              IN THE COURT OF APPEALS OF NORTH CAROLINA

                                    No. COA16-557

                                Filed: 17 January 2017

Dare County, No. 11 CVS 44

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.


      Appeal by defendants from orders entered on 1 October 2015 and 15 December

2015, and judgment entered 18 November 2015 by Judge Cy A. Grant, Sr. in Dare

County Superior Court. Heard in the Court of Appeals 3 November 2016.


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

      Gregory E. Wills, P.C., by Gregory E. Wills, 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
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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



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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


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              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


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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.




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            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



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             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 defendants’ properties was sold in foreclosure on 18 March 2010. At

that point, defendants had not returned the funds that plaintiff had disbursed to

them. On 26 March 2010, plaintiff terminated its contractual relationship with

defendants. Plaintiff informed the tenants who had reserved rentals for the summer

of 2010 about the foreclosure proceedings and used plaintiff’s own funds to

recompense the tenants for the rental deposits they had made and that plaintiff had

disbursed to defendants. Ultimately, eleven of the thirteen properties that were the

subject of contracts between plaintiff and defendants were sold in foreclosure.

      On 19 January 2011, plaintiff filed a complaint against defendants, seeking to

recover the sum of $74,221.79 that plaintiff had spent from its own funds to

recompense the tenants for the tenants’ deposits made prior to the initiation of

foreclosure proceedings on defendants’ properties. Plaintiff asserted claims for breach



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of contract and unfair or deceptive trade practices against all defendants, and a claim

against Mr. Miller individually, seeking to hold him personally liable for plaintiff’s

damages by application of the equitable remedy known as “piercing the corporate

veil.” On 1 April 2011, defendants filed an answer denying the material allegations

of plaintiff’s complaint, raising various defenses, and asserting counterclaims against

plaintiff for breach of contract, breach of fiduciary duty, tortious interference with

contract, and unfair or deceptive trade practices. In its reply, plaintiff denied

defendants’ allegations and moved for dismissal of defendants’ counterclaims. On 20

March 2013, Judge Walter H. Godwin, Jr. entered an order granting plaintiff’s motion

for summary judgment on defendants’ counterclaims for breach of fiduciary duty,

tortious interference with contract, and unfair or deceptive trade practices, denying

plaintiff’s motion for summary judgment on defendants’ claim for breach of contract,

and denying defendants’ motion for summary judgment on plaintiff’s claims for

breach of contract and unfair or deceptive trade practices.

      The parties’ claims were tried before the trial court and a jury at the 28

September 2015 civil session of Dare County Superior Court. During trial, Mr. Miller

testified that he had been employed full-time as a real estate owner and manager

since 1987, and that plaintiff and defendants had signed contracts for plaintiff to

manage thirteen rental properties for the 2010 summer vacation season. Mr. Miller

admitted that in the fall of 2009 defendants stopped making mortgage payments on



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the properties that were the subject of their contracts with plaintiff. At that point,

Mr. Miller prepared proposed modification agreements for submission to one or more

lending institutions and investigated the possibility of declaring bankruptcy. Mr.

Miller testified that the plan for each property was to “stop the payments on it and

then if we get a foreclosure sale and before the upset period is up, you know, we will

file Chapter 11 and we will retain control of that entity through a Chapter 11.”

      Mr. Miller conceded that the contracts between plaintiff and defendants

required defendants to notify plaintiff if a property was in foreclosure and to return

rental deposits that had been disbursed to defendants, and that after some of

defendants’ properties went into foreclosure, defendants did not return the rental

deposits that plaintiff had disbursed to defendants. He also admitted that the eleven

properties on which he stopped making mortgage payments were sold “on the

courthouse steps[.]” In addition, Mr. Miller acknowledged that the contracts further

provided that if plaintiff “receives information regarding owner’s financial difficulties

of any kind” that plaintiff would then “hold remaining rental income for protection of

tenants, rental or refund” and that the contracts specified that foreclosure was a

material fact that would be disclosed to tenants.

      At the close of plaintiff’s evidence and again at the close of all the evidence,

defendants moved for a directed verdict in their favor. At the close of all the evidence,

the trial court granted defendants’ motion for directed verdict against plaintiff as to



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plaintiff’s claims for unfair or deceptive trade practices, but allowed plaintiff’s claims

for breach of contract and piercing the corporate veil to be submitted to the jury. At

the close of all the evidence, plaintiff moved for directed verdict on defendants’ claim

for breach of contract; the trial court denied plaintiff’s motion and defendants’ claim

for breach of contract was also submitted to the jury.

