Carter v. Lail, 2018 NCBC 47.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF CATAWBA 17 CVS 1774
REBECCA L. CARTER, in her individual capacity and derivatively for the benefit of, on behalf of and right of nominal party CLL INVESTMENTS LIMITED PARTNERSHIP, L.L.P., ORDER APPOINTING RECEIVER Plaintiff,
v.
GARY N. LAIL, DAVID LAIL, and the ESTATE OF CLYDE L. LAIL, by Jennifer Noble, successor Executor,
Defendants,
and
CLL INVESTMENTS LIMITED PARTNERSHIP, L.L.P.
Nominal Party Defendant.
THIS MATTER comes before the Court on Defendants Clyde L. Lail and Gary
N. Lail’s (“Defendants”) Motion to Appoint Receiver. (“Motion”, ECF No. 33.)
THE COURT, having considered the Motion, the briefs in support of and in
opposition to the Motion, the affidavits and other exhibits filed by the parties, the
arguments of counsel at the hearing, and other appropriate matters of record,
concludes that the Motion should be GRANTED based upon the following FINDINGS
and CONCLUSIONS:
A. Facts and Procedural Background
1. CLL Investments Limited Partnership, L.L.P. (“CLL”) is a North
Carolina limited liability partnership formed pursuant to a Certificate of Domestic Limited Partnership filed with the North Carolina Secretary of State on December
19, 1995. CLL has a written Limited Partnership Agreement, dated December 13,
1995 (“Partnership Agreement”). Clyde L. Lail (“Clyde”) and Wilma Lail (“Wilma”)
were the General Partners of CLL. Plaintiff Rebecca L. Carter (“Rebecca” or
“Plaintiff”) and Defendants Gary N. Lail (“Gary”) and David Lail (“David”) are the
Limited Partners of CLL (“Limited Partners”).
2. The Partnership Agreement was drafted as an estate planning tool for
Clyde and Wilma. The partnership was intended to operate under the control and
for the benefit of Clyde and Wilma until their passing and, at that time, to be
liquidated and divided among Rebecca, Gary, and David. The Partnership
Agreement was drafted to provide the General Partners with control of the day-to-
day management of CLL’s business and affairs, and the Limited Partners were not
permitted to participate in the general conduct or control of CLL’s affairs and had no
right or authority to act for or to bind the partnership.
3. CLL’s primary assets are five tracts or parcels of commercial real estate.
Other than the real estate, CLL’s only assets and liabilities include a checking
account, a money market account, and a loan account with Capital Bank. These
accounts are used to receive rent payments made to CLL and to pay for maintenance
and expenses on the properties. There is no allegation nor any evidence that CLL is
insolvent or in danger of becoming insolvent.
4. Section 20.1 of the Partnership Agreement provides, in pertinent part,
as follows: The Partnership shall be dissolved, liquidated, and terminated upon the happening of any of the following events:
*** The happening of a Disabling Event with respect to the last remaining General Partner, unless within the sixty-day period immediately following the happening of such Disabling Event, a majority in interest of the Limited Partners consent in writing to continue the Partnership.
(Ver. Compl., ECF No. 3, Ex. A.) Section 5.4 of the Partnership Agreement defines
“Disabling Event” as including “the death of any of the Partners.” (Id.)
5. Wilma died on July 25, 2014, leaving Clyde as the sole General Partner
of CLL.
6. On June 16, 2017, Rebecca, directly and derivatively on behalf of CLL,
filed a Verified Complaint with the Superior Court of Catawba County. (ECF No. 3.)1
The Verified Complaint makes numerous direct and derivative claims against Clyde
and Gary for, inter alia: breach of fiduciary duty and constructive fraud; breach of
contract; self-dealing; fraud; and conversion. (Id. at ¶¶ 103–60.) The Verified
Complaint also contains a “Motion To Appoint Receiver to Manage CLL Until It Can
Be Wound Up.” (Id. at ¶¶ 161–63.) The Verified Complaint alleges that “[d]ue to . . .
