Appeal by defendant Gilbert Bland from judgment entered 30
June 2004 by Judge L. Todd Burke in Guilford County Superior Court.
Heard in the Court of Appeals 14 November 2005.
Isaacson Isaacson & Sheridan, LLP, by Jennifer N. Fountain,
Carruthers & Roth, P.A., by Kenneth R. Keller and J. Patrick
Haywood, for defendant.
MARTIN, Chief Judge.
On 19 October 1998, plaintiff East Market Street Square, Inc.
(East Market Street Square), as landlord, and defendant Tycorp
Pizza IV, Inc. (Tycorp IV), as tenant, entered into a commercial
lease for premises located at 1612 East Market Street in
Greensboro, North Carolina. On 18 June 2003, plaintiff filed thisaction against Tycorp IV and its president, Gilbert T. Bland,
alleging claims for breach of the lease and damage to the leased
premises. In its complaint, plaintiff sought to pierce the
corporate veil of Tycorp IV and hold defendant Bland individually
liable for all of the corporate defendant's liabilities to
The matter was tried by the court sitting without a jury. The
evidence presented at trial tended to show the following: East
Market Street Square is incorporated under the laws of North
Carolina and owns commercial property in Greensboro consisting of
a five-unit strip shopping center and two outparcels. Melvin
Skip Alston is president of East Market Street Square.
Tycorp Pizza IV, Inc. is incorporated under the laws of
Virginia and was formed for the purpose of operating a Pizza Hut
restaurant franchise on one of the outparcels owned by plaintiff.
Defendant Bland is the president, sole director, and sole
shareholder in Tycorp IV. Tycorp IV is a member of the Tycorp
family of companies organized by defendant Bland to own and operate
Pizza Hut restaurants in North Carolina and Virginia. At the time
of the trial, Tycorp companies owned and operated thirty-six Pizza
Hut restaurants. At the top of the corporate structure is Tycorp
Pizza, Inc., a holding company that owns all of the stock in three
subsidiary corporations: (1) Tycorp Pizza of Virginia, Inc.,
(Tycorp VA) (2) Tycorp Pizza of North Carolina, Inc. (Tycorp NC)
and (3) Tycorp Pizza III, Inc. (Tycorp III). Defendant Bland is
the president and sole common shareholder in the holding company. He is also the president, sole director, and sole shareholder in
each of the three subsidiary corporations. Bland was the sole
shareholder of Tycorp IV until February of 2003, when its shares
were sold to Tycorp NC.
Each of the thirty-six restaurants owned by Tycorp companies
remits a percentage of its sales to another corporation, Tycorp
Group, Inc. (Tycorp Group), as a management fee. Defendant
Bland is the president and sole shareholder of Tycorp Group, which
has approximately fifteen employees. These employees manage
regional groups of restaurants and provide accounting and human
resource services. Defendant Bland receives an annual salary from
Tycorp Group in exchange for his services. He was compensated in
the amount of $200,000 in 2003, and $150,000 in 2001 and 2002.
Defendant Bland first approached Mr. Alston about possibly
renting a building from him in May of 1998. Earlier in the year,
the building had been vacated by a chicken and seafood restaurant.
Following their initial meeting, defendant Bland and Mr. Alston
lost contact, and Mr. Alston leased the property to Ms. Gladys
Shipman for the purpose of opening a soul food restaurant. After
the lease between East Market Street Square and Ms. Shipman had
been negotiated and signed, defendant Bland contacted Mr. Alston
and expressed his continued interest in the property, asserting
that a national franchise such as Pizza Hut would be better for the
surrounding community than Ms. Shipman's independently-operated
restaurant. Defendant Bland also indicated the Pizza Hut he
intended to operate on the property had the potential to earnbetween $700,000 and $800,000 per year, although Mr. Alston
believed the earning potential could be between $900,000 and
$1,000,000 per year. Ms. Shipman agreed to terminate her lease in
exchange for $4,000, to be paid by defendant.
Negotiations then commenced between defendant Bland and Mr.
