Court Opinion

ID: 9598506
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:09:30.170654+00
Date Added: 2024-06-11T12:49:43.691686
License: Public Domain

Anderson, Judge,
dissenting:
I respectfully dissent.
The majority opinion misinterprets the agreement between the parties. The trial court correctly interpreted the agreement between the parties, including an analysis of the “Presentation” documents. I would affirm in part and reverse in part.

PIERCING THE CORPORATE VEIL

Friedberg and Royal Promotions argue the master erred in piercing the corporate veil of Royal Promotions and holding Friedberg personally liable for the judgments against the corporation. I agree and would reverse the master’s conclusion on this issue.
“At the outset, it is recognized that a corporation is an entity, separate and distinct from its officers and stockholders, and that its debts are not the individual indebtedness of its *257stockholders.” DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F. (2d) 681, 683 (4th Cir. 1976).
The South Carolina Supreme Court has recognized that the corporate entity may be disregarded in certain situations. Baker v. Equitable Leasing Corp., 275 S.C. 359, 271 S.E. (2d) 596 (1980). An action to pierce the corporate veil is equitable in nature. Thus, this court may determine the facts in accordance with its own view of the preponderance of the evidence. Dumas v. InfoSafe Corp., — S.C. —, 463 S.E. (2d) 641 (Ct. App. 1995). “However, ‘piercing the corporate veil’ is not a doctrine to be applied without substantial reflection.” Baker, 275 S.C. at 367, 271 S.E. (2d) at 600. Generally, courts are reluctant to “disregard the integrity of the corporate entity.” Sturkie v. Sifly, 280 S.C. 453, 459, 313 S.E. (2d) 316, 319 (Ct. App. 1984). The power to pierce the corporate veil is to be exercised with reluctance and caution. DeWitt, supra. Baker v. Equitable Leasing Corp., supra, further elucidates the issue:
[D]ifferent legal corporations actually are regarded as distinct legal entities, and the instrumentality rule should be invoked only with mature consideration and caution. According to may decisions it is not sufficient merely to show that one corporation is the adjunct or instrumentality of another but it must further appear that the retention of separate corporate personalities would promote fraud, wrong, or injustice or contravene public policy. 18 C.J.S. Corporations, § 7, p. 384.
Baker, 275 S.C. at 367-68, 271 S.E. (2d) at 600.
“The corporate form may be disregarded only where equity requires the action to assist a third party.” Woodside v. Woodside, 290 S.C. 366, 370, 350 S.E. (2d) 407, 410 (Ct. App. 1986). The party asserting that the corporate veil should be pierced has the burden of proof. Id.
In Sturkie v. Sifly, supra, the Court of Appeals set forth a two-pronged test to be used to determine whether to pierce the corporate veil. “The first prong is an eight factor analysis of the shareholder’s relationship to the corporation and looks to the observance of the corporate formalities by the dominant shareholders.” Dumas v. InfoSafe Corp. — S.C. —, —, 463 S.E. (2d) 641, 643 (Ct. App. 1995). The factors are:
*258(1) whether the corporation was grossly undercapitalized;
(2) failure to observe corporate formalities;
(3) non-payment of dividends;
(4) insolvency of the debtor corporation at the time;
(5) siphoning of funds of the corporation by the dominant stockholder;
(6) non-functioning of other officers or other directors;
(7) absence of corporate records; and
(8) the fact that the corporation was merely a facade for the operations of the dominant stockholder.
Dumas, — S.C. at —, 463 S.E. (2d) at 644. “The conclusion to disregard the corporate entity must involve a number of the eight factors, but need not involve them all.” Id.
The second prong of Sturkie requires a plaintiff to “prove the ‘fundamental unfairness’ of recognizing the corporate veil....” Multimedia Publishing v. Mullins, 314 S.C. 551, 553, 431 S.E. (2d) 569, 571 (1993). The burden of proving this fundamental unfairness requires the plaintiff to “establish that (1) the defendant was aware of the plaintiff’s claim against the corporation, and (2) thereafter, the defendant acted in a self-serving manner with regard to the property of the corporation and in disregard of the plaintiff’s claim in the property.” Dumas, — S.C. at —, 463 S.E. (2d) 644.
The preponderance of the evidence does not establish the existence of a sufficient number of the eight factors to satisfy the first prong of the test. Richard Friedberg stated Royal Promotions was organized in 1991 and he owned all the stock in the company. Royal Promotions did not own any real property or have any permanent employees. However, it hired per diem employees for the various promotions. Mary Feldman was President of Royal Promotions. Royal Promotions acted as the general partner in several limited partnerships for promotional events held in Charleston at the King Street Palace, which is owned by Carolina Film South Corporation. Fried-berg and his wife own eight-five percent of the stock in Carolina Film South Corporation. Friedberg prepared the financial reports for the two limited partnerships.
The Limited Partners had the burden of proving that Royal Promotions’ corporate identity should be disregarded in order to impose individual liability on Friedberg. After reviewing *259the record, I conclude the Limited Partners failed to establish the existence of a sufficient number of factors to satisfy the first prong of the Sturkie test. Further, the evidence is insufficient to pierce the corporate veil and hold Friedberg individually liable. Accordingly, I would not address the second prong of the test concerning fundamental unfairness.

IMPLIED AGREEMENT TO SHARE LOSSES

The appellant also argue the master erred in finding that the parties’ agreement to share profits on a one-third/two-thirds basis was an implied agreement to share losses in the same proportion. Appellants argue the general partner has no obligation for any losses until the limited partners’ capital contributions are exhausted.1 I would affirm the master on this issue.
Each of the four Limited Partners signed a subscription agreement for the two limited partnerships which provided he would be entitled to half of the net profits, if any, from such production after all costs and expenses were paid by the general partner. According to the presentation for the limited partnerships, net profits would be distributed at a ratio of 66⅔% to the general partner and 33⅓% to the limited partners. The master held there was no specific provision in the presentation which addressed accounting for losses and, therefore, he concluded the agreement to share profits implied an agreement to share losses on the same basis.
Pursuant to S.C. Code Ann. § 33-42-830 (Rev. 1990), “[t]he profits and losses of a limited partnership must be allocated among the partners, and among classes of partners, in the manner provided in writing in the partnership agreement. If the partnership agreement does not so provide in writing, profits and losses shall be allocated on the basis of the value ... of the contributions made by each partner to the extent they have been received by the partnership and have not been returned.” The Record on Appeal does not contain a written *260partnership agreement for the limited partnerships.2 Kevin Baltimore testified Richard Friedberg verbally advised the Limited Partners the general partner was going to come np with the same amount of money they were investing. Baltimore also testified Friedberg represented to them the general partner would lose its money first before the limited partners. Friedberg testified he never represented that Royal Promotions was going to be responsible for payment of half of the expenses of the promotions or that it was going to bear any of the risk of the expenses. Given the conflicting testimony and the lack of a written partnership agreement, I find no error in the master’s conclusion that the parties had an implied agreement to share losses on the same proportion as profits.

 The appellants argue the master held the net loss for Fight Night No. 6 was $14,512.64 and the net loss for Shag Musical Review was $18,874.28. They contend the Limited Partners are required to suffer the full extent of these losses from their investments leaving a balance due to the Limited Partners on the Fight Night partnership of $8,487.36 and $1,125.72 on the Shag Musical Review.

 The certificate of limited partnership filed with the South Carolina Secretary of State is distinguishable from the partnership agreement. See S.C. Code Ann. & 33-42-210 (Rev. 1990).