PAMELA BECKER
v
.
GRABER BUILDERS, INC., GRABER HOMES, INC., DWIGHT E. GRABER AND
DOUGLAS BAER
Brown Queen Patten & Jenkins, PA, for the plaintiff-appellant,
by Frank G. Queen.
Kelly & Rowe, P.A., for the defendants-appellees Graber
Builders, Inc. and Dwight E. Graber, by James Gary Rowe.
Coward, Hicks & Siler, P.A., for the defendants-appellees
Graber Homes, Inc. and Douglas Baer, by William H. Coward.
THOMAS, Judge.
Plaintiff, Pamela Becker, appeals the trial court's dismissal
of her claims for breach of contract, breach of implied warranty of
habitability, negligence, fraud, and unfair and deceptive trade
practices against two corporations and two building contractors.
By five assignments of error, she argues that the dismissal of her
claims was improper. For the reasons discussed herein, we affirm
in part, and reverse and remand in part.
Plaintiff alleges the following: In October of 1994, she
entered into a contract with defendant Graber Builders, Inc.,
controlled by defendant Dwight E. Graber, to build a four-bedroom
house. Sometime thereafter, Graber Builders, Inc., wasadministratively dissolved. The “successor corporation” is
defendant Graber Homes, Inc., controlled by defendant Douglas Baer.
Plaintiff's then vacant lot already had a two-bedroom septic
tank system. According to plaintiff, defendants obtained a permit
in January, 1995, for a two-bedroom septic system that they never
installed. Defendants then obtained a permit to build a two-
bedroom residence on plaintiff's property.
In July of 1996, defendants obtained a certificate of
occupancy by Jackson County for the two-bedroom house using the
septic certificate of completion for the previously installed two-
bedroom septic system. Defendants then finished the residence by
completing two additional bedrooms without getting another building
permit or installing an adequate septic system. Plaintiff alleges
she discovered what happened after 31 October 1997 while attempting
to sell the house.
Plaintiff filed her initial complaint on 3 January 2000 and
amended her complaint on 21 July 2000. The amendments added Graber
Homes, Inc. and Douglas Baer as defendants, and alleged that both
Dwight Graber and Douglas Baer exercised complete control and
domination over Graber Builders Inc. and Graber Homes, Inc.,
respectively. Defendants never filed answers to the complaint but
instead filed motions to dismiss under Rule 12(b)(6) of the North
Carolina Rules of Civil Procedure. The trial court granted the
motions and plaintiff appeals.
For our purposes, we combine plaintiff's five assignments of
error, which all go to the validity of the dismissals. Dismissal of a complaint is proper under Rule 12(b)(6) if no
law exists to support the claim made, if sufficient facts to make
out a good claim are absent, or if facts are disclosed which will
necessarily defeat the claim. Shell Island Homeowners Ass'n. v.
Tomlinson, 134 N.C. App. 217, 225, 517 S.E.2d 406, 413 (1999). In
general, “a complaint should not be dismissed for insufficiency
unless it appears to a certainty that plaintiff is entitled to no
relief under any state of facts which could be proved in support of
the claim.” Stanback v. Stanback, 297 N.C. 181, 185, 254 S.E.2d
611, 615 (1979) (quoting 2A James W. Moore et al., Moore's Federal
Practice, § 12.08, at 2271-74 (2d ed. 1975)). After reviewing
plaintiff's complaint in accordance with this standard, we conclude
that the trial court erred in granting the motion to dismiss of
Graber Builders, Inc. and Dwight Graber, but properly granted the
12(b)(6) motion of Graber Homes, Inc. and Douglas Baer.
The alleged contract, incorporated by reference in both
complaints, contains three pages of general language regarding the
rights and duties of the “Contractor” and the “Owner.” The heading
of each page reads, “GRABERS BUILDERS, INC..” On the fourth page,
the signature page, “Dwight E. Graber” is signed above a line
titled, “GRABERS BUILDERS, INC.,” and “Pamela Becker” is signed
above the line, “Owner.” The date reads: 10-4-94. The contract
identifies no other parties. It contains no information regarding
the building of a specific residence. It does, however, cap the
labor “charged at gross cost to the contractor” at $141,838.00, and
states that: “Any increase in building material from the date ofthe bid to the date of the purchase will be additional to the
contract price.”
Plaintiff also alleges in her amended complaint that the
corporate form of Graber Builders, Inc. should be disregarded
because Dwight E. Graber “exercised complete control and
domination” over the company with respect to this contract.
Plaintiff alleges the same with respect to Graber Homes, Inc. and
Douglas Baer.
Our courts will “disregard the corporate form” and “pierce the
corporate veil” where an individual exercises actual control over
a corporation, operating it as a mere instrumentality or tool.
Postell v. B & D Construction Co., 105 N.C. App. 1, 11, 411 S.E.2d
413, 419, disc. review denied, 331 N.C. 286, 471 S.E.2d 253 (1992).
Under these circumstances, the controlling individual is liable for
the torts of the corporation. Id. The “instrumentality rule” has
been set forth by our Supreme Court as follows:
When a corporation is so operated that it 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, it being immaterial whether the
sole or dominant shareholder is an individual
or another corporation.
Henderson v. Finance Co., 273 N.C. 253, 260, 160 S.E.2d 39, 44
(1968). Liability may be imposed on an individual controlling a
corporation as an “instrumentality” when he had:
(1) Control, not mere majority or complete
stock control, but complete domination, not
only of finances, but of policy and businesspractice in respect to the transaction
attacked so that the corporate entity as to
this transaction had at the time no separate
mind, will or existence of its own; and
(2) Such control must have been used by the
defendant to commit fraud or wrong, to
perpetrate the violation of a statutory or
other positive legal duty, or a dishonest and
unjust act in contravention of plaintiff's
legal rights; and
(3) The aforesaid control and breach of duty
must proximately cause the injury or unjust
loss complained of.
Glenn v. Wagner, 313 N.C. 450, 455, 329 S.E.2d 326, 330 (1985).
Plaintiff alleges that Dwight Graber: (1) exercised “complete
domination and control” over Graber Builders, Inc.; (2) that such
control was used to violate the North Carolina Building Code and
commit fraud against defendant; and (3) that the aforesaid control
and the violation of the Code proximately caused damages to
plaintiff in that she was required to install a new septic system.
Accordingly, the allegations in plaintiff's complaints are
sufficient to state a claim for disregard of the corporate entity.
The amended complaint does not allege specific facts
concerning the administrative dissolution of Graber Builders, Inc..
Under the North Carolina Business Corporation Act, dissolution of
a corporation does not “[p]revent the commencement of a proceeding
by or against the corporation in its corporate name. . . .” N.C.
Gen. Stat. § 55-14-05 (1999). The liability of a dissolved
corporation continues for a period of five years after publishing
notice of its dissolution. N.C. Gen. Stat. § 55-14-07 (1999). We
do not know when Graber Builders, Inc. was administrativelydissolved or if it published notice of its dissolution. Since no
facts are disclosed which will necessarily defeat plaintiff's
claims against Graber Builders, Inc., it is a viable defendant
against whom plaintiff may assert claims at this stage of the
proceedings.
Regarding plaintiff's claims against Graber Homes, Inc. and
and Douglas Baer, the trial court based the granting of the motion
to dismiss as to these defendants on a violation of the applicable
statute of limitations. However, under any circumstances plaintiff
clearly failed to allege facts that would allow her to bring an
action against the successor corporation or the individual
allegedly exercising complete domination and control over it.
The general rule is that a corporation that purchases all, or
substantially all, of the assets of another corporation is not
liable for the old corporation's debts. G.P. Publications, Inc. v.
Quebecor Printing-St. Paul, Inc., 125 N.C. App. 424, 432, 481
S.E.2d 674, 679, disc. review denied, 346 N.C. 546, 488 S.E.2d 800
(1997). Plaintiff alleges no facts supporting one of the four
well-settled exceptions to this general rule against successor
liability. See id. at 432-33, 481 S.E.2d at 679 (setting forth the
four exceptions: “(1) where there is an express or implied
agreement by the purchasing corporation to assume the debt or
liability; (2) where the transfer amounts to a de facto merger of
the two corporations; (3) where the transfer of assets was done for
the purpose of defrauding the corporation's creditors; or (4) where
the purchasing corporation is a 'mere continuation' of the sellingcorporation in that the purchasing corporation has some of the same
shareholders, directors, and officers.”).
Consequently, plaintiff fails to allege a claim upon which
relief may be granted against Graber Homes, Inc. or Douglas Baer.
Since the motion to dismiss can be sustained on the ground that the
defendants are not viable defendants, it is unnecessary to review
the dismissal further. Cf. Shore v. Brown, 324 N.C. 427, 428, 378
S.E.2d 778, 779 (1989) (summary judgment will not be disturbed
where any grounds exist to support the trial court's dismissal).
We now proceed to determine which claims against Graber
Builders Inc. and Dwight Graber survive the motion to dismiss.
Plaintiff first alleges a claim against defendants for breach
of contract. “The elements of a claim for breach of contract are
(1) existence of a valid contract and (2) breach of the terms of
that contract.” Poor v. Hill, 138 N.C. App. 19, 26, 530 S.E.2d
838, 843 (2000). Plaintiff states in her complaint that she
entered into a “Building Construction Contract” with defendants.
She alleges the existence of a contract for construction of a
conforming four-bedroom house. She contends defendants breached
the contract by failing to install a septic system suitable for a
four-bedroom house and in compliance with the applicable building
code and the Jackson County Health Department regulations. In
total, plaintiff sufficiently pled her claim for breach of
contract.
Plaintiff further alleges defendants breached an implied
warranty of habitability. The doctrine of implied warranty ofhabitability requires that a dwelling and all of its fixtures be
“sufficiently free from major structural defects, and . . .
constructed in a workmanlike manner, so as to meet the standard of
workmanlike quality then prevailing at the time and place of
construction.” Hartley v. Ballou, 286 N.C. 51, 62, 209 S.E.2d
776, 783 (1974). The warranty arises by operation of law and
imposes strict liability on the builder-vendor. Medlin v. FYCO,
Inc., 139 N.C. App. 534, 541, 534 S.E.2d 622, 627 (2000), disc.
review denied, 353 N.C. 377, 547 S.E.2d 12 (2001). Here, plaintiff
alleges that defendants breached the implied warranty of
habitability by failing to install a septic system sufficient to
serve a four-bedroom residence and in violation of both the
building code and health department regulations. We agree with
plaintiff that the dismissal of this claim by the trial court is
error.
Plaintiff next alleges a claim based on negligence. In order
to establish negligence, plaintiff must show that defendants owed
a duty to her, breached that duty, and that such breach was an
actual and proximate cause of her injuries. Pulley v. Rex
Hospital, 326 N.C. 701, 704-05, 392 S.E.2d 380, 383 (1990).
Plaintiff alleges that defendants had a contractual duty to
construct the residence with a septic system sufficient to serve a
four-bedroom house and to conform to the requirements of the
applicable building code and rules or regulations of the Jackson
County Health Department. She then alleges that the defendants
were negligent in failing to do so, and that such negligence wasthe proximate cause of her damages. Her pleadings are sufficient.
The trial court erred in dismissing plaintiff's claim for
negligence.
As to plaintiff's claim for fraud, in order to survive a
motion to dismiss pursuant to Rule 12(b)(6), the complaint must
allege with particularity all material facts and circumstances
constituting the fraud, although intent and knowledge may be
averred generally. Carver v. Roberts, 78 N.C. App. 511, 513, 337
S.E.2d 126, 128 (1985); N.C.R. Civ. P. 9(b). The essential
elements of actionable fraud are: “(1) [f]alse representation or
concealment of a material fact, (2) reasonably calculated to
deceive, (3) made with intent to deceive, (4) which does in fact
deceive, (5) resulting in damage to the injured party.” Ragsdale
v. Kennedy, 286 N.C. 130, 138, 209 S.E.2d 494, 500 (1974). There
is no requirement, however, that any certain language be used.
Carver, 78 N.C. App. at 513, 337 S.E.2d at 128. “It is sufficient
if, upon a liberal construction of the whole pleading, the charge
of fraud might be supported by proof of the alleged constitutive
facts.” Id. (quoting Manufacturing Co. v. Taylor, 230 N.C. 680,
686, 55 S.E.2d 311, 315 (1949)).
