Green v. Freeman

NO. COA11-548-2

NORTH CAROLINA COURT OF APPEALS

Filed: 1 April 2014

MICHAEL A. GREEN and DANIEL J.
GREEN,
Plaintiffs,

v. Guilford County
No. 2006-CVS-12622
JACK L. FREEMAN, JR., CORINNA W.
FREEMAN, PIEDMONT CAPITAL
HOLDING OF NC, INC., PIEDMONT
EXPRESS AIRWAYS, INC., PIEDMONT
SOUTHERN AIR FREIGHT, INC., AND
NAT GROUP, INC.,
Defendants,

v.

LAWRENCE J. D’AMELIO, III,
Third-Party Defendant.

Appeal by defendant Corinna Freeman and cross-appeal by

plaintiffs from order entered 8 July 2010 and judgment entered 2

June 2010 and by Judge Edwin G. Wilson, Jr. in Superior Court,

Guilford County. Heard in the Court of Appeals 16 November

2011. By opinion entered 4 September 2012, this Court affirmed

the trial court’s orders. By opinion entered 8 November 2013,

the North Carolina Supreme Court reversed this Court’s opinion

and remanded for consideration of additional issues.

Thomas B. Kobrin, for plaintiff-appellants.
 -2-
Forman Rossabi Black, P.A., by T. Keith Black, Gavin J.
Reardon, and Elizabeth Klein, for defendant-appellant
Corinna Freeman.

STROUD, Judge.

This case comes to us on remand from the North Carolina

Supreme Court, which reversed this Court’s prior opinion and

remanded for us to consider the issue of agency. We affirm the

trial court’s order allowing defendant Corinna’s motion for

directed verdict on the issue of agency.

I. Background

The relevant background facts have been laid out by our

Supreme Court in Green v. Freeman, ___ N.C. ___, ___, 749 S.E.2d

262, 265-67 (2013) (Green I), and we will not repeat them here.

The Supreme Court held that plaintiffs’ evidence on breach of

fiduciary duty was insufficient as a matter of law, but remanded

for this Court to consider whether the trial court erred in

allowing defendant Corinna Freeman’s motion for directed verdict

on an agency theory of liability and piercing the corporate

veil. Id. at ___, 749 S.E.2d at 271.

II. Agency and Piercing the Corporate Veil

To hold Corinna personally liable for the actions of the

corporation,
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plaintiffs must present evidence of three

elements:

(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 [a] 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 ___, 749 S.E.2d at 270 (citation and quotation marks

omitted).

The Supreme Court has already held that plaintiffs

presented sufficient evidence on the first element. It remanded

to this Court for us to consider whether plaintiffs presented

sufficient evidence on the other two elements. The only

remaining issue to be considered is that of agency. Plaintiffs

argue that the trial court erred in allowing defendant Corinna’s

motion for directed verdict on an agency theory because there

was evidence that Jack Freeman, her son, was her agent.
 -4-
We conclude that, even assuming the 2001 letter created an

agency relationship, it was an agency relationship between the

Piedmont companies and Jack, not between Corinna and Jack.

Although the Supreme Court held that it was proper to pierce the

corporate veil, plaintiffs only argue that Jack was Corinna’s

personal agent, not that he was an agent of the corporation, and

that piercing the corporate veil therefore makes Corinna liable

for his acts. Accordingly, we affirm the trial court’s order

directing verdict on the issue of agency.

A. Standard of Review

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. When determining the
correctness of the denial for directed
verdict or judgment notwithstanding the
verdict, the question is whether there is
sufficient evidence to sustain a jury
verdict in the non-moving party’s favor or
to present a question for the jury.

Davis v. Dennis Lilly Co., 330 N.C. 314, 322-23, 411 S.E.2d 133,

138 (1991) (citations omitted).

B. Analysis

Agency, like piercing the corporate veil, is not itself a

cause of action; it is “the relationship that arises from the

manifestation of consent by one person to another that the other
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shall act on his behalf and subject to his control, and consent

by the other so to act.” Outer Banks Contractors, Inc. v.

Daniels & Daniels Const., Inc., 111 N.C. App. 725, 730, 433

S.E.2d 759, 762 (1993) (citation and quotation marks omitted).

“Agency is a fact to be proved as any other, and where

there is no evidence presented tending to establish an agency

relationship, the alleged principal is entitled to a directed

verdict.” Albertson v. Jones, 42 N.C. App. 716, 718, 257 S.E.2d

656, 657 (1979); Outer Banks Contractors, Inc., 111 N.C. App. at

730, 433 S.E.2d at 762 (“The presence of a principal-agent

relationship is a question of fact for the jury when the

evidence tends to prove it; a question of law for the trial

court if the facts lead to only one conclusion.”).

To establish an agency relationship, “[t]he principal must

intend that the agent shall act for him, the agent must intend

to accept the authority and act on it, and the intention of the

parties must find expression either in words or conduct between

them.” Ellison v. Hunsinger, 237 N.C. 619, 628, 75 S.E.2d 884,

891 (1953) (citation and quotation marks omitted). “An agency

can be proved generally, by any fact or circumstance with which

the alleged principal can be connected and having a legitimate

tendency to establish that the person in question was his agent
 -6-
for the performance of the act in controversy.” Munn v. Haymount

Rehabilitation & Nursing Center, Inc., 208 N.C. App. 632, 637-

38, 704 S.E.2d 290, 295 (2010) (citation and quotation marks

omitted).

An agency relationship can impose vicarious liability on a

principal for the torts committed by an agent when he “is acting

within the line of his duty and exercising the functions of his

employment.” King v. Motley, 233 N.C. 42, 45, 62 S.E.2d 540, 543

(1950). “If the act of the employee was a means or method of

doing that which he was employed to do, though the act be

unlawful and unauthorized or even forbidden, the employer is

liable for the resulting injury . . . .” Wegner v. Delly-Land

Delicatessen, Inc., 270 N.C. 62, 66, 153 S.E.2d 804, 808 (1967).

Here, the claims against Jack—the purported agent—were fraud,

breach of fiduciary duty, and unfair and deceptive business

practices.

Plaintiffs argue that Corinna made Jack her agent by

writing and signing the following letter, dated 30 November 2001

and entitled “RE: CORPORATE RESOLUTION”:

Dear Jack:

As of this date, November 30, 2001, please
be advised that I am delegating
responsibility and authority for making all
corporate, financial, operational, and
 -7-
administrative decisions for the company to
you.

You are free to delegate further in any area
of the business to persons you decide are
appropriate and qualified to insure the
smooth and successful operation of the
company.

Sincerely,
[signature]

Corinna Freeman
Chairperson

Although we agree that this letter and the other evidence

could establish an agency relationship, plaintiffs misidentify

the principal. This evidence, in the light most favorable to

plaintiffs, shows that Corinna appointed Jack a general agent on

behalf of “the company” in her capacity as “Chairperson.” He was

empowered to make “all corporate, financial, operational, and

administrative decisions for the company.” Nothing in the 2001

letter—and no other evidence presented at trial—indicates that

Corinna appointed Jack as her personal agent or that she

intended to empower him to act on her own behalf in any way

other than as the corporate “chairperson.” If Jack was the

corporation’s agent, not Corinna’s, then the corporation, not

Corinna, would normally be liable for the torts committed within

the scope of his duties. See Green I, ___ N.C. at ___, 749

S.E.2d at 270 (“The general rule is that in the ordinary course
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of business, a corporation is treated as distinct from its

shareholders.” (citation and quotation marks omitted)); Holleman

v. Aiken, 193 N.C. App. 484, 504, 668 S.E.2d 579, 592 (2008)

(stating that “a principal is liable for the torts of its agent

which are committed within the scope of the agent’s authority”

(citation and quotation marks omitted)).

