Builders Beware

by Gary Beaver

North Carolina law has long held that corporate officers could be held personally liable by piercing the corporate veil or for torts, including negligence, in which they personally participated.  Most commercial litigators have seen many cases in which the plaintiff stretches to allege a tort against the officer of a corporate defendant in order to use the specter of personal liability to drive a better result in the case (such as the in terrorem effect of personal liability to up the ante in settlement negotiations).  

Until now, there have been no reported N.C. cases applying individual tort liability on corporate officers in a construction context.  In January 2011, in White v. Collins Building, Inc., the N.C. Court of Appeals reversed the dismissal of negligence claims against a construction company president finding them adequate to survive pleading requirements.  Specifically, the plaintiff alleged that the president "oversaw and personally supervised the day-to-day construction of [plaintiffs'] residence and was negligent in "failing to properly supervise the construction of the residence, including, but not limited, failing to properly supervise the installation of the doors and windows, the flashing around the doors and windows, and the house wrap" and in "fail[ing] to properly supervise the design and installation of the plumbing system, including the hot water lines and other system components." 

One wonders if the plaintiffs actually have any evidence that the president did more than occasionally visit the worksite to check on progress.  In any event, builders should expect that if they are playing any role in on-site work, they will be named as defendants in lawsuits involving claims of negligent construction.  There are many aggressive lawyers who will provide a sufficient level of detail in the pleadings to get them into discovery whether or not they initially have any evidence to support those specific allegations.  It remains to be seen if the courts will allow similar allegations to pass if they are based only on "information and belief."     

Answer Up Or Face The Consequences

By Gary Beaver

The North Carolina Court of Appeals has addressed the sanctioning of parties for discovery failures in two recent cases. In December 2010, in Lovendahl v. Wicker, 702 S.E.2d 529, the court upheld sanctions ordered against a defendant in a civil case for failing to answer questions at a deposition. The sanctions were imposed under Rule 37(b) of the North Carolina Rules of Civil Procedure which are imposed only for failure to comply with a court order. Defendant had a criminal case pending and was trying to avoid answering questions while the criminal case proceeded. Defendant had asserted two affirmative defenses in the civil case -- contributory negligence and gross contributory negligence -- which the plaintiff had to investigate. Defendant argued that sanction were not appropriate because the plaintiff never moved to compel. However, she had sought a protective order and in denying that motion, the court had ordered her to "submit" to the deposition. Failing to answer questions violated that order and supported the sanction of striking the affirmative defenses.

In January 2011, in First Mount Vernon Industrial Loan Assovication v. Prodev XXII, LLC, the court affirmed a finding that a nonparty witness was in contempt of court for failing to appear for a deposition after being properly served with a subpoena. However, the court reversed the trial court's imposition of monetary sanctions based on Rule 37(d) of the North Carolina Rules of Civil Procedure because that rule applies to parties. The court noted that if the motions against the witness had been motions to compel, the trial court could have granted those motions and imposed attorneys' fees and expenses under Rule 37(a)(4). Rule 45(e)(2) provides for attorney fees against a witness who opposes a subpoena and the opposition is unreasonable or for improper purposes such as delay but the witness never objected to or moved to quash the subpoena. The court suggested that the General Assembly may want to address this situation to allow imposition of fees and expenses where a witness remains opposes only by not showing up for the deposition.

The courts will act with their full authority to require discovery but they will not exceed the specific authorization they have to impose sanctions.

Fourth Circuit rejects South Carolina's definition of "direct contempt"

By Kirsten E. Small

Last Friday, the Fourth Circuit affirmed a grant of habeas relief in favor of Donald Brandt. A South Carolina court summarily convicted Brandt of "direct" criminal contempt and sentenced him to six months' imprisonment, based on Brandt's use of a forged letter in a deposition. Brandt appealed his conviction, arguing that "direct" contempt applies only to conduct occurring in the presence of a judge. The South Carolina Supreme Court agreed with this proposition but held that the "presence" of the judge encompasses "all elements of the judicial system," including a deposition.

Not so much, says the Fourth Circuit. Y'all can do what you want as a matter of due process under the state Constitution, but the federal Constitution* allows a conviction for direct criminal contempt only when the judge actually sees the contemptuous conduct. Because that was not the case with Brandt (the contempt was proved to the court, in part, with expert testimony that the document was forged), direct criminal contempt was improper.

You might wonder if this decision is a hallmark of a more "liberal" Fourth Circuit, which one lawyer once referred to as a "black hole" of habeas jurisprudence. I don't think so. For one thing, the authoring judge (Agee) is a Bush appointee. For another, the decision was really a no-brainer. The law on what constitutes direct contempt is abundantly clear, and the South Carolina Supreme Court clearly applied the wrong definition.

*Any grammar gurus out there: what's the capitalization rule for the word "constitution" when combined with the modifiers "state" or "federal?" I know that constitution should be capitalized when referring to "the Constitution" (as in, the federal one), but beyond that, I'm lost. (Incidentally, Blogger's spell check seems to think that "constitution" should always be capitalized. Hmm.)

Great Moments in Appellate Advocacy

By Kirsten E. Small

132 years ago today, President Rutherford B. Hayes signed special legislation compelling the United States Supreme Court to admit Belva Ann Lockwood to its bar.

I'll be blogging more about the history of female attorneys in March (Women's History Month), but I thought I'd share that little tidbit today.

Appellate Ethics Tip of the Day: Quit While You're Ahead.

By Kirsten E. Small

So let's say you and your client decide to file a securities lawsuit even though the statute of limitations is way, way past. As in, it expired 15 years ago. When the district court sanctions you $95,000 for bringing a frivolous suit, what do you do?

The Second Circuit suggests that you do not bring a frivolous appeal. As reported here, that court imposed an additional sanction on plaintiff John Libaire and his attorney, Mitchell Stein, for filing a frivolous appeal.

Oops.