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Dailey v. Ayers Land Development, LLC

Supreme Court of West Virginia

March 15, 2019

JAMES A. DAILEY, III, NICOLE DAILEY, TRAVIS A. HILL, AND SCARLETT J. HILL, Plaintiffs Below, Petitioners
v.
AYERS LAND DEVELOPMENT, LLC; A AND A HOMES, INC.; AYERS BUILDERS, INC.; ROGER E. AYERS; JERRY A. AYERS; RJM HOLDINGS, LLC; FRYE CONSTRUCTION, INC.; AND MICHAEL E. FRYE, Defendants Below, Respondents

          Submitted: February 13, 2019

          Appeal from the Circuit Court of Berkeley County Honorable Christopher C. Wilkes, Judge Civil Action No. 15-C-59

          Susan R. Snowden, Esq. Jackson Kelly PLLC Martinsburg, West Virginia Attorney for Petitioners

          J. Victor Flanagan, Esq. Matthew R. Whitler, Esq. Benjamin P. Warder, Esq. Pullin, Fowler, Flanagan, Brown & Poe, PLLC Martinsburg, West Virginia Attorneys for Ayers Land Development, LLC; A and A Homes, Inc.; Ayers Builders, Inc.; Roger E. Ayers; and Jerry A. Ayers

          Christopher C. Luttrell, Esq. Luttrell LC Martinsburg, West Virginia Attorney for Frye Construction, Inc., and Michael E. Frye

          OPINION

          HUTCHISON, JUSTICE

         SYLLABUS BY THE COURT

         1. "A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syl. Pt. 3, Aetna Cas. & Sur. Co. v. Fed. Ins. Co., 148 W.Va. 160, 133 S.E.2d 770 (1963).

         2. "The circuit court's function at the summary judgment stage is not to weigh the evidence and determine the truth of the matter, but is to determine whether there is a genuine issue for trial." Syl. Pt. 3, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).

         3. "'A joint venture or, as it is sometimes referred to, a joint adventure, is an association of two or more persons to carry out a single business enterprise for profit, for which purpose they combine their property, money, effects, skill, and knowledge. It arises out of a contractual relationship between the parties. The contract may be oral or written, express or implied.' Syl. pt. 2, Price v. Halstead, 177 W.Va. 592, 355 S.E.2d 380 (1987)." Syl. Pt. 5, Armor v. Lantz, 207 W.Va. 672, 535 S.E.2d 737 (2000).

         4. "'While, legally speaking, a corporation constitutes an entity separate and apart from the persons who own it, such is a fiction of the law introduced for purpose of convenience and to subserve the ends of justice; and it is now well settled, as a general principle, that the fiction should be disregarded when it is urged with an intent not within its reason and purpose, and in such a way that its retention would produce injustices or inequitable consequences.' Syl. pt. 10, Sanders v. Roselawn Memorial Gardens, [Inc., ] 152 W.Va. 91, 159 S.E.2d 784 (1968)." Syl. Pt. 2, Laya v. Erin Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986).

         5. "W.Va. Code § 31B-3-303 (1996) (Repl. Vol. 2009) permits the equitable remedy of piercing the veil to be asserted against a West Virginia limited liability company." Syl. Pt. 5, Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).

         6. "'[T]o "pierce the corporate veil" in order to hold the shareholder(s) actively participating in the operation of the business personally liable . . ., there is normally a two-prong test: (1) there must be such unity of interest and ownership that the separate personalities of the corporation and of the individual shareholder(s) no longer exist (a disregard of formalities requirement) and (2) an inequitable result would occur if the acts are treated as those of the corporation alone (a fairness requirement).' Syllabus point 3, in part, Laya v. Erin Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986)." Syl. Pt. 6, Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).

         7. "To pierce the veil of a limited liability company in order to impose personal liability on its member(s) or manager(s), it must be established that (1) there exists such unity of interest and ownership that the separate personalities of the business and of the individual member(s) or managers(s) no longer exist and (2) fraud, injustice, or an inequitable result would occur if the veil is not pierced." Syl. Pt. 7, in part, Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).

         8. "The propriety of piercing the corporate veil should rarely be determined upon a motion for summary judgment. Instead, the propriety of piercing the corporate veil usually involves numerous questions of fact for the trier of the facts to determine upon all of the evidence." Syl. Pt. 6, Laya v. Erin Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986).

         9. "The law presumes that two separately incorporated businesses are separate entities and that corporations are separate from their shareholders." Syl. Pt. 3, S. Elec. Supply Co. v. Raleigh Cty. Nat'l Bank, 173 W.Va. 780, 320 S.E.2d 515 (1984).

         10. "[T]he failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business may not be a ground for imposing personal liability on the member(s) or manager(s) of the company." Syl. Pt. 7, in part, Kubican v. The Tavern, LLC, 232 W.Va. 268, 752 S.E.2d 299 (2013).

         Petitioners James and Nicole Dailey and Travis and Scarlett Hill appeal the December 19, 2017, order of the Circuit Court of Berkeley County certifying as final the prior orders that granted summary judgment to the respondents, Ayers Land Development, LLC; A and A Homes, Inc.; Ayers Builders, Inc.; Roger E. Ayers and Jerry A. Ayers (hereinafter collectively "Ayers respondents"); Frye Construction, Inc., and Michael E. Frye, in this civil action arising out of the modification of covenants pertaining to a residential subdivision developed by RJM Holdings, LLC ("RJM").[1] In this appeal, the petitioners assert several assignments of error but primarily contend that the circuit court erred by granting summary judgment because genuine issues of material fact exist regarding whether the respondents were engaged in a joint venture with RJM to develop the subdivision and whether the veils of the respondent corporations and limited liability companies should be pierced to hold Roger Ayers, Jerry Ayers, and Michael Frye, personally liable.

         Upon consideration of the parties' briefs and oral arguments, the submitted record, and the applicable authorities, this Court finds merit to the petitioners' arguments. Accordingly, for the reasons set forth below, the circuit court's final order is reversed, and this case is remanded for further proceedings consistent with this opinion.

         I. Facts and Procedural Background

         Respondents Roger Ayers and Jerry Ayers are brothers who are engaged in the business of real estate development and construction of residential homes. To facilitate their business, they have formed multiple limited liability companies and corporations including Ayers Holdings, LLC, whose sole members are Roger Ayers and Jerry Ayers; Ayers Land Development, LLC, whose sole members are Jerry Ayers and his wife, Deborah Ayers; Ayers Builders, Inc., with Jerry Ayers as president and his wife, Deborah as vice president; and A and A Homes, Inc., with Roger Ayers as president and Jerry Ayers as vice president. Ayers Holdings and Ayers Land Development are holding companies for real estate; Ayers Builders and A and A Homes are home contractors. Michael Frye is also a real estate developer and home builder. His business is Frye Construction, Inc.

         In November 2004, Ayers Holdings and Michael Frye formed RJM for the purpose of developing a 117-acre tract of land in Berkeley County into a residential subdivision known as Brookside. Michael Frye has a fifty percent interest in RJM, and Ayers Holdings owns the other fifty percent. To finance the project, RJM secured a $2.4 million dollar bank loan, which Roger Ayers, Jerry Ayers and Michael Frye personally guaranteed.

         On May 30, 2007, RJM recorded a series of final plats for Brookside that created thirty-eight individual single family lots at least one acre in size with common areas, shared roads, and a parcel for future development. Brookside was marketed as a "premier, upscale subdivision." To that end, RJM recorded a "Declaration of Covenants, Conditions and Restrictions for Brookside" in 2007 ("the 2007 Covenants") in the Berkeley County Clerk's Office. Pertinent to this case are the following requirements for Brookside homes set forth in the 2007 Covenants:

All one-story Dwellings shall contain a minimum of 2, 800 square feet. All multiple-story Dwellings shall contain a minimum of 3, 000 square feet, with at least 1, 500 square feet on the first floor. Dimensions stated shall be exterior wall dimensions excluding basements, garages, decks, porches, eaves and other similar extension and overhangs.
The exposed surface of all exterior walls of any building constructed upon any Lot may be clad with only the following materials: brick, stone, solid wood, or stucco. Without limitation of the foregoing, no vinyl or aluminum siding shall be permitted on any exterior wall, and no concrete shall be exposed.

         On June 29, 2007, Travis and Scarlett Hill purchased Lot No. 17 in Brookside for $154, 900. They were provided a copy of the 2007 Covenants, but they have yet to build a home on the lot they purchased. James and Nicole Dailey purchased Lot No. 18 in Brookside for $154, 900 on July 6, 2007. They began construction of a home on their lot in August 2013 in accordance with the 2007 Covenants.

         Between 2008 and 2011, RJM only sold one lot in Brookside. In 2010, RJM began discussing amending the 2007 Covenants to lessen the restrictive uses in an effort to sell more lots. On April 16, 2013, RJM executed a Supplementary Declaration of Covenants, Conditions, and Restrictions ("the 2013 Covenants") for Brookside which amended the 2007 Covenants by decreasing the required minimum square footage for homes and permitting the use of vinyl siding.[2] According to the petitioners, they were not informed that the 2007 Covenants were going to be amended. In fact, the Hills maintain that they were never informed by RJM or any of the respondents of the amendments to the covenants prior to filing their complaint. The Daileys have stated that they received the 2013 Covenants by email without any explanation on August 1, 2014, after leaving a voicemail for the respondents inquiring about homes being constructed in Brookside that did not comply with the 2007 Covenants.

         The petitioners contend that at least three homes have been built in Brookside that fail to comply with the 2007 Covenants. RJM has acknowledged that the houses on Lots 14 and 15 do not comply with the 2007 Covenants. The record shows that A and A Homes built the home on Lot 14. Michael Frye and Frye Construction completed the excavation for Lot 14, and Roger Ayers was the sewer installer. While the home on Lot 14 was being built, Frye Construction was also doing excavation work for the Daileys. According to the Daileys, they asked Michael Frye about the square footage of the home being constructed on Lot 14. The Daileys contend that Michael Frye "evaded the question" and never mentioned that the 2007 Covenants had been amended.

         In 2015, separate complaints were filed by the Daileys and the Hills against RJM and Ayers and Ayers Holdings alleging, inter alia, civil conspiracy, fraud and breach of the covenants. The cases were consolidated by the circuit court. In August 2016, the petitioners sought leave to amend their complaints to add additional defendants, including the Ayers respondents, Michael Frye, and Frye Construction. [3] The request to amend was granted, and on January 18, 2017, the petitioners filed "Plaintiffs' Consolidated Amended Verified Complaint." The petitioners sought declaratory judgment, asking the court to find that the 2013 Covenants "destroy[] the Community Standard and [are] void ab initio." In addition, the petitioners sought to recover monetary damages for the actions taken by RJM and the respondents in executing the 2013 Covenants. The petitioners alleged that the respondents were members of a joint venture with RJM making them "jointly and severally liable for all acts and omissions ...


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