tag: North Carolina Land Use Litigator: North Carolina Court of Appeals Addresses Liability of Corporate Officers In Construction Context

Saturday, January 22, 2011, 11:39 AM

North Carolina Court of Appeals Addresses Liability of Corporate Officers In Construction Context


While I was still renting, a homeowner friend once told me that, since buying, he was never able to look at any living space the same way. I, the renter, saw a roof, a faucet, and a bunch of windows. He, the owner, saw potential leaks, an aging water heater and potentially shoddy pipes, and glass vortexes that kick your energy bills in the you-know-whats.

A recent North Carolina Court of Appeals decision is certain to change the way builders -- and perhaps corporate concerns, generally -- see work opportunities. In the briefest form, corporate officers and members of limited liability companies can be held individually liable for their own torts on a construction project. Individually liable!

In White v. Collins Building, Inc., plaintiffs brought a negligence suit against builder company, builder's president/sole shareholder in his individual capacity, the developer company, and certain subcontractor companies. Plaintiffs alleged that their newly-built oceanfront home -- which developer contracted with builder to construct -- suffered broken pipes, water intrusion, and buckling floors and required and required window replacement. In other words, plaintiffs alleged that builder constructed the Mets franchise of homes.

Plaintiffs voluntarily dismissed builder company, developer company and subcontractor companies from the lawsuit, but maintained their claim against builder's president/sole shareholder for "failure to properly supervise the construction of Plaintiffs' home." The trial court dismissed plaintiffs' claim against builder-individual for failure to state a claim upon which relief can be granted, and plaintiffs appealed.

The Court of Appeals conducted a de novo review "of the pleadings to determine their legal sufficiency and to determine whether the trial court's ruling on the motion to dismiss was correct." In doing so, the Appellate Court determined that the trial court was not correct. Let's turn to the reasoning.

As an initial matter -- a great turn of phrase, by the way; almost as solid as "in any event" -- the Court steamrolled any argument that the lack of privity between Plaintiffs and the builder precluded a negligence claim against builder. Turns out Plaintiffs had contracted with the developer for the house, and the developer, in turn, contracted with the builder. The Court wasn't having any of this "privity" argument: "The law imposes upon the builder of a house the general duty of reasonable care in constructing the house to anyone who may foreseeably be endangered by the builder’s negligence, including a subsequent owner who is not the original purchaser."

The Court then deftly moved on to the heart of the matter. Predictably, Defendant took the position that his individual liability is limited because "any action that he took was done on behalf of, and as agent for, [his building company]." In doing so, Defendant relied on an unpublished North Carolina Court of appeals decision, Nudelman v. J.A. Booe Bldg. Contractor, 2003 N.C. App. LEXIS 509 (2003). The Court first pointed out the lack of "controlling authority" enjoyed by an unpublished decision like Nudelman, and then proceeded to distinguish the facts of that inapposite case: "the Nudelman Court addressed Booe's liability solely under a piercing the corporate veil theory and did not discuss Booe'spersonal liability fot negligence under the common-law rule ...."

The Court is able to discern at least two "methods of establishing personal liability in a business setting": (1) piercing the corporate veil and (2) individual responsibility for torts. According to the Court, no published opinion in North Carolina addresses the individual tort liability of a corporate officer in a construction context; that said, North Carolina courts have addressed such tort liability in the context of the contamination of water wells and the conversion of a construction crane. So, I take it this is not a "corporate veil" case. Thus, turning to Connecticut and Georgia caselaw in an effort to buttress North Carolina law, the Court sets the stage for builder's individual liability in negligence, at least for surviving Rule 12(b)(6) dismissal: "That one is personally liable for all torts committed by him, including negligence, notwithstanding that he may have acted as agent for another or as an officer for a corporation. Furthermore, the potential for corporate liability, in addition to individual liability, does not shield the individual tortfeasor from liability. Rather, it provides the injured party a choice as to which party to hold liable for the tort." Strang v. Hollowell, 97 N.C. App. 316 (1990).

Maybe there are Met fans on the Court. Or people with leaky pipes. Who knows. All we can say at this point is that even in the absence of a contractual relationship, and despite the otherwise warm embrace of a business role, corporate officers need beware.

Mike Thelen is a lawyer in Womble Carlyle's Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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