AE - Culp v. Economy Mobile Homes (Ala. 03/19/2004)

[Riser Adkisson LLP]

Culp v. Economy Mobile Homes, Inc.,
No. 1011759 (Ala. 03/19/2004)

SUPREME COURT OF ALABAMA OCTOBER TERM, 2003-2004

1011759

2004.AL.0000163

March 19, 2004

RICHARD C. CULP, SR., AND JOHNNIE H. CULP
v.
ECONOMY MOBILE HOMES, INC., ET AL.

Appeal from Mobile Circuit Court (CV-01-2172)

The opinion of the court was delivered by: Johnstone, Justice

Plaintiffs Richard C. Culp, Sr., and Johnnie H. Culp appeal the orders granting the motion filed by
defendants Economy Mobile Homes, Inc., and William Joseph Baldwin, to strike the affidavit of Richard
C. Culp, Sr., and the motion filed by defendant PFS Corporation to strike paragraph 23 of Richard's
affidavit; granting the motions filed by defendants Economy, Baldwin, Conseco Finance Corporation
f/k/a Green Tree Financial Servicing Corporation, and PFS to compel arbitration; and granting the Rule
12(b)(6), Ala. R. Civ. P., motion to dismiss filed by defendants Gregory D. Rustin individually; Rustin
d/b/a Free State Homes Manufacturing, Inc.; and Free State Homes Manufacturing, L.L.C. We affirm
the orders granting the motions to compel arbitration and the motions to strike Richard Culp's affidavit
and paragraph 23 of Richard Culp's affidavit. Because these specified orders are supported by well-
established law, this opinion will not discuss the issues argued by the plaintiffs contesting these
specified orders.

This opinion will discuss only the Rule 12(b)(6) dismissal of the Culps' claims against Rustin
individually; Rustin d/b/a Free State Homes Manufacturing, Inc.; and Free State Homes
Manufacturing, L.L.C. We reverse that order and remand the cause for further proceedings.

In October 1999, the Culps and Economy executed a retail installment contract for the Culps' purchase
of a mobile home manufactured by Free State Homes Manufacturing, L.L.C. After the mobile home
was delivered and set up, the Culps inspected the mobile home and found what they considered to be
numerous defects.

The Culps sued Rustin individually and Rustin d/b/a Free State Homes Manufacturing, Inc., for
violation of the Alabama Extended Manufacturer's Liability Doctrine ("AEMLD"). They sued Rustin
d/b/a Free State Homes Manufacturing, Inc., for fraudulent misrepresentation also. The Culps
specifically acknowledged the corporate entity of Free State Homes Manufacturing, Inc. However, they
claimed that that entity was "a sham" used by Rustin to avoid "personal contract liability for express
and implied warranties on the manufactured homes, and to avoid personal tort liability arising out of
the defective construction of a manufactured home."

The Culps sued Free State Homes Manufacturing, L.L.C., and PFS Corporation for failing to perform
their responsibilities under 24 C.F.R. § 3280 and § 3282 in inspecting the mobile home sold to the
Culps. The Culps also sued PFS for conspiring with Free State Homes Manufacturing, L.L.C., to affix
Department of Health and Urban Development labels improperly to the allegedly defective mobile home
the Culps had purchased from Economy.

Rustin individually; Rustin d/b/a Free State Homes Manufacturing, Inc.; and Free State Homes
Manufacturing, L.L.C., moved to dismiss the complaint or, in the alternative, to compel the Culps to
arbitrate their claims. These three defendants also moved to dismiss the amended complaint on this
ground:

"1. The claims against Gregory D. Rustin individually fail to state claims upon which relief may be
granted in that the wrongful acts alleged against these Defendants arose from the conduct of a
purported Business entity in which Gregory D. Rustin held an ownership interest. It is well settled
under Alabama Law that an owner or officer is not liable for the wrongs of a Corporate entity absent
a showing of personal involvement and liability for the wrongs complained.

"WHEREFORE, Reserving all rights, claims, and Defenses, waiving no rights under the Subject
Arbitration Agreement, Defendants file this, Their Motion to Dismiss pursuant to Rule 12(b)6 of the
Alabama Rules of Civil Procedure, and respectfully requests the Complaint failed [sic] herein be
dismissed, with prejudice, with all costs taxed you [sic] the Plaintiff."

