United States District Court, W.D. North Carolina, Asheville Division
MEMORANDUM OF DECISION AND ORDER
MARTIN REIDINGER, District Judge.
THIS MATTER is before the Court on Defendants Daniel Walsh and Karen Herman's Amended Motion for Summary Judgment [Doc. 89].
This is the second of two civil actions brought by Al Hamra Trading, Est. ("Al Hamra") against First Choice Armor and Equipment, Inc. ("First Choice"). The earlier action ("the Massachusetts litigation") resulted in a judgment in favor of Al Hamra against First Choice in the amount of $1, 114, 900. Al Hamra now seeks to recover that judgment from two former officers of First Choice, Karen Herman ("Herman") and Daniel Walsh ("Walsh"). Additionally, Al Hamra seeks a declaration that the transfer of First Choice's assets by Herman and Walsh was a fraudulent transaction in violation of the North Carolina Fraudulent Transfer Act. In addition to seeking declaratory relief, Al Hamra also makes a claim for punitive damages.
For their part, Herman and Walsh contend that the transfer at issue was in fact a routine foreclosure under Article 9 of the Uniform Commercial Code executed by First Choice's secured creditor, a competing company which had acquired the lien rights to First Choice's debt. Herman and Walsh further contend that Al Hamra has failed to demonstrate any genuine dispute of fact to warrant the extreme remedy of piercing the corporate veil in order to impose personal liability on Herman or Walsh for the judgment previously obtained against First Choice in the Massachusetts litigation. Finally, these Defendants argue that Al Hamra has failed to show that punitive damages are warranted in this case.
II. PROCEDURAL BACKGROUND
Al Hamra filed its Complaint against the Defendants on November 20, 2012. [Doc. 1]. After receiving extensions of time to respond to the Complaint, Defendants Diamondback Tactical, LLLP ("Diamondback Tactical") and D-Back Acquisition Co. ("D-Back") filed a motion to dismiss on February 5, 2013. [Doc. 12]. Herman and Walsh subsequently filed motions to dismiss as well. [Docs. 16, 35]. On July 9, 2013, the Magistrate Judge recommended denying the Defendants' motions to dismiss. [Doc. 38]. No objections were filed, and the Court accepted the Magistrate Judge's recommendation and denied the motions on August 12, 2013. [Doc. 42].
On October 23, 2013, the Clerk made an entry of default against First Choice for failing to appear in the action. [Doc. 61]. Al Hamra moved for the entry of a default judgment against First Choice [Doc. 58], but this motion was denied as premature [Doc. 62]. Issues having joined, a Case Management Order was entered on November 12, 2013. [Doc. 64].
On May 13, 2013, Al Hamra filed a notice of its acceptance of an offer of judgment of $500.00 by Diamondback Tactical and D-Back in satisfaction of all claims asserted by Al Hamra against these two Defendants. [Doc. 75].
On May 27, 2014, Defendants Walsh and Herman filed a motion for summary judgment as to the claims asserted by Al Hamra. [Doc. 87]. The Court struck this motion for failing to comply with the Case Management Order's font requirements. [Doc. 88]. The Defendants filed an amended motion on May 28, 2014. [Doc. 89]. Al Hamra filed its opposition to the Defendants' motion on June 13, 2014 [Doc. 95], and the Defendants filed a reply on June 20, 2014 [Doc. 96]. The Court held a hearing on the Defendants' motion on August 29, 2014.
Having been fully briefed and argued, this matter is ripe for disposition.
III. FACTUAL BACKGROUND
The forecasts of evidence, taken in the light most favorable to the Plaintiff as the non-moving party, show the following.
First Choice is a corporation that was organized under the laws of the Commonwealth of Massachusetts on January 15, 1993. [Affidavit of Karen Herman ("Herman Aff."), Doc. 85-1 at ¶ 2]. During the relevant time period, First Choice manufactured and sold protective equipment, including personal bulletproof vests. [Deposition of Karen Herman ("Herman Dep."), Doc. 95-2 at 15].
Defendant Karen Herman has been an officer and the sole director of First Choice, and has owned 100% of its outstanding and issued shares since approximately 1999. [Herman Aff., Doc. 85-1 at ¶¶ 3-4]. Defendant Daniel Walsh was an employee and officer of First Choice from approximately 2007 through September 22, 2010. [Affidavit of Daniel Walsh ("Walsh Aff"), Doc. 85-2 at ¶ 2]. Walsh has never owned any shares of First Choice and has never held any other ownership interest in the company. [Id. at ¶ 3; Herman Aff., Doc. 85-1 at ¶ 5].
Diamondback Tactical is a limited liability limited partnership that was organized under the laws of the State of Colorado on August 9, 2001. [Diamondback Certificate of Limited Partnership, Doc. 85-8]. For a number of years, Diamondback Tactical was a competitor of First Choice in the manufacture and sale of bulletproof vests. [Diamondback Tactical Interrog. Resp. No. 1, Doc. 85-5].
D-Back is a corporation that was organized under the laws of the State of Delaware on August 17, 2005. [D-Back Interrog. Resp. No. 1, Doc. 85-4]. Neither D-Back nor Diamondback Tactical, nor any company related to these entities, has ever held any shares in First Choice and has never possessed any other ownership interest therein. [Herman Aff., Doc. 85-1 at ¶ 6; Walsh Aff., Doc. 85-2 at ¶ 4]. D-Back was formed for the purpose of acquiring and owning Diamondback Tactical. At the time of D-Back's incorporation through December 2010, Rosemont Capital, LLC ("Rosemont"), through various investment funds, owned the controlling interest in D-Back. During that same period, Torch Hill Investment Partners ("Torch Hill"), through various investment funds, owned the largest minority interest in D-Back. In December 2010, Torch Hill invested additional funds to become the majority owner, and thus acquired the controlling interest in D-Back. [D-Back Interrog. Resp. No. 1, Doc. 85-4]. Neither Herman nor Walsh is a member or a partner in Rosemont or Torch Hill and neither has any ownership interest in, or affiliation with, Rosemont or Torch Hill. [Herman Aff., Doc. 85-1 at ¶ 8; Walsh Aff., Doc. 85-2 at ¶ 7].
Since its creation, D-Back has owned and managed Diamondback Tactical. Specifically, since 2005, D-Back has been the general partner of Diamondback Tactical and the sole member of D-Back Partnership Holdings, LLC, a Colorado limited liability company that owns 100% of the membership interests in Diamondback ...