Alston. The two men personally negotiated the terms of the lease
then sent it to their attorneys for review. The agreement was
signed on 19 October 1998 by Mr. Alston as president of S & J
Management Corporation and defendant as president of Tycorp IV,
which had been incorporated earlier the same day. The lease was
for a period of ten years, with a minimum monthly base rental in
the amount of $4,000. There was also a percentage rent equal to 7%
of gross sales for each calendar year. Defendant Tycorp IV
accepted the leased premises in its as is condition and
acknowledged that it had examined and inspected the premises and
was familiar with its physical condition. Defendant Tycorp IV
further agreed to open for business and operate one hundred
percent (100%) of the Leased Premises during the Term with due
diligence and efficiency so as to produce all of the Gross Sales
which may be produced by such manner of operation.
It was clear to both parties that the building on the premises
would require a massive renovation in order to accommodate a Pizza
Hut. East Market Street Square agreed to grant defendant Tycorp IV
an allowance of $75,000 for the purpose of renovating the interior
and exterior of the building. There was a long list of
improvements to be made. The parking lot was in a state ofdisrepair, a new roof and heating/air conditioning system was
required, cooking equipment left over from the chicken restaurant
needed to be replaced, and the interior required remodeling to
comply with Pizza Hut corporate standards. Furthermore, defendant
Tycorp IV intended to expand the size of the building and construct
a pick-up window. Tycorp IV solicited bids for the renovations,
and received one for $523,000 plus the cost of new kitchen
equipment. Defendant was surprised by this high cost.
Nevertheless, work proceeded. The building was gutted and
defendant removed all furniture and fixtures in the summer of 2002.
In the autumn of 2002, the Tycorp companies began to
experience financial difficulties. Tycorp NC, Tycorp VA, and
Tycorp III had borrowed significant sums from various lenders in
order to finance their purchase of the original thirty-four Pizza
Hut restaurants in 1995. In 2002, the companies stopped making
payments on these loans and fell into default. In response, the
lenders accelerated the loans and demanded payment. Some of the
notices of default prohibited the companies from making any
dividends or distributions including salaries, fees and other
compensation. Tycorp NC had been paying the rent on the Market
Street property for Tycorp IV since the lease was signed in October
of 1998. Therefore, in February of 2003, rent payments ceased on
the Market Street property. Defendant Bland testified that this
was due to the acceleration of Tycorp's loans, and that there was
a very clear understanding that [Tycorp's] dollars were to be
expended only in ways that would repay their loans. Throughout this time, the gutted building stood dormant. In
the summer of 2003, it caught the attention of the City of
Greensboro Inspection Department. Inspectors condemned the
building and ordered plaintiff to repair or demolish it due to the
following conditions: (1) gutted and abandoned building shell, (2)
broken windows, (3) deteriorated roof structure, (4) vegetative
overgrowth of roof and gutters, and (5) lack of operable
electrical, mechanical, or plumbing services. The building was
eventually demolished at plaintiff's expense.
The trial court awarded damages to plaintiff for breach of the
lease and property damages in the amount of $115,500 plus costs and
interest. The trial court also pierced the corporate veil of
Tycorp IV and held defendant Bland individually liable for the
damages awarded plaintiff. Defendant Bland appeals.
Defendant Bland's sole argument on appeal is that the trial
court erred in holding him individually liable for the acts and
obligations of the corporate defendant Tycorp IV. In support of
this argument, defendant Bland contends that (1) he did not
exercise the control over Tycorp IV required to support an action
to pierce the corporate veil, (2) if such control is found, it was
not used to commit a tort or any unjust act, (3) no action by him
was the proximate cause of injury to plaintiff, and (4) the lease
was an arm's length transaction negotiated between two corporationsand their respective attorneys, therefore equity does not require
piercing the corporate veil.
The standard of review on appeal from a non-jury trial is
whether there was competent evidence to support the trial court's
findings of fact and whether its conclusions of law were proper in
light of such facts. Shear v. Stevens Building Co.
, 107 N.C. App.
154, 160, 418 S.E.2d 841, 845 (1992). Where the trial court sits
without a jury, its findings of fact have the force and effect of
a jury verdict and are conclusive on appeal if there is evidence to
support those findings. Id.
