Opinion
No. COA10-862
Filed 19 July 2011 This case not for publication
Appeal by defendant from an order entered 24 February 2010 by Judge Patrice A. Hinnant in Forsyth County Superior Court. Heard in the Court of Appeals 9 February 2011.
Womble Carlyle Sandridge Rice PLLC, by Richard T. Rice, Gemma L. Saluta, and James A. Dean, for plaintiff. Wyrick Robbins Yates Ponton LLP, by K. Edward Greene and Tobias S. Hampson, for defendant.
Forsyth County No. 06 CVS 5561.
Triple S Marketing Group, Inc. (Triple S or defendant), appeals from the order of the trial court entered in supplemental proceedings granting the motion of Travelers Indemnity Co. (Travelers or plaintiff) to pierce Triple S's corporate veil and pursue a claim against Pamela Bullock and James Trovato, two non-party shareholders. Because North Carolina's supplemental proceedings statutes do not afford a trial court jurisdiction over a motion to pierce the corporate veil, we reverse.
I. Background
Between 2003 and 2004, Triple S, a New Jersey corporation headquartered in Greensboro, North Carolina, purchased workers' compensation insurance from Travelers. In 2004, Travelers audited Triple S and determined that the company had not properly categorized many of its employees for the purposes of obtaining insurance. Id. Travelers further determined that a proper categorization of Triple S's employees resulted in Triple S owing Travelers $213,462.00 in unpaid premiums. Id. On 3 August 2006, Travelers filed suit to recover those unpaid premiums. On 26 September 2007, the parties entered into a consent judgment, under which Triple S agreed to pay $203,462.00.
However, Triple S's revenues had declined substantially since 2004 due to changing market conditions and, in 2006, with $3,000,000 million in debt and only $5,000.00 in assets, Triple S ceased operation. Following an attempt to execute upon the consent judgment that resulted in the execution being returned wholly unsatisfied, Travelers instituted supplemental proceedings to discover reachable assets and enforce its judgment. On 30 November 2009, Travelers filed its motion to execute judgment on real property of Pamela Bullock and James Trovato, in which it argued that Triple S's corporate veil should be pierced and that Bullock and Trovato should be held personally liable for the debt owed. Bullock and Trovato were Triple S's principal shareholders but were neither party to Travelers' original action nor mentioned in the parties' consent judgment. On 19 January 2010, counsel for Triple S filed its brief in opposition to Traveler's motion to execute judgment on the real property of Pamela Bullock and James Trovato. Bullock and Trovato were named as individuals appearing to argue the motion in the brief's opening paragraph. No jurisdictional question was raised in Triple S's brief.
On 24 February 2010, the trial court entered its order granting Travelers' motion. The trial court purported to do so under the statutory authority of sections 1-352 and 1-353 of the North Carolina General Statutes. Triple S timely appealed.
II. Discussion
Triple S raises two principal issues on appeal. They are, first, whether the trial court lacked subject matter jurisdiction in a supplemental proceeding sufficient to rule on Travelers' motion to pierce the corporate veil, and second, whether the trial court erred in granting Travelers' motion to pierce the corporate veil. Because we hold that North Carolina's supplemental proceedings statutes do not afford a trial court jurisdiction to pierce the corporate veil against a non-party shareholder, we do not reach the second issue.
"`A court has jurisdiction over the subject matter if it has the power to hear and determine cases of the general class to which the action in question belongs.'" Cooke v. Faulkner, 137 N.C. App. 755, 757-58, 529 S.E.2d 512, 14 (2000) (quoting Balcon, Inc. v. Sadler, 36 N.C. App. 322, 324, 244 S.E.2d 164, 165 (1978)). This jurisdiction is conferred on the courts by the North Carolina Constitution or by statute. Harris v. Pembaur, 84 N.C. App. 666, 667, 353 S.E.2d 673, 675 (1987). Because "`[s]ubject matter jurisdiction is a prerequisite for the exercise of judicial authority over any case or controversy,'" State ex rel. Com'r of Ins. v. Dare Cty., N.C. App. ___, ___, 692 S.E.2d 155, 157 (2010) (quoting Hardy v. Beaufort Cty. Bd. of Ed., 200 N.C. App. 403, 408, 683 S.E.2d 774, 778 (2009), "parties cannot confer jurisdiction upon a court by consent, waiver, or estoppel." Hayes v. Town of Fairmont, 130 N.C. App. 125, 128, 502 S.E.2d 380, 382 (1998) (citation omitted). Moreover, "`the question of subject matter jurisdiction may be raised any time,'" even if the issue was not raised at trial. Wood v. Guilford Cty., 355 N.C. 161, 164, 558 S.E.2d 490, 493 (2002) (quoting Lemmerman v. A.T. Williams Oil Co., 318 N.C. 577, 580, 350 S.E.2d 83, 85 (1986)); see also N.C. Gen. Stat. § 8C-1, Rule 12(h)(3) (2009). "The standard of review for lack of subject matter jurisdiction is de novo." Keith v. Wallerich, ___ N.C. App. ___, ___, 687 S.E.2d 299, 302 (2009).
We begin our de novo review by noting that Travelers did not name Bullock or Trovato as parties in its complaint, nor did Travelers plead a veil-piercing theory of liability at any time prior to filing its motion in supplemental proceedings to pierce the corporate veil. This Court was presented with a similar set of facts in Honeycutt Contractors, Inc. v. Otto, ___ N.C. App. ___, 703 S.E.2d 857 (2011), where we reversed that portion of a trial court's order extending liability for a default judgment to a non-party shareholder on a veil-piercing theory. Id. at 703 S.E.2d at 861. In that case, this Court held that the appellees' inclusion of an allegation concerning veil-piercing in its complaint was "merely a theory of liability; it did not confer jurisdiction upon the court over an individual who was never a party to the action." Id. This decision did not, however, rest on a lack of subject matter jurisdiction. Instead, as the above language makes clear, this Court in Honeycutt was discussing the trial court's lack of personal jurisdiction. Id. (stating that "`[o]ne cannot be brought into a lawsuit without his consent either expressed or by entering a general appearance, except by causing summons to be served upon him'") (quoting Southern Athletic/Bike v. House of Sports, Inc., 53 N.C. App. 804, 806, 281 S.E.2d 698, 699 (1981)). Honeycutt does not, therefore, control the instant case. Bullock and Trovato impliedly consented to the trial court's exercise of personal jurisdiction over them when they appeared to argue Travelers' motion to pierce the corporate veil without raising any objection to the court's lack of jurisdiction. In doing so, they also waived their ability to challenge the court's order on personal jurisdiction grounds on appeal. See Zellars v. McNair, 166 N.C. App. 755, 757, 603 S.E.2d 826, 828 (2004) (stating that "if the defendant by motion or otherwise invokes the adjudicatory powers of the court in any other matter not directly related to the questions of jurisdiction, he has made a general appearance and has submitted himself to the jurisdiction of the court whether he intended to or not").
Nevertheless, as Triple S reminds this Court, a trial court may not exercise subject matter jurisdiction over the controversy in the absence of a proper application invoking its authority to act. See In re Transportation of Juveniles, 102 N.C. App. 806, 808, 403 S.E.2d 557, 558 (1991) (stating that "[a] court cannot undertake to adjudicate a controversy on its own motion; rather it can [do so] only when a party presents a controversy to it, and then, only if it is presented in the form of a proper pleading"); see also Carolina Freight Carriers Corp. v. Local Union No. 61, 11 N.C. App. 159, 161, 180 S.E.2d 461, 463 (1971) (stating that "the filing of a complaint or the issuance of summons . . . is a condition precedent to the issuance of an injunction or restraining order, and when a complaint is not filed or summons is not issued . . . an action is not properly instituted and the court does not have jurisdiction"); N.C. Gen. Stat. § 1A-1, Rule 2 (2009) (stating that "[t]here shall be in this State but one form of action for the enforcement or protection of private rights . . . which shall be denominated a civil action"); N.C. Gen. Stat. § 1A-1 (2009), Rule 3 (stating that "[a] civil action is commenced by filing a complaint with the court"). Because Travelers neither pleaded its veil-piercing theory nor moved to amend its complaint to include a veil-piercing theory, no proper application was ever made in the underlying proceeding invoking the trial court's equitable veil-piercing powers.
The question remains, however, as to whether North Carolina's supplemental proceedings statutes are broad enough to encompass a motion to pierce the corporate veil; if they are, then Travelers's motion would constitute a proper application sufficient to invoke the trial court's subject matter jurisdiction. We hold that they are not.
Supplemental proceedings are governed by statute. See N.C. Gen. Stat. § 1-352 et seq. (2009). In construing these statutes, it must be remembered that "[t]he cardinal principle of statutory interpretation is to ensure that the legislative intent is accomplished." Insulation Systems, Inc. v. Fisher, 197 N.C. App. 386, 389, 678 S.E.2d 357, 360 (2009) (citations omitted). The trial court held that two of North Carolina's supplemental proceedings statutes, sections 1-352 and 1-353 of the North Carolina General Statutes, afforded it jurisdiction to grant Travelers' motion. Section 1-352 states as follows:
When an execution against property of a judgment debtor, or any one of several debtors in the same judgment, issued to the sheriff of the county where he resides or has a place of business, or if he does not reside in the State, to the sheriff of the county where a judgment roll or a transcript of a judgment is filed, is returned wholly or partially unsatisfied, the judgment creditor at any time after the return, and within three years from the time of issuing the execution, is entitled to an order from the court to which the execution is returned or from the judge thereof, requiring such debtor to appear and answer concerning his property before such court or judge, at a time and place specified in the order, within the county to which the execution was issued.
N.C. Gen. Stat. § 1-352 (2009); see also N.C. Gen. Stat. § 1-352.1- 1-352.2 (2009) (providing further procedural mechanisms for the discovery of a judgment debtor's assets). While section 1-352 sets the return of an unsatisfied judgment as a necessary condition for a judgment creditor to seek relief in supplemental proceedings, section 1-353 affords the trial court authority to grant relief. That section provides as follows:
After the issuing of an execution against property, and upon proof by affidavit of a party, his agent or attorney, to the satisfaction of the court or a judge thereof, that any judgment debtor residing in the district court district as defined in G.S. 7A-133 or superior court district as defined in G.S. 7A-41.1, as the case may be, where such judge or sheriff resides has property which he unjustly refuses to apply toward the satisfaction of the judgment, such court or judge may, by order, require the judgment debtor to appear at a specified time and place, to answer concerning the same; and proceedings may thereupon be had for the application of the property of the judgment debtor towards the satisfaction of the judgment as provided upon the return of an execution, and the judgment creditor is entitled to the order of examination under this section and G.S. 1-352 although the judgment debtor has an equitable estate in land subject to the lien of the judgment, or choses in action, or other things of value unaffected by the lien of the judgment and incapable of levy.
N.C. Gen. Stat. § 1-353 (2009). While these sections provide for "supplemental proceedings, equitable in nature . . . to aid creditors to reach property of every kind subject to the payment of debts which cannot be reached by the ordinary process of execution," Massey v. Cates, 2 N.C. App. 162, 164, 162 S.E.2d 589, 591 (1968), their scope is limited by their plain language; they purport to grant trial courts authority to enter orders affecting the property of judgment debtors only.
