Osborn v. University Med. Assoc., Med. Univ. Of Sc

• Decision Date: 11 August 2003
• Docket Number: No. CIV.A. 2-01-4002-18.,CIV.A. 2-01-4002-18.
• Citation: 278 F.Supp.2d 720
• Court: U.S. District Court — District of South Carolina
• Parties: Terry W. OSBORN, Plaintiff, v. UNIVERSITY MEDICAL ASSOCIATES OF THE MEDICAL UNIVERSITY OF SOUTH CAROLINA; Medical University of South Carolina; Health Sciences Foundation of the Medical University of South Carolina; Pharmaceutical Education & Development Foundation of the Medical University of South Carolina; James B. Edwards; and Thomas P. Anderson, Defendants.

278 F.Supp.2d 720

Terry W. OSBORN, Plaintiff, v. UNIVERSITY MEDICAL ASSOCIATES OF THE MEDICAL UNIVERSITY OF SOUTH CAROLINA; Medical University of South Carolina; Health Sciences Foundation of the Medical University of South Carolina; Pharmaceutical Education & Development Foundation of the Medical University of South Carolina; James B. Edwards; and Thomas P. Anderson, Defendants.

No. CIV.A. 2-01-4002-18.

United States District Court, D. South Carolina, Charleston Division.

August 11, 2003.

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Carl Muller, Greenville, S.C., for plaintiff.

Joseph C. Good, Jr., Susan Wall, Todd W. Smyth, Thomas White, Charleston, S.C., for defendant.

ORDER

NORTON, District Judge.

This matter is before the court on defendants' respective Motions for Summary Judgment. The court heard oral arguments on February 13, 2003.

I. Summary Judgment Standard

Summary judgment shall be granted when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party carries its burden of showing that there is an absence of evidence to support a claim, then the non-moving party must demonstrate by affidavit, depositions, answers to interrogatories, and admissions on file that there is a genuine issue of material fact for trial. Id. at 324-25, 106 S.Ct. 2548. An issue of fact is "genuine" when the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue of fact is "material" only if establishment of the fact might affect the outcome of the lawsuit under the governing substantive law. Id. When determining whether there is an issue for trial, the court must view the inferences to be drawn from the underlying facts in the light most favorable to the non-moving party. Perini Corp. v. Perini Constr., Inc., 915 F.2d 121, 123-24 (4th Cir.1990).

II. Factual Background

This action arises out of the termination of plaintiff, Terry W. Osborn ("Osborn"), from his employment as President and Chief Executive Officer of the Pharmaceutical Development Center ("PDC"), the operational element of the Pharmaceutical Education and Development Foundation of the Medical University of South Carolina ("PEDF"). Primarily, Osborn claims that defendants¹ fraudulently breached his Employment Agreement (the "Agreement") with the PDC and that following his termination, they failed to properly compensate him in accordance with the terms of that Agreement. (Pl.'s Mem. at 1; Pl.'s Amended Compl. at 2-3).

Osborn was hired by the PDC on January 5, 1999 following a national search for an individual to serve as its Chief Executive Officer and President. In 1997, the PDC had conducted a financial evaluation and decided to pursue the goal of attaining a profitable commercial status. With this goal in mind, the PDC recruited Osborn in December 1998, and Osborn accepted an offer of employment and entered into the Employment Agreement at issue with the PDC on January 5, 1999. Among other things, the Agreement provided Osborn with the responsibility of moving the PDC "up to the next business level," and more specifically, it charged him with the duty to "grow the revenues and develop sufficient professional staff to profitably expand the enterprise into a `for profit' operation." (Pl.'s Ex. 1). The PDC failed to reach profitability after two years under Osborn's direction. Osborn was terminated on January 12, 2001 by a letter from James B. Edwards, then the Chairman of the Board of Directors of the PEDF. (Pl.'s Ex. 7). This letter did not provide an explanation for Osborn's termination, but it implied that Osborn's removal was not "for cause" because it specifically discussed the implementation of Osborn's severance benefits under the terms of his Agreement.²

Nevertheless, despite being dismissed for reasons other than "for cause," Osborn alleges that he received only a portion of the severance benefits he was entitled, and he further alleges that additional bargained-for forms of compensation were withheld from him altogether.³ As a result, Osborn filed suit against defendants alleging a total of six causes of action: (1) fraud in the inducement; (2) negligent misrepresentation; (3) breach of contract accompanied by a fraudulent act; (4) breach of contract; (5) breach of implied covenant of good faith and fair dealing; and (6) a violation of the South Carolina Payment of Wages Act, S.C.Code Ann. § 41-10-10 et seq. (West 2003).

