## Facts

- East Market Street Square, Inc. owned a strip shopping center and outparcels in Greensboro, North Carolina.
- In October 1998, it leased an outparcel building to Tycorp Pizza IV, Inc. for a ten-year term to operate a Pizza Hut franchise.
- Under the lease arrangement, Tycorp IV accepted the premises “as-is,” agreed to renovate to Pizza Hut standards, and the landlord agreed to pay a \$75,000 renovation allowance.
- Tycorp IV was created as a single-purpose entity to operate the Pizza Hut at the leased location.
- Gilbert T. Bland served as president, sole director, and sole shareholder of Tycorp IV when it entered the lease and also controlled a network of related “Tycorp” entities operating dozens of Pizza Hut restaurants.
- The Tycorp entities used intercompany arrangements, including management fees paid to a related company controlled by Bland, and moved funds among affiliated entities.
- East Market Street Square alleged Tycorp IV failed to meet lease obligations, including rent-related duties, and left the premises physically damaged beyond ordinary wear and tear.
- East Market Street Square sued Tycorp IV for breach of lease and property damage and sought to pierce Tycorp IV’s corporate veil to hold Bland personally liable.
- After a bench trial, the superior court entered judgment for East Market Street Square, awarded damages, and pierced the corporate veil to impose personal liability on Bland.
- Tycorp IV and Bland appealed, principally contesting veil piercing and Bland’s personal liability.

## Issues

1. Whether the trial court properly pierced Tycorp IV’s corporate veil under North Carolina’s instrumentality rule and held Bland personally liable for Tycorp IV’s lease and property-damage obligations.

## Decision

- The Court of Appeals affirmed the judgment.
- The court held the evidence supported piercing Tycorp IV’s corporate veil and imposing personal liability on Bland.
- The court concluded the trial court could find (1) Bland’s complete domination of Tycorp IV in the transaction, (2) improper use of control resulting in an unjust act against the landlord, and (3) proximate causation of the landlord’s loss.
- The damages award and veil-piercing determination remained intact.

## Legal Principles

- Under North Carolina’s instrumentality rule, veil piercing requires proof of:
  - Complete domination of the corporation’s finances, policy, and business practices as to the challenged transaction such that the corporation had no separate existence for that transaction;
  - Use of that control to commit fraud or wrong, violate a legal duty, or accomplish a dishonest and unjust act against the plaintiff’s rights; and
  - Proximate causation between the misuse of control and the plaintiff’s injury.

- A single-purpose subsidiary may be disregarded when it is operated as a mere instrumentality of the controlling individual and recognition of separateness would sanction fraud or promote injustice.
- Factors supporting improper use can include inadequate capitalization relative to obligations and intercompany arrangements that divert resources from the obligated entity while it remains bound to a counterparty.

## Conclusion

The Court of Appeals affirmed piercing the veil of a single-purpose tenant corporation where the controlling shareholder dominated the entity and used intercompany practices and capitalization choices that left the landlord unpaid and the premises damaged, making personal liability necessary to prevent injustice.


East Mkt. St. Square, Inc. v. Tycorp Pizza IV, Inc., 175 N.C. App. 628, 625 S.E.2d 191 (2006)