Legally, there is a distinction between Jack’s actions on

behalf of the corporation and his actions purportedly as

Corinna’s agent, and it appears that this is the distinction

which the Supreme Court directed us to address:

In other words, if the trial court properly
dismissed plaintiffs’ agency claims, it is
irrelevant whether Corinna exercised
domination and control over the Piedmont
companies. On the other hand, if the trial
court erred in dismissing the agency claims,
the question remains whether plaintiffs may
recover against Corinna on those claims
through the piercing the corporate veil
doctrine. Therefore, we reverse and remand
to the Court of Appeals for a determination
of whether the trial court erred in granting
Corinna’s motion for a directed verdict on
plaintiffs’ agency claims for fraud and
breach of fiduciary duty.

Green I, ___ N.C. at ___, 749 S.E.2d at 271.

Because the parties’ original briefs failed to address this

distinction, we ordered that the parties submit supplemental

briefing to address the issues on remand from the Supreme Court.
 -9-
They did so, but plaintiffs made no argument that Corinna is

liable for Jack’s actions as a corporate agent through piercing

the corporate veil, or on any other theory. It is not the duty

of this Court to construct arguments for appellants. Foster v.

Crandell, 181 N.C. App. 152, 162, 638 S.E.2d 526, 533, cert. and

disc. rev. denied, 361 N.C. 567, 650 S.E.2d 602 (2007).

Therefore, we address only the argument presented—that Jack was

Corinna’s personal agent empowered to act on her behalf. For the

foregoing reasons, we conclude that there was insufficient

evidence that Jack was Corinna’s personal agent, acting under

actual authority.

Plaintiffs also argue that even if Jack did not have actual

authority to act as Corinna’s personal agent, he had apparent

authority to do so. “Apparent authority is that authority which

the principal has held the agent out as possessing or which he

has permitted the agent to represent that he possesses.” Pet,

Inc. v. University of North Carolina, 72 N.C. App. 128, 135, 323

S.E.2d 745, 750 (1984) (citation, quotation marks, and ellipses

omitted). Plaintiffs introduced no evidence that Corinna ever

made any representations to them, let alone any representations

that Jack had authority to act on her behalf. Plaintiffs failed

to show that Corinna otherwise acted in such a way as to convey
 -10-
to plaintiffs the idea that Jack had authority to act on her

behalf. Jack’s out-of-court representations about his authority

to act for Corinna are irrelevant. See Dailey v. Integon General

Ins. Corp., 75 N.C. App. 387, 399, 331 S.E.2d 148, 156 (noting

that “the general rule is that neither the fact nor the extent

of an agency relationship can be proved by the out-of-court

statements of an alleged agent.”), disc. rev. denied, 314 N.C.

664, 336 S.E.2d 399 (1985); Munn, 208 N.C. App. at 639, 704

S.E.2d at 296 (“The scope of an agent’s apparent authority is

determined not by the agent’s own representations but by the

manifestations of authority which the principal accords to him.”

(citation and quotation marks omitted)); State v. Sturgill, 121

N.C. App. 629, 638, 469 S.E.2d 557, 563 (1996) (“Apparent

authority arises when a principal intentionally or by want of

ordinary care causes or allows a third person to believe that an

agent possesses authority to act for that principal.” (citation,

quotation marks, and brackets omitted) (emphasis added)).

Therefore, there was insufficient evidence to establish Jack’s

apparent authority to act as a personal agent of Corinna.

We conclude that plaintiffs failed to present sufficient

evidence, taken in the light most favorable to plaintiffs, that

Jack was Corinna’s personal agent empowered with either actual
 -11-
or apparent authority to sustain a jury verdict in their favor

on that theory. Therefore, we hold that the trial court did not

err in granting defendant Corinna’s motion for directed verdict

on the theory of agency.

III. Exclusion of Deposition

Plaintiffs further argue that the trial court erred in

excluding the deposition of Corinna that they attempted to

introduce at trial under N.C. Gen. Stat. § 1A-1, Rule 32.

Defendant Corinna objected on the basis that she was present and

available to testify, and that therefore reading the deposition

was unnecessary.

Under N.C. Gen. Stat. § 1A-1, Rule 32(a)(3) (2007), “[t]he

deposition of a party . . . may be used by an adverse party for

any purpose, whether or not the deponent testifies at the trial

or hearing.” Here, the trial court excluded the portions of

Corinna’s deposition offered by plaintiffs because

[i]t just stands in the face of reason that
you would have three co-defendants sitting
here in court and that you could get their
testimony just by introducing the
deposition, with no attempt at that point
for them to be cross examined.

It further sustained the objection under Rule 403 on the basis

that the evidence would confuse the jury, reasoning that there
 -12-
were multiple defendants and that the jury might be tempted to

use one defendant’s admissions against the others.

First, we conclude that the trial court’s interpretation of

Rule 32 was error. The plain language of the rule permits the

use of a deposition of a party by an adverse party for any

purpose, regardless of “whether or not the deponent testifies.”

N.C. Gen. Stat. § 1A-1, Rule 32(a)(3). Indeed, this Court has

specifically held that a party’s presence at trial is not a

reason to prevent an adverse party from introducing her

deposition. Stilwell v. Walden, 70 N.C. App. 543, 547-48, 320

S.E.2d 329, 332 (1984). Therefore, the presence of defendant at

trial or her availability as a witness is wholly immaterial to

the issue of whether her deposition may be used against her.

Moreover, for purposes of Rule 32, it is irrelevant that

there were multiple defendants at trial. Rule 32(a) specifically

permits the use of a deposition “against any party who was

present or represented at the taking of the deposition or who

had reasonable notice thereof.” N.C. Gen. Stat. § 1A-1, Rule

32(a); see Floyd v. McGill, 156 N.C. App. 29, 40, 575 S.E.2d

789, 796 (holding that admission of one defendant’s deposition

was proper where she was present at the deposition, even though

she was represented at the time by the same counsel as her co-
 -13-
defendants), disc. rev. denied, 357 N.C. 163, 580 S.E.2d 364

(2003). There is no dispute that all of the co-defendants

received adequate notice that her deposition would be taken and

that all were represented at the taking of Corinna’s deposition.

Cf. Craig v. Kessig, 36 N.C. App. 389, 400, 244 S.E.2d 721, 727

(1978) (noting that a party’s deposition can be used against

him, even if his co-defendants were not present when the

deposition was taken, and that were such a situation to arise in

a jury trial the proper remedy would be appropriate limiting

instructions), aff’d, 297 N.C. 32, 253 S.E.2d 264 (1979). We

conclude that the trial court erred in excluding the proffered

portions of Corinna’s deposition under Rule 32. Further, we

note, as there was some confusion on this point at trial, that

“there is no distinction between a discovery deposition and a

trial deposition[] under Rule 32.” Robertson v. Nelson, 116 N.C.

App. 324, 327, 447 S.E.2d 488, 490 (1994). If the trial court

had allowed plaintiff to use Corinna’s deposition testimony,

defendant would have had the opportunity to raise objections to

portions of the deposition testimony and the trial court could

have ruled upon those objections.

Second, the trial court abused its discretion in excluding

the offered portions of Corinna’s deposition under the North
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Carolina Rules of Evidence, Rule 403. Under Rule 403, otherwise

admissible evidence may nonetheless be excluded if its probative

value “is substantially outweighed by the danger of unfair

prejudice [or] confusion of the issues.” N.C. Gen. Stat. § 8C-1,

Rule 403 (2007). We review a trial court’s application of Rule

403 for an abuse of discretion. Warren v. Jackson, 125 N.C. App.