Travelers argues, and the trial court found, that because the elements of veil-piercing are satisfied in this instance, there is no factual distinction between Triple S and Bullock and Trovato. Therefore, Travelers asserts that, because Triple S is a judgment debtor within the meaning of sections 1-352 and 1-353, so too are Bullock and Trovato. It is true that when a court pierces the corporate veil against a shareholder, it sets aside the distinction between the corporate entity and the shareholder. Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431, 438, 666 S.E.2d 107, 112 (2008) (holding that, because veil-piercing was appropriate in the case of a party the State sought to add, that party was not a "new" party and, therefore, the relation-back doctrine applied to the State's motion to amend its complaint). That such is the case, however, does not settle whether sections 1-352 and 1-353 afford a trial court jurisdiction to decide the issue of legal and factual distinction between corporation and shareholder in the first instance during supplemental proceedings.
Again, we do not reach the merits of Travelers' veil-piercing claim.
In support of its decision to pierce Triple S's veil, the trial court found that Triple S and Bullock and Trovato were "one and the same entity," that "[t]here is no factual distinction between [them]," and again that "there is no factual difference between Triple S, the corporation, and Bullock and Trovato, the individuals."
That issue is one that appears to be as yet undecided in North Carolina, and neither party has cited to any controlling case. Travelers points to our decision in Blair v. Robinson, 178 N.C. App. 357, 631 S.E.2d 217 (2006), in which this Court rejected the argument that a judgment creditor's action to enforce its judgment against the non-party shareholders of the judgment debtor corporation should be dismissed on the grounds, inter alia, that such an action was more appropriately resolved in a supplemental proceeding. 178 N.C. App. at 360-61, 631 S.E.2d at 221 (stating that "[a]lthough we agree that plaintiffs might have sought some relief pursuant to these statutes, the existence of possible alternate remedies does not preclude plaintiffs from pursuing their present course of action"). This passage only recognizes arguendo the hypothetical possibility that the plaintiffs in Blair may have obtained some relief in supplemental proceedings. Blair does not state whether a plaintiff could pierce the corporate veil in such proceedings, nor does it note against whom the hypothetical relief might be obtained. Ultimately, this language in Blair is dicta, and it does not control this case.
Travelers also points this Court to Composite Technology, Inc. v. Advanced Composite Structures (USA), Inc., 150 N.C. App. 386, 563 S.E.2d 84 (2002), in which this Court held that, under section 1-324.3, a judgment creditor could not move the trial court to impute liability to a non-party corporate officer for his failure to properly respond to a writ of execution "by merely filing a motion in the prior action." 150 N.C. App. at 392, 563 S.E.2d at 87 (rejecting the argument that section 1-324.3 allows a trial court to impose liability under its provisions by way of a motion in the underlying action but stating further that "[u]nlike section 1-325.1, a proceeding under section 1-324.3 is not a supplemental proceeding to the original action"). Travelers argues that, by drawing a distinction between supplemental proceedings and section 1-324.3, this Court was confirming that liability could be extended to a non-party in a supplemental proceeding. Travelers' argument is unconvincing. This Court's focus in Composite Technology was on the availability of procedural mechanisms for enforcing the provisions of sections 1-325.1 and 1-324.3. Id. (noting that section 1-352.1 details the appropriate procedure for enforcing its provisions and stating that "section 1-324.3 establishes a penalty for violation of this section, but it does not specify a method for proceeding against a person who has potentially violated its mandates"). Travelers is not attempting to impute liability to Bullock and Trovato based on any violation of section 1-352 or 1-353. Composite Technologies' distinction based on section 1-352.1's enforcement provision is, therefore, inapplicable as well.
The cases cited by Triple S for the proposition that North Carolina courts may not grant a motion to pierce the corporate veil in supplemental proceedings are just as distinguishable as those cited by Travelers. Triple S cites to, inter alia: Richard Couture, Inc. v. Rowe, 263 N.C. 234, 139 S.E.2d 241 (1964) (holding that corporate funds could not be applied to satisfy judgment debt of corporate president by way of a motion in a supplemental proceeding; the court did not discuss veil-piercing, nor did it state whether the judgment debtor was a shareholder of the corporation); Cornelius v. Albertson, 244 N.C. 265, 93 S.E.2d 147 (1956) (holding that supplemental proceedings may not be used to litigate the property rights of third parties, an issue distinguishable on the grounds that Travelers argues that Bullock and Trovato are one and the same as Triple S); Nat'l Bank v. Burns, 109 N.C. 105, 13 S.E. 871 (1891) (same); Bronson v. Wilmington N.C. Life Ins. Co., 85 N.C. 411 (1881) (same); Carson v. Oates, 64 N.C. 115 (1870) (same).
Other jurisdictions considering the issue of whether a trial court may pierce the corporate veil in a supplemental proceeding have prohibited piercing. See Green v. Ziegelman, 282 Mich. App. 292, 767 N.W.2d 660 (2009) (prohibiting piercing under Michigan's supplemental proceeding statutes and requiring judgment creditor to file a separate suit); see also Miner v. Fashion Enterprises, Inc., 342 Ill. App. 3d 405, 794 N.E.2d 902 (2003) (same in Illinois); Bollore S.A. v. Import Warehouse, Inc., 448 F.3d 317, 323 (5th Cir. 2006) (holding that supplemental proceedings were not the appropriate vehicle through which to pierce the corporate veil in Texas); C-Staff, Inc. v. Liberty Mutual Ins. Co., 571 S.E.2d 383 (Ga. 2002) (answering in the negative the Eleventh Circuit's certified question as to whether Georgia law permitted a judgment creditor to implead a party in a supplemental proceeding). Strong concerns for affording civil defendants adequate procedural safeguards are at the heart of many opinions interpreting legislative intent as excluding piercing or impleading in supplemental proceedings. See, e.g., C-Staff, Inc., 571 S.E.2d at 384 (noting that the Georgia General Assembly had "established certain statutory proceedings related to enforcing judgments that are separate from the Civil Practice Act" but that "[a]bsent a specific statutory procedure authorizing deviation from the Civil Practice Act, we conclude that the [Georgia] General Assembly intended judgment-creditors to follow the general requirements for holding a person civilly liable, which include filing a complaint and serving the defendant").
A few jurisdictions take a contrary view. See H.H. Robertson Co. v. V.S. DiCarlo General Contractors, Inc., 789 F. Supp. 998 (E.D. Mo. 1992) (holding that Missouri law allows a judgment creditor to pierce the veil in a supplemental proceeding); see also Williams v. Oates, 2010 WL 2428659 (Ct. App. Ky. 2010) (holding that Kentucky law allowed plaintiff to seek to pierce the corporate veil of a long-dissolved corporation in a supplemental proceeding).
Similarly, the North Carolina Constitution and the North Carolina Rules of Civil Procedure afford defendants in civil cases certain procedural and substantive safeguards designed to ensure their ability to defend a claim on its merits. The North Carolina Constitution guarantees defendants in civil cases the right to trial by jury. N.C. Const. Art. 1 § 25; N.C. Gen. Stat. § 1A-1, Rule 38(a) (2009). North Carolina's Rules of Civil Procedure require that defendants be afforded notice of the claims against them per Rule 8(a)(1) and require service of process per Rule 4. They further guarantee that defendants will have the ability to, inter alia: challenge a court's jurisdiction, Rule 12(b)(1)-(2); challenge the propriety of venue, Rule 12(b)(3); participate in discovery, Rule 26-37; or move for summary judgment, Rule 56. None of these procedural safeguards would be present were we to hold that a trial court could, in supplemental proceedings, grant a motion to pierce the corporate veil and attach a previously agreed upon consent judgment to the personal property of individual shareholders who were neither parties to the underlying action nor named persons in the judgment. We cannot hold that it was the intent of our legislature to so undermine those safeguards when it crafted the phrase "judgment debtor" in sections 1-352 and 1-353. Since we cannot construe these statutes so broadly, we must agree with Triple S that the trial court exceeded its scope by granting Travelers' motion.
Reversed.
Judge STEELMAN concurs in the result only.
Judge ERVIN concurs in part and concurs in the result in part by separate opinion.
Report per Rule 30(e).