Kosalac v. Crescent Homes, Inc.

THE STATE OF SOUTH CAROLINA

THE STATE OF SOUTH CAROLINA

In The Court of Appeals

Steve Kosalac & Becky Kosalac,       
Respondents,

v.

Crescent Homes, Inc., and Craig Roy,       
Appellants.

Appeal From Greenville County

Joseph J. Watson , Circuit Court Judge

Unpublished Opinion No. 2003-UP-671

Submitted September 8, 2003 – Filed November 18, 2003

AFFIRMED

Adam Fisher, Jr., of Greenville, for Appellant

Philip James Temple, of Greenville, for Respondents

PER CURIAM:  Craig Roy, president of
Crescent Homes, Inc., appeals from the trial court’s finding that he was liable
individually for a judgment by default entered against both Roy and Crescent
Homes.  We affirm.

FACTS

Steve and Becky Kosalac (“the Kosalacs”) entered
into a contract with Crescent Homes (“Crescent”) for the construction of a
new home.  The Kosalacs were dissatisfied with the quality of work and filed
a complaint in the circuit court against Crescent.

The Kosalacs served discovery requests in
May 2000. After Crescent failed to timely respond, the Kosalacs moved to compel
discovery in October. Prior to the hearing on this motion, Crescent’s attorney
moved to be relieved due to his client’s refusal to cooperate. The circuit
court granted counsel’s motion to be relieved on December 15, 2000. On January
18, 2001, the circuit court granted the motion to compel and ordered Crescent
to produce the discovery within 10 days. The circuit court also ordered Crescent
to pay $525.00 for the Kosalacs’ attorney’s fees.

On May 10, 2001, the Kosolacs were allowed
to amend the complaint to add Roy as a party and two additional causes of
action for fraud and to pierce the corporate veil. The circuit court ordered
all discovery to be completed within 90 days. In September, the Kosalacs moved
for sanctions when Crescent and Roy (“the Appellants”) failed again to respond
within the 90-day deadline. The circuit court then ordered the Appellants
to pay $2,500 to the Kosalacs’ attorneys; to appear for depositions with any
documents in their possession that relate to this matter; and to comply with
the standing court order for alternative dispute resolution. Roy appeared
at the deposition without any subpoenaed documents and did not appear at a
scheduled mediation conference. The Kosalacs filed a second motion for sanctions
under Rule 37 of the South Carolina Rules of Civil Procedure. The circuit
court granted the motion and struck the Appellants’ pleadings and entered
judgment against them, pursuant to 37(b)(2)(C) and (D) and to SC Circuit ADR
Rule 11.

At the damages hearing, the circuit court refused
to allow defense counsel to question Roy’s individual liability because a judgment
by default had been ordered against Crescent and Roy.  The judge stated, “[t]
he only issue … is the amount of damages.” The Kosalacs submitted evidence that: 
(1) they paid $85,510 to have their home completed after Crescent ceased working
on it and (2) Crescent was unable to account for $104,995 of the money paid
by the Kosalacs. On April 4, 2002, the circuit court ordered, “Judgment entered
for [the Kosalacs] against both [of the Appellants] in the amount of $190,505
(actual damages).”  Roy appeals.

STANDARD
OF REVIEW

This court will interfere with a circuit court’s
exercise of its discretionary powers regarding sanctions imposed in discovery
issues only if there has been an abuse of discretion.  See Clark
v. Ross, 284 S.C. 543, 570, 328 S.E.2d 91, 107 (Ct. App. 1985).             

ANALYSIS

Roy argues the trial court erred when it pierced
corporate the veil and assessed damages against Roy in his individual capacity.
We disagree.

Rule 37 expressly grants the circuit court
power to strike the pleadings and order judgment by default for a party’s
failure to respond to certain discovery requests.  Rule 37(b)(2)(C), SCRCP.
“It is well settled that by suffering a default, the defaulting party is deemed
to have admitted the truth of the plaintiff’s allegations and to have conceded
liability.”  Roche v. Young Bros., Inc., 332 S.C. 75, 81, 504 S.E.2d
311, 314 (1998).  After the circuit court entered a judgment by default against
both Crescent and Roy, the allegations in the Kosalacs’ complaint were deemed
accurate and true. 

One of the causes of action against the appellants
was an action to pierce the corporate veil. The Kosolacs alleged that Crescent
was the alter ego of Roy and that Roy had committed fraud. These allegations
are deemed true as a result of the default.  As a general rule, a corporation
will be looked upon as a legal entity until sufficient reason to the contrary
appears.  However, the law will regard the corporation as an association of
persons when the notion of the legal entity is used to protect fraud, justify
wrong, or defeat public policy. Sturkie v. Sifly, 280 S.C. 453, 457,
313 S.E.2d 316, 318 (Ct. App. 1984). “Courts will disregard the fiction that
a corporation is a separate legal entity when the corporation is a mere instrumentality
of a controlling individual.” Wilson v. Friedberg, 323 S.C. 248, 253,
473 S.E 2d 854, 857 (Ct. App. 1996).

Therefore the trial court did not err when
it pierced the corporate veil and levied damages against Roy individually.

CONCLUSION

Based upon the foregoing, the circuit court’s
order is

AFFIRMED.

GOOLSBY, HUFF and BEATTY, concur.