Property owners beware: that friendly contractor who becomes "like family" might just set you up for financial ruin. A recent decision from the United States Bankruptcy Court for the Eastern District of North Carolina serves as a stark reminder that trust without verification can cause devastating financial consequences. In B & M Realty, LLC v. Elam, Judge David M. Warren awarded over $1.17 million in damages against a contractor who perpetrated what the court called the most "egregious case of fraud and deceit" he had ever seen.
When Maria Brown-Lindsey and her brother inherited multiple rental properties in North Carolina upon their father's death in 2013, they saw an opportunity. The properties could be rented more profitably if they were repaired and renovated. A tenant introduced them to Dwight Elam, who represented himself as a licensed general contractor capable of managing the extensive renovation work through his company, United Properties.
There was just one problem: Elam was not and never had been a licensed general contractor. Not only that, Elam operated through a maze of similarly-named entities – United Properties, United Properties Plus, LLC, and United Properties PL, LLC – that had no distinct operations. Most troubling, United Properties had been administratively dissolved before Elam even met the property owners.
What made Elam's scheme insidious was how he cultivated trust. The court noted that the parties became close and "like family" during their dealings. Rather than viewing this as a mitigating factor, Judge Warren found it made Elam's deceit "even more abominable," describing him as "a deceitful and skillful scam artist" who "played into the Lindseys' emotions to extract thousands of dollars."
Elam's fraud extended beyond construction services. Despite having no legal training or license, he advised the family to form a limited liability company – B & M Realty, LLC – to hold the properties. He then convinced them that additional capital would be necessary to complete renovations and secured financing on their behalf.
Between October 2018 and December 2019, the family paid Elam and United Properties approximately $140,000 through direct payments. Elam also received an additional $183,280 from loan proceeds he helped arrange. The loans were secured by the properties themselves and the proceeds were supposed to fund renovations. That never happened. Elam took the money and the properties remained largely unimproved but now burdened with significant debt.
Elam's scheme forced B & M Realty into Chapter 11 bankruptcy, where they also filed an adversary proceeding (a lawsuit in bankruptcy) against Elam and his companies. After an unsuccessful reorganization attempt, the company was forced to sell or surrender most of the inherited properties to creditors. The bankruptcy court ultimately confirmed a reorganization plan that allowed for additional funding from any recovery against Elam.
Judge Warren had no difficulty finding that United Properties and its related entities were mere instrumentalities of Elam himself. The court found no evidence of corporate operations distinct from Elam's "fictitious fronting" of corporate names. Under North Carolina's "instrumentality rule," the court pierced the corporate veils, making Elam personally liable for all claims against his various business entities.
The court's damage calculation reflected both the severity of Elam's fraud and the remedies available under North Carolina's Unfair and Deceptive Trade Practices Act (UDTPA). Starting with $323,280 in converted funds plus interest, the court trebled the damages to over $1.13 million. The court also awarded attorney's fees of $40,060, bringing the total judgment to $1,173,710.53.
This case offers several important lessons for businesses and individual property owners dealing with contractors:
Verify contractor licensing. North Carolina maintains an online database of licensed contractors. A few minutes of research could save hundreds of thousands of dollars and years of litigation.
Be wary of contractors who offer legal advice. Licensed contractors renovate properties and licensed attorneys provide legal counsel. When someone without proper credentials ventures into both areas, it's a red flag.
Question unusual business structures. When a contractor operates through multiple similarly-named entities, especially dissolved ones, it may signal an attempt to confuse creditors and avoid liability.
Document everything. Maintain clear records of what work is to be performed, timelines for completion, and how funds will be used. Vague arrangements invite abuse.
Don't let emotions cloud business judgment. Professional relationships should remain professional. Don't let friendship stop you from asking hard questions.
This case is a sobering reminder that in business relationships, you should heed President Reagan's adage: trust but verify. Falling for a scam can be financially devastating. The bankruptcy courts can provide a modicum of recompense and they will not hesitate to pierce corporate veils when entities are used as instruments of fraud and hold a fraudster personally liable. But if that fraudster has spent all the money he stole, then your million-dollar judgment may be worthless.
