Case Title: State ex rel. Cooper v. Ridgeway Brands Mfg., LLC

Citation: 362 N.C. 431

Docket Number: 408A07

State: north-carolina

Court: North Carolina Supreme Court

Date: 2008-08-27T00:00:00Z

Document:
STATE OF NORTH CAROLINA ex rel. ROY COOPER, Attorney General of
North Carolina v. RIDGEWAY BRANDS MANUFACTURING, LLC, a North
Carolina corporation; RIDGEWAY BRANDS, INC.; JAMES C. HEFLIN;
FRED A. EDWARDS; and CARL B. WHITE
No. 408A07  
FILED: 27 AUGUST 2008
1.
Corporations-–civil penalties--piercing corporate veil--statute of limitations--
relation-back doctrine--instrumentality test
The Court of Appeals erred by affirming the trial court’s dismissal of the claim against
the individual defendant seeking civil penalties arising out of the failure of the corporate
defendant cigarette manufacturer to pay the 2004 escrow deposit required by N.C.G.S. § 66-291
based on the expiration of the applicable statute of limitations, and the matter is remanded
because: (1) although existing authority from the Court of Appeals barred the use of the relation-
back doctrine to add an additional party, this restriction was only applicable to new parties, and
if plaintiff were to succeed on its claim to pierce the corporate veil, the individual defendant
would not be considered a new party; (2) when the corporate defendant is the mere
instrumentality, or alter ego, of the individual defendant, the individual is not considered a new
party; (3) to the extent that other claims against the individual defendant remain part of the
litigation, he could not conceivably be considered a new party when at the time of the filing of
the amended complaint, which named him as a party to this action, the one-year statute of
limitations had not expired as to any penalties arising from the failure to make the escrow
deposit; (4) under the instrumentality test, if the plaintiff is able to pierce the corporate veil, the
shareholder and the corporation are shown to be one and the same, and consequently, the
addition of the shareholder would not be the addition of a new party; (5) North Carolina follows
the same rule as most other jurisdictions that the initiating of a suit against a corporation tolls the
statute of limitations with respect to its alter egos; (6) taking the allegations as true, it would be
inequitable to permit the individual defendant to shelter behind the corporate identity of the very
entity he and other defendants drained in the course of their actions; and (7) plaintiff has made
the necessary showings at the pleading stage to establish that the corporate defendant was
operated as a mere instrumentality of the individual defendant, and as a consequence, plaintiff
may add the individual defendant  contingent on its subsequent ability to demonstrate that the
individual and corporate defendants  are alter egos. 
2.
Conspiracy--wrongful acts--agreement to violate statutory duties
The State stated a claim for civil conspiracy by the individual defendants to underprice
cigarettes manufactured by the corporate defendant for the purpose of avoiding its statutory
obligation to pay into the qualified escrow account where the complaint alleged that there was an
agreement by defendants to violate their statutory duties and alleged specific actions by
defendants in furtherance of the conspiracy.
Appeal pursuant to N.C.G.S. § 7A-30(2) from the
decision of a divided panel of the Court of Appeals, 184 N.C.
App. 613, 646 S.E.2d 790 (2007), affirming in part and reversing
in part an order entered 9 December 2005 by Judge Donald L. Smith
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in Superior Court, Wake County, and remanding for further
proceedings.  Heard in the Supreme Court 18 March 2008.
Roy Cooper, Attorney General, by Christopher G. 
Browning, Jr., Solicitor General, and Richard L.
Harrison and Melissa L. Trippe, Special Deputy
Attorneys General, for plaintiff-appellee/appellant.
Poyner & Spruill LLP, by J. Nicholas Ellis, for
defendant-appellant/appellee Ridgeway Brands
Manufacturing, LLC and James C. Heflin.
TIMMONS-GOODSON, Justice.
In this opinion, we address two issues.  First, in a
claim by the State seeking to pierce the corporate veil of a
corporate defendant, is defendant’s purported alter ego
considered a new party?  We hold that when the corporate
defendant is the mere instrumentality, or alter ego, of the
individual defendant, the individual is not considered a new
party.  Second, in this case did the State’s complaint allege
sufficient facts to support a cause of action for civil
conspiracy?  Since the complaint contended that plaintiff had
been injured by a wrongful act committed as part of an agreement
between two or more persons pursuant to a common scheme, we hold
that the complaint properly asserted a cause of action for
conspiracy.
