Pertuis v. Front Roe Restaurants, Inc.
423 S.C. 640
| S.C. | 2018Background
- Mark and Larkin Hammond formed three S‑corporations that operated restaurants: Lake Point (NC), Beachfront (NC), and Front Roe (SC). The Hammonds were sole initial shareholders; Kyle Pertuis was hired as manager and earned minority equity via vesting schedules.
- By 2007 Pertuis owned 10% of each North Carolina corporation and 1% of Front Roe; the 10% in Front Roe was conditioned on profit benchmarks (allegedly $500,000 net operating profit) that were never met.
- Relations deteriorated in 2009 while parties negotiated formalization and transfer/buyout terms; Pertuis later sued claiming he was an oppressed minority shareholder entitled to a forced buyout and a 10% interest in Front Roe, among other relief.
- The trial court found the three corporations operated as a single enterprise (amalgamation/de facto partnership), awarded Pertuis 7.2% of Front Roe, unpaid distributions totaling $99,117, valued the corporations, and ordered a buyout. The court of appeals affirmed.
- The South Carolina Supreme Court granted certiorari and (1) held South Carolina law governs the amalgamation claim, (2) reversed the amalgamation finding as to the three corporations, (3) vacated the trial court and court of appeals rulings as to the two North Carolina corporations, (4) reduced unpaid distributions recoverable from Front Roe to $14,142, and (5) held Pertuis’s ownership of Front Roe is 1% (not 7.2%).
Issues
| Issue | Plaintiff's Argument (Pertuis) | Defendant's Argument (Hammond/Corps) | Held |
|---|---|---|---|
| Whether three corporations should be treated as a single business enterprise (amalgamation/veil piercing) | Corporations were operated as one enterprise: shared management, commingled funds, shared website, informal practices; equity requires treating them as one | Corporations were separate S‑corporations, statutorily permitted to forego some formalities; no bad faith, fraud, or injustice shown | Reversed: amalgamation not warranted; plaintiff bore burden and failed to show injustice/abuse necessary to disregard corporate separateness |
| Choice of law for veil‑piercing/amalgamation claim | South Carolina law should apply because conduct and one corporation (Front Roe) are in SC and plaintiff is SC resident | North Carolina law should govern for NC corporations under internal affairs doctrine | SC Court applied South Carolina law to evaluate amalgamation but ultimately reversed on merits; internal affairs doctrine precluded further consideration of NC corporations once separateness was upheld |
| Whether Pertuis owned 7.2% (or 10%) of Front Roe | Missing vesting document and equitable considerations justify treating the vesting as 72% complete → 7.2% ownership | Vesting required specific profitability benchmark; no evidence Front Roe met benchmark; burden rests on Pertuis to prove oral agreement/terms | Reversed: Pertuis failed to prove material term (profit benchmark); ownership in Front Roe is 1% as reflected on tax returns |
| Entitlement to unpaid shareholder distributions and valuation consequences | Pertuis claimed unpaid distributions from all three corporations and sought buyout valuation based in part on amalgamation | Hammonds contested distributions and valuation tied to separate corporate identities; argued NC corporations should not be subject to SC remedies | Affirmed in part: Pertuis entitled to unpaid distributions from Front Roe only; award modified to $14,142 (removing NC corp amounts); trial court and court of appeals determinations as to NC corporations vacated |
Key Cases Cited
- Ballard v. Roberson, 399 S.C. 588 (S.C. 2012) (equitable stockholder‑oppression standard; appellate review of bench trial factual findings)
- Edgar v. MITE Corp., 457 U.S. 624 (U.S. 1982) (internal affairs doctrine—state of incorporation governs corporate internal affairs)
- Kincaid v. Landing Dev. Corp., 289 S.C. 89 (Ct. App. 1986) (amalgamation theory applied where corporate identities were blurred)
- Mid‑South Mgmt. Co. v. Sherwood Dev. Corp., 374 S.C. 588 (Ct. App. 2007) (declining amalgamation where identities not blurred)
- SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444 (Tex. 2008) (single business enterprise requires centralized control plus evidence of abuse, injustice, or inequity)