However, we review the trial court's
conclusions of law de novo
It is well recognized that courts will disregard the
corporate form or 'pierce the corporate veil,' and extend liability
for corporate obligations beyond the confines of a corporation's
separate entity, whenever necessary to prevent fraud or to achieve
equity. Glenn v. Wagner
, 313 N.C. 450, 454, 329 S.E.2d 326, 330
(1985). North Carolina courts use the instrumentality rule to
determine whether to disregard the corporate entity and hold parent
or affiliated corporations or shareholders liable for the acts of
a corporation. Id.
The instrumentality rule may be stated as
[if] the corporation is so operated that it
is a mere instrumentality or alter ego
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) (emphasis in original). There are three elements necessary
to pierce the corporate veil under the instrumentality rule:
(1) Control, not mere majority or complete
stock control, but complete domination,
not only of finances, but of policy and
business practice 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.
n, 313 N.C.
at 455, 329 S.E.2d at 330 (internal citation
 Defendant Bland first argues he did not exercise
sufficient control over Tycorp IV to support an action to pierce
the corporate veil. The trial court made the following findings of
fact regarding defendant Bland's control over Tycorp IV and the
other Tycorp companies:
17. Defendant Bland was the sole shareholder
of Defendant Tycorp Pizza IV, Inc. and
had total autonomy and control of
Defendant Tycorp Pizza IV, Inc.
18. Defendant Bland controlled, completely
dominated and had total autonomy of
Tycorp Pizza IV, Inc.,so that it had no
independent identity and no separate
mind, will or existence of its own.
19. Defendant Bland controlled and had total
autonomy of his other corporations as
well, including Tycorp Pizza, Inc.,
Tycorp Pizza of N.C., Inc., Tycorp Pizza
of Virginia, Inc. and Tycorp Pizza III,
20. Defendant Bland exerted complete
domination over Defendant Tycorp Pizza
IV, Inc.'s policies, finances and
21. As Defendant Bland was the sole
shareholder, sole director and President
of Defendant Tycorp Pizza IV, Inc. and
Tycorp Pizza of N.C., Inc., Defendant
Bland made all the decisions for
Defendant Tycorp Pizza IV, Inc. and
Tycorp Pizza of N.C., Inc. and his other
22. There was no Board of Directors for
Defendant Tycorp Pizza IV, Inc. to
oversee Defendant Bland's decisions.
23. The only individual to answer to in
transactions of business on behalf of
Tycorp Pizza IV, Inc. was Defendant
24. Defendant Tycorp Pizza IV, Inc. had no
assets except for an undocumented loan
from Tycorp Pizza of N.C., Inc. and had
no business operation of any kind.
We must determine whether these findings of fact are supported by
competent evidence in the record.
Defendant Bland testified at trial that he controlled Tycorp
IV in that he made all decisions regarding its finances, policies,
and business practices. He also testified he was Tycorp IV's sole
director, sole shareholder, president and sole officer. This
testimony constitutes competent evidence to support Finding Nos.
17, 18, and 20 that Bland was the sole shareholder of Tycorp IV,
that he had total autonomy over Tycorp Pizza IV, Inc. so that ithad no independent identity and no separate mind, will or existence
of its own, and that he exerted complete domination over
Defendant Tycorp Pizza IV, Inc.'s policies, finances and business
Bland also testified that he was responsible for all contracts
made by Tycorp IV except those made by Pizza Hut for its
franchises, he managed the details of the lease negotiations for
Tycorp IV rather than his attorneys, he interacted with Pizza Hut
representatives when considering opening a franchise, and he signed
the application for a certificate of authority to transact business
in North Carolina on behalf of Tycorp IV. Melvin Alston, president
of plaintiff, testified that all of his interactions regarding the
lease negotiation were with defendant Bland. He never heard of
Tycorp IV during these negotiations; he only became aware of its
existence upon receiving the first rent check under the lease.