      On 2 October 2015, the jury returned verdicts finding that defendants had

breached their contracts with plaintiff; that plaintiff was entitled to recover the sum

of $74,221.79 (the amount of rental deposits disbursed to defendants) from

defendants; and that Mr. Miller had controlled defendants with respect to the acts or

omissions that damaged plaintiff. The jury did not find that plaintiff had breached

the contracts with defendants. On 18 November 2015, the trial court entered

judgment in accordance with the jury’s verdicts. On 24 November 2015, defendants

filed a motion asking the trial court to set aside the verdicts of the jury pursuant to

N.C. Gen. Stat. § 1A-1, Rule 50(b)(1), and to enter judgment in Mr. Miller’s favor with

respect to plaintiff’s claim to pierce the corporate veil, or in the alternative, to award

defendants a new trial pursuant to N.C. Gen. Stat. § 1A-1, Rule 59. Following a

hearing on defendants’ motions, the trial court entered an order on 15 December

2015, denying defendants’ motions. Defendants noted a timely appeal to this Court

from the denial of defendants’ motion for directed verdict, JNOV, or a new trial, and

the judgment entered in this case.



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                                   II. Standard of Review

      On appeal, defendants argue that the trial court erred by denying their

motions for directed verdict and JNOV. “When considering the denial of a directed

verdict or JNOV, the standard of review is the same. ‘The standard of review of

directed verdict is whether the evidence, taken in the light most favorable to the non-

moving party, is sufficient as a matter of law to be submitted to the jury.’ ” Green v.

Freeman, 367 N.C. 136, 140, 749 S.E.2d 262, 267 (2013) (quoting Davis v. Dennis Lilly

Co., 330 N.C. 314, 322, 411 S.E.2d 133, 138 (1991)). “A motion for JNOV ‘should be

denied if there is more than a scintilla of evidence supporting each element of the

non-movant’s claim.’ ‘A scintilla of evidence is defined as very slight evidence.’ ”

Hayes v. Waltz, __ N.C. App. __, __, 784 S.E.2d 607, 613 (2016) (quoting Shelton v.

Steelcase, Inc., 197 N.C. App. 404, 410, 677 S.E.2d 485, 491 (2009), and Pope v. Bridge

Broom, Inc., __ N.C. App. __, __ 770 S.E.2d 702, disc. review denied, 368 N.C. 284,

775 S.E.2d 861 (2015)). “The party moving for judgment notwithstanding the verdict,

like the party seeking a directed verdict, bears a heavy burden under North Carolina

law.” Taylor v. Walker, 320 N.C. 729, 733, 360 S.E.2d 796, 799 (1987).

      Defendants also argue that the trial court erred in its instructions to the jury.

“When a challenge to the trial court’s instructions to the jury raises a legal question,

it is subject to review de novo. However, . . . ‘[t]he form and phraseology of issues is

in the court’s discretion, and there is no abuse of discretion if the issues are



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sufficiently comprehensive to resolve all factual controversies.’ ” Geoscience Grp., Inc.

v. Waters Constr. Co., Inc., 234 N.C. App. 680, 686, 759 S.E.2d 696, 700 (2014) (citing

Jefferson Pilot Fin. Ins. Co. v. Marsh USA, Inc., 159 N.C. App. 43, 53, 582 S.E.2d 701,

706-07 (2003), and quoting Barbecue Inn, Inc. v. CP & L, 88 N.C. App. 355, 361, 363

S.E.2d 362, 366 (1988)).

                                   III. 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) (citation omitted). In this case, the parties stipulated

to the existence of valid contracts between defendants and plaintiff. As discussed

above, each of the parties’ contracts stated, in relevant part, that:

             . . . 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 . . . 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. . . .

             . . . 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



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             material fact; therefore, Agent is required to disclose
             knowledge of foreclosure to Tenant.

