November 14, 2017
from Greenville County Edward W. Miller, Circuit Court Judge
A. Hewitt, of Bluestein Thompson Sullivan, LLC, of Columbia
and Curtis Stodghill, of Stodghill Law Firm, of Greenville,
C. Wilson, Jr., of Greenville, for Respondent.
ON WRIT OF CERTIORARI TO THE COURT OF
KITTREDGE ACTING CHIEF JUSTICE
Mark and Larkin Hammond built and operated several successful
restaurants in Lake Lure, North Carolina, and Greenville,
South Carolina. The Hammonds hired Respondent Kyle Pertuis to
manage the restaurants, and as part of his compensation,
Pertuis acquired minority ownership interests in the three
restaurants. Pertuis eventually decided to leave the
business, and this dispute primarily concerns the percentage
and valuation of Pertuis's ownership interests in the
three restaurants. Following a bench trial, the trial court
found the three corporate entities should be amalgamated into
a "de facto partnership" operating out of
Greenville, South Carolina. The trial court further awarded
Pertuis a 10% ownership interest in the two North Carolina
restaurants, a 7.2% ownership interest in the South Carolina
restaurant, and a total of $99, 117 in corporate
distributions from the restaurants. The trial court further
concluded Pertuis was an oppressed minority shareholder,
valued each of the three corporations, and ordered a buyout
of Pertuis's shares. The court of appeals affirmed.
Pertuis v. Front Roe Restaurants, Inc., Op. No.
2016-UP-091 (S.C. Ct. App. filed Feb. 24, 2016). For the
reasons explained below, we reverse in part, vacate in part,
and affirm as modified in part.
Hammonds, who are residents of Lake Lure, North Carolina,
formed Lake Point Restaurants, Inc. (Lake Point), a North
Carolina S-corporation, in 1998 and purchased a restaurant on
the water at Lake Lure, North Carolina. The Hammonds were the
sole shareholders with equal ownership in the corporation.
The restaurant purchase was financed through personal
contributions by the Hammonds, owner-financing, and
third-party loans personally guaranteed by the Hammonds. The
business operated as Larkin's on the Lake and remains a
viable business today.
2000, the Hammonds hired Pertuis as a manager of the
restaurant. As part of Pertuis's compensation package,
the parties agreed Pertuis would earn a base salary plus
bonuses based on profitability benchmarks, along with a 10%
share in the business over the course of a five-year period
at an agreed vesting schedule. The vesting schedule was
time-based to incentivize Pertuis to remain with the company
for a period of time. In accordance with the vesting
schedule, by 2007, Pertuis owned a 10% share in Lake Point.
2001, the Hammonds formed Beachfront Foods, Inc.
(Beachfront), which was also a North Carolina S-corporation,
for the purpose of purchasing another restaurant on Lake
Lure. As with Lake Point, the Hammonds were the sole
shareholders with equal ownership interests; the restaurant
purchase was financed through personal contributions by the
Hammonds, owner-financing, and third-party loans personally
guaranteed by the Hammonds; and the parties agreed upon a
five-year vesting schedule for Pertuis to attain a 10%
ownership interest. The second restaurant was renovated and
re-branded as MaLarKie's, which represented a combination
of the parties' first names-Mark Hammond, Larkin Hammond,
and Kyle Pertuis. When Beachfront was formed, Pertuis's
job title became "Managing Partner," as his duties
included oversight of both restaurants. Along with the
increase in job duties, Pertuis's compensation expanded.
Also as with Lake Point, by 2007, Pertuis owned a 10% share
in Beachfront. For various reasons, MaLarKie's was not as
successful as Larkin's on the Lake, and eventually
Beachfront sold MaLarkie's and began operating a casual
dining restaurant in nearby Columbus, North Carolina. This
restaurant, Larkin's Carolina Grill, was the least
profitable of the three restaurants at the time of trial,
with a negative net income reported on its income tax returns
each year from 2008-2012.