All six defendants have filed for summary judgment on each of Osborn's claims. Additionally, defendants have filed five counterclaims against Osborn for which they seek summary judgment in their favor: (1) breach of fiduciary duty; (2) breach of contract; (3) breach of contract accompanied by a fraudulent act; (4) negligent misrepresentation; and (5) fraud and/or fraudulent concealment. In response, Osborn argues that summary judgment is improper with respect to all of these claims. (Pl.'s Mem. at 41-43).

III. Discussion

a. Preliminary Issues Concerning the Liability of the Various Corporate Defendants—MUSC, HSF and UMA

Other than the PEDF, the remaining corporate defendants in this action (i.e., HSF, MUSC, and UMA) argue that they were neither Osborn's employer nor did they have any contractual privity with Osborn, and that they may not be held liable for any of the causes of action alleged. In response, Osborn argues that liability extends to each of these respective defendants under the "instrumentality doctrine," or "alter ego" theory. This doctrine generally provides that, "when a lender controls the business decisions and actions of its borrower, the borrower becomes the instrument or alter ego of the lender." Peoples Fed. Savings & Loan Ass'n v. Myrtle Beach Golf & Yacht Club, 310 S.C. 132, 425 S.E.2d 764, 774 (Ct.App. 1992).

This doctrine is but a variation of the "piercing the corporate veil" principle, in which a court may in certain instances disregard the corporate device of limited liability where it has been misused by its owners. Therefore, under this doctrine, "[a] corporation may become liable for the debts of another corporation when it misuses that corporation by treating it, and by using it, as a mere business conduit for the purposes of the dominant corporation." Krivo Indus. Supply Co. v. Nat'l Distillers & Chem. Corp., 483 F.2d 1098, 1102 (5th Cir.1973). As stated by the Fifth Circuit in its Krivo decision, the rationale for holding a dominant corporation liable for a subservient corporation's debts is that, "since the dominant corporation has misused the subservient corporation's corporate form by using it for its ... own purposes, the debts of the subservient corporation are in reality the obligations of the dominant corporation." Id. at 1102-03. Where this is the case, "courts will look through the forms to the realities of the relation between the companies as if the corporate agency did not exist and will deal with them as the justice of the case may require." Id. at 1103 (quoting United States v. Reading Co., 253 U.S. 26, 63, 40 S.Ct. 425, 64 L.Ed. 760 (1920)). However, before this doctrine may be applied, two elements must be present: "First, the dominant corporation must have controlled the subservient corporation, and second, the dominant corporation must have proximately caused [the] plaintiff harm through misuse of this control." Id. at 1103 (emphasis added).

In assessing whether the "instrumentality doctrine" should extend liability in this action to MUSC, HSF, and UMA, the court concludes that the issue of "control" is dispositive. And what is required to establish the necessary "control" is clear:

[I]n cases resulting in "instrumentality" liability for the creditor [i.e., the dominant corporation], the facts have unmistakably shown that the subservient corporation was being used to further the purposes of the dominant corporation and that the subservient corporation in reality had no separate independent existence of its own. This absence of an independent corporate purpose is most apparent in those cases in which the dominant corporation, to further its own corporate purposes, either organized or acquired the subservient corporation.

Id. at 1105 (emphasis added). "In summary[,] ... the control required for liability under the `instrumentality' rule amounts to total domination of the subservient corporation, to the extent that the subservient corporation manifests no separate interests of its own and functions solely to achieve the purposes of the dominant corporation."⁴ Id. at 1106 (emphasis added).

Such language makes it clear that under the appropriate circumstances "court[s] do not hesitate to ignore the corporate form in those cases where the corporate device has been misused by its owners." Id. at 1102. However, the burden of proof is substantial and courts within this jurisdiction have made it clear that they are generally reluctant to "disregard the integrity of the corporate entity." Sturkie v. Sifly, 280 S.C. 453, 313 S.E.2d 316, 319 (S.C.Ct. App.1984). Indeed, the instrumentality theory will "not apply even in the presence of `total domination' without some misuse of control by the dominant corporation resulting in injustices or inequitable consequences." Peoples Fed. Savings & Loan Ass'n, 425 S.E.2d at 774 (citing Krivo, 483 F.2d at 1106). Regardless, Osborn argues that in addition to his direct employer, the PEDF, each of the remaining...