In the recent Magnolia North POA v. Heritage Communities, Inc., the Property Owners Association (POA) sued Heritage Communities, Inc. (HCI), Heritage Magnolia North, Inc. (HMNI) and BuildStar Corporation (Buildstar) for construction defects at Magnolia North, a twenty-one building condominium complex in Horry County. The case went to trial and the jury returned a verdict in favor of the POA for $6.5 million in actual damages and $2 million in punitive damages. The trial court ruled that the defendant entities were amalgamated, which means the three corporations were deemed one entity, which made the case much easier to prosecute for the plaintiff. The defendants appealed the ruling to the South Carolina Court of Appeals.
The Court of Appeals upheld the trial court's ruling. The court found that the evidence "revealed an amalgamation of the corporate interest, the entities, and activities so as to blur the legal distinction between the corporation[s] and their activities." The evidence cited by the Court of Appeals included:
- HCI was the parent corporation of HMNI and Buildstar;
- HCI created HMNI to operate as a cost center for the condominium development;
- HMNI created the Property Owners Association;
- Buildstar was the general contractor supervising the construction of the project;
- the corporations shared a location, telephone number, board members, officers, and employees.
The clear warning issued by the Court of Appeals is if you treat separate legal entities as one conglomeration, the court may do the same when determining liability. The South Carolina Supreme Court will likely weigh in on this issue sometime next year.