And the moral of this story might be “get it in writing.”
The N.C. Court of Appeals ruled against an Alamance County construction company, Stonewall Construction, in part because there was no written contract, when it tried to get money from the managers of two corporations it sued.
Stonewall, according to the Nov. 6 Appeals Court opinion, already successfully sued two Frosty Parrot frozen yogurt stores and was awarded $60,000 for work done but not paid for. Of course, that was much less than Stonewall originally billed: $144,857.
The construction company also sued the “member-managers” of the limited liability companies that owned the stores in Burlington and Cary — Shane Smith and Tom DeWitt — something the court calls “piercing the corporate veil,” meaning stripping away the liability protection corporations give owners and investors, and going after their money outside the corporation.
The court ruled against Stonewall on that point, saying it didn’t prove Smith and DeWitt abused their corporate control, so there was no legal reason to take away their corporate protection.
While Stonewall couldn’t prove they were operating the LLCs dishonestly, it would have had a better chance of getting at Smith’s and DeWitt’s money if it could have proven breach of contract, according to the court opinion, but there was no written contract.
Smith started doing business with Stonewall in April 2013 to renovate a commercial space for the Burlington Frosty Parrot store to have it ready to open by May, when demand for frozen treats is rising. By June, Stonewall had taken on an estimated $106,912 of work at the two stores without a written contract, according to the court.
Stonewall billed the Frosty Parrot for $144,857 in July, which Smith refused to pay, saying the work was late and over-budget, and he stopped the unfinished work. The store closed in 2014, and Stonewall sued in 2015.
Jurors found for Stonewall on all counts but breach of contract, “likely because there was no written contract,” according to the opinion. When Stonewall appealed that, it also appealed the judge’s decision to protect Smith’s and DeWitt’s money outside their corporations.
Stonewall argued the LLCs, totally under Smith and DeWitt’s control, were under-funded, and they weren’t paying Stonewall because their stores weren’t making money, not because Stonewall was in the wrong.
But the LLCs had enough money to form under the law, according to the court opinion, and Smith and DeWitt didn’t deceive Stonewall about what kind of companies it was doing business with; Stonewall just didn’t ask when it had the chance, and so it didn’t ask for upfront payment or collateral.
Smith and DeWitt were also justified in holding back some money, according the opinion written by Appeals Court Judge Richard Dietz.
“(T)he work Stonewall performed took substantially longer, and cost substantially more, than it estimated when it agreed to handle the project. Thus, as the jury’s verdict confirmed, the LLCs were justified in not paying the full amount Stonewall demanded.”
Reporter Isaac Groves can be reached at email@example.com or 336-506-3045. Follow him on Twitter at @tnigroves.