Background
The State of North Carolina (“plaintiff”) entered into
a Master Settlement Agreement (“MSA”) with major domestic
cigarette manufacturers in November 1998.  Cigarette
manufacturers doing business in the state were subject to
N.C.G.S. § 66-291, which required them to choose between one of
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two options: (1) participation in the MSA; or (2) payment into a
state escrow fund of specified sums, computed on the basis of the
quantities of cigarettes sold by April 15 of each year.
Defendant James C. Heflin (“Heflin”) formed the
corporation that subsequently became Ridgeway Brands
Manufacturing, LLC (“Ridgeway”) in early 2001.  Heflin was an
owner and member-manager of Ridgeway, which was located in
Stantonsburg, North Carolina, and sold tobacco products largely
to a Kentucky corporation, Ridgeway Brands, Inc.  (“Brands”). 
Brands handled products subject to the MSA for sale in North
Carolina and other states.  Since Ridgeway had opted not to sign
the MSA, it was obligated to maintain a “qualified escrow
account.” 
Fred A. Edwards (“Edwards”) and Carl B. White (“White”)
were owners and active managers of Brands.  Defendants Heflin,
White, and Edwards allegedly agreed to underprice the cigarettes
that Ridgeway sold exclusively to Brands.  The underpriced
cigarettes would allow Brands to increase its revenue and expand
its market share at the expense of its competitors.  However,
these underpriced cigarettes would not generate sufficient
revenue to enable Ridgeway to make the mandated escrow payments. 
In late 2002 Heflin, Edwards, and White hired Lee
Welchons (“Welchons”) as the general manager of Ridgeway. 
Welchons had considerable experience in the tobacco industry.  As
a result, he was familiar with Ridgeway’s obligations under
N.C.G.S. § 66-291.  Shortly after his arrival, Welchons
discovered that Ridgeway’s pricing structure did not enable it to
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meet those obligations.  Defendants Heflin, Edwards and White
failed to address Welchons’ concerns and continued to market
their products in a way that ensured that Ridgeway would incur
huge escrow obligations.  As their obligations mounted elsewhere,
defendants diverted funds from Ridgeway to entities within the
state of Kentucky, where they resided.  At some point, some four
million dollars wired by a customer to Ridgeway were moved to
unknown accounts.
In early 2003 Heflin, Edwards, and White announced the
merger of Ridgeway and Brands.  Although the formalities were
never concluded, the merger became a de facto reality.  In early
2003, Brands became the sole purchaser of cigarettes manufactured
by Ridgeway.  Ridgeway allegedly became “a corporation without a
separate mind, will or existence of its own[,] . . . operated as
a mere shell to perform for the benefit of . . . [Brands],
Edwards, White and Heflin.”
Plaintiff’s interest in the matter stemmed from
Ridgeway’s obligations under N.C.G.S. § 66-291.  Ridgeway was in
compliance with its escrow obligations through 2002.  However,
problems began in 2003.  Excise tax records indicated that
Ridgeway sold approximately 70,691,920 cigarettes in the state
that year.  Under the applicable formula therefore, it was
required to deposit $ 1,378,160.18 into its escrow account.  It
failed to do so.  On 20 February 2004, plaintiff sent its first
demand letter reminding Ridgeway of its statutory obligations and
seeking payments. 
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Although Ridgeway did not pay the funds sought by
plaintiff, it continued to sell cigarettes in North Carolina. 
Indeed, it sold at least seventeen million cigarettes between 1
January and 31 May 2004.  In fall 2004, Ridgeway stopped
manufacturing cigarettes.  Plaintiff repeatedly sent letters to
Ridgeway reminding the corporation of its statutory obligations
after it missed its first payment.  Nevertheless, Ridgeway failed
to make the required deposit for a second year by the statutory
deadline of 15 April 2005.  It never paid its escrow fund
obligations for cigarettes sold during 2003 or 2004.     
On 4 May 2004, plaintiff instituted this action seeking
to recover from Ridgeway the escrow deposit due in 2004 plus
civil penalties.  Plaintiff also sought an injunction prohibiting
Ridgeway from selling tobacco products in North Carolina for two
years.  On 19 October 2005, plaintiff filed an amended complaint. 
This amended complaint added claims for the escrow deposit due in
2005, together with civil penalties arising from the failure to
make the deposits.  In addition to claims for civil conspiracy
and separate claims under the North Carolina Unfair and Deceptive
Trade Practices Act, plaintiff sought to impose liability upon
defendants Brands, Edwards, White, and Heflin under a “piercing
the corporate veil” theory.  Plaintiff alleged that Heflin,
Edwards, and White “overwhelmingly dominated and controlled
[Ridgeway] to further [their] own objectives and those of
[Brands].”  Plaintiff contended, inter alia, that defendants
Heflin, White, and Edwards agreed to underprice the cigarettes
that Ridgeway sold exclusively to Brands knowing that the process
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would not enable Ridgeway to meet its obligations under N.C.G.S.
§ 66-291.
To support its effort to pierce the corporate veil,
plaintiff alleged in the amended complaint that Heflin, Edwards,
and White exhibited control over Ridgeway in the following ways:
(1) establishing the pricing structure of cigarettes that
Ridgeway sold to Brands;  (2) ignoring Welchons’ advice that the
pricing structure was “grossly inadequate” to satisfy North
Carolina’s escrow statute requirements;  (3) on one occasion,
forbidding Welchons to shut down a cigarette line for repairs;
(4) determining in which states cigarettes manufactured by
Ridgeway would be sold;  (5) making hiring decisions for
Ridgeway;  (6) directing monies intended for Ridgeway to Heflin,
White, Edwards, or Brands;  (7) excessively fragmenting Ridgeway;
(8) directing the movement of funds to prevent the payment of
statutory escrow obligations; (9) disposing of almost all assets
of Ridgeway; (10) directing Welchons to send information
regarding the value of the equipment, spare parts, and inventory
owned by Ridgeway to an employee of Swift Transportation;  (11)
hiring attorneys Michelle Turpin and Victor Schwartz in 2004 to
assist Ridgeway with its finances; (12) making payments to these
attorneys in excess of one million dollars “[without] financial
records of how that money was spent”;  (13) directing, with
Schwartz’s aid, the destruction of Ridgeway’s paper records,
computer hard drives, and tape back-ups;  (14) keeping “no
corporate financial records or grossly inadequate corporate
records”; and (15) informing Welchons that Ridgeway would not
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file bankruptcy because Heflin and others “did not want anybody
looking back to see what was going on and track the money back to
where it came from.”   
On 25 October 2005, Ridgeway and Heflin moved to
dismiss plaintiff’s amended complaint.  In an order entered 9
December 2005, the trial court granted the motion in part,
dismissing the claims for piercing the corporate veil, unfair and
deceptive trade practices, and conspiracy as to both Ridgeway and
Heflin.  The order further dismissed the claim for civil
penalties as to Heflin.  Plaintiff appealed the dismissal with
respect to defendant Heflin to the Court of Appeals.
The Court of Appeals affirmed in part, but reversed the
portion of the trial court’s order granting Heflin’s motion to
dismiss as to the claim for civil conspiracy under N.C.G.S. § 1A-
1, Rule 12(b)(6).  State ex rel. Cooper v. Ridgeway Brands Mfg.,
LLC, 184 N.C. App. 613, 646 S.E.2d 790 (2007).  The Court of
Appeals also reversed the trial court’s order dismissing the
claim for piercing the corporate veil.  Id.  The majority held
that the allegations in the complaint were sufficient to state a
claim for civil conspiracy.  Id. at 624-26, 646 S.E.2d at 798-99.
However, it held that since the applicable statute of limitations
had run, defendant Heflin could not be added as a new party via
the “relation-back” doctrine for the purposes of assessing
penalties arising out of the failure to pay the 2004 escrow
deposit. Id. at 618-20, 646 S.E.2d at 795-96. 
One judge dissented as to the dismissal of plaintiff’s
claims against Heflin for civil penalties with respect to the
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failure to pay the 2004 escrow deposit, and civil conspiracy. 
Id. at 626-27, 646 S.E.2d at 800 (Wynn, J., dissenting).  The
dissent noted that if plaintiff prevailed on its claim to pierce
the corporate veil, then the addition of defendant Heflin would
not be the addition of a new party.  Id. at 627-28, 646 S.E.2d at
800.  Therefore, the statute of limitations would not bar any
proceedings against Heflin.  Id.  The dissent would further hold
that the allegations in the complaint did not contain sufficient
facts to support an allegation of civil conspiracy.  Id. at 628,
646 S.E.2d at 800-01.
“Where the sole ground of the appeal of right is the
existence of a dissent in the Court of Appeals, review by the
Supreme Court is limited to a consideration of those questions
which are . . . specifically set out in the dissenting opinion as
the basis for that dissent . . . .” N.C. R. App. P. 16(b); accord
State v. Hooper, 318 N.C. 680, 681-82, 351 S.E.2d 286, 287
(1987).  Therefore, we confine ourselves to the two issues that
form the basis of the dissent.  Each is addressed in turn.
