upholding the jury's punitive damages award?

STANDARD OF REVIEW

“The standard of review for an appeal of an action at law tried by a jury is restricted to corrections of errors of law.” Felder v. K–Mart Corp., 297 S.C. 446, 448, 377 S.E.2d 332, 333 (1989). A factual finding of the jury will not be disturbed unless there is no evidence which reasonably supports the finding. Id.

LAW/ANALYSIS

I. Amalgamation

Appellants maintain the trial court erred in ruling that their entities were amalgamated because (1) a court cannot disregard the corporate form when the requirements for “piercing the corporate veil” have not been met, and (2) the concept of amalgamation does not apply to the facts of this case. We disagree.

In Kincaid v. Landing Development Corp., 289 S.C. 89, 91, 344 S.E.2d 869, 871 (Ct.App.1986), three related corporations (a development corporation, a management corporation, and a construction corporation) were sued for negligent construction and breach of warranty. The management corporation argued the court should have directed a verdict in its favor because it was merely the marketing and sales company. Id. at 96, 344 S.E.2d at 874. In addition to sharing owners, the three companies shared a location. Id. Furthermore, the management company was the entity called to remedy problems. Id. Finally, the company's letterhead identified the management company as, “A Development, Construction, Sales, and Property Management Company.” Id. This court affirmed the trial court's finding that the evidence revealed “an amalgamation of corporate interests, entities, and activities so as to blur the legal distinction between the corporations and their activities.” Id. (quoting the trial court); see Mid–South Mgmt. Co. v. Sherwood Dev. Corp., 374 S.C. 588, 597–605, 649 S.E.2d 135, 140–44 (Ct.App.2007) (discussing Kincaid as one of three theories raised for holding a parent corporationliable in place of a subsidiary; i.e.: (1) piercing the corporate veil; (2) alter-ego or instrumentality theory; and (3) the amalgamation of interests or blurred identity theory).

Here, the trial court concluded that the facts of the instant case closely paralleled the facts in Kincaid. The trial court further concluded that the piercing of the corporate veil analysis did not apply to this case. The trial court stated: “The evidence has revealed an amalgamation of the corporate interest, the entities, and activities so as to blur the legal distinction between the corporation[s] and their activities.”

The evidence supports the trial court's ruling. Gwyn Hardister, chief operating officer and president of HCI, testified HCI was the parent corporation of HMNI and BuildStar. The other officers of HCI were Roger Van Wie and Jack Green. Van Wie also oversaw BuildStar, the general contractor supervising the construction at Magnolia North. Separate corporations were created for each HCI development for the purpose of operating as “cost centers,” thereby containing each development's expenses and oversight as it applied to property management and construction cost allocation.⁴ All of these corporations shared officers, directors, office space, and a phone number with HCI. HMNI, the corporation HCI created to operate as a cost center for Magnolia North, created the POA; its officers were also officers for HCI. HCI officers controlled the POA until September 9, 2002, when the unit owners were given control of the POA.

Hardister testified it could be assumed that the employees of BuildStar were also the employees of HCI. At the first annual meeting of the POA, Van Wie acknowledged construction problems and represented that the problems would be corrected. Moreover, the warranty manual distributed to the unit owners upon purchase was entitled: “Heritage Communities, Inc. Limited Warranty Manual,” and it identified HCI as the corporation extending the warranty.

Therefore, as in Kincaid,⁵ this case involves several indicia of an amalgamation of interests between HCI, HMNI, and BuildStar. The corporations shared a location, telephone number, board members, officers, and employees. In its warranty, HCI held itself out to the homeowners as the corporation responsible for construction defects. In light of these indicia, the trial court's ruling that Appellants' entities were amalgamated is supported by the law and the evidence.

II. Other Heritage Projects

Appellants assert that this court should order a new trial because the trial court allowed the POA to repeatedly present evidenceof construction defects at other Heritage projects. Appellants argue that the admission of this evidence violated Rule 404 of the South Carolina Rules of Evidence as well as the limitation on admission of similar events evidence set forth in Whaley v. CSX Transportation, Inc., 362 S.C. 456, 483, 609 S.E.2d 286, 300 (2005). We disagree.

Rule 404(b), SCRE states: “Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith.” Rule 404(b), SCRE. In Whaley, our supreme court recognized that similar acts are admissible if they tend to prove or disprove some fact in dispute. See Branham v. Ford Motor Co., 390 S.C. 203, 230, 701 S.E.2d 5, 19 (2010) (discussing Whaley ). Evidence of similar acts has the potential to be exceedingly prejudicial. Branham, 390 S.C. at 230, 701 S.E.2d at 19. Accordingly, a plaintiff must present facts showing the other acts were substantially similar to the event at issue. Whaley, 362 S.C. at 483, 609 S.E.2d at 300. Further, other acts may be admissible for the purpose of establishing the facts necessary to prove entitlement to punitive damages. Judy v. Judy, 384 S.C. 634, 642–43, 682 S.E.2d 836, 840–41 (Ct.App.2009), aff'd on other grounds,393 S.C. 160, 712 S.E.2d 408 (2011) (affirming when the trial court admitted evidence of a similar prior lawsuit). The admission of evidence is within the trial court's...