Gary’s self-dealing and motivation to self-deal, Plaintiff moves for appointment of a
receiver to protect the assets and expected distributions of CLL.” (Id. at ¶ 162.)
1 The Verified Complaint is verified under oath by Rebecca, and the Court treats the Verified
Complaint as an evidentiary affidavit for purposes of determining the Motion. 7. On August 8, 2017, Clyde died. The majority in interest of the Limited
Partners did not consent in writing to continue the partnership. Accordingly, CLL
dissolved pursuant to terms of the Partnership Agreement.
8. On May 9, 2018, the Court issued an Order granting Defendants’ motion
to add David Lail as a necessary party-Defendant and to substitute the Estate of
Clyde L. Lail, by Jennifer Noble, successor Executor, as a Defendant. (ECF No. 51.)
9. Since Clyde’s death, Rebecca, Gary, and David have been unable to work
cooperatively to wind-up the partnership’s business and liquidate CLL’s assets in an
orderly and efficient manner. Defendants contend that Rebecca has refused to
cooperate or provide her consent to allow basic decisions to be made for CLL. (Br.
Supp. Defs.’ Mot. Appoint Receiver, ECF No. 34, at pp. 3–7.) Plaintiff contends that
Gary has conflicts of interest making it impossible for him to act in the best interests
of CLL, and has withheld or refused to provide Rebecca with essential information
regarding the operations and finances of CLL. (Pl.’s Resp. Defs.’ Mot. Appoint
Receiver, ECF No. 39, at pp. 3–16.)
10. On October 18, 2017, the parties filed their Joint Case Management
Report (“CMR”, ECF No. 22.) In the CMR, the parties stated that they agreed that
the Court should appoint a receiver to wind-up CLL. The parties informed the Court
that they were in the process of trying to agree on a receiver and asked that discovery
be stayed and that case deadlines be held in abeyance until a receiver could be agreed
upon by the parties. 11. On October 26, 2017, the Court held a status conference with the parties
to discuss case management deadlines and the appointment of a receiver. Following
the status conference, the Court ordered the parties to submit a joint proposal, or the
parties’ separate proposals, for a receiver by November 30, 2017. (Order Establishing
Deadline for Proposed Order Appointing Receiver, ECF No. 24.)
12. The parties were not able to agree on a receiver, and on November 30,
2017, Plaintiff and Defendants submitted their respective proposals for receivers. On
January 4, 2018, the Court held a status conference to discuss the competing
proposals. At the status conference, the parties informed the Court that they had
competing views on how the case should proceed and what the receiver’s role should
be. On January 8, 2018, the Court denied without prejudice the parties’ proposals
requesting that a receiver be appointed. (Order Den. Appt. of Receiver, ECF No. 28.)
13. On February 15, 2018, Defendants filed the Motion and the Affidavit of
Gary Lail in support of the Motion. (Aff. of G. Lail, ECF No. 35.) Defendants
represent that since the lawsuit was initially filed, the Limited Partners have not
been able to reach agreement with one another on several issues involved in the
management of CLL, including issues related to attempts to sell the real property.
(ECF No. 34, at p. 5.)
14. On March 2, 2018, Plaintiff filed a Motion to Amend Complaint, Add
Parties, and Consolidate Caveat Action. (“Motion to Amend”, ECF No. 36.) With the
Motion to Amend, Plaintiff filed a proposed Verified First Amended Complaint, (ECF
No. 36.1.), On May 10, 2018, this Court entered an order allowing, in large part, the proposed amendments. (ECF No. 52.) In the Verified First Amended Complaint,
Plaintiff makes direct and derivative claims against Gary, David, and the Estate of
Clyde L. Lail arising from the operation of CLL for: breach of fiduciary duties and
constructive fraud; breaches of N.C. Gen. Statutes §§ 59-305 and 59-106 (hereinafter
“G.S.”) for failure to provide records and information related to the partnership;
breaches of contract; willful, grossly negligent, reckless and/or wanton
mismanagement of CLL and self-dealing; fraud, fraudulent concealment, and/or
unjust enrichment; and conspiracy to convert, defraud, and tortiously interfere. (ECF
No. 36.1, at ¶¶ 255–369, 382–88.)
15. In the Verified First Amended Complaint, Plaintiff revised her request
for appointment of a receiver. Plaintiff expressly requests the dissolution and
winding-up of CLL. (ECF 36.1, at ¶¶ 396–402.) Plaintiff, however, no longer alleges
that a receiver is needed to protect CLL’s assets, but, instead, alleges a receiver
should be appointed to “manage CLL’s properties” and to pursue legal claims against
certain third-parties. (Id. at ¶ 402.)
16. On March 7, 2018, Plaintiff filed a brief in opposition to Motion. (Pl.’s
Resp. Defs.’ Mot. Appoint Receiver, ECF No. 39.) Plaintiff opposes the appointment
of a receiver to wind-up and liquidate CLL’s assets, claiming that she is “unaware of
facts or equities warranting a receiver moving forward.” (Id. at p. 1.) Plaintiff also
contends that, to the extent the Limited Partners are unable to cooperate with one
another, it “arises from [Gary’s] breach of fiduciary duties owed to Plaintiff,
additional tortious conduct after the death of [Clyde], [Gary]’s conflicts of interest, and opposing counsel’s conflicts of interest.” (ECF No. 39, at p. 3.) In support of this
claim, Plaintiff alleges numerous examples of the continuing strife between Rebecca
and Gary since Clyde died. (Id. at pp. 8–14.) Despite the continued acrimony,
Plaintiff claims that she believes the Limited Partners can cooperatively wind-up
CLL. (Id. at p. 16.)
17. On March 16, 2018, Defendants filed their reply brief in support of their
Motion. (ECF No. 41.) The Court held a hearing on the Motion on May 1, 2018. The
Motion is now ripe for decision.
B. Analysis
18. The North Carolina Uniform Limited Partnership Act (“ULPA”)
provides, in relevant part, as follows:
A limited partnership is dissolved and its affairs shall be wound up upon the happening of the first to occur of the following:
(1) At the time specified in the certificate of limited partnership or upon the happening of events specified in writing in the partnership agreement; . . . .
G.S. § 59-801(a)(1). The Partnership Agreement provides that CLL “shall be
dissolved, liquidated, and terminated upon” the death of the last General Partner.
CLL dissolved as a matter of law when Clyde died on August 8, 2017.2 Accordingly,
CLL must be wound-up and its assets liquidated.
19. Defendants contend that a receiver is needed primarily because Gary,
David, and Rebecca are unable to cooperate in the process of winding-up the affairs
2 Accordingly, there is no need for an order of judicial dissolution pursuant to G.S. § 59-802. of CLL and liquidating its assets. Plaintiff also has requested appointment of a
receiver in her First Verified Amended Complaint, but now claims that the Limited
Partners can wind-up CLL and liquidate its assets without the assistance of a
receiver.
20. A receivership is an equitable remedy. See, Sinclair v. Moore Cent. R.R.
Co., 228 N.C. 389, 395, 45 S.E.2d 555, 560 (1947). “Courts of equity have original
power to appoint receivers and to make such orders and decrees with respect to the
discharge of their trust as justice and equity may require.” Lambeth v. Lambeth, 249
N.C. 315, 321, 106 S.E.2d 491, 495 (1959) (citing Skinner v. Maxwell, 66 N.C. 45, 47–
48 (1872) and Lasley v. Scales, 179 N.C. 578, 580, 103 S.E.2d 214, 215 (1920)). See
also, Lowder v. All Star Mills, Inc., 301 N.C. 561, 576, 273 S.E.2d 247, 256 (1981)
(“[I]t is elementary that a Court of Equity has the inherent power to appoint a
receiver, notwithstanding specific statutory authorization.”); Barnes v. Kochhar, 178
N.C. App. 489, 499, 633 S.E.2d 474, 480 (2006) (“A receiver may be appointed by a
trial court both pursuant to statute and the trial court’s inherent authority.”).
21. The ULPA does not expressly provide for appointment of a receiver to
wind-up and liquidate a limited partnership. Nevertheless, G.S. § 59-803 provides:
Except as provided in the partnership agreement, the general partners who have not wrongfully dissolved a limited partnership or, if none, the limited partners, may wind up the limited partnership's affairs; but the court may wind up the limited partnership's affairs upon application of any partner, his legal representative, or assignee.
The Court believes that the language of G.S. § 59-803 supports the proposition that
the Court may appoint a receiver “to wind up a limited partnership’s affairs,” at least when one or more partners has applied for a winding-up. See, Piedmont Venture
Partners, L.P. v. Deloitte & Touche, L.P.P., 2007 NCBC LEXIS 6, at *24–25 (N.C.
Super. Ct. Mar. 5, 2007) (discussing court’s authority under G.S. § 59-803, upon
application of a partner, to appoint a receiver, but appointing receiver pursuant to its
inherent equitable authority to wind-up and liquidate a limited partnership where
limited partners were unwilling to do so). Here, both parties have applied for a
winding-up, and the Court has ample inherent authority, and likely statutory
authority, to appoint a receiver.
22. The Court has thoroughly reviewed the briefs and evidence filed by
parties and considered the arguments of counsel, and finds and concludes, in its
discretion, that the Defendants have established grounds for the appointment of a
receiver to wind-up and liquidate the assets of CLL. First, Rebecca is involved in this
contentious lawsuit against Gary and David in which she claims that they have
engaged in, and continue to engage in, tortious conduct involving the operation of
CLL. In addition, evidence demonstrates that the Limited Partners are unable to
reach consensus on day-to-day decisions necessary to operate CLL until it can be
wound-up and its assets liquidated. There also are indications that the parties will
not be able to cooperate in selling CLL’s assets. The Court finds that the evidence
shows that the Limited Partners are unable to fulfill their obligations to wind-up and
liquidate CLL.
23. The Court further finds and concludes that it is necessary to appoint a
receiver with general authority to take charge of CLL in order to protect the interests of any third-party creditors of CLL and the interests of the Limited Partners in
receiving any distribution of assets to which they may be entitled.
24. Accordingly, the Court concludes, in its discretion, that the Motion for
Appointment of Receiver should be GRANTED, and a receiver should be appointed to
wind-up the affairs of CLL and liquidate its assets.
THEREFORE, IT IS ORDERED that:
C. Receiver
25. For good cause shown, Susan W. Matthews, Esq., of Susan Williams
Matthews, PLLC, Conover, North Carolina, is hereby APPOINTED as receiver
(“Receiver”) for CLL Investments Limited Partnership, L.L.P. (“the Partnership”)
under the authority and subject to the duties set forth herein, until further order of
this Court. Defendants represent that Ms. Matthews has agreed to accept
appointment as the Receiver for the Partnership.
26. The Receiver will: (1) act in conformity with North Carolina law and
rules and orders of the Court; (2) avoid conflicts of interest; (3) not directly or
indirectly pay or accept anything of value from the receivership estate that has not
been disclosed and approved by the Court; (4) not directly or indirectly purchase,
acquire, or accept any interest in the property of the receivership estate without full
disclosure and approval by the Court; and (5) otherwise act in the best interests of
the receivership estate.
27. The Receiver shall be compensated at an hourly rate of $175.00 for time
reasonably expended on non-legal services as the Receiver, and at an hourly rate of $250.00 for time reasonably expended on legal services as the Receiver. The Receiver
shall be paid for fees and expenses from CLL’s assets following notice and approval
of such fees by the Court pursuant to the following process:
a. The Receiver shall prepare and file with the Court requests for payment,
with invoices, for her fees and expenses within sixty (60) days of the
filing of this Order, and then every sixty (60) days thereafter.
b. The Receiver’s fees must be task-billed, with separate entries for each
separate and individual task performed, the date of such task, a
description of each task, the amount of time expended performing the
task, and a designation of whether the task involves legal or non-legal
services.
c. Any party wishing to object to the Receiver’s invoice shall file the
objection within five (5) business days following the Receiver’s electronic
filing of the request for payment on the Court’s e-filing system.
d. The Court will enter an order regarding an award of fees and expenses
following filing of the request for payment and after receipt of any
objections.
D. Authority
28. The Receiver shall have full authority of a General Partner, as provided
for in the Partnership Agreement, to manage the affairs of the Partnership in the
best interests of its creditors and partners, and to carry out the authority and duties
herein assigned to the Receiver. In addition, the Receiver shall have the following specific powers and authority, which, unless otherwise noted below, may be exercised
without further order of the Court:
a. To inspect and review the books, records, accounts, or other
information maintained by or on behalf of the Partnership as is necessary to
perform the duties assigned herein. This includes, but is not limited to, all of
the Partnership’s financial, accounting, tax, and banking records. Rebecca L.
Carter, Gary N. Lail, and David Lail (“the Limited Partners”), and the
Partnership’s outside attorneys, accountants, and other consultants shall
cooperate with the Receiver in providing such records and information as the
Receiver may require;
b. To direct payment of costs and expenses necessary to the
operation of the Partnership, and to negotiate contracts, debts, and other
matters in the normal course of the businesses, including negotiation of
payment plans, forbearance agreements, notes in lieu of immediate payment,
and similar arrangements;
c. To pay taxes and other governmental obligations and to file all
necessary or appropriate returns or documents;
d. To collect obligations owed to the Partnership including revenue
received in the normal course of business; and
e. To assume control over and dispose of all or any portion of the
Partnership’s assets wherever located, at a public or private sale. 29. If the Receiver believes it is necessary to retain additional attorneys,
accountants, or other professionals in the course of performing the duties under this
Order, the Receiver shall make a written request to the Court to retain such
attorneys, accountants, or other professionals, with a copy of such request to all
counsel of record in this lawsuit.3 The request shall describe the issues with which
the Receiver needs assistance, identify the professional the Receiver proposes to
retain, and provide an estimate of the cost for retaining such professional’s services.
30. If the Receiver believes it is necessary to file any lawsuits in the course
of performing the duties under this Order, the Receiver shall make a written request
to the Court, with a copy of such request to all counsel of record in this lawsuit, prior
to filing such action explaining the nature of and reason for the proposed lawsuit.
E. Duties
31. The Receiver shall also have the following duties:
a. At the earliest reasonable time after appointment, to investigate
and make an accounting of, and prepare a list or report regarding, the
Partnership’s assets, with each asset’s current approximate or estimated
value. For purposes of this Order, “assets” mean any legal or equitable interest
in, right to, or claim to, any real or personal property, tangible or intangible,
whether individually or jointly, directly or indirectly controlled, and wherever
located, including but not limited to: patents, licenses, intellectual property,
3 For the purpose of complying with this section, an informal request sent by email to the
Judge’s law clerk assigned to this case, with copies to all counsel of record in the case, shall be sufficient. chattels, goods, instruments, equipment, fixtures, general intangibles, effects,
leaseholds, inventory, checks, notes, accounts, deposit accounts (including, but
not limited to, bank accounts and accounts at financial institutions), credits,
receivables, lines of credit, contracts, insurance policies, and all cash, wherever
located;
b. Following completion of the investigation called for in paragraph
31(a), to file the written list or report of the Partnership’s assets with the
Court, and provide copies to the Limited Partners and to the Estate of Clyde
L. Lail;
c. At the earliest reasonable time after appointment, to investigate,
identify, and prepare a list or report regarding all debts and obligations of the
Partnership, the amount of the debt or obligation, the source of such debt or
obligation, whether such obligation is secured or unsecured, whether such debt
is current or overdue, the creditor or party to whom the debt or obligation is
owed, and other relevant information regarding the debt or obligation;
d. Following completion of the investigation called for in paragraph
31(c), to file the written list or report of the Partnership’s debts and obligations
with the Court and provide copies to the Limited Partners and to the Estate of
Clyde L. Lail; and
e. To wind-up the operations and business of the Partnership and to
liquidate its assets as provided for in section 20.2 of the Limited Partnership Agreement. No Partnership funds or assets shall be distributed, however,
until all of the saleable Partnership assets have been liquidated.
f. After the Receiver has liquidated the saleable assets of the
Partnership, the Receiver shall file with the Court a report listing the funds
and other Partnership assets available for distribution, a certification that the
Partnerships debts and obligations have been satisfied, and a recommendation
regarding the distribution of the available funds and other Partnership assets.
g. The Court will issue an order approving and permitting the final
distribution of funds and assets.
32. The parties have represented to the Court that some or all of the
Partnership’s real property has been listed with a broker or brokers, and that the
Partnership already has received expressions of interest from potential purchasers.
Nothing in the foregoing authority or duties, including but not limited to the
Receiver’s duty to investigate and report, will restrict her ability to sell and liquidate
the Partnership’s real property if the Receiver concludes that the Partnership has
been presented with an offer to purchase upon which it must act.
33. The Receiver shall not be required to post a bond.
F. Consultation with Limited Partners
34. The Receiver shall consult with, and where reasonably possible, obtain
the agreement of all of the Limited Partners for any significant decisions regarding
the winding-up of the Partnership and liquidation of its assets including, but not
limited to, the sale of the real property. In seeking such consultation and agreement, the Receiver may impose time limits for the Limited Partners to provide responses.
However, the Receiver is not required to obtain agreement from all of the Limited
Partners in order to act on behalf of the Partnership and shall have final authority to
make all decisions on which she seeks input with or without the agreement of all of
the Limited Partners.
G. Bond
35. Plaintiff requests that the Court require Defendants to post a bond,
pursuant to G.S. § 1-502.1, “payable to Plaintiff sufficient enough to secure payment
by the applicant of all damages, including reasonable attorney fees, sustained by
Plaintiff by the appointment and acts of the receiver if the appointment is vacated or
set aside.” The Court, however, has not appointed the Receiver in this action
pursuant to the statutory provisions of Chapter 1, Article 38, but instead the Court
has appointed the Receiver under its inherent authority. In addition, Plaintiff does
not explain, and the Court cannot conceive of, how the appointment of the Receiver
under the circumstances in this case could even potentially result in damages to
Plaintiff. In fact, given Plaintiff’s continuing claims that Defendants have engaged
in tortious conduct and failed to provide her with information in their operation of
CLL, it would seem Plaintiff would welcome the intervention of the Receiver to take
control of CLL’s affairs.
36. Nevertheless, Defendants are the party seeking appointment of the
Receiver, which Plaintiff now opposes. Therefore, out of an abundance of caution, the
Court will require that on or before 5:00 p.m. on May 25, 2018, Defendants shall post a bond in the amount of five thousand dollars and no cents ($5,000.00) with, and in a
form satisfactory to, the Clerk of Superior Court of Catawba County. This shall be
without prejudice to Plaintiff’s right to seek, and the Court’s authority to require, an
increase in the amount of the required bond upon a satisfactory showing of cause to
increase the amount.
37. This Order shall remain in effect until otherwise ordered by the Court.
SO ORDERED, this the 15th day of May, 2018.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases