Glenn v. Wagner

Supreme Court of North Carolina · 1985 · Corporations

329 S.E.2d 326 (N.C. 1985)

Updated August 22, 2026

Corporationspiercing the corporate veilinstrumentality ruleaffiliated corporationsalter egomere instrumentalitycommon ownershipactual working control

Facts

B-Bom, Inc. owned Salem Manor Motel and leased it to D & S Enterprises, which operated the motel through Smilie Wagner. David Wagner was president of B-Bom, the sole subscribing shareholder in D & S, shared ownership of D & S with Smilie by 1980, and testified to weak observance of D & S corporate formalities; D & S's only significant business was the lease with B-Bom, executed before D & S was incorporated. The evidence showed B-Bom set rent levels, David Wagner frequently discussed business affairs with Smilie, D & S lacked adequate capitalization, and D & S was left without assets to satisfy the judgment. Plaintiffs' theory was that D & S was B-Bom's alter ego or mere instrumentality, making B-Bom liable for the torts committed in operating Salem Manor.

Issue

Whether the trial judge properly instructed the jury on piercing the corporate veil under the instrumentality rule so that B-Bom could be held liable for torts committed by affiliated corporation D & S. More specifically, the question was whether the instrumentality rule may apply to affiliated corporations based on common ownership and actual working control, even without proof that domination was limited to the particular transaction attacked.

Rule

Under North Carolina's instrumentality rule, a corporation that exercises actual control over another, operating it as a mere instrumentality or tool, may be liable for that corporation's torts. The three elements are: (1) complete domination, not merely stock control, but domination of finances, policy, and business practice so that the corporation as to the relevant situation had no separate mind, will, or existence of its own; (2) use of that control to commit a fraud, wrong, violation of legal duty, or dishonest and unjust act against the plaintiff's rights; and (3) proximate causation of the injury. In the affiliated-corporation context, domination sufficient to pierce the veil need not be narrowly limited to the particular transaction attacked where one corporation is dominated to the extent it has no separate mind, will, or identity of its own.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Charlotte, Oak Harbor Properties, Inc. owns a row of rental townhomes and leases all operations to Blue Lantern Housing, Inc. The same two cousins each own 50% of both corporations, Oak Harbor sets rental prices, Blue Lantern has almost no capital or records, and its officers never hold formal meetings. After Blue Lantern's manager unlawfully locks out a tenant, Blue Lantern cannot satisfy the tenant's judgment.

Which is the strongest argument for holding Oak Harbor liable for the tenant's tort judgment?

Explanation. The majority held that affiliated corporations may be treated as one when there is common ownership plus actual working control and other factors showing complete domination, such as inadequate capitalization and noncompliance with formalities. In the affiliated-corporation setting, domination need not be narrowly limited to the precise transaction if the dominated corporation had no separate mind, will, or identity of its own. The other choices either require too much, impose automatic liability, or rely on a single insufficient factor.