      We hold that the terms of each of the contracts plainly required that if a rental

property was subject to foreclosure, defendants would (1) notify plaintiff of the

foreclosure proceeding, and (2) return to plaintiff any rental income that plaintiff had

previously disbursed to defendants for the property that was in foreclosure. Plaintiff

presented ample evidence establishing that defendants failed to perform either of

these contractual obligations, and defendants do not dispute that they did not return

the rental deposits that plaintiff had disbursed prior to learning that some of

defendants’ properties were in foreclosure. We conclude that plaintiff presented

evidence to support each element of its claims for breach of contract and that the trial

court did not err by denying defendants’ motions for directed verdict and JNOV with

respect to these claims.

      In reaching this conclusion, we have carefully evaluated defendants’

arguments urging us to reach a different result. Defendants’ primary argument is

that the result in this case should be dictated, not by the express terms of the parties’

contracts, but by the statutory provisions of the North Carolina Vacation Rental Act

(“VRA”), N.C. Gen. Stat. § 42A-1 et. seq. Defendants direct our attention to references

in the contracts in which the parties acknowledge their obligation to adhere to all

applicable law, including the VRA. For example, each of the contracts states that:




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             . . . Owner hereby contracts with Agent, and Agent hereby
             contracts with Owner, to lease and manage the property . .
             . in accordance with all applicable laws and regulations,
             including but not limited to the North Carolina Vacation
             Rental Act (NCGS 42A-1 et. seq.) . . . upon the terms and
             conditions contained herein.

      Defendants argue that their appeal raises a “matter of first impression”

regarding the proper interpretation of N.C. Gen. Stat. § 42A-19(a) (2015), which

states in relevant part that:

             The grantee of residential property voluntarily transferred
             by a landlord who has entered into a vacation rental
             agreement for the use of the property shall take title to the
             property subject to the vacation rental agreement if the
             vacation rental is to end not later than 180 days after the
             grantee’s interest in the property is recorded in the office
             of the register of deeds.

      N.C. Gen. Stat. § 42A-19(a) requires the buyer of property acquired in a

voluntary transfer from the owner to honor previously executed vacation rental

agreements that are scheduled within six months of the voluntary transfer.

efendants contend that this provision also applies to property that is involuntarily

transferred in a foreclosure proceeding. Defendants apparently assume that a tenant

who has contracted for a short-term vacation rental of one or two weeks might choose

to litigate the tenant’s right to insist on the rental of a property that had been sold in

foreclosure. As a practical matter, this seems unlikely; however, we conclude that on

the facts of this case we are not required to resolve any issues pertaining to the VRA

or to determine the correct interpretation of its provisions.


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      Assuming, arguendo, that defendants have correctly interpreted the scope of

N.C. Gen. Stat. § 42A-19, this does not change the outcome of this case. The plain

language of the parties’ contracts required defendants to notify plaintiff if a rental

property was in foreclosure, and to refund any previously disbursed rental payments

associated with the property. “When competent parties contract at arm’s length upon

a lawful subject, as to them the contract is the law of their case.” Suits v. Insurance

Co., 249 N.C. 383, 386, 106 S.E.2d 579, 582 (1959). “[T]o ascertain the intent of the

parties at the moment of execution . . . the court looks to the language used[.] . . .

Presumably the words which the parties select were deliberately chosen and are to

be given their ordinary significance.” Briggs v. Mills, Inc., 251 N.C. 642, 644, 111

S.E.2d 841, 844 (1960) (citations omitted).

      Defendants suggest that because their contracts recite that the parties will

follow the applicable provisions of the VRA - which would be required whether or not

the contracts included the reference to the VRA - the terms of the contracts are

thereby replaced by the VRA, which defendants contend “control[s] the relationship

between all the parties[.]” Defendants have not cited any authority for the proposition

that a contract’s reference to relevant statutory provisions nullifies the contract’s

express terms, and we know of no authority for this position. We conclude that

defendants have failed to show that the VRA conflicts with or replaces the terms of

the parties’ contracts, and that the interpretation of the VRA is not germane to the



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issue of defendants’ entitlement to a directed verdict on plaintiff’s claims for breach

of contract.

