The NC Supreme Court Speaks On Fiduciary Duty And Piercing The Corporate Veil

The best lines in Green v. Freeman, decided last week by the NC Supreme Court, are that "[t]he doctrine of piercing the corporate veil is not a theory of liability.  Rather, it provides an avenue to pursue legal claims against corporate officers or directors who would otherwise be shielded by the corporate form."  Op. 17-18 (emphasis added).

That means it's not enough to show merely that the shareholder has so "dominated the corporation" that its "corporate separatedness" should be disregarded.  As Justice Martin put it, "sufficient evidence of domination and control establishes only the first element for liabilityThere must also be an underlying legal claim to which liability may attach."  Op. 17.

The Supreme Court reversed the jury's verdict that one of the defendant corporation's directors had breached a fiduciary duty to the Plaintiffs and that she was accordingly personally liable due to her domination and control of the corporation.  It also found that no fiduciary duty was owed to the Plaintiff by the defendant director.  It remanded the case to the Court of Appeals to consider another theory of liability.

Is there anything else of interest in the Green case?  It's got some good language to cite in future cases for the well-accepted principle that directors of a North Carolina corporation don't owe a fiduciary duty directly to shareholders:  "The General Assembly has expressly indicated its intent “to avoid an interpretation [of N.C.G.S. §55-8-30]. . .that would give shareholders a direct right of action on claims that should be asserted derivatively” and to avoid giving creditors a generalized fiduciary claim."  Op. 9.  Of course, there are numerous Business Court cases stating the same principle, but it's always nice to have a Supreme Court case to rely on.

My basic comment about this case is that it represents the application of long established rules in the context of litigation against corporate officers and directors, and that it breaks no new ground.

It's worth noting that piercing the corporate veil claims are mostly unsuccessful.  Five years ago, Justice Timmons-Goodson of the NC Supreme Court said  that "proceeding beyond the corporate form is a strong step: 'Like lightning, it is rare [and] severe[.]'"  That's the last time the State's high Court spoke to the subject.

And don't forget that piercing the corporate veil allegations are not a basis for mandatory jurisdiction in the Business Court.

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