Chisum v. Campagna

2018 NCBC 76

• Court: North Carolina Business Court
• Decided: July 27, 2018
• Docket: 16-CVS-2419
• Status: Published

Opinion

Chisum v. Campagna, 2018 NCBC 76.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION NEW HANOVER COUNTY 16 CVS 2419

DENNIS D. CHISUM, individually and derivatively on behalf of JUDGES ROAD INDUSTRIAL PARK, LLC, CAROLINA COAST HOLDINGS, LLC, and PARKWAY BUSINESS PARK, LLC.

Plaintiff,

v. ORDER AND OPINION VACATING ROCCO J. CAMPAGNA, RICHARD PRIOR ORDERS FOR SUMMARY J. CAMPAGNA, JUDGES ROAD JUDGMENT INDUSTRIAL PARK, LLC, CAROLINA COAST HOLDINGS, LLC, and PARKWAY BUSINESS PARK, LLC, Defendants.

THIS MATTER comes before the Court upon its own motion. For the reasons

stated below, the Court now VACATES its prior orders granting summary judgment

in Plaintiff’s favor with regard to his claims for declaratory judgment, and instead

DENIES those motions because genuine issues of material fact exist which preclude

entry of judgment in Plaintiff’s favor as a matter of law with regard to Plaintiff’s

claims for declaratory judgment.

A. Factual and Procedural Background

The background facts of this matter are recited in several prior orders issued

by this Court, and will be recited here only as they directly pertain to the matter

currently before the Court. For purposes of this Order, Defendants Judges Road

Industrial Park, LLC (“Judges Road”), Carolina Coast Holdings, LLC (“CCH”), and

Parkway Business Park, LLC (“Parkway”) will be referred to collectively as “the Chisum/Campagna LLCs” or “the LLCs.” Plaintiff is a signatory to the written

operating agreements of each of the Chisum/Campagna LLCs (“the Operating

Agreements”).

Plaintiff filed the Complaint initiating this action on July 19, 2016 (ECF No. 3),

and an Amended Complaint on February 8, 2017. (Am. Compl., ECF No. 28.) In the

Amended Complaint, Plaintiff made claims, inter alia, for declaratory judgment.

(Am. Compl., ECF No. 28, at ¶¶ 153–57.) In the Amended Complaint, Plaintiff alleges

entitlement to:

a declaratory judgment under N.C.G.S. § 1-253 et seq. stating that he is an owner in each of the Chisum/Campagna LLCs as set forth herein and entitled to distributions from Chisum/Campagna LLCs in accordance with the fair market value of his ownership interests plus interest at the legal rate from the date such distributions were due until the date of payment.

(Id. at ¶ 157.) Based on Plaintiff’s motions for partial summary judgment and his

arguments in support of those motions, the Court ultimately determined that through

the declaratory judgment claims Plaintiff sought declarations that:

1. The provisions of the Operating Agreements pertaining to capital calls

would not permit Plaintiff’s interests in those LLCs to be extinguished

entirely by the failure to pay capital calls;

2. Plaintiff currently is a member of each of the Chisum/Campagna LLCs; and

3. Plaintiff currently holds an 18.884% membership interest in Judges Road,

a 16.667% membership interest in CCH, and an 8.34% membership interest

in Parkway. On February 8, 2017, Plaintiff filed his Second Motion for Partial Summary

Judgment. (ECF No. 29.) Plaintiff’s Second Motion for Partial Summary Judgment

sought summary judgment on Plaintiff’s claim for declaratory judgment regarding

Judges Road only. Plaintiff sought a declaration that the provisions of the Judges

Road Operating Agreement pertaining to capital calls would not permit Plaintiff’s

interest to be extinguished entirely by his failure to pay capital calls, and that, as a

matter of law, he retains a membership interest in Judges Road.

In Defendants’ Memorandum of Law in Opposition to the Plaintiff’s Second

Motion for Partial Summary Judgment (ECF No. 62), Defendants cross-moved for

summary judgment. Defendants contended that Plaintiff’s claim for declaratory

judgment was barred by the three-year statute of limitations for conversion claims

proscribed in G.S. § 1-52(4).1 (ECF No. 62, at pp. 15–19.)

On July 20, 2017 the Court issued an Order on Plaintiff’s Second Motion for

Partial Summary Judgment granting, in part, and denying, in part, Plaintiff’s Second

Motion for SJ, and denying Defendants’ cross-motion for summary judgment. (“Order

on Pl.’s Second Mot. SJ”, ECF No. 138; Chisum v. Campagna, 2017 NCBC LEXIS 62

(N.C. Super. Ct. July 20, 2017).) The Court entered a declaration that the Judges

Road Operating Agreement is unambiguous and does not permit a member’s

membership interest to be diluted to zero, or extinguished, by failure to contribute

capital in response to a capital call. Chisum, 2017 NCBC LEXIS 62, at * 28–29. The

Court denied Plaintiff’s motion to the extent he sought a declaration “that Plaintiff

1 Plaintiff subsequently abandoned his conversion claim and the claim was dismissed. (Pl. Br. Opp. Def. Mot. SJ, ECF No. 172, at p. 13.) retains an ownership interest in Judges Road, or that Plaintiff is entitled to

distributions or other relief from Judges Road or the Campagnas.” Id. at *29.

In the Order on Plaintiff’s Second Motion for Partial Summary Judgment, the

Court also denied Defendants’ cross-motion for summary judgment, concluding that

North Carolina legal precedent is not clear as to whether a claim for declaratory

judgment is subject to statutes of limitations or only to an equitable defense of laches.

Defendants did not argue laches as a grounds for their summary judgment motion.

The Court held that even if a declaratory judgment claim was subject to statutes of

limitations, Plaintiff’s claim for constructive fraud, which is subject to a 10-year

limitations period, could be applied to Plaintiff’s declaratory judgement claims

making the action timely. Id. at *13–17.

On May 9, 2017, before the Court issued its Order on Plaintiff’s Second Motion

for Partial Summary Judgment, Plaintiff filed a Motion for Partial Summary

Judgment Regarding Parkway Business Park, LLC and Carolina Coastal Holdings,

LLC (“Plaintiff’s Motion for Partial Summary Judgment Regarding Parkway and

CCH”). (ECF No. 112.) Plaintiff sought a declaration that the provisions of the CCH

and Parkway Operating Agreements pertaining to capital calls would not permit

Plaintiff’s interest to be extinguished entirely by his failure to pay capital. Plaintiff

also sought a declaration that Plaintiff “is an owner/member of Parkway and CCH,

leaving the issue of ownership percentages for further . . . adjudication.” (ECF No.

112, at pp. 1–2.) On July 28, 2017, Plaintiff filed a fourth Motion for Summary Judgment

(“Plaintiff’s Fourth Motion for Summary Judgment”), seeking a declaration that he

remains a member of all the Chisum/Campagna LLCs and that he retains an 18.884%

interest in Judges Road, an 8.34% interest in Parkway, and a 16.667% interest in

CCH. (ECF No. 142.)

On July 28, 2017, Defendants filed a Motion for Summary Judgment as to all

of Plaintiff’s claims. (ECF No. 147.) Defendants again sought summary judgment on

Plaintiff’s claim for declaratory judgment on the grounds that the claim was barred

by statutes of limitations. (Defs.’ Mem. Supp. Mot. SJ, ECF No. 146, at pp. 18–19.)

On March 2, 2018, the Court issued an Opinion and Order on Cross-Motions

for Summary Judgment. (ECF No. 189.) The Court granted Plaintiff’s Motion for

Partial Summary Judgment Regarding Parkway and CCH in part, finding that the

CCH and Parkway Operating Agreements contain language identical, or virtually

identical, to the language in the Judges Road Operating Agreement regarding capital

calls. The Court concluded that Plaintiff was entitled to judgment as a matter of law

that his interests in CCH and Parkway cannot be extinguished entirely by the failure

to contribute capital in response to a capital call. (Id. at pp. 10–11.) The Court denied

the Plaintiