Opinion
5:20-CV-257-BR
06-08-2021
UNITED STATES OF AMERICA for the use and benefit of SCHNEIDER ELECTRIC BUILDING AMERICAS, INC., SPC MECHANICAL CORPORATION, and WATSON ELECTRICAL CONSTRUCTION CO., LLC, Plaintiffs, v. CBRE HEERY, INC f/k/a HEERY INTERNATIONAL, INC., TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, LIBERTY MUTUAL INSURANCE COMPANY, FIDELITY AND DEPOSIT COMPANY OF MARYLAND, and FEDERAL INSURANCE COMPANY, Defendants.
KIMBERLY A. SWANK United States Magistrate Judge.
MEMORANDUM & RECOMMENDATION
This matter is before the court on Plaintiffs' motion for leave to amend its Second Amended Complaint to add Balfour Beatty Group, Ltd. (“BBG”) as a defendant, the motion having been referred to the undersigned by the Honorable W. Earl Britt, Senior United States District Judge. Defendants have responded in opposition to the motion, Plaintiffs have replied, and the matter is ripe for ruling. Where this matter has been referred to the undersigned and the parties have not consented to the jurisdiction of the magistrate judge, Plaintiffs' motion is undertaken pursuant to 28 U.S.C. § 636(b)(1)(B) for memorandum and recommendation.
B ACKGROUND
This case arises out of a federal project involving the design and construction of a medical clinic on the Seymour Johnson Air Force Base. In September 2013, Heery International, Inc. (“Heery”) contracted with the United States, through the United States Army Corps of Engineers (“USACE”), to design, construct, and manage the project for $47,362,130.54. Heery entered into subcontracts with SPC Mechanical Corporation (“SPC”) for plumbing and HVAC work and with Watson Electrical Construction Co., LLC (“Watson”) for electrical work. SPC, in turn, subcontracted with Crenshaw Consulting Engineers, Inc. (“Crenshaw”) and Schneider Electric Building Americas, Inc. (“Schneider”) to design and complete the building automation systems. Watson also subcontracted electrical design work to Crenshaw.
On October 30, 2017, Heery was acquired by CBRE Group, Inc., a commercial real estate services and investment firm publicly traded on the New York Stock Exchange. Following the acquisition, Heery's name was changed to CBRE Heery, Inc. (“CBRE”).
Schneider, SPC, and Watson initiated this action on June 12, 2020 (Compl. [DE #1]) and have twice amended their complaint (Am. Compl. [DE #4], 2d Am. Compl. [DE #17]). In their Second Amended Complaint, filed August 20, 2020, Plaintiffs assert twenty-two claims against CBRE and its sureties, Travelers Casualty and Surety Company of America, Liberty Mutual Insurance Company, Fidelity and Deposit Company of Maryland, and Federal Insurance Company (collectively referred to as “the Sureties”).
D ISCUSSION
Rule 15 of the Federal Rules of Civil Procedure generally governs the amendment of pleadings. Rule 15 provides that leave to amend a complaint should freely be given when justice so requires. Fed.R.Civ.P. 15(a)(2). Amendment should be denied only where it “would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, ” or amendment would be futile. Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (en banc) (quoting Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986)). The decision to grant leave to amend is within the discretion of the trial court. Foman v. Davis, 371 U.S. 178, 182 (1962).
Plaintiffs need not show good cause under Fed.R.Civ.P. 16 because their motion comes before the deadline set for amendment of pleadings.
“[A] proposed amendment is ‘futile' when ‘it advances a claim or defense that is legally insufficient on its face.'” Blackstock v. Maynor, No. 7:07-CV-95-F(3), 2007 WL 9718806, at *1 (E.D. N.C. Aug. 16, 2007) (quoting Joyner v. Abbot Labs., 674 F.Supp. 185, 190 (E.D. N.C. 1987)). Such a determination is governed by the standard applicable to motions to dismiss. Joy v. Countrywide Fin. Corp., No. 5:10-CV-218-FL, 2011 WL 3652697, at *4 (E.D. N.C. Aug. 19, 2011). Thus, a proposed amendment should be denied as futile only where, accepting all well-pled facts as true and construing them in the light most favorable to the movant, the court finds the proposed amendment asserts a legal theory that is not cognizable as a matter of law or that fails to “state a claim to relief that is plausible on its face.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
Here, Plaintiffs seek to add BBG as a defendant, claiming that BBG and CBRE are jointly and severally liable to Plaintiffs based on the theory that CBRE is the alter ego or instrumentality of BBG under North Carolina law. (Pls.' Mot. Add BBG, Ex. 1 (Prop. 3d Am. Compl.) [DE #83-1] ¶ 1413 (“During the project, BBG and CBRE demonstrated a unity of interest and ownership and insufficient corporate separateness in terms of North Carolina law.”); Pls.' Reply Mot. Add BBG [DE #90] at 3 (“[BBG] acted as CBRE's Alter Ego, and is therefore jointly and severally liable to the Plaintiffs according to North Carolina Law.”).)
Under North Carolina law, a corporation is a separate and distinct legal entity, and liability for its acts ordinarily may not be imposed upon another. See Troy Lumber Co. v. Hunt, 251 N.C. 624, 627 (1960). “[A] corporation's separate and independent existence is not to be disregarded lightly.” State ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 362 N.C. 431, 438 (2008) (quoting Dep't of Transp. v. Airlie Park, Inc., 156 N.C.App. 63, 68 (2003)). North Carolina courts will “look behind” or disregard the corporate form only where “‘applying the corporate fiction would accomplish some fraudulent purpose, operate as a constructive fraud, or defeat some strong equitable claim.'” Ridgeway Brands, 362 N.C. at 439 (quoting Bd. of Transp. v. Martin, 296 N.C. 20, 26-27 (1978)). In such circumstances, those “responsible for the existence of the corporation” must be “prevented from using its separate existence to accomplish an unconscionable result.” Ridgeway Brands, 362 N.C. at 439 (quoting Martin, 296 N.C. at 26-27). To assist courts in determining whether to pierce or disregard the corporate veil, the North Carolina Supreme Court has adopted the instrumentality rule. See Henderson v. Sec. Mortg. & Fin. Co., 273 N.C. 253, 260 (1968) (“[W]hen . . . the corporation is so operated that it is a mere instrumentality or alter ego of the sole or dominant shareholder and a shield for his activities in violation of the declared public policy or statute of the State, the corporate entity will be disregarded and the corporation and the shareholder treated as one and the same person, it being immaterial whether the sole or dominant shareholder is an individual or another corporation.”). Under this rule, a party seeking to pierce the corporate veil must prove three things:
(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 plaintiff's legal rights; and
(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.Glenn v. Wagner, 313 N.C. 450, 455 (1985).
Defendants contend Plaintiffs' proposed claim against BBG is futile because it fails to allege BBG has any ownership interest in or legal right to control CBRE. The undersigned agrees.
Generally, the domination and control needed to disregard a corporate entity can be exercised in three different forms: (1) parentsubsidiary corporations, where the disregarded entity is the wholly or partially owned subsidiary of the parent; (2) individual dominant shareholder, where the disregarded corporate entity is owned by one or more individual persons; and (3) affiliated corporations, where the disregarded corporate entity and one or more other corporations are under the common control of another person or persons.1 Russell M. Robinson II, Robinson on North Carolina Corporation Law § 2.10 (2021). Affiliated or sister corporations are “corporations in which the controlling interest in both is owned by the same person or persons.” Glenn, 313 N.C. at 455-56.
The instrumentality rule “is broad enough to encompass both those situations where there is direct stock ownership of a subsidiary corporation by a parent corporation, and stock control as exercised through a mutual shareholder.” Glenn, 313 N.C. at 459. Where the corporation is “a mere instrumentality or alter ego” of its shareholder (or of an affiliated corporation), the corporate veil is pierced, and the corporation and its shareholder (or sister corporation) are treated as one and the same. See Henderson, 273 N.C. at 260.
While the factors considered by courts vary from case to case, the corporate form may be disregarded only where there is common ownership between the dominant shareholder or affiliated entity and the disregarded corporation. Glenn, 313 N.C. at 459 (instruction on piercing corporate veil appropriate where “there is evidence of common ownership and actual working control, as in the case of affiliated corporations, taken together with other factors suggesting domination of finances, policy or business practice (including, but not limited to undercapitalization, disregard of corporate formalities, and insolvency)”).
Here, Plaintiffs' proposed amendment alleges that BBG sold Heery to CBRE in October 2017, agreeing to indemnify CBRE for Heery's active, at-risk construction management projects, including the Seymour Johnson project at issue in this case. (Prop. 3d Am. Compl. ¶¶ 1271-94.) While Plaintiffs allege BBG continued to exercise dominion and control over the project, there is no allegation that, following the sale of Heery, BBG held any ownership interest in CBRE or that BBG and CBRE were under the common ownership of another entity or person. Plaintiffs' proposed amendment, taken as true, fails to include facts sufficient to demonstrate the domination and control necessary to pierce CBRE's corporate veil. Plaintiffs' motion to add BBG as a party should, therefore, be denied as futile.
It is not clear to the court from whom Heery was acquired. Plaintiffs' original complaint named Balfour Beatty LLC, a Delaware corporation, as a defendant and alleged that Heery was “the project management and design engineering business of the international infrastructure group, Balfour Beatty LLC.” (Compl. ¶ 47.) Plaintiffs' first amended complaint named Balfour Beatty Construction, LLC, as a defendant in lieu of Balfour Beatty LLC, and Plaintiffs' second amended complaint names neither entity as a defendant. Plaintiffs' first and second amended complaints allege that Heery was “the project management and design engineering business of the international infrastructure group, Balfour Beatty Construction LLC.” (Am. Compl. ¶ 47; 2d Am. Compl. ¶ 46), whereas Plaintiffs' proposed amendment alleges that Heery was “the project management and design engineering business” of both Balfour Beatty Construction, LLC (Prop. 3d Am. Compl. ¶ 46) and Balfour Beatty LLC. (id. ¶1275). In its response to Plaintiffs' motion to amend, CBRE appears to represent that Heery was acquired from Balfour Beatty LLC. (CBRE Mem. Resp. Mot. Amend [DE #87] at 4.) Nevertheless, for purposes of the present motion, the court assumes BBG owned 100% of Heery prior to its sale as Plaintiffs allege as much in their proposed amendment. (See Prop. 3d Am. Compl. ¶¶ 1268-71.)
C ONCLUSION
For the reasons stated above, it is RECOMMENDED that Plaintiffs' motion for leave to amend its Second Amended Complaint to add Balfour Beatty Group, Ltd., as a defendant [DE #83] be DENIED.
IT IS DIRECTED that a copy of this Order and Memorandum and Recommendation be served on the parties. Each of the parties shall have until June 22, 2021, to file written objections to the Memorandum and Recommendation. The presiding district judge must conduct his or her own review (that is, make a de novo determination) of those portions of the Memorandum and Recommendation to which objection is properly made and may accept, reject, or modify the determinations in the Memorandum and Recommendation; receive further evidence; or return the matter to the magistrate judge with instructions. See, e.g., 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b)(3); Local Civ. R. 1.1 (permitting modification of deadlines specified in local rules), 72.4(b) (E.D. N.C. Dec. 2019).
A party that does not file written objections to the Memorandum and Recommendation by the foregoing deadline will be giving up the right to review of the Memorandum and Recommendation by the presiding district judge as described above, and the presiding district judge may enter an order or judgment based on the Memorandum and Recommendation without such review. In addition, a party's failure to file written objections by the foregoing deadline may bar the party from appealing to the Court of Appeals from an order or judgment of the presiding district judge based on the Memorandum and Recommendation. See Wright v. Collins, 766 F.2d 841, 846-47 (4th Cir. 1985).