Relation-back Against Defendant Heflin
[1] The trial court found, and the majority in the
Court of Appeals agreed, that plaintiff’s claims for civil
penalties against defendant Heflin for the failure of defendant
Ridgeway to fulfill its 2004 obligations under the escrow statute
were barred by the relevant statute of limitations.  Ridgeway,
184 N.C. App. at 618-20, 646 S.E.2d at 706-96.  To reach this
conclusion, the majority in the Court of Appeals looked to two
statutes: N.C.G.S. §§ 1-54(2) and 66-291(c)(2005).  Id.
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Section 1-54(2) provides for a one-year statute of
limitations when the right to collect a penalty authorized by
statute “is given to the State alone.”  N.C.G.S. § 1-54(2)
(2007).  Section 66-291(c) vests such a right with the State for
failure to comply with the escrow mandate.  N.C.G.S. § 66-291(c)
(2007) (“The Attorney General may bring a civil action on behalf
of the State against any tobacco product manufacturer that fails
to place into escrow the funds required under this section.”) 
Since neither party contended that the claim against defendant
Heflin for civil penalties for failure to make the 2004 deposit
had been added within one year, the majority determined that the
statute of limitations had run with respect to him.
The dissent did not dispute that one year had elapsed
prior to the addition of defendant Heflin.  However, noting that
the order of the trial court allowing Heflin’s 12(b)(6) motion
was being reversed, thus permitting plaintiff to seek to pierce
the corporate veil, the dissent would have permitted the addition
of the 2004 civil penalties claim against Heflin.  Ridgeway, 184
N.C. App. at 627-28, 646 S.E.2d at 800 (Wynn, J., dissenting). 
The pivotal distinction, in the dissent’s view, was that existing
authority from this Court barred the use of the relation-back
doctrine to add an additional party, but this restriction was
only applicable to new parties.  Id. (citing Crossman v. Moore,
341 N.C. 185, 187, 459 S.E.2d 715, 717 (1995)).  The dissent
pointed out that if plaintiff were to succeed on its claim to
pierce the corporate veil, defendant Heflin would not be
considered a new party.  Id.  We agree.
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In holding that plaintiff could not use the relation-
back doctrine to add defendant Heflin on its civil penalty claim
regarding nonpayment of the 2003 escrow, the Court of Appeals
majority relied on our decision in Crossman v. Moore, 341 N.C.
185, 459 S.E.2d 715 (1995).  In Crossman, the plaintiff filed to
recover damages for personal injuries sustained in an automobile
accident.  The original complaint named as defendants Van Dolan
Moore and the Dolan Moore Company.  Id. at 186, 459 S.E.2d at
716.  In fact, the actual driver of the automobile was Moore’s
son, Van Dolan Moore, II.  Id.  The trial court allowed
plaintiff’s motion to amend the complaint to add Van Dolan Moore,
II, but denied plaintiff’s motion that the amendment relate back
to the time of the original filing.  Id.  We affirmed and
explained the distinction thusly: 
As a matter of course, the original claim
cannot give notice of the transactions or
occurrences to be proved in the amended
pleading to a defendant who is not aware of
his status as such when the original claim is
filed. We hold that this rule [N.C.R. Civ. P.
15(c)] does not apply to the naming of a new
party-defendant to the action. It is not
authority for the relation back of a claim
against a new party.
314 N.C. at 187, 459 S.E.2d at 717.  Therefore, the general
principle relied on by the majority is correct.  However, the
majority ultimately held that “the statute of limitations expired
as to any claims against Heflin for penalties under N.C. Gen.
Stat. § 66-291(c) arising from the failure to make the 2004
escrow deposit.”  Ridgeway, 184 N.C. App. at 620, 646 S.E.2d at
796 (majority).
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Nothing in Crossman mandates this result.  To the
contrary, in Crossman we explicitly barred the use of the
relation-back doctrine to add a new party.  341 N.C. at 187, 459
S.E.2d at 717.  To the extent that other claims against Heflin
remain part of the litigation, he could not conceivably be
considered a new party.  See Ridgeway, 184 N.C. App. at 621, 646
S.E.2d at 796. (“[A]t the time of the filing of the amended
complaint, which named Heflin as a party to this action, the
one-year statute of limitations had not expired as to any
penalties arising from the failure to make the 2005 escrow
deposit.”)
Nevertheless, even under the terms of the Court of
Appeals majority’s own Crossman analysis, the pivotal
determination here is whether, for the purpose of the 2004
N.C.G.S. § 66-291(c) claim, Heflin was a “new” party i.e. legally
a distinct entity from Ridgeway.  If he was, then the holding
below must be upheld.  However, if he was not, the addition of
Heflin would not be the addition of a new party, and Crossman
would be inapplicable.  To determine whether Heflin and Ridgeway
were distinct entities, we examine our corporation jurisprudence.