      Defendants also argue that, although the parties’ contracts state that

defendants “will report foreclosure on the rental property to Agent” and that “rental

proceeds already disbursed to Owner will be returned to SSRS,” these obligations do

not arise until the entire foreclosure proceeding is completed and the deed to the

property is transferred to a new owner. Defendants contend that the fact that “the

VRA defines ‘Transfer’ as ‘recording at the registrar of deeds’ ” requires the conclusion

that “the term ‘Foreclosure,’ in this context, must mean the point at which a deed

vesting title in the lender is recorded at the registrar of deeds[.]” However,

“foreclosure” is defined as “[a] legal proceeding to terminate a mortgagor’s interest in

property, instituted by the lender (the mortgagee) either to gain title or to force a sale

in order to satisfy the unpaid debt secured by the property.” Black’s Law Dictionary

719 (9th ed. 2009). It is long established that “[i]n construing contracts ordinary

words are given their ordinary meaning unless it is apparent that the words were

used in a special sense. ‘The terms of an unambiguous contract are to be taken and

understood in their plain, ordinary and popular sense.’ ” Harris v. Latta, 298 N.C.

555, 558, 259 S.E.2d 239, 241 (1979) (internal quotation omitted). We conclude that

the term “foreclosure” in the parties’ contracts should be interpreted in its ordinary

meaning as being a legal proceeding by a mortgagee brought against a mortgagor



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who has defaulted on payments due under the terms of a mortgage contract.

Therefore, defendants’ contractual obligation to notify plaintiff of foreclosure

proceedings arose when these proceedings were initiated.

      Defendants also argue that the trial court erred in its instructions to the jury

on the effect of a sale in foreclosure upon a vacation rental tenant’s legal right to

enforce a short-term lease entered into prior to the foreclosure. Neither the trial

court’s instructions to the jury nor the verdict sheets submitted to the jury asked the

jury to render a verdict on the effect of a foreclosure upon a tenant’s legal right to

force the purchaser of a property to honor a short-term vacation rental lease. At one

point during its deliberations, the jury asked for instructions on the definition of the

term “foreclosure” and on whether a bank that purchased a property in foreclosure

would be required to honor a vacation rental agreement. The trial court instructed

the jury on the definition of foreclosure taken from Black’s Law Dictionary, 9th ed.,

as quoted above, and we conclude that the trial court did not err in giving this

definition. The trial court further instructed the jury that our appellate jurisprudence

had not established whether a bank would be obligated to honor a vacation rental

lease after buying a property in foreclosure but that, as a general rule, “the sale under

a mortgage or deed of trust cuts out and extinguishes all liens, encumbrances and

junior mortgages executed subsequent to the mortgage containing the power.”




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      Defendants contend that the trial court’s instruction failed to account for an

exception to the general rule established by the provisions of the VRA. However, as

discussed above, the parties’ contracts imposed certain duties upon defendants in the

event of a foreclosure on a property that was subject to a short-term rental. These

contractual obligations were not dependent upon or associated with the issue of the

rights of a short-term vacation rental tenant upon foreclosure of a property subject to

a short-term vacation lease, and the jury was not required to resolve any factual

issues regarding the effect of foreclosure upon a tenant’s rights in its determination

of the merits of the parties’ respective claims. Defendants have failed to articulate

any way in which the trial court’s instructions on this issue, even if erroneous, would

have confused the jury as to any of the substantive issues it was required to resolve

or would have affected the jury’s verdict on plaintiff’s claims for breach of contract.

We conclude that this argument is without merit.

      For the reasons discussed above, we conclude that plaintiff presented more

than a scintilla of evidence to support each element of its claims for breach of contract.

Therefore, the trial court did not err by denying defendants’ motions for directed

verdict, for entry of a JNOV, or for a new trial on these claims.

                                 IV. Piercing Corporate Veil

      Mr. Miller argues that the trial court erred by denying his motion for directed

verdict, entry of JNOV, or award of a new trial on plaintiff’s claim seeking to hold



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him personally liable for plaintiff’s damages by applying the equitable doctrine of

piercing the corporate veil. For the reasons that follow, we disagree.

                             A. Introduction: Legal Principles

      The determination of whether an individual may be held personally liable for

the debts of a business entity with which the individual is associated depends in part

upon the nature of the entity. “The general rule is that in the ordinary course of

business, a corporation is treated as distinct from its shareholders.” State ex rel.

Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431, 438, 666 S.E.2d 107, 112 (2008)

(citation omitted). However:

             [E]xceptions to the general rule of corporate insularity may
             be made when applying the corporate fiction would
             accomplish some fraudulent purpose, operate as a
             constructive fraud, or defeat some strong equitable claim.
             Those who are responsible for the existence of the
             corporation are, in those situations, prevented from using
             its separate existence to accomplish an unconscionable
             result.

Ridgeway, 362 N.C. at 439, 666 S.E.2d at 112-113 (internal quotation omitted). Thus,

“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) (citation omitted). A court’s decision

to pierce the corporate veil, thereby “proceeding beyond the corporate form[,] is a




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strong step: Like lightning, it is rare [and] severe [.]” Ridgeway at 439, 666 S.E.2d at

112 (internal quotation omitted).

      The limitation upon circumstances in which a corporate officer or shareholder

may be personally liable for debts incurred by the corporation is an important

distinction between the law governing corporations and that of partnerships.

“Shareholders in a corporation are insulated from personal liability for acts of the

corporation, . . . but partners in a partnership are not insulated from liability[.] . . .

Stated differently, no corporate veil exists between a general partnership and its

partners.” Ron Medlin Constr. v. Harris, 364 N.C. 577, 583, 704 S.E.2d 486, 490

(2010).

      In the present case, the defendants, with the exception of Mr. Miller, are

limited liability companies, or LLCs.       “An LLC is a statutory form of business

organization . . . that combines characteristics of business corporations and

partnerships.” Hamby v. Profile Prods., L.L.C., 361 N.C. 630, 636, 652 S.E.2d 231,

235 (2007) (internal quotation omitted). “[T]he North Carolina Limited Liability

Company Act provides for the formation of a business entity combining the limited

liability of a corporation and the more simplified taxation model of a partnership. . .

allowing for great flexibility in its organization.” Id. “[A]s its name implies, limited

liability of the entity’s owners, often referred to as ‘members,’ is a crucial

characteristic of the LLC form, giving members the same limited liability as corporate



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shareholders. . . . As a corporation acts through its officers and directors, so an LLC

acts through its member-managers[.]” Id. In addition, N.C. Gen. Stat. § 57D-3-30

(2015) provides that a “person who is an interest owner, manager, or other company

official is not liable for the obligations of the LLC solely by reason of being an interest

owner, manager, or other company official.”

       However, our appellate courts have generally upheld the imposition of

personal liability upon an individual manager of an LLC under the same

circumstances that support piercing the corporate veil. “[A] judgment in this area

requires a peculiarly individualized and delicate balancing of competing equities.

Nevertheless, for the purpose of achieving uniformity and predictability in this

critical area of jurisprudence, this Court has previously adopted the ‘instrumentality

rule.’ ” Ridgeway at 440, 666 S.E.2d at 113 (quoting Glenn v. Wagner, 313 N.C. 450,

454, 329 S.E.2d 326, 330 (1985)). In Glenn, our Supreme Court “enumerated three

elements which support an attack on [a] separate corporate entity under the

instrumentality rule[.]” Glenn, 313 N.C. at 454, 329 S.E.2d at 330. The Court

described these elements as follows:

              (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


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             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.

Id. at 455, 329 S.E.2d at 330 (internal quotation omitted). The Court also set out

circumstances that have proven useful in determining whether it is appropriate to

pierce the corporate veil in a specific case:

             Factors which heretofore have been expressly or impliedly
             considered in piercing the corporate veil include:
             1. Inadequate capitalization[.] . . .
             2. Non-compliance with corporate formalities. . . .
             3. Complete domination and control of the corporation so
             that it has no independent identity. . . .
             4. Excessive fragmentation of a single enterprise into
             separate corporations. . . .

Glenn at 455, 329 S.E.2d at 330-31 (citations omitted). These factors may be weighed

differently in a case in which the business entity in question is an LLC rather than a

corporation. For example, N.C. Gen. Stat. § 57D-3-20 (2015) provides in relevant part

that “(a) The management of an LLC and its business is vested in the managers[,]”

and that “(d) All members by virtue of their status as members are managers of the

LLC[.]” Given that all members of an LLC are statutorily deemed to be managers,

the fact that an individual has a management role in an LLC cannot, standing alone,

justify imposing personal liability upon the manager on the grounds that he or she

exercised “control” over the LLC.

                                         B. Discussion


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      Preliminarily, we address the scope of defendants’ appellate arguments.