2005, the Hammonds formed Front Roe Restaurants, Inc. (Front
Roe), a South Carolina S-Corporation and purchased Rene's
Steakhouse in Greenville, South Carolina. As with the other
two corporations at the time of their formation, the Hammonds
were the sole shareholders of Front Roe with equal ownership
interests, and the restaurant purchase was financed through
personal contributions by the Hammonds and third-party loans
personally guaranteed by the Hammonds. The business currently
operates as Larkin's on the River and, at the time of
trial, was the most profitable of the three corporations.
months after Front Roe was formed, Pertuis moved to
Greenville and traveled to each of the restaurants weekly as
part of his managerial duties. Although the parties agreed
upon a vesting schedule for Pertuis to acquire up to a 10%
interest in Front Roe, by all accounts this agreement, unlike
the others, was based upon the restaurant's profitability
benchmarks rather than length of service. Although none of
the parties could produce a written vesting schedule, Mark
Hammond testified the agreement was for Pertuis to receive a
1% interest the year Front Roe first became profitable and an
additional 9% once the company achieved a net operating
profit of $500, 000.
2007, Pertuis owned a 1% share of Front Roe; however, both
Hammond and Pertuis agreed that, at the time of trial, Front
Roe had never reached the $500, 000 profit benchmark. This
fact is confirmed by Front Roe's tax returns. Pertuis has
never made any capital contributions or personal loans to the
companies, either during or after his employment.
2008 to early 2009, the parties began discussing different
compensation packages to allow Pertuis to reach a 10%
ownership interest in Front Roe. Despite multiple
conversations back and forth between Pertuis and Hammond, and
the involvement of attorneys and tax professionals, Pertuis
eventually became frustrated with the perceived delay in the
process of formalizing what he hoped would be a new
agreement. In early October 2009, Pertuis took some time off
from the business to consider his options. In a lengthy email
to the Hammonds, Pertuis cited the sources of his discontent
as, among other things, feeling like his investment of time
and energy into the business was not paying off financially,
industry burnout, and trouble achieving work-life balance.
Ultimately, the parties split ways, although it is unclear
from the record whether the decision was Pertuis's, the
Hammonds', or a mutual one.
the parties' unsuccessful attempts to negotiate the
Hammonds' purchase of Pertuis's shares of the
businesses, which was exacerbated by disagreements over the
value of Pertuis's shares and the extent to which Pertuis
was entitled to certain business records, suit was
filed. Essentially, Pertuis argued he was an
oppressed minority shareholder who had been "squeezed
out" of the business in bad faith and that he was
therefore entitled to a forced buyout of his shares,
including a 10% ownership share in Front Roe.
a bench trial, the trial court found the three corporate
entities-Lake Point (NC), Beachfront (NC), and Front Roe
(SC)-should be amalgamated into a single business enterprise
located in and operating out of Greenville, South Carolina.
The trial court further found Pertuis was an oppressed
minority shareholder and awarded Pertuis a 7.2% ownership
interest in Front Roe, as well as $99, 117 in unpaid
corporate distributions from Lake Point and Front Roe. The
trial court valued each of the three corporations and ordered
a buyout of Pertuis's shares by
Petitioners. The court of appeals affirmed. Pertuis
v. Front Roe Restaurants, Inc., Op. No. 2016-UP-091
(S.C. Ct. App. filed Feb. 24, 2016). This Court issued a writ
of certiorari to review the court of appeals' decision.
now argue the court of appeals erred in affirming the trial
court's finding that the three corporations operated as a
single business enterprise with its locus in Greenville and
that the court of appeals erred in finding this argument to
be unpreserved. Petitioners also contend the court of appeals
erred in affirming the trial court's decision to award a
7.2% ownership interest in Front Roe and $99, 117 in
shareholder distributions to Petitioner; in valuing
Beachfront at $0 rather than assigning it a negative value;
and in finding Pertuis was an oppressed minority shareholder.
action for stockholder oppression is one in equity.
Ballard v. Roberson, 399 S.C. 588, 593, 733 S.E.2d
107, 109 (2012) (citation omitted). Therefore, this Court may
find facts according to its own view of the evidence.
Id. (citing S.C. Dept. of Transp. v. Horry
Cty., 391 S.C. 76, 81, 705 S.E.2d 21, 24 (2011)).
Amalgamation or Single Business Enterprise
claim the court of appeals erred in affirming the trial
court's finding that amalgamation of the three corporate
entities was warranted. We agree. However, before we reach the
merits of this claim, we must first sort through the
complicated issue of whether South Carolina or North Carolina
law governs our evaluation of this veil-piercing theory.