A. The Corporate Entity
The general rule is that in the ordinary course of
business, a corporation is treated as distinct from its
shareholders.  Troy Lumber Co. v. Hunt, 251 N.C. 624, 627, 112
S.E.2d 132, 134 (1960).  We have recently affirmed that the two
entities--the corporation and the shareholder--are discrete and
separate even if the shareholder, in turn, is another business
-12-
entity rather than a natural person.  Hamby v. Profile Prods.,
L.L.C., 361 N.C. 630, 636, 652 S.E.2d 231, 235 (2007).  However,
since attributes of the corporate entity impact the rights of
other parties, our inquiry does not stop there.  As one treatise
explains it, “[T]he critical point in countless cases has been
whether corporateness has been achieved and, if so, whether it
should be recognized for purposes of the matter at issue.”
Russell M. Robinson, II, Robinson on North Carolina Corporate Law
§ 2-21, at 2.08 (rev. 7th ed. 2006) [hereinafter Robinson]
(citing Sproles v. Greene, 329 N.C. 603, 609, 407 S.E.2d 497, 500
(1991)). 
B. Exceptions to the Corporate Entity
 Therefore, while “‘[a] corporation’s separate and
independent existence is not to be disregarded lightly,’” it may
be theoretically permissible to look behind the corporate form. 
Dep’t of Transp. v. Airlie Park, Inc., 156 N.C. App. 63, 68, 576
S.E.2d 341, 344 (2003) (citation omitted); Robinson § 2.10 at
2.10.   Judge Easterbrook has noted that proceeding beyond the
corporate form is a strong step: “Like lightning, it is rare
[and] severe [.]” Frank H. Easterbrook & Daniel R. Fischel,
Limited Liability and the Corporation, 52 U. Chi. L. Rev. 89, 89
(1985) [hereinafter Easterbrook].  
Nevertheless, in a few instances, exceptions to the
general rule of corporate insularity may be made when “‘applying
the corporate fiction would accomplish some fraudulent purpose,
operate as a constructive fraud, or defeat some strong equitable
claim.  Those who are responsible for the existence of the
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corporation are, in those situations, prevented from using its
separate existence to accomplish an unconscionable result.’”  Bd.
of Transp. v. Martin, 296 N.C. 20, 26-27, 249 S.E.2d 390, 395
(1978) (quoting Jonas v. State, 19 Wis. 2d 638, 644, 121 N.W.2d
235, 238-39, 95 A.L.R.2d 880 (1963) (footnote omitted)).  
To this end, courts will disregard the corporate form
or “pierce the corporate veil” when “necessary to prevent fraud
or to achieve equity.”  Glenn v. Wagner, 313 N.C. 450, 454, 329
S.E.2d 326, 330 (1985) (citation omitted).  In particular, we
have previously held that a shareholder may not utilize the
corporate form to shield criminal wrongdoing, defeat the public
interest, and circumvent public policy.  State v. Louchheim,  296
N.C. 314, 329, 250 S.E.2d 630, 639-40, cert. denied, 444 U.S. 836
(1979).  See generally, Robinson § 2-10[1] at 2.25-26. 
As the above cases show, we have allowed the inquiry to
extend beyond the corporate identity in particular circumstances. 
Our next step, therefore, is to determine what test is utilized
to determine if those particular circumstances exist.
C. The Instrumentality Rule
“There is a consensus that the whole area of limited
liability, and conversely of piercing the corporate veil, is
among the most confusing in corporate law.”  Easterbrook at 89. 
No less a personage than Justice Cardozo complained that the
doctrine of veil piercing is “enveloped in the mists of
metaphor.”  Berkey v. Third Ave. Ry. Co., 244 N.Y. 84, 94, 155
N.E. 58, 61 (1926).  A learned treatise on the topic notes that
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analysis in the context of piercing the corporate veil does not
readily lend itself to mechanical bright line rules.
A ruling that a corporate entity should be
disregarded is founded in equity and is
therefore necessarily based on a balancing of
the equities to determine whether the
requested redress of injustice outweighs the
need to respect validly established legal
forms and relationships. . . .  A rule of law
summarizing applicable principles may appear
to serve the desirable purpose of achieving
the certainty and predictability that is so
important in the corporate and commercial
world but in fact may have just the opposite
effect because no such mechanical test can
accommodate the full range of circumstances
that may invoke the equitable concept of
piercing the corporate veil.
Robinson § 2.10[2] at 2.28. 
We are therefore cognizant of the fact that a judgment
in this area requires a peculiarly individualized and delicate
balancing of competing equities.  Nevertheless, for the purpose
of achieving uniformity and predictability in this critical area
of jurisprudence, this Court has previously adopted the
“instrumentality rule.”  Glenn, 313 N.C. at 454, 329 S.E.2d at
330.  
The issue in Glenn was whether B-Bom, Inc. could be
held liable for the wrongful actions of D & S Enterprises, Inc. 
Id. at 451, 329 S.E.2d at 338.  B-Bom owned Salem Manor and
leased it to D & S.  Id. at 451-52, 329 S.E.2d at 329-29.  The
primary function of D & S was to collect rent for B-Bom.  Id. at
456, 439 S.E.2d at 331.  The only asset of D & S was the lease on
Salem Manor.  Id. at 452, 329 S.E.2d at 329.  B-Bom determined
rent levels, and was paid from the rental moneys.  Id.  
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D & S was sued by a tenant for wrongful eviction.  Id.
at 451-52, 329 S.E.2d at 329-29.  At the time of the suit, D & S
was insolvent.  Noting that the bulk of rent and profits went to
B-Bom, this Court held that D & S operated as a “mere shell” for
B-Bom, whose owners exercised so much control over D & S as to
make D & S a mere instrumentality of B-Bom.  Id. at 456-7, 329
S.E.2d at 331-32.  We further held that when a corporation
operates as a “mere shell, created to perform a function for an
affiliated corporation,” liability can extend beyond the shell
corporation.  Id. at 457, 329 S.E.2d at 331.
Even though the rule was formally adopted in Glenn, the
use of instrumentality analysis in our jurisprudence pre-dates
Glenn.  In an earlier case, this Court explained that the
instrumentality rule allows for the corporate form to be
disregarded if “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[.]”  Henderson v. Sec.
Mortgage & Fin. Co., 273 N.C. 253, 260, 160 S.E.2d 39, 44 (1968). 
In that event, we held that “the corporate entity will be
disregarded and the corporation and the shareholder treated as
one and the same person.” Id. (emphasis added). 
D. Application to the Instant Case
Under the instrumentality test, if the plaintiff is
able to pierce the corporate veil, the shareholder and the
corporation are shown to be, to quote our holding in Henderson,
“one and the same.”  Id.  Consequently, the addition of the
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shareholder would not be the addition of a “new party.”
Therefore, the holding of Crossman, which the Court of Appeals
majority found to be controlling, would not apply. 
In order to prevail under the instrumentality rule, a
party must prove three elements: (1) stockholders’ control of the
corporation amounting to “complete domination” with respect to
the transaction at issue; (2) stockholders’ use of this control
to commit a wrong, or to violate a statutory or other duty in
contravention of the other party’s rights; and (3) this wrong or
breach of duty must be the proximate cause of the injury to the
other party.  Glenn, 313 N.C. at 454-55, 329 S.E.2d at 330.  
In this case, plaintiff’s complaint has set forth
allegations that Heflin and the other defendants dominated and
controlled Ridgeway to the extent that it had no separate
identity by, inter alia:
c.   directing in which states product was to
be sold.
. . . .
e.  directing moneys intended to Defendant
Ridgeway Manufacturing to either Defendants
Edwards, White, Ridgeway Kentucky[Brands] or
Heflin;
f.  excessively fragmenting Defendant
Ridgeway Manufacturing;
g.  destroying all corporate documents and
records of Defendant Ridgeway Manufacturing;
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h.  directing the movement of funds such to
prevent the payment of statutory escrow
obligations required by North Carolina; and
i.  by disposing of almost all assets of
corporate Defendant Ridgeway Manufacturing
while siphoning off funds to the Defendants
and investors and therefore preventing the
payment of salaries and other benefits owed
to employees.
Plaintiff also alleged that as a result of defendants’ alleged
domination and control, Ridgeway Manufacturing became “a
corporation without a separate mind, will or existence of its own
and is operated as a mere shell to perform for the benefit of”
Heflin and the other named defendants.  Plaintiff was injured by
these actions, since it was deprived of the escrow moneys to
which it was entitled by statute.
Violation of statutory duties is not the type of
conduct typically protected by the corporate form.  It is
axiomatic that when the corporation becomes a mere
instrumentality of the shareholder and “‘a shield for his
activities in violation of the declared public policy or statute
of the State,’” the corporate fiction or form is disregarded and
the corporation and the shareholder treated as the same entity.
Louchheim, 296 N.C. at 329, 250 S.E.2d at 640 (quoting Henderson,
273 N.C. at 260, 160 S.E.2d at 44) (emphasis added); see also
State v. Salisbury Ice & Fuel Co., 166 N.C. 366, 369, 81 S.E.
737, 738 (1914) (noting that the misconduct of a corporation may
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be imputed to both the corporate entity and its officers). 
Indeed, in Louchheim, we allowed criminal charges to proceed
against the shareholder, despite his argument that any conduct
must be imputed solely to the corporation.
In examining the instant case, we note a number of
factual allegations that support the contention that the
corporate form was a mere instrumentality of its shareholders. 
“When reviewing a complaint dismissed under Rule 12(b)(6), we
treat a plaintiff’s factual allegations as true.” Stein v.
Asheville City Bd. of Educ., 360 N.C. 321, 325, 626 S.E.2d 263,
266 (2006) (citing Wood v. Guilford Cty., 355 N.C. 161, 166, 558
S.E.2d 490, 494 (2002)).  Plaintiff has alleged that the
shareholders, including defendant Heflin, made a considered
decision not to fulfill their statutory obligations in North
Carolina.  
Among the allegations against defendants are charges
that they deliberately and purposefully chose to line their
personal pockets by pricing cigarettes at a level that would
increase their market share--to the detriment of their
competitors who opted to function in a manner that would permit
them to perform their statutory obligations.  Defendant
shareholders further chose to ignore the admonitions and warnings
of their own experienced manager that their operational plan did
not allow them to fulfill their statutory obligations.  Defendant
shareholders, including Heflin, also made a considered decision
to pay their obligations in their home state of Kentucky while
ignoring their obligations to North Carolina.  Defendants further
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channeled corporate funds into unknown entities they controlled,
leaving Ridgeway behind as a hollow shell from which plaintiff
could not expect to recover anything.
Taking these allegations as true, it would be
inequitable to permit defendants to shelter behind the corporate
identity of the very entity they drained in the course of their
actions.  Given this, we hold that in light of our opinions in
Henderson and Glenn, plaintiff has made the necessary showings at
the pleading stage to establish that defendant Ridgeway was
operated as a mere instrumentality of defendant Heflin.  As a
consequence, we hold that plaintiff may add defendant Heflin,
contingent on its subsequent ability to demonstrate that
defendants Heflin and Ridgeway are alter egos.
We note that this holding merely clarifies that North
Carolina follows the same rule as most other jurisdictions that
have considered the issue: the principle that initiating a suit
against a corporation tolls the statute of limitations with
respect to its alter egos.  See, e.g.,  Ex parte Empire Gas
Corp., 559 So. 2d 1072, 1073-74 (Ala. 1990); Matthews Constr. Co.
v. Rosen, 796 S.W.2d 692, 693-94 (Tex. 1990); Cf. Porter Cty.
Sheriff Dep’t v. Guzorek, 862 N.E.2d 254, 255 (Ind. 2007) (a suit
against an improper party tolled the statute of limitations
against the correct party who was aware of the suit and
participated in its defense); Norwood Grp., Inc. v. Phillips, 149
N.H. 722, 725, 828 A.2d 300, 303 (2003) (holding that subjecting
an effort to pierce the corporate veil to the original shorter
statute of limitations would allow the corporate form to be used
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as a “‘cloak for fraud’”) (citing Matthews Constr., 796 S.W.2d at
694).  Indeed, at least one federal court in North Carolina has
already followed this approach.  Strawbridge v. Sugar Mountain
Resort, Inc., 243 F. Supp. 2d 472, 478-79 (W.D.N.C. 2003)
(applying North Carolina law and discussing the instrumentality
rule and relation back doctrine).  Therefore we reverse the Court
of Appeals majority on this issue. 
Claim of Conspiracy
[2] Next, we determine whether the majority below
correctly held that the trial court improperly dismissed
plaintiff’s claim for civil conspiracy.  The dissent in the Court
of Appeals would hold that the complaint did not allege
sufficient facts to constitute a civil conspiracy.  Ridgeway, 184
N.C. App. at 628, 646 S.E.2d at 801 (Wynn, J., dissenting).  In
particular, the dissent would hold that plaintiff’s complaint
“includes no factual allegations to support the notion of an
agreement or conspiracy among Mr. Heflin, Mr. Edwards, and Mr.
White to underprice the cigarettes for the express purpose of
avoiding its statutory obligations to pay into the qualified
escrow account.”  Id.  After reviewing the complaint, we cannot
agree. 
“To create civil liability for conspiracy there must
have been a wrongful act resulting in injury to another committed
by one or more of the conspirators pursuant to the common scheme
and in furtherance of the objective.” Henry v. Deen, 310 N.C. 75,
87, 310 S.E.2d 326, 334 (1984) (citing Muse v. Morrison, 234 N.C.
