Glenn v. Wagner

Rule of Law:

A dominant corporation can be held liable for the torts of an affiliated subservient corporation under the instrumentality rule if it exercises such complete control that the subservient entity is a mere shell with no separate identity, even without proof that the dominant corporation controlled the specific transaction causing the harm.

Facts:

• Plaintiffs were wrongfully evicted from the Salem Manor Motel.
• B-Bom, Inc., co-owned by David Wagner, owned the Salem Manor Motel property.
• B-Bom leased the motel to D & S Enterprises, which operated the business.
• David Wagner was the sole subscribing shareholder of D & S, which was established primarily to benefit his cousin, Smilie Wagner, who managed the motel's daily operations.
• D & S paid the bulk of its rents and profits to B-Bom under the lease agreement.
• D & S failed to observe corporate formalities, such as holding board meetings or adopting by-laws, and its corporate office was David Wagner's law office, the same as B-Bom's.
• The lease agreement between B-Bom and D & S, which constituted D & S's only business, was executed before D & S was formally incorporated.
• After the eviction, D & S was left with no assets to satisfy the judgment against it.

Procedural Posture:

• Plaintiffs Glenn and Hood sued Smilie Wagner, D & S Enterprises, and B-Bom, Inc. in a North Carolina trial court for wrongful eviction.
• The jury returned a verdict in favor of the plaintiffs, specifically finding that B-Bom, Inc. so dominated and controlled D & S Enterprises that its separate corporate entity should be disregarded.
• Defendants appealed to the North Carolina Court of Appeals.
• The Court of Appeals found the trial court's jury instruction on the instrumentality rule to be erroneous and ordered a new trial.
• The plaintiffs appealed the decision of the Court of Appeals to the Supreme Court of North Carolina.