Wood-Dale, Inc. v. R. E. Lee & Son, Inc.

This litigation is die product of a construction dispute.

R. E. Lee was the general contractor for die construction of the new Free Lance-Star building M Fredericksburg. By contract dated November 16, 1990, R. E. Lee subcontracted a portion of the project, primarily masonry work, to Wood-Dale. On April 26, 1991, Wood-Dale made a contract with Williams Constructors (formerly American Constructors) to set limestone panels for the buildmg.

According to the amended motion for judgment, the owner of the premises was dissatisfied with the limestone and withheld payments under its contract with R. E. Lee. M turn, R. E. Lee withheld money from Wood-Dale. Consequently, Wood-Dale sued R. E. Lee (Count I) to recover the withheld sums and sued Williams Constructors (Counts II and IQ) for negligent workmanship and breach of contract

Wood-Dale also joined Williams Mtemational Mdustries, Me., as a party defendant for Counts Q and IQ. Williams Mtemational demurred, contending that it is not a party to the contract mvolved m filis work and that Wood-Dale’s allegations are otherwise inadequate to state a cause of action against it. Arguments on the demurrer were heard on October 24, 1994.

Wood-Dale concedes that Williams Mtemational is not a party to the contract Its basis for joinrng Williams Mtemational as a party defendant is *122as follows. Williams Intemational owns 80% of the stock of Williams Constructors; Williams Intemational “provided the insurance coverage” for Williams Constructors on the project; Williams Intemational “controlled the direction, operation, function and performance” of Williams Constructors; and Williams Intemational had a “unity of interest and ownership” with Williams Constructors such that “an inequitable or unjust result would occur” if Williams International were not liable to Wood-Dale for the acts of Williams Constructors.

Before a corporate entity can be disregarded and a parent corporation held liable for the acts of its subsidiary, it must be shown not only that undue domination and control was exercised by the parent corporation over the subsidiary, but also that the control was exercised in such a manner as to defraud and wrong the complaining party, and that unjust loss or injury will be suffered by the complaining party as a result of such domination unless the parent corporation is held liable. Beale v. Kappa Alpha Order, 192 Va. 382, 64 S.E.2d 789 (1951); 4B M.J., Corporations, § 229.

Citing leading authorities, the Court in Beale observed that it is not enough that a subsidiary is so organized and controlled as to make it “merely an instrumentality, conduit or adjunct” of its parent. It must further appear that to recognize their separate entities would aid in the “consummation of a wrong.” Again quoting a leading treatise on the subject, the Court noted that to disregard the ordinary immunity of stockholders “not only overturns a basic provision of statutory or common law, but is also contrary to a vital economic policy underlying the whole corporate concept Such a result must therefore be viewed as an extraordinary exception ....”

If a subsidiary is duly incorporated and is functioning in a corporate capacity, it would appear that the Beale test for piercing the subsidiary’s corporate veil in order to hold the parent corporation liable for the subsidiary’s contracts or torts is rather difficult to meet. Alleging facts, however, is not the same as proving them. See Rule l:3(d). Here, Wood-Dale has alleged facts and circumstances in paragraph 8 of its amended pleading that are sufficient, taken together with reasonable inferences to be drawn from those allegations, that state a sufficient claim against the parent, Williams International. Although the word “undue” does not precede the words “direction, operation, function and performance,” the thrust of the allegation obviously is that Williams Intemational dominates and controls *123Williams Constructors in such a manner as to defraud and wrong Wood-Dale, with whom Wiliams Constructors contracted.

Therefore, the demurrer of Williams International on the ground that neither Count n nor Count m states a cause of action against it will be overruled.

Williams International also demurred to the claims for attorney’s fees in Counts II and DI.

A copy of the contract between Wood-Dale and Wiliams Constructors is attached to the plaintiffs pleading. The contract contains no provision for recovery of attorney’s fees under any circumstance.

Ordinarily, in the absence of a statutory or contractual provision to the contrary, attorney’s fees are not recoverable by the prevailing litigant in Virginia. The plaintiff has alleged no facts which would place this case within the ambit of any exception to this well-settled general rule. For that reason, Wiliams International’s demurrer to Wood-Dale’s claims for attorney’s fees will be sustained and granted.