Defendant Bland presented no evidence of a Board of Directors to
oversee his decisions. Therefore, there was also competent
evidence to support Finding Nos. 22 and 23 that [t]he only
individual to answer to in transactions of business on behalf of
Tycorp Pizza IV, Inc. was Defendant Gilbert Bland, and that
[t]here was no Board of Directors for Defendant Tycorp Pizza IV,
Inc. to oversee Defendant Bland's decisions.
In Finding Nos. 19 and 21, the trial court found Bland
controlled and had total autonomy of Tycorp Pizza, Inc., Tycorp
NC, Tycorp Pizza of Virginia, and Tycorp Pizza III, Inc., and as
president, director, and sole shareholder of these companies, Blandmade all business decisions for them. Bland testified he was
president, director, and sole common shareholder of these companies
as well as Tycorp Group Inc., the management company for all the
Tycorp corporations. Bland stated he continually review[s]
information with [the] staff all the time. . . . [and] as sole
shareholder, digest[s] that information and make[s] decisions. He
specifically claimed to have the authority for the final
decisions of Tycorp NC. Defendants presented no evidence of any
other individual or entity with the authority to conduct the
business of the Tycorp group of companies. We therefore conclude
competent evidence existed to support Finding Nos. 19 and 21 of the
Finally, Finding No. 24 states that Defendant Tycorp Pizza
IV, Inc. had no assets except for an undocumented loan from Tycorp
Pizza of N.C., Inc. and had no business operation of any kind.
Defendant Bland testified that Tycorp IV owned no real or personal
property. When asked if Tycorp IV ever had any assets, he stated
it had a fair amount of cash that was being advanced to it from
Tycorp Pizza of North Carolina. According to Bland, Tycorp NC
made lease payments for Tycorp IV for over four years, totaling
$232,622.91. Tycorp NC also paid architectural fees and renovation
costs. However, Tycorp NC had lost money every year since its
inception. Tycorp NC was funded by bank loans and profits made by
Tycorp Pizza of Virginia, Inc. because the earnings from all
thirty-six of defendant's restaurants went into a single pot. Defendant argues in his brief that in addition to the
financing from Tycorp NC, Tycorp IV also had the following assets:
a commitment from the landlord under the lease to provide a $75,000
construction allowance, $200,000 worth of restaurant equipment, a
subscription agreement for $1,000, and authorization from Pizza Hut
to open and operate a Pizza Hut restaurant on the premises.
However, these assets, in addition to advancements from a failing
corporation, were insufficient to allow defendants to conduct the
necessary renovations to the leased premises and to open and
operate a restaurant thereon. Furthermore, Finding No. 24 states
that Tycorp IV had no business operation of any kind. Bland
testified Tycorp IV never had any operations and was formed to
simply hold this one lease. While the trial court's statement
that Tycorp IV had no assets except for an undocumented loan from
Tycorp Pizza of N.C., Inc. may have been technically incorrect,
the evidence in the record does support a finding that these assets
were insufficient under the circumstances to support the operation
of defendants' restaurant and that Tycorp IV had no business
operation of any kind.
We conclude, based on the evidence before us, that the trial
court's findings of fact regarding the extent of Bland's control
over Tycorp IV and the other Tycorp companies were supported by
competent evidence. We must now ask whether these findings of fact
support the trial court's conclusions of law that Tycorp IV was the
alter ego and mere instrumentality of the individual defendant
Bland.  We have previously considered the following factors in
determining the level of control a corporate or individual
defendant exercises over a corporation:
1. Inadequate capitalization (thin
2. Non-compliance with corporate
3. Complete domination and control of the
corporation so that it has no independent
4. Excessive fragmentation of a single
enterprise into separate corporations.
, 313 N.C. at 455, 329 S.E.2d at 330-31 (internal citations
omitted). However, it is not the presence or absence of any
particular factor that is determinative. Rather, it is a
combination of factors which . . . suggest that the corporate
entity attacked had 'no separate mind, will or existence of its
own' and was therefore the 'mere instrumentality or tool' of the
dominant corporation. Id.
at 458, 329 S.E.2d at 332.
The trial court made the following conclusions of law
regarding defendant Bland's control over Tycorp IV:
3. Defendant Tycorp Pizza IV, Inc. was
4. Defendant Bland commingled the funds from
his 36 restaurants between his
corporations including Defendant Tycorp
Pizza IV, Inc. and Tycorp Pizza of N.C.,
5. Defendant Bland exercised complete
domination and control over Tycorp Pizza
IV, Inc. so that it had no independent
identity and no separate mind, will or
existence of its own.
6. Defendant Bland excessively fragmented
his pizza restaurant enterprise into
7. Defendant Bland and Defendant Tycorp
Pizza IV, Inc. are one and the same.
8. Defendant Tycorp Pizza IV, Inc. is the
alter ego of Defendant Bland.
9. Defendant Tycorp Pizza IV, Inc. is a mere
instrumentality of Defendant Bland.
These conclusions were properly drawn from the trial court's
findings indicating that Tycorp IV was a shell corporation intended
to shield defendant Bland and his other corporations from
liability. Defendant Bland alone conducted all negotiations and
made all decisions for Tycorp IV. He failed to capitalize the
corporation sufficiently for it to open a Pizza Hut on the leased
premises. Tycorp IV's most significant asset was the money it
received from Tycorp NC, another of Bland's corporations. Indeed,
Bland testified that the money from all of the Tycorp corporations
went into a single pot, that he used profits from one corporation
to operate others, that he considered his corporations as a group
rather than separate, and that the corporations sometimes
guaranteed one another's loans. However, instead of entering into
the lease in question through Tycorp NC, an existing corporation
operating restaurants in the immediate area, Bland created Tycorp
IV solely for this particular transaction. As in Glenn
, 313 N.C.
at 459, 329 S.E.2d at 333, the two corporations . . . functioned
as a single business enterprise in substance, if not in form. In
that case, our Supreme Court held the parent corporation liable for
the actions of its subsidiary. Because Bland was president, sole director, and sole
shareholder of the entire hierarchy of Tycorp corporations, his
creation of Tycorp IV in this instance appears unnecessary and
redundant. Although we recognize that [t]he mere fact that one
person . . . owns all of the stock of a corporation does not make
its acts the acts of the stockholder so as to impose liability
therefor upon him, Henderson
, 273 N.C. at 260, 160 S.E.2d at 44;
N.C. Gen. Stat. § 55-2-03(c) (2005), we agree with the
trial court's conclusion that in this case, Tycorp IV was so
dominated by Bland that it had no separate mind, will or existence
of its own other than as a mere instrumentality or tool of Bland
, 313 N.C. at 458, 329 S.E.2d at 332.
The second element necessary to pierce the corporate veil is
that a defendant must use his control of the corporation to commit
fraud or wrong such as the violation of a statutory or other
positive legal duty, or a dishonest and unjust act in contravention
of plaintiff's legal rights. Id.
at 455, 329 S.E.2d at 330.
Defendant argues his mere breach of a contractual obligation does
not constitute an unjust act as contemplated by the Court in Glenn
According to defendant, North Carolina law requires a heightened
wrongful act, such as a tort or the violation of a statute, to
pierce the corporate veil. However, we find defendant's argument
to be without merit for two reasons. First, we consider
performance under a contract to be a positive legal duty, the
violation of which constitutes a clear wrong done to plaintiffs.
Our Supreme Court in Glenn
defined piercing the corporate veil asextend[ing] liability for corporate obligations
confines of a corporation's separate entity. Id.
at 454, 329
S.E.2d at 330 (emphasis added). It is undisputed that Tycorp IV
owed an obligation to plaintiffs to pay rent under the lease and to
renovate the building, which it failed to do.
The trial court also made the following conclusions of law
regarding defendant Bland's use of his control of the corporation:
12. Defendant Bland has used his complete
domination and control of Defendant
Tycorp Pizza IV, Inc. and Tycorp Pizza of
N.C., Inc. to commit a fraud, wrong and
dishonest and unjust act in contravention
of Plaintiff's legal rights.