96, 99, 479 S.E.2d 278, 280, disc. rev. denied, 345 N.C. 760,

760, 485 S.E.2d 310, 310-11 (1997). “An abuse of discretion

occurs when the trial court’s decision was unsupported by reason

and could not have been a result of competent inquiry.” Leggett

v. AAA Cooper Transp., Inc., 198 N.C. App. 96, 101, 678 S.E.2d

757, 761 (2009) (citation and quotation marks omitted).

Here, the only possible confusion raised by defendants was

the risk that the jury might use the information contained in

one defendant’s deposition against the other two defendants. The

questions and answers in the portions of Corinna’s deposition

offered by plaintiffs all concerned her role in the Piedmont

companies, her awareness of Jack’s actions, and her training and

experience in the cargo aviation business. We fail to see any

possible reason that admission of this evidence would lead the

jury to confuse the issues.
 -15-
The only possible confusion raised by defendants was that

the evidence given by Corinna might be used against her co-

defendants. But it is common sense that this is exactly the

reason that the plaintiffs would want to use the evidence, and

such use is explicitly permitted under Rule 32 when the co-

defendant was represented at the deposition which an adverse

party seeks to admit. See N.C. Gen. Stat. § 1A-1, Rule 32(a);

Craig, 36 N.C. App. at 400, 244 S.E.2d at 727. It is clear that

the trial court made its decision under a misapprehension of the

applicable law and not based upon the actual content of the

portions of the deposition which plaintiffs sought to admit.

Therefore, we conclude that the trial court abused its

discretion in excluding the proffered portions of Corinna’s

deposition under Rule 403.

Having concluded that the trial court erred in excluding

Corinna’s deposition, we must consider whether this error

requires reversal. “The exclusion of evidence constitutes

reversible error only if the appellant shows that a different

result would have likely ensued had the error not occurred. The

burden is on the appellant not only to show error, but to show

prejudicial error.” Latta v. Rainey, 202 N.C. App. 587, 603, 689

S.E.2d 898, 911 (2010) (citations, quotation marks, and ellipses
 -16-
omitted). We hold that plaintiffs have failed to show that the

trial court’s error here was prejudicial.

First, the deposition testimony does not change the fact

that “[b]ecause plaintiffs never became shareholders, Corinna

could not have owed them, as shareholders, fiduciary duties.”

Green I, ___ N.C. at ___, 749 S.E.2d at 269. Second, Corinna’s

deposition does not indicate that she had any contact with

plaintiffs or that “they relied on or trusted in her when they

chose to invest in the Piedmont companies.” Id. Therefore, the

inclusion of the deposition would have had no effect on

plaintiffs’ breach of fiduciary duty claims. See id. Finally,

the inclusion of this deposition would have had no effect on the

agency theory of liability, given our discussion above. Nothing

in the deposition indicates that Corinna authorized Jack to act

on her behalf in a personal capacity. The deposition does

include additional evidence that Corinna continued to be

involved in the Piedmont companies after her 2001 letter and

that she delegated to Jack all of her corporate

responsibilities. But this evidence has no bearing on her intent

to make Jack a personal agent.

We conclude that plaintiffs have failed to show “that a

different result would have likely ensued had the error not
 -17-
occurred.” Latta, 202 N.C. App. at 603, 689 S.E.2d at 911. As a

result, we hold that although the trial court erred in excluding

Corinna’s deposition under Rule 32 of the North Carolina Rules

of Civil Procedure and under Rule 403 of the North Carolina

Rules of Evidence, that error was not prejudicial.

IV. Conclusion

For the foregoing reasons, we affirm the trial court’s

order allowing defendant Corinna Freeman’s motion for directed

verdict on the issue of agency. We further conclude that

plaintiffs have failed to show that the trial court’s error in

excluding Corinna’s deposition was prejudicial.

AFFIRMED; NO PREJUDICIAL ERROR.

Judges BRYANT and CALABRIA concur.