Plaintiff argues that our review should be limited to the arguments that defendants

made on the issue of piercing the corporate veil at the trial level, in their motions for

entry of a directed verdict. However, defendants have also appealed from the denial

of their motion for entry of JNOV or the award of a new trial. We will therefore

address arguments that defendants raised at either hearing.

      As discussed above, to hold Mr. Miller personally liable for the judgment

entered against defendants:

             [Plaintiff] must present evidence of three elements:
             “(1) Control . . . complete domination, not only of finances,
             but of policy and business practice in respect to the
             transaction attacked[;] . . . and (2) Such control must have
             been used by the defendant to commit fraud or wrong, to
             perpetrate the violation of a . . . positive legal duty . . . in
             contravention of [a] plaintiff’s legal rights; and (3) The
             aforesaid control and breach of duty must proximately
             cause the injury or unjust loss complained of.”

Green v. Freeman, 233 N.C. App. 109, 111, 756 S.E.2d 368, 371-72 (2014) (quoting

Green, 367 N.C. at 146, 749 S.E.2d at 270 (internal citations and quotations omitted)).

      We next determine whether plaintiff offered “more than a scintilla” of evidence

as to these elements.     In making this determination, we will also consider the

evidence of the factors discussed above, including inadequate capitalization,

excessive fragmentation of a single enterprise into separate LLCs, and whether Mr.

Miller exercised complete domination and control over the LLCs. We conclude that



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the non-compliance with corporate formalities, which is another factor identified in

Glenn, is of less relevance in the context of an LLC, which is subject to far fewer

formal statutory requirements than is a corporation. We also recognize that the mere

fact that Mr. Miller had a management role in the LLCs cannot be the basis for

imposing personal liability upon him.

        It is undisputed that eleven of the thirteen properties that were the subject of

the contracts between the parties were sold in foreclosure, and that during the course

of the foreclosure proceedings Mr. Miller informed plaintiff that defendants might be

forced to declare bankruptcy. The LLCs did not have sufficient capital to pay creditors

and conduct business. We conclude that this is evidence tending to show that the

LLCs were inadequately capitalized. In addition, the fact that a separate LLC was

formed for the management of each individual rental property constitutes evidence

from which a reasonable fact-finder might find that defendants’ business enterprise

was excessively fragmented. We note that at trial, Mr. Miller testified that the reason

that defendants formed 30 or 40 LLCs for the business was to limit the liability of the

LLCs.

        We also conclude that plaintiff offered sufficient evidence to support a finding

that Mr. Miller personally controlled the finances, policies, and business practices of

the LLCs. In this respect, we note that at trial Mr. Miller acknowledged that he was

in charge of managing the family business:



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                                  Opinion of the Court



             MR. MILLER: Well we’re all managing members and we
             all have the capability of signing papers and that sort of
             thing. It’s been agreed at this point in time that we have
             an agreement within ourselves that, you know, I’m the
             present managing member but that James there is going
             to take over and he will have control.

      Two of plaintiff’s witnesses at trial, Mr. Watson and Ms. Bell, testified that

their business dealings were always with Mr. Miller, whom they understood to be the

“decision maker” for the LLCs. In fact, defendants’ counsel asked Mr. Watson to

acknowledge on cross-examination that “Mr. Miller [had] told [him] . . . that if there

was any kind of bankruptcy done he would remain in charge[.]” (emphasis added). In

addition, the attorney who wrote to plaintiff stated that the law firm with which he

was associated represented “Mr. Miller and [the LLCs]” but did not indicate that the

firm represented any other members of the LLCs individually. The content of the

letter unmistakably characterized Mr. Miller as the “alter ego” of the family business.

For example, the letter stated that a plan was being formulated that “will allow Mr.

Miller to remain in control of the properties[,]” proclaimed that “Mr. Miller has

stressed his intentions to continue utilizing [plaintiff] Southern Shores as his rental

agency[,]” noted the existence of “two primary factors that would push Mr. Miller into

filing for bankruptcy[,]” and warned plaintiff that “it is imperative that Mr. Miller

continue to receive deposits from [plaintiff] Southern Shores as is specified in the

agreement between you and Mr. Miller.” Moreover, Mr. Miller wrote to plaintiff

individually to express his opinions on matters in contention between the parties.


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Finally, we note that in their appellate brief, defendants describe Mr. Miller as “the

patriarch and speaker for the family business.”

      As discussed above, in order to survive a motion for directed verdict or JNOV,

the non-movant need only present “more than a scintilla of evidence” on each element

of its claim. Stark v. Ford Motor Co., 365 N.C. 468, 480, 723 S.E.2d 753, 761 (2012)

(citation omitted). It is well established that in ruling on a motion for directed verdict

or JNOV, “the trial court is to consider all evidence in the light most favorable to the

party opposing the motion; the nonmovant is to be given the benefit of every

reasonable inference that legitimately may be drawn from the evidence; and

contradictions must be resolved in the nonmovant’s favor.” Smith v. Price, 315 N.C.

523, 527, 340 S.E.2d 408, 411 (1986).        In this case, we conclude that plaintiff

presented more than a scintilla of evidence from which the jury could find that Mr.

Miller exercised complete control over the LLCs. We also conclude that plaintiff

offered sufficient evidence that Mr. Miller used his control over the LLCs to disregard

the contractual obligation to return the rental deposits to plaintiff and that Mr.

Miller’s actions were the proximate cause of the damages suffered by plaintiff. As a

result, we conclude that the trial court did not err by denying defendants’ motions for

directed verdict or JNOV.

      In their appellate brief, defendants direct our attention to the facts that the

LLCs were properly formed under North Carolina law and that Mr. Miller did not



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own a majority share of the businesses. We have held, however, that plaintiff offered

evidence of Mr. Miller’s complete domination of the LLCs sufficient to allow the jury

to determine whether he should be held personally liable for the judgment against

defendants. Defendants also concede that an individual may be “held personally

liable” when an individual’s exercise of control is used to violate a duty owed to a

plaintiff. In this case, there was evidence indicating that (1) defendants owed a duty

to return to plaintiff the rental deposits previously disbursed when the properties

went into foreclosure; (2) Mr. Miller made the substantive decisions for the LLCs and

was known as the “decision maker”; (3) Mr. Miller refused to comply with this

contractual obligation, even writing a letter to plaintiff as an individual (the letter in

no way suggested that he was writing on behalf of other LLC members) expressing

his personal “disappointment” with plaintiff; and (4) the damages suffered by plaintiff

were directly and proximately caused by Mr. Miller’s refusal to return the rental

deposits. We conclude that defendants’ argument regarding the insufficiency of

plaintiff’s evidence is without merit.

      Defendants also argue, in a somewhat dramatic fashion, that unless the trial

court is reversed “the concept of limited liability [will be] eliminated entirely from the

law of contracts in North Carolina,” with the result that any member of an LLC with

“whom the opposing party actually deals with on a day-to-day basis, would be subject

to personal liability for breach of the LLC’s contract.” Defendants contend that if we



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uphold the jury’s verdict “then there is no point in having a ‘limited liability’ company

in this State.” We disagree with defendants’ implication that the instant case is in

some way extending or changing the established law concerning the imposition of

personal liability on an individual based upon his or her actions in relation to a

business entity. For example, it seems clear that on the facts of this case there would

be no basis upon which to hold any of the other member-managers of the LLCs

personally liable. Nor is Mr. Miller’s liability premised simply upon his exercise of

ordinary daily management of the LLCs. Instead, it appears that he made the

decision to intentionally breach the parties’ contracts without input from the other

LLC members, and attempted to use the LLCs to achieve an unjust result. We also

note that, to the extent that defendants are urging that as a matter of public policy

the law governing individual liability in the context of an LLC should be changed,

“[t]he General Assembly is the policy-making agency because it is a far more

appropriate forum than the courts for implementing policy-based changes to our

laws.” Rhyne v. K-Mart Corp., 358 N.C. 160, 169, 594 S.E.2d 1, 8 (2004). We conclude

that “plaintiff has carried his minimal burden of presenting more than a scintilla of

evidence supporting his . . . claim.” Morris v. Scenera Research, LLC, 368 N.C. 857,

862, 788 S.E.2d 154, 158 (2016).




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      For the reasons discussed above, we conclude that the trial court did not err by

denying defendants’ motions for directed verdict or JNOV and that its orders should

be

      AFFIRMED.

      Judges ELMORE and STROUD concur.




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