Larry E. Thompson
Thornsbury & Thompson
Williamson, West Virginia
Attorneys for Plaintiff
Robert P. Martin
Mark A. Robinson
Myer, Darragh, Buckler, Bebenek & Eck
Charleston, West Virginia
Attorneys for Defendants
JUSTICE MILLER delivered the Opinion of the Court.
1. "A motion for summary judgment should be granted if
the pleadings, affidavits or other evidence show that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Syllabus, Hanks v.
Beckley Newspapers Corp., 153 W. Va. 834, 172 S.E.2d 816 (1970).
2. W. Va. Code, 31-1-89 (1974), provides, in pertinent
part: "A holder of or subscriber to shares of a corporation shall
be under no obligation to the corporation or its creditors with
respect to such shares other than the obligation to pay to the
corporation the full consideration for which such shares were
issued or to be issued."
3. The corporate entity may be disregarded in those
situations where the corporate form is being used to perpetrate
injustice, defeat public convenience, or justify wrongful or
John Mills, the plaintiff below, appeals the final order
of the Circuit Court of Mingo County, dated November 6, 1992. He
contends that the trial court erred in granting summary judgment
for all of the defendants except USA Mobile Communications, Inc.,
and Jack Fuellhart, and in striking from the verdict the damages
the jury awarded for malicious prosecution. We have reviewed the
record and find no error; accordingly, we affirm the final judgment
of the Circuit Court of Mingo County.
On June 26, 1986, the plaintiff sold his interest in
Selectavision to Cable Systems for $25,000.See footnote 1 During the closing on
Selectavision, Jack Fuellhart gave the plaintiff a letter of intent
to purchase all the assets of Tug Valley for $172,000. Soon
thereafter, Jack Fuellhart, Janice Fuellhart, Peter Graf, Steve
Richman, and Gerhard WaldshutzSee footnote 2 formed West Virginia Mobile
Communications, a West Virginia corporation, to purchase Tug
Valley. West Virginia Mobile Communications' name was later
changed to USA Mobile Communications.See footnote 3 Janice Fuellhart was
designated the president of this newly formed corporation.
Because none of the principals in USA Mobile
Communications had experience in the mobile paging business, they
asked the plaintiff to work for the company. The plaintiff agreed,
and, in August of 1986, he quit his job with the Chesapeake and
Potomac Telephone Company and began working full time for USA
Mobile Communications.See footnote 4 His office was in the same building as
Cable Systems, and he received his paycheck from an accounting firm
retained by the cable company.
Approximately one month later, on September 3, 1986, USA
Mobile Communications signed an Asset Purchase Agreement with the
plaintiff to acquire Tug Valley for $172,000. Clause 9(l) of the
Agreement provided as follows:
"Conditions Precedent to Buyer's Obligations. All of the Buyer's obligations at the Closing hereunder are subject, at the option of Buyer, to the fulfillment of each of the following conditions at or prior to Closing and the seller agrees to use its respective best efforts to fulfill each such condition:
* * *
"(1) Buyer and John N. Mills shall
have entered into any [sic] employment
agreement in form and substance reasonably
satisfactory to Mills and Buyer pursuant to
which among other things, Mills shall manage
the System for a period of five years after
the Closing. (Emphasis Added).See footnote 5
In January, 1987, USA Mobile Communications opened a
corporate account and began paying Mr. Mills' salary directly from
that account. Despite her initial confidence in Mr. Mills, Janice
Fuellhart soon became dissatisfied with his job performance. In
November, 1987, after numerous attempts to resolve their
differences, Janice Fuellhart stopped paying Mr. Mills' salary.
In January, 1988, Mr. Mills went onto USA Mobile
Communication's property and began taking personal items he claimed
Jack Fuellhart had told him he could store there. After witnessing
Mr. Mills' actions, Skip James, an employee of Cable Systems,
called Janice Fuellhart and explained to her what was happening.
She instructed Mr. James to secure a warrant for the plaintiff's
arrest. Subsequently, the police arrested the plaintiff at his
home on a charge of grand larceny; however, the charge was later
Plaintiff initially filed suit in July of 1988, but
amended the complaint twice, with his second amended complaint
being filed on March 29, 1989. The plaintiff sued Cable Systems,
USA Mobile Communications, Jack Fuellhart, Janice Fuellhart, Peter
Graf, Steve Richman, Gerhard Waldshutz, and Skip James. The
plaintiff alleged a breach of the employment contract, fraud,
malicious prosecution, and harassment.
Following extensive discovery, all the defendants moved
for summary judgment. The matter was heard by the circuit court on
April 23, 1990. By an order dated May 2, 1990, the circuit court
granted summary judgment for all the defendants except USA Mobile
Communications and Jack Fuellhart on the malicious prosecution and
harassment claims and for all the defendants except USA Mobile
Communications on the breach of contract claim.See footnote 6
The case went to trial on November 4, 1991. Three days
later, the jury returned the following verdict for the plaintiff
against the corporation, USA Mobile Communications:
(1) Lost wages $290,949.98
(2) Value of Corporate Stock 248,400.00 (3) Harassment 10,000.00 (4) Malicious Prosecution 137,500.00
TOTAL AWARD $686,849.98
The jury also found Jack Fuellhart liable on the harassment and
malicious prosecution claims.
