Civil Practice – Res Judicata – Privity – Corporate Principal – Lassiter Exception

Phan v. Clinard Oil Co. (Lawyers Weekly No. 012-083-17, 17 pp.) (Robert Hunter Jr., J.) Appealed from Davidson County Superior Court (Kevin Bridges, J.) N.C. App. Unpub.

Holding: After having contract-related claims dismissed because they were brought in the name of a corporation when the contract had been signed by plaintiff in his individual capacity, plaintiff filed a new lawsuit in his own name. The general rule is that judgments binding on a corporation are not res judicata as to members of the corporation’s board, officers and shareholders, but plaintiff fits into an exception to that general rule because he controlled the original action and had a proprietary interest in the judgment.

We reverse the trial court’s denial of defendant’s motion to dismiss on the ground of res judicata.

In the original lawsuit, the trial court orally announced that it would dismiss the corporation’s complaint without prejudice and that plaintiff could re-file the action in his own name. The court also denied the corporation’s motion to amend its complaint to add plaintiff as a party.

When plaintiff re-filed the complaint in his own name, defendant moved to dismiss based upon several affirmative defenses, including res judicata. The trial court denied the motion, and defendant appeals.

Since the trial court’s written order did not say whether the action was dismissed with or without prejudice, the law treats it as a dismissal with prejudice and an adjudication on the merits.

Both complaints involve the same cause of action based on an allegation that defendant overcharged the corporation for gasoline and diesel fuel.

Generally, a corporation’s board of directors, officers, and shareholders are not considered parties to any lawsuit in which the corporation is involved. Nonetheless, there is an exception to this rule. The so-called “Lassiter exception” states, “A person who is not a party but who controls an action, individually or in cooperation with others, is bound by the adjudications of litigated matters as if he were a party if he has a proprietary interest or financial interest in the judgment or in the determination of a question of fact or a question of law with reference to the same subject matter, or transactions; if the other party has notice of his participation, the other party is equally bound.” Thompson v. Lassiter, 246 N.C. 34, 97 S.E.2d 492 (1957).

Plaintiff was in control of the first suit. He is the president and registered agent for the corporation. The only other officer is plaintiff’s wife. In his deposition, plaintiff made it clear that he made all the final business decisions: “I run it. I own it. I am everything….” Plaintiff also testified that he was the person who filed the original suit on behalf of the corporation and he spoke for the corporation when meeting with counsel.

Because plaintiff is one of the two officers of the corporation and admittedly manages the corporation’s affairs on his own, it follows that he had a proprietary or financial interest in the outcome of the first suit.

Both complaints alleged defendant charged more than the contract price for gasoline and diesel fuel, and both complaints contained claims for breach of contract, fraud, unfair trade practices, and breach of the implied covenant of good faith and fair dealing. As such, both the corporation and plaintiff had an interest in the outcome of the same questions of law and fact and both complaints deal with the same subject matter and transaction.

Finally, because plaintiff caused the first suit to be brought on behalf of the corporation, he had notice of the first suit, and he is equally bound by its outcome.

Consequently, because there was a final judgment on the merits in a prior action in a court of competent jurisdiction, involving the same claim between two parties who were sufficiently linked as to satisfy the Lassiter exception to the privity requirement, we hold the instant complaint is barred by res judicata.

Reversed.