13. The damage to the Premises by Defendants
is one of the wrongs and unjust acts
which Defendants inflicted upon
14. The wrongs done unto Plaintiff include
the damage to the building on the
Premises, the control of Defendant Tycorp
Pizza IV, Inc. and Tycorp Pizza of N.C.,
Inc. which caused the failure to pay rent
and the dishonesty regarding the solvency
of Defendant Tycorp Pizza IV, Inc. at the
time the Lease was entered into.
15. Also, Defendant Bland used his control
over Tycorp Pizza IV, Inc., Tycorp Pizza
of N.C., Inc. and his other corporations
to perpetrate a wrong upon the Plaintiff
when he engaged in business, specifically
with Plaintiff and this wrong caused
injury and loss to Plaintiff.
16. A dishonest and unjust act was committed
by Defendants upon Plaintiff when
Defendant Bland represented himself and
Defendant Tycorp Pizza IV, Inc. as a
solvent individual and a solvent
corporation when Defendant Tycorp Pizza
IV, Inc. and Defendant Bland's other
corporations, including Tycorp Pizza of
N.C., Inc. were struggling financiallywhen Defendant Bland entered into the
lease with Plaintiff on behalf of
Defendant Tycorp Pizza IV, Inc.
These conclusions of law were supported by the trial court's
findings of fact, including its findings that (1) defendant Bland
represented both he and Tycorp IV as solvent, (2) Bland continually
promised plaintiff he would open a Pizza Hut on the leased premises
but failed to do so, and (3) defendants removed and destroyed
fixtures in the building, rendering the building worthless and
resulting in its eventual demolition. These findings, which are
supported by competent record evidence, and the subsequent
conclusions of law indicate defendant Bland misrepresented the
financial state of his corporations, resulting in the loss of
plaintiff's building and the fixtures therein. This
misrepresentation, in addition to the breach of contract, satisfies
the second element necessary to pierce the corporate veil. We
hold, therefore, the trial court properly concluded defendant Bland
used his complete domination and control of Defendant Tycorp Pizza
IV, Inc. and Tycorp Pizza of N.C., Inc. to commit a fraud, wrong
and dishonest and unjust act in contravention of Plaintiff's legal
The third and final element required for piercing the
corporate veil is that the defendant's control and breach of duty
must proximately cause the injury or unjust loss complained of.
at 455, 329 S.E.2d at 330. Defendant Bland argues the trial
court erred in concluding that his control and complete domination
of Defendant Tycorp Pizza IV, Inc. and Tycorp Pizza of N.C., Inc.was the proximate cause of the injury and unjust loss suffered by
Plaintiff. However, Tycorp IV's failure to perform under the
contract resulted in plaintiff's loss of rental income as well as
its loss of the building on its premises. After gutting the
building, defendant was unable to pay for the necessary renovations
and was forced to leave it dormant, resulting in its eventual
demolition. The trial court found that [a]lthough the Lease
allowed for destruction of the building on the Premises, this was
only contemplated if Defendants were to proceed with construction
of a facility to operate a Pizza Hut. Defendant does not contest
the trial court's finding in this respect, but simply argues that
its lenders' acceleration of its loans caused the breach of lease
rather than any action by defendant Bland. However, Bland's
complete domination and exclusive control of the Tycorp companies'
business decisions ultimately resulted in the acceleration of these
loans. This argument is overruled.
Finally, defendant argues the lease in this case was an arm's
length transaction negotiated between two corporations and their
respective attorneys, therefore equity does not require piercing
the corporate veil. [T]he theory of liability under the
instrumentality rule is an equitable doctrine. Its purpose is to
place the burden of the loss upon the party who should be
responsible. Focus is upon reality, not form, upon the operation
of the corporation, and upon the defendant's relationship to that
at 458, 329 S.E.2d at 332. Equity, therefore,
requires placing the burden of the loss on the party responsiblefor the breach of contract. We have already found defendant Bland
so dominated Tycorp IV as to make the individual and the
corporation alter egos. As such, the individual defendant was
equally responsible for the plaintiff's loss, and we see no error
in the trial court's decision to hold him personally liable for the
breach of the lease.
Judges McGEE and ELMORE concur.
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