Plaintiff alleges that defendants obtained the certificate of
occupancy with the intent to deceive her, that she did not learn of
their deception until after 31 October 1997 while attempting to
sell the house, and that, as a result of this fraud, plaintiff has
suffered damages. She also re-alleges all of the circumstances
surrounding defendant's building of the house without installing anadequate septic tank.
Although plaintiff does not allege that such conduct was
reasonably calculated to deceive, the allegations are sufficient to
support the requisite element that defendants' knowledge of the
insufficiency and concealment of its existence was calculated to
deceive plaintiff. Thus, plaintiff's claim for fraud survives the
motion to dismiss.
Chapter 75 of the North Carolina General Statutes declares
unlawful “unfair or deceptive acts or practices in or affecting
commerce.” N.C. Gen. Stat. § 75-1.1 (1999) (the “Act”). In the
present case, proof of fraud would constitute a violation of the
prohibition against unfair and deceptive acts. See Bhatti v.
Buckland, 328 N.C. 240, 243, 400 S.E.2d 440, 442 (1991).
Even without the claim for fraud, plaintiff's complaint
sufficiently alleges a claim under the Act. In order to establish
a prima facie claim for unfair trade practices, a plaintiff must
show: (1) defendant committed an unfair or deceptive act or
practice; (2) the action in question was in or affecting commerce;
and (3) the act proximately caused injury to the plaintiff. Dalton
v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001). A practice
is unfair when it offends established public policy and is
unethical or unscrupulous, and it is deceptive if it has a tendency
to deceive. Id. Under section 75-1.1, a mere breach of contract
does not constitute an unfair or deceptive act. Branch Banking and
Trust Co. v. Thompson, 107 N.C. App. 53, 62, 418 S.E.2d 694, 700,
disc. review denied, 332 N.C. 482, 421 S.E.2d 350 (1992). Egregious or aggravating circumstances must be alleged before the
provisions of the Act may take effect. Bartolomeo v. S.B. Thomas,
Inc., 889 F.2d 530, 535 (4th Cir. 1989). Aggravating circumstances
include conduct of the breaching party that is deceptive. Poor,
138 N.C. App. at 28, 530 S.E.2d at 845. Finally, in determining
whether a particular act or practice is deceptive, its effect on
the average consumer is considered. Peterson v. State Employees
Credit Union (In re Kittrell), 115 Bankr. 873 (Bankr. M.D.N.C.
1990).
Plaintiff alleges defendant's actions and misrepresentations
were in or affecting commerce, constitute unfair and deceptive
trade practices, and caused her damages in excess of $10,000.00.
Plaintiff re-alleges the circumstances surrounding defendant's
failure to install the second septic tank system and to procure the
appropriate building permit. These pleadings adequately allege
aggravating circumstances attending the breach of contract. Thus,
plaintiff's claim for unfair and deceptive trade practices is
sufficient to survive the 12(b)(6) motion to dismiss.
In further contravention of plaintiff's action surviving their
12(b)(6) motion, Graber Builders Inc. and Dwight Graber argue that
plaintiff's claims necessarily fail because of an arbitration
clause in the contract. The paragraph provides: “Any controversy
or claim arising out of or relating to this contract, or the breach
thereof shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association . . . .” However,
arbitration is a contractual right that may be waived. CycloneRoofing Co. v. LaFave Co., 312 N.C. 224, 229, 321 S.E.2d 872, 876
(1984). Here, defendants have neither made a motion to stay the
action pending arbitration nor asserted the arbitration clause as
a defense. Accordingly, a dismissal pursuant to Rule 12(b)(6)
based on an alleged arbitration agreement is improper.
For the foregoing reasons, we affirm the dismissal of
plaintiff's claims against Graber Homes, Inc. and Douglas Baer.
Plaintiff's allegations were adequate, however, to avoid a
successful 12(b)(6) motion as to disregard of the corporate form
involving Graber Builders, Inc. and Dwight Graber. She also
adequately alleged claims on which relief may be granted against
them for breach of contract, breach of implied warranty of
habitability, negligence, fraud, and unfair and deceptive trade
practices. We therefore reverse the trial court's order dismissing
these claims, and remand the case for further proceedings in
accordance with this opinion.
AFFIRMED IN PART, REVERSED AND REMANDED IN PART.
Judges WYNN and WALKER concur.
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