The text of this Rule 12(b)(6) motion challenges only the claims against Gregory D. Rustin individually
and not the claims against any corporate entities. Rustin submitted his own affidavit in support of the
motion to dismiss or, in the alternative, to compel arbitration. To the extent that this affidavit
applies, if at all, to the Rule 12(b)(6) motion, it denies only that Rustin personally participated in any
of the alleged acts or breaches by the manufacturer, the L.L.C., against the plaintiffs, the Culps. But
the Culps' complaint does not assert any claims against Rustin for his personal participation in the
alleged acts or breaches by the L.L.C. that we can recognize. The affidavit is silent on the validity of
the claims actually alleged against Rustin and on the validity of the claims alleged against the L.L.C.
itself. Thus, the affidavit could not have converted the Rule 12(b)(6) motion to a motion for summary
judgment. The trial court heard argument on the motion to dismiss and subsequently granted the
motion.

"The appropriate standard of review under Rule 12(b)(6) is whether, when the allegations of the
complaint are viewed most strongly in the pleader's favor, it appears that the pleader could prove any
set of circumstances that would entitle [him] to relief. In making this determination, this Court does
not consider whether the plaintiff will ultimately prevail, but only whether [he] may possibly prevail.
We note a Rule 12(b)(6) dismissal is proper only when it appears beyond doubt that the plaintiff can
prove no set of facts in support of the claim that would entitle the plaintiff to relief."

Nance v. Matthews, 622 So. 2d 297, 299 (Ala. 1993) (citations omitted).

"In certain situations the corporate entity will be disregarded and limited stockholder liability will be
denied. The following factors are commonly used as justification for 'piercing the corporate veil' and
imposing personal liability on shareholders or imposing liability on a controlling corporation: 1)
inadequacy of capital; 2) fraudulent purpose in conception or operation of the business; 3) operation of
the corporation as an instrumentality or alter ego. Piercing the Corporate Veil in Alabama: In Search of
a Standard, 35 Ala. L. Rev. 311 (1984).

"Initially, we note that it is under the third theory that [the plaintiffs] contend[] that the corporate
entity should be disregarded. Alabama law has recognized that in proper situations, when the corporate
form is being used to evade personal responsibility, the corporate form will be disregarded and liability
will be imposed on the person controlling the corporation and subverting it to his personal use by the
conduct of its business in a manner to make it merely his instrumentality. Cohen v. Williams, 294 Ala.
417, 318 So. 2d 279 (1975). Although the limitation of personal liability is a valid corporate attribute,
the corporate entity will be disregarded when it is used solely to avoid a personal liability of the owner
while reserving to the owner the benefits gained through use of the corporate name. Bon Secour
Fisheries, Inc. v. Barrentine, 408 So. 2d 490 (Ala. 1981) (citing Woods v. Commercial Contractors,
Inc., 384 So. 2d 1076 (Ala. 1980))."

Messick v. Moring, 514 So. 2d 892, 894 (Ala. 1987). In their complaint, the Culps alleged that Rustin
used Free State Homes Manufacturing, Inc., as a sham to avoid personal liability. Therefore, the Culps
stated a claim to pierce the corporate veil of Free State Homes Manufacturing, Inc., and to impose
personal liability on Rustin personally. Accordingly, the Culps stated a claim on which relief could be
granted. Similarly, the Culps alleged an AEMLD claim against Rustin individually that is not dependent
on any participation by him in the acts of the L.L.C. Therefore, the trial court erred in dismissing the
Culps' claims against Rustin individually and against Rustin d/b/a Free State Homes Manufacturing, Inc.

The Rule 12(b)(6) motion does not purport to assert any ground that would justify a dismissal of the
Culps' claims against Free State Homes Manufacturing, L.L.C. Therefore, the trial court also erred in
dismissing the Culps' claims against Free State Homes Manufacturing, L.L.C.

The Rule 12(b)(6) dismissal of the Culps' claims against Rustin individually, Rustin d/b/a Free State
Homes Manufacturing, Inc., and Free State Homes Manufacturing, L.L.C., must be reversed and the
cause must be remanded for further proceedings not inconsistent with this opinion. All other rulings
appealed by the Culps are affirmed.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

Houston, Lyons, Harwood, and Woodall, JJ., concur.