Corporate Shield Holds Up Against Creditor

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 [an enhanced version of this opinion is available to lexis.com subscribers]; Phillips & Jordan, Inc. v. Bostic, 2014 NCBC 18 [enhanced version]; and American Mechanical, Inc. v. Bostic, 2014 NCBC 17 [enhanced version].

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.

 Read the rest of the article at the North Carolina Business Litigation Report, a blog for lawyers focusing on issues of North Carolina business law and the day-to-day practice of business litigation in North Carolina courts.

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