Thereafter, the defendants filed a motion for judgment
notwithstanding the verdict, a motion for a new trial, and a motion
for relief from the judgment. After conducting a hearing on the
motions, the trial court found that the record was devoid of any
evidence that Jack Fuellhart or USA Mobile Communications was
liable for malicious prosecution. Accordingly, the trial court
struck the $137,500 compensatory damage award for the malicious
prosecution count from the final jury verdict.See footnote 7
On November 6, 1992, the trial court issued its final
order finding that the plaintiff could recover from USA Mobile
Communications the sum of $549,349.98 plus interest. The plaintiff
appeals.See footnote 8
As earlier noted, following extensive discovery, the trial court granted the defendants' motion for summary judgment pursuant to Rule 56 of the West Virginia Rules of Civil Procedure.See footnote 9 In the Syllabus of Hanks v Beckley Newspapers Corp. 153 W. Va. 834, 172 S.E.2d 816 (1970), we recognized when the granting of summary judgment is proper:
"A motion for summary judgment should be granted if the pleadings, affidavits or other evidence show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."
See also Aetna Casualty & Sur. Co. v. Federal Ins. Co., 148 W. Va.
160, 133 S.E.2d 770 (1963).
With this basic rule of law as our guide, we address the
plaintiff's assertion that the trial court erred in granting
summary judgment for all the defendants except USA Mobile
Communications on the breach of contract count. The trial court
granted summary judgment for the other defendants because the
plaintiff's employment contract was exclusively with USA Mobile
Communications. Nonetheless, the plaintiff argues that the
individual stockholders of the corporation should also be liable.
Although stockholders were not immune from liability for corporate obligations at common law, such insulation has been the cornerstone of corporate law since the nineteenth century, and virtually every state now has a statute limiting a stockholder's liability to the cost of the shares held. See generally 18A Am. Jur. 2d Corporations § 850 (1985 & Supp. 1993). Our statute, W. Va. Code, 31-1-89 (1974),See footnote 10 provides, in pertinent part:
"A holder of or subscriber to shares of a corporation shall be under no obligation to the corporation or its creditors with respect to such shares other than the obligation to pay to the corporation the full consideration for which such shares were issued or to be issued."
Thus, where the corporate shares have been fully paid for, the
subscriber or stockholder is not liable for the debts of the
corporation. As we recognized in Laya v. Erin Homes, Inc., 177 W.
Va. 343, 346, 352 S.E.2d 93, 97 (1986): "[A] corporate
shareholder's liability is usually limited to his or her capital
investment in the corporation, and the shareholder is normally not
liable individually to a creditor of the corporation." See
generally 18A Am. Jur. 2d Corporations § 850.
As have most courts, we have recognized instances in
which the corporate entity may be disregarded. These include
situations where the corporate form is being used to perpetrate
injustice, defeat public convenience, or justify wrongful or
inequitable conduct. See, e.g., Laya v. Erin Homes, Inc., supra;
Southern States Co-Op., Inc. v Dailey, 167 W. Va. 920, 280 S.E.2d
821 (1981); Sanders v. Roselawn Memorial Gardens, Inc., 152 W. Va.
91, 159 S.E.2d 784 (1968);See footnote 11 William C. Atwater & Co. v. Fall River
Pocahontas Collieries Co., 119 W. Va. 549, 195 S.E. 99 (1937).See footnote 12
Because a contract with a corporation is a contract with that legal
entity and not the individual stockholders, courts are even more
reluctant to disregard the corporate entity when the dispute
involves a contract as opposed to a tort. As explained in 1
William M. Fletcher, Fletcher Cyclopedia of the Law of Private
Corporations § 41.85 (perm. ed. rev. vol. 1990):
"This is because the party seeking relief in a contract case is presumed to have voluntarily and knowingly entered into an agreement with a corporate entity, and is expected to suffer the consequences of the limited liability associated with the corporate business form, which is not the situation in tort cases. . . . Thus, under contract law, the disappointed may not hold the other liable without additional compelling facts."See footnote 13 (Footnotes omitted).
See also Labadie Coal Co. v. Black, 672 F.2d 92 (D.C. Cir. 1982);
United States v. Jon-T Chems., Inc., 768 F.2d 686 (5th Cir. 1985),
cert. denied, 475 U.S. 1014, 106 S. Ct. 1194, 89 L. Ed. 2d 309
(1986); Main Bank of Chicago v. Baker, 56 Ill. Dec. 14, 86 Ill. 2d
188, 427 N.E.2d 94 (1981); Gray v. Edgewater Landing, Inc., 541 So.
2d 1044 (Miss. 1989); Miller v. Dixon Indus. Corp., 513 A.2d 597
We do not hold that the corporate entity may never be
disregarded in a contract action. As the Mississippi Supreme Court
recognized in Gray v. Edgewater Landing, Inc., 541 So. 2d at 1047,
the corporate veil may be pierced if,
"the complaining party . . . demonstrate[s]: (a) some frustration of contractual expectations regarding the party to whom he looked for performance; (b) the flagrant disregard of corporate formalities by the defendant corporation and its principals; (c) a demonstration of fraud or other equivalent misfeasance on the part of the corporate shareholder." (Citations omitted).
See generally 1 William M. Fletcher, Fletcher Cyc. Corp. § 41.85
(perm. ed. rev. vol. 1990).
In this case, the plaintiff did not present the type of evidence to warrant fastening liability on the individual stockholders of USA Mobile Communications. The plaintiff's chief complaint was that he gave up a job which he had held seventeen years and which had a good salary and excellent health and retirement benefits. He claims that he was "lured" into doing this by the "wining and dining" of Mr. and Mrs. Fuellhart and by the lavish way Mr. Fuellhart traveled to Mingo County, i.e., either by helicopter or hired limousine. Moreover, the plaintiff contends that he was promised a high salary starting at $55,000 and reaching $100,000 in the second year.
As we have earlier noted, his salary was not incorporated
into the asset purchase agreement. However, the trial court
allowed the jury to hear this evidence. There may have been
inflated promises made, but we do not find that these promises
formed the basis for imposing stockholder liability on the verdict
against the corporation. We conclude that the lower court was
correct in granting summary judgment as to these defendants.See footnote 14 We,
therefore, affirm the judgment of the Circuit Court of Mingo
Footnote: 1It appears that at the time Cable Systems purchased Selectavision, Mr. Mills was involved in litigation with his former partners. When Jack Fuellhart negotiated the purchase of Selectavision, he paid Mr. Mills $25,000 in consideration for Mr. Mills' foregoing any interest he may have had in the company.
Footnote: 2These individuals are also partners of Cable Systems.
Footnote: 3In this opinion, we will refer to West Virginia Mobile Communications and USA Mobile Communications collectively as USA Mobile Communications.
Footnote: 4According to the plaintiff, he was to be paid a $55,000 salary the first year with a guaranteed increase to $100,000 the second year. He was also supposed to receive two percent of the stock of each mobile telephone system acquired by West Virginia Mobile Communications as a result of his efforts.
Footnote: 5This provision in the Agreement is the only signed written documentation that the defendants wanted to hire the plaintiff. The parties never entered into a formal employment contract.
Footnote: 6The trial court dismissed the fraud count because it found that the plaintiff had failed to state this cause of action with particularity as required by Rule 9(b) of the West Virginia Rules of Civil Procedure. The plaintiff does not appeal this ruling.
Footnote: 7Jack Fuellhart was also granted judgment notwithstanding the verdict on the harassment claim.
Footnote: 8Although not directly stated in the plaintiff's brief, it appears that the defendant corporation does not have sufficient assets to satisfy the judgment.
Footnote: 9 Rule 56(b) of the West Virginia Rules of Civil Procedure states, in pertinent part: "For defending party. -- A party against whom a claim, counterclaim, or cross-claim is asserted . . . may, at any time, move with or without supporting affidavits for a summary judgment in his favor as to all or any part thereof."
Footnote: 10W. Va. Code, 31-1-89, supplanted similar provisions in W. Va. Code, 31-1-35 and -36 of the 1931 West Virginia Code. Section 2 of Article XI of the West Virginia Constitution states: "The stockholders of all corporations and joint stock companies, except banks and banking institutions, created by laws of this State, shall be liable for the indebtedness of such corporations to the amount of their stock subscribed and unpaid, and no more."
Footnote: 11In Syllabus Point 10 of Sanders v. Roselawn Memorial Gardens, Inc., supra, we said:
"While, legally speaking, a corporation constitutes an entity separate and apart from the persons who own it, such is a fiction of the law introduced for purpose of convenience and to subserve the ends of justice; and it is now well settled, as a general principle, that the fiction should be disregarded when it is urged with an intent not within its reason and purpose, and in such a way that its retention would produce injustices or inequitable consequences."
Footnote: 12Syllabus Point 4 of Atwater, supra, states: "Generally, the application of the so-called instrumentality rule will not be made in haphazard disregard of the entity of a corporation. The corporate veil, nevertheless, will be torn away whenever the occasion arises to prevent a fraud or a wrong."
Footnote: 13In Bowling v. Ansted Chrysler-Plymouth-Dodge, Inc., ___ W. Va. ___, 425 S.E.2d 144 (1992), we held in Syllabus Point 3: "An officer of a corporation may be personally liable for the tortious acts of the corporation, including fraud, if the officer participated in, approved of, sanctioned, or ratified such acts."
Footnote: 14With regard to the trial court's setting aside of the malicious prosecution damage award, the plaintiff only appeals that portion exonerating Mr. Fuellhart. The evidence at trial was undisputed that Mr. Fuellhart had nothing to do with procuring the warrant for the plaintiff's arrest. Accordingly, we find no error.