Jorja Properties, LLC et al

Filing 18

ORDER granting in part and denying in part 12 Motion for Summary Judgment. Plaintiffs' Motion for Summary Judgment as to their First Claim for Relief is granted as against Defendant Midtown; Defendants' claim for b reach of the lease is dismissed; and Plaintiffs' Motion for Summary Judgment as to its Second Claim for Relief is denied at this time, with leave to refile no later than 11/30/11. This case will be set for trial in the April 2012 trial term. Signed by Senior Judge Graham Mullen on 9/22/11. (gpb)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:10CV437
JORJA PROPERTIES, LLC, a South
Carolina Limited Liability Company, and
PAUL R. STEADMAN,

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Plaintiffs,
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v.
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MIDTOWN SUNDRIES ELIZABETH, LLC,
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a North Carolina Limited Liability Company,
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and LUTHER G. CAUDLE,
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Defendants.
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)
__________________________________________)

ORDER

This matter is before the court upon Plaintiffs’ Motion for Summary Judgment.
Defendants’ attorney withdrew from representation and Defendants are unrepresented.
Defendant Luther Caudle filed a pro se “Declaration” in opposition to the Motion for Summary
Judgment, but Defendant Midtown has failed to file a response in opposition. Plaintiffs have
filed a “Rebuttal to Defendant Luther G. Caudle’s Declaration” and this matter is now ripe for
disposition.
Plaintiffs filed this case to recover on a commercial lease. On August 4, 2006, Plaintiff
Jorja Properties, LLC (“Jorja”) and Defendant Midtown Sundries Elizabeth, LLC (“Midtown”)
entered into a commercial triple net lease agreement for property in Cornelius, North Carolina
where Defendant had operated a restaurant. The term of the lease ran through July 3, 2009.
Defendant Caudle is the sole member of Midtown and Plaintiff Steadman is the sole
member/manager of Jorja. The lease agreement was signed by Caudle as manager of Midtown.
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Jorja never required Caudle to execute a personal guaranty.
Pursuant to the lease, Midtown was to pay rent in the amount of $30,000 per month, and
was to pay the ad valorem property taxes. Midtown defaulted on these payments and Jorja
terminated the lease pursuant to its forfeiture clause in March of 2009. After the termination,
however, Jorja continued to accept payments in the amount of $30,000 per month, thereby
creating a periodic tenancy. Midtown again defaulted on the rental payments and the ad
valorem taxes. On February 19, 2010, Jorja terminated the periodic tenancy by giving Midtown
a notice to terminate the lease. Midtown failed to vacate the property and thus became a
holdover tenant. Pursuant to the terms of the lease agreement, holdover tenants must pay 150%
of the monthly rental rate, or $45,000 per month. Plaintiffs obtained possession of the property
on December 7, 2010.
Plaintiff has asserted that Midtown owes $13,568.59 and $24,081.13 for the 2008 and
2009 ad valorem property taxes and $20,974.84 for the pro rata portion of the 2010 ad valorem
property taxes, for a total of $58,624.56 in taxes. Midtown also owes $7,000 for a portion of the
December 2009 rent, plus $30,000 a month rent from January 2010 through February 2010, for a
total of $67,000. Once Midtown became a holdover tenant in March 2010, it owed $45,000 per
month from March to November 2010, for a total of $405,000. The pro rata portion of the
December rent totaled $10,161.29. After applying all credits to which Midtown is entitled,
including the application of the state court Summary Ejectment appeal bond in the amount of
$180,000, Midtown remains indebted to Plaintiffs in the amount of $405,785.85.
Defendants have filed a counterclaim against the Plaintiffs for breach of the lease
agreement for failure to honor an option to renew the lease at a fair market rental rate, which
Defendants assert was substantially less than $30,000 per month. The provision of the lease that
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Defendants argue Plaintiffs have breached reads as follows:
Option to Renew-Right of First Opportunity:
Prior to offering the Premises for let to third parties following the expiration of
the Term, Lessor shall first offer to re-lease the Premises to Lessee by delivering
notice thereof to Lessee not less than one hundred eighty (180) days prior to the
expiration of the Term, with the Fixed Rent during such renewal term to be equal
to the then fair market rental value of the Premises (“FMV”), and otherwise on
the same terms and conditions set forth herein. Following the receipt by Lessee
of such notice, Lessor and Lessee shall negotiate in good faith to determine the
FMV of the Premises and, for a period of sixty (60) days following Lessee’s
receipt of such notice, Lessor shall not offer the Premises to let to any third party.
In the event the Lessor and Lessee are unable to agree on the FMV within sixty
(60) days of Lessee’s receipt of such notice, the right of first offer set forth in this
Section shall be null and void and Lessor shall have the right to let the Premises,
following the expiration of the Term, to third parties.