195, 198, 66 S.E.2d 783, 785 (1951)).  This Court has previously
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held that a complaint sufficiently stated a claim for civil
conspiracy when it alleged (1) a conspiracy, (2) wrongful acts
done by certain of the alleged conspirators in furtherance of
that conspiracy, and (3) injury as a result of that conspiracy.
Muse, 234 N.C. at 198, 66 S.E.2d at 785.
We note that in ruling upon such a motion, “‘the
complaint is to be liberally construed, and the trial court
should not dismiss the complaint unless it appears beyond doubt
that [the] plaintiff could prove no set of facts in support of
his claim which would entitle him to relief.’”  Meyer v. Walls,
347 N.C. 97, 111-12, 489 S.E.2d 880, 888 (1997) (quoting Dixon v.
Stuart, 85 N.C. App. 338, 340, 354 S.E.2d 757, 758 (1987)
(alteration in original)).
A review of the complaint reflects that plaintiff
specifically alleged that there was an “Agreement of Defendants”
to violate their statutory duties: 
     Defendants shared an understanding,
either expressed or implied, to enter into an
agreement to underprice the cigarettes made
by Defendant [Ridgeway] and distributed and
sold by [Brands] so that [Ridgeway] would be
unable to deposit sufficient escrow to cover
sales in violation of N.C. Gen. Stat. §
66-291 and would deprive the State of North
Carolina of a fund against which it could
execute judgments against Defendant
[Ridgeway]. 
     Defendants shared an understanding,
either expressed or implied, to enter into an
agreement to unfairly and deceptively
underprice the cigarettes made by Defendant
[Ridgeway] and distributed and sold by
[Brands] so that [Ridgeway] would be unable
to deposit sufficient escrow to cover sales
in violation of N.C. Gen. Stat. § 66-291 and
deprived the State of a fund against which it
could execute judgments. 
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The majority in the court below referenced this section
of the complaint and found it sufficient under the notice
pleading standard.  Ridgeway, 184 N.C. App. at 625-26, 646 S.E.2d
at 799 (majority). In addition, the majority cited several
specific instances of alleged actions by the defendants in
furtherance of the alleged conspiracy:
Plaintiff’s complaint supports the theory
that Heflin had an “independent personal
stake in achieving the corporation’s illegal
objective,” because plaintiff alleged that
Heflin “directe[d] monies intended to
[Ridgeway] to either . . . Edwards, White,
[Brands] or [Heflin][.]”  Plaintiff further
alleged that, in 2004, Heflin told Welchons
that “[Ridgeway] was not going to file for
bankruptcy because [Heflin] and others did
not want anybody looking back to see what was
going on and track the money back to where it
came from.”  After this comment, Welchons
considered “the creation of financial
records” and the hiring of “attorneys
Schwartz and Turpin” to be "a cover-up to
hide activities.”  Ridgeway made payments in
excess of $1 million to Turpin and Schwartz,
“of which none was ever accounted for or
returned to [Ridgeway][.]”  Welchons, the
general manager of Ridgeway, was never told
how the money was spent.  Plaintiff alleged
that Heflin and others “disposed of almost
all assets of [Ridgeway]” and “siphon[ed] off
funds to” themselves.
Id. at 626, 646 S.E.2d at 799.  Under the criteria we have
previously set out in Muse, plaintiff has alleged sufficient
facts tending to show (1) the existence of the conspiracy, (2)
acts in furtherance thereof, and (3) injury to plaintiff as a
result of these acts.  234 N.C. at 198, 66 S.E.2d at 785.  Taken
together, these allegations are sufficient to withstand a motion
to dismiss. “Whether plaintiff is able, in his proof, to make
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good the allegations of his complaint is of no concern now.  But
he is entitled to an opportunity to do so--a day in court.”  Id. 
The holding of the majority on this issue is affirmed.
Conclusion
In summary, we affirm the portion of the Court of
Appeals opinion that reinstated the civil conspiracy claims.  We
reverse the portion of the opinion that affirmed the trial
court’s dismissal of the claim against defendant Heflin for civil
penalties arising out of the failure to pay the 2004 escrow
deposit.  The remaining issues addressed by the Court of Appeals
are not before this Court, and its decision as to these matters
remains undisturbed.
Accordingly, the decision of the Court of Appeals is
affirmed in part, reversed in part and this matter is remanded to
the Court of Appeals for further remand to the trial court for
further proceedings not inconsistent with this opinion.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.