Corporate Shield Holds Up Against Creditor

There's no expression when speaking of football players to recognize a performance that hits three exceptional marks (like a hat trick in hockey or a triple double in basketball or the triple crown in baseball). 

Maybe there should be, because Jeff Bostic, who played twelve years in the NFL for the Washington Redskins and on three Super Bowl winning teams, pulled off an extraordinary triple victory yesterday in the Business Court.  He got summary judgment in three cases in which he was the Defendant: Yates Constr. Co. v. Bostic, 2014 NCBC 19; Phillips & Jordan, Inc. v. Bostic, 2014 NCBC 18; and American Mechanical, Inc. v. Bostic, 2014 NCBC 17.

All of the Plaintiffs were subcontractors on construction projects for Bostic Construction Inc., which Bostic owned.  When the company failed and they were not paid, the Plaintiffs sued Bostic personally, alleging that Bostic had engaged in constructive fraud by commingling and misusing the funds from construction loans and using those funds for personal purposes.

Those facts might give rise to a claim by a shareholder of the construction company, but each of these Plaintiffs was only a creditor.  They ran into this settled principle:

Generally, directors and officers of a corporation are not liable, solely by virtue of their offices, for torts committed by the corporation or its other directors and officers.

Phillips & Jordan Op. ¶19 (relying on Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 57, 554 S.E.2d 840, 845 (2001).

Before a director or an officer can be directly liable to a creditor, there must be "a tort personally committed by [him] or one in which he participated."  Id.

The problem for each of these Plaintiffs is that they had no direct communication or interaction with Bostic.  His ownership status, standing alone, therefore was "insufficient to hold him legally accountable for an injury to Plaintiffs [as] third party creditor[s] of" the corporation.  Ops. ¶ 22.

 

 

Business Court Dismisses Claims Arising From City Of Charlotte Construction Project

The Business Court ruled today in Crowder Construction Co. v. City of Charlotte, a construction law case, that North Carolina does not recognize the "cardinal change doctrine."  It also dismissed a claim that a project consultant had tortiously interfered with the contract between the general contractor and the City by rejecting the general contractor's claims for payment.

A "cardinal change" is a change to a government contract which "fundamentally alters the contractual undertaking of the contractor."  It is a change which "cannot be redressed within the contract by an equitable adjustment to the contract price."

Crowder was the general contractor for a parking garage for the City of Charlotte.  It claimed that "after it began work on the Project, it discovered that the soil conditions at the site differed greatly from those represented in the Bid Documents and that these changed conditions resulted in significant additional work and expense. . . ."  Crowder sued to recover these additional expenses, claiming that the unanticipated soil conditions were a cardinal change.

Judge Diaz dismissed the claim, stating that it was "not recognized in North Carolina."  He ruled that a claim for cardinal change was essentially a claim for breach of an implied contract, and that such a claim was barred by the doctrine of sovereign immunity.

Also dismissed was a claim by Crowder for tortious interference with contract against  STV, the City's "Project Management Support Services Consultant."  Crowder claimed that STV had interfered with Crowder's contract by failing to properly administer the contract and by refusing to negotiate proper payment for Crowder.

The Court held that the "interference" was justified, even though Crowder had specifically alleged that it was not.  Judge Diaz ruled that Crowder's allegation as to the lack of justification was "a legal conclusion the Court need not accept," and that Crowder's allegations on this point were self-defeating.  Crowder had referenced STV's contract, which showed that it had been contractually authorized to review and approve change orders, and had asserted that STV was responsible for evaluating the validity of any claims made in connection with the Project. 

The Court determined that STV had a proper motive -- the performance of its own duties under its own contract with the City -- in how it had dealt with Crowder.  Thus, the Court concluded, STV's actions were "reasonably related to the protection of a legitimate business interest," and it dismissed Crowder's tortious interference claim.

Brief in Support of Motion to Dismiss (Cardinal Change Issue)

Brief in Support of Motion to Dismiss (Tortious Interference Issue)

Brief in Opposition to Motion to Dismiss (Tortious Interference Issue)

Reply Brief in Support of Motion to Dismiss (Cardinal Change Issue)