S. Shores Realty Servs., Inc. v. Miller

• Decision Date: 17 January 2017
• Docket Number: No. COA16-557,COA16-557
• Citation: 796 S.E.2d 340
• Court: North Carolina Court of Appeals
• Parties: SOUTHERN SHORES REALTY SERVICES, INC., Plaintiff, v. William G. MILLER, The Miller Family Limited Partnership II, The Miller Family Limited Partnership III, Old Glory II, LLC, Old Glory III, LLC, Old Glory IV, LLC, Old Glory V, LLC, Old Glory VI, LLC, Old Glory VII, LLC, Old Glory IX, LLC, Old Glory XI, LLC, Old Glory XII, LLC, and Old Glory XIII, LLC, Defendants.

796 S.E.2d 340

SOUTHERN SHORES REALTY SERVICES, INC., Plaintiff,

v.William G. MILLER, The Miller Family Limited Partnership II, The Miller Family Limited Partnership III, Old Glory II, LLC, Old Glory III, LLC, Old Glory IV, LLC, Old Glory V, LLC, Old Glory VI, LLC, Old Glory VII, LLC, Old Glory IX, LLC, Old Glory XI, LLC, Old Glory XII, LLC, and Old Glory XIII, LLC, Defendants.

No. COA16-557

Court of Appeals of North Carolina.

Filed: January 17, 2017

Vandeventer Black LLP, Raleigh, by David P. Ferrell and Kevin A. Rust, for plaintiff-appellee.

Gregory E. Wills, P.C., by Gregory E. Wills, Point Harbor, for defendants-appellants.

ZACHARY, Judge.

William G. Miller; The Miller Family Limited Partnership II; The Miller Family Limited Partnership III; Old Glory II, LLC; Old Glory III, LLC; Old Glory IV, LLC; Old Glory V, LLC; Old Glory VI, LLC; Old Glory VII, LLC; Old Glory IX, LLC; Old Glory XI, LLC; Old Glory XII, LLC; and Old Glory XIII, LLC (collectively, defendants), appeal from judgment entered against them following a trial on claims asserted by Southern Shores Realty Services, Inc. (plaintiff), and from the trial court's denial of defendants' motions for a directed verdict and for entry of Judgment Notwithstanding the Verdict ("JNOV") or in the alternative for a new trial. On appeal, defendants argue that they were entitled to entry of a directed verdict or JNOV on plaintiff's claims for breach of contract against all defendants, and on plaintiff's claim for piercing the corporate veil brought against William G. Miller ("Mr. Miller"). We have carefully reviewed defendants' arguments in light of the record on appeal and the applicable law, and conclude that the trial court did not err and that defendants are not entitled to relief.

I. Background

This appeal arises out of a dispute concerning thirteen contracts for management of properties available for short-term vacation rental of houses on the North Carolina coast. Plaintiff is a North Carolina real estate company that provides rental management services to the owners of vacation rental properties on the Outer Banks. Plaintiff generally contracts with the owners of properties that are available for short-term rental of less than thirty days. Plaintiff advertises and rents the properties, and provides housekeeping, maintenance, and record-keeping services for the properties' owners. In return, plaintiff earns a commission of 13% of the total rental price for a vacation rental. In order to reserve a house for a short-term vacation rental, prospective tenants are required to deposit half of the total rental amount with plaintiff in advance. When plaintiff receives the deposit, it disburses the deposit to the owner of the property. When the tenant departs the rental property, plaintiff transfers the remainder of the rental payment to the property's owner.

Defendant William Miller is "the patriarch and speaker for the family business" at issue in the present case, which consists of the construction, rental, and sale of coastal properties. The other defendants are limited liability companies (LLCs) established in North Carolina pursuant to the North Carolina Limited Liability Company Act, N.C. Gen. Stat. § 57D–1–01 et. seq . Each LLC was established to manage the construction, rental, and sale of a single coastal property. Mr. Miller is a managing member of each LLC, as are Mr. Miller's wife and their sons.

In 2009, plaintiff signed thirteen contracts with the LLC defendants in the instant case, under the terms of which plaintiff agreed to provide rental management services for the 2010 vacation rental season. The contracts and the correspondence between plaintiff and defendants refer to defendants as "Owner" and to plaintiff as "SSRS" or "Agent." Each of these contracts provided, in relevant part that:

SSRS will remit rental proceeds collected, less any deductions authorized hereunder ... to Owner on the following basis: SSRS will disburse up to 50% of the rental rate when the advance payment is made and the balance is disbursed after the tenant's departure provided: (1) this shall not constitute a guarantee by Agent for rental payments that Agent is unable to collect in the exercise of reasonable diligence; (2) payments hereunder are subject to limitations imposed by the VRA regarding advance disbursement of rent; and (3) if, pursuant to this Agreement or required by the VRA, Agent either has refunded or will refund in whole or in part any rental payments made by a tenant and previously remitted to Owner, Owner agrees to return same to Agent promptly upon Agent's demand. Two exceptions to this policy are:

...

2. "Foreclosure"—Owner will report foreclosure on the rental property to Agent and rental proceeds already disbursed to Owner will be returned to SSRS. Any remaining proceeds paid by Tenant will be held by SSRS to ensure the availability of funds for Tenant's rental or refund. If Agent receives information regarding Owner's financial difficulties of any kind, Agent will hold remaining rental income for the protection of Tenant's rental or refund. Foreclosure is a material fact; therefore, Agent is required to disclose knowledge of foreclosure to Tenant.

Plaintiff subscribed to a listing service that included a list of properties that were in foreclosure. In January of 2010, one of defendants' properties that plaintiff had rented to vacation tenants for the summer of 2010 appeared on the foreclosure list. Defendants had not informed plaintiff of this occurrence. David Watson, plaintiff's sales manager and general manager, arranged a meeting with Mr. Miller, at which Mr. Miller agreed to return the rental deposit that plaintiff had disbursed to defendant LLCs for rental of the property. Sharon Bell, who had been plaintiff's accounting supervisor for approximately twenty years, attended the meeting and heard Mr. Miller agree to return the rental deposits that had been disbursed to his businesses for properties that were in foreclosure. However, those funds were never returned to plaintiff, and on 28 January 2010, plaintiff received a letter from an attorney associated with the law firm representing defendants, admitting that five of the properties subject to contracts between plaintiff and defendants were then in foreclosure. The letter stated in relevant part, the following:

As Mr. Miller has informed you, Stubbs & Perdue is representing Mr. Miller and Old Glory in his negotiations with various creditors that hold liens on his properties and that you are the rental agency for. I am writing to assure you that we are diligently working on this project and are hopeful that some sort of resolution will be reached.

What we are unsure of is whether this will be inside or outside of bankruptcy. If we are only left with the alternative of filing for bankruptcy, our plan is to file under chapter 11 of the Bankruptcy Code. This will allow Mr. Miller to remain in control of the properties and continu[e] to operate as normal while a plan of reorganization is formulated. Mr. Miller has stressed his intentions to continue utilizing Southern Shores as his rental agency.

Right now the there are two primary factors that would push Mr. Miller into filing for bankruptcy. First would be the inability to reach a compromise with the creditors where a sale of a property would occur. A close second is this notice letter from your agency that might deter renters from selecting Old Glory properties for their vacation.

Mr. Miller and I understand your concern regarding protecting your renters, so let me assure you that we will keep you in the loop as far as our negotiations with creditors. We would appreciate prior notice of your sending out these notice letters. As I have been informed, if we are unsuccessful in dismissing a foreclosure hearing, your intent is to send out the letters two weeks prior to the scheduled sale. Right now, the first scheduled hearing is February 5 and the sale is February 26. We will be attending the hearing and attempt to have the foreclosure dismissed. I will let you know how this goes.

Further, we have advised Mr. Miller to retain the deposits as these are needed to maintain and ready the properties for being rented. ... Accordingly, it is imperative that Mr. Miller continue to receive deposits from Southern Shores as is specified in the agreement between you and Mr. Miller.

Just in case you are not aware, here is a current list of hearing and sale dates:

[Chart of foreclosure sale dates scheduled for dates between 28 February 2010 and 18 March 2010].

On 3 February 2010, plaintiff received a letter from Mr. Miller individually, in which Mr. Miller stated that:

From: William G. Miller

Subject: Rental Management Agreement—Foreclosures.

I am very disappointed with [plaintiff]. [Plaintiff] is in violation of the 2009 and 2010 Rental Management Agreement, Pars. 7.

As stated—Foreclosure is a material fact .

Property on the disclosure list is not "Foreclosure." The hearing is only to determine if the property is indeed a possible "foreclosure." Even after the hearing, the property is not in "Foreclosure." The hearing determines the appropriate players involved and the real negotiations can start. As a last resort, a Chapter 11 would be filed the day before any announced sale. At that point the players could be forced to accept changes requested.

Holding Rental Income —[Plaintiff] has not received any information of the owners' financial difficulties. ... [T]his is a "STRATEGIC DEFAULT" [which is] defined throughout the United States as "NOT A FINANCIAL DIFFICULTY " but as a process to force an action.

... [Plaintiff] has withheld money from ten other properties. Each property is a Limited Liability Company (LLC).... This appears to be a willful action to harm my business .

...

These are my initial thoughts. I have not run it through my lawyers. Consider this and talk to me within the next two days, so I can plan accordingly.

(Use of capital letters and underlining in original).

One of defe...