The Defendants have not brought forth any evidence that the Plaintiffs offered to rent the
premises to any third parties without honoring the right of first opportunity, thus triggering
Plaintiffs’ obligations under this provision of the lease. Accordingly, this counterclaim must
fail.
Plaintiffs are attempting to collect the amounts owed by Midtown from Caudle, even
though the lease agreement was with Midtown and Plaintiffs never required a personal guaranty
from Caudle. Plaintiffs set forth two theories in support of their argument that Caudle is liable
for the amount due. The first theory is that it was the Plaintiffs’ “understanding” that Caudle
was a party to the periodic lease entered into after Midtown first defaulted. Regardless of what
the Plaintiffs “understood,” the written lease agreement was executed by Midtown, and
Defendant Caudle was not a party to the lease. In the alternative, Plaintiffs seek to pierce the
corporate veil of Midtown, which has no assets, and collect the sums owed by Midtown from
Caudle. In an action to pierce the corporate veil, and thus disregard the corporate entity, three
elements are required:
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(1) Control, not mere majority or complete stock control, but complete dominion,
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.

East Market Street Square, Inc. v. Tycorp Pizza IV, Inc., 175 N.C. App. 628, 633, 625 S.E.2d
191, 196 (2006) (citing Glenn v. Wagner, 313 N.C. 450, 455, 329 S.E.2d 326, 330 (1985)). In
East Market Street Square, a case involving the breach of a commercial lease, the North
Carolina Court of Appeals affirmed the trial court’s findings of fact piercing the corporate veil of
a corporate tenant organized to operate a franchised restaurant. The corporate tenant was owned
by a single shareholder who misrepresented the financial state of his corporations to the landlord.
See Id. at 639, 625 S.E.2d at 200. Moreover, there was a great deal of evidence that the
shareholder completely dominated the corporate tenant such that it had no independent identity
of its own. See Id. at 634-36, 625 S.E.2d at 197-98. Part of the court’s findings as to element
two of the mere instrumentality test was that the shareholder made misrepresentations which
resulted in damages to the landlord, including damages to the leased premises. See Id. at 639,
625 S.E.2d at 200.
In stark contrast to the East Market Street Square case, Plaintiffs’ evidence as to the three
elements is lacking. In support of their claim, Plaintiffs submit evidence that Midtown never
filed an annual report with the North Carolina Secretary of State and was dissolved on August
25, 2010. Plaintiffs also submit an excerpt from Mr. Caudle’s deposition in which he admits that
Midtown has no assets. This is simply not enough evidence for the court to make a finding that
Midtown was a mere instrumentality of Caudle. Moreover, the court cannot help but wonder
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why Plaintiffs did not require Caudle to sign a personal guaranty. The court will deny summary
judgment as to Plaintiffs’ second claim at this time, with leave to refile should Plaintiffs be able
to submit the type of evidence that the court relied upon to pierce the corporate veil in the East
Market Street Square case.
IT IS THEREFORE ORDERED that Plaintiffs’ Motion for Summary Judgment as to
their First Claim for Relief is GRANTED as against Defendant Midtown; and
IT IS FURTHER ORDERED that Defendants’ claim for breach of the lease is dismissed;
and
IT IS FURTHER ORDERED that Plaintiffs’ Motion for Summary Judgment as to its
Second Claim for Relief is hereby DENIED at this time, with leave to refile no later than
November 30, 2011. This case will be set for trial in the April 2012 trial term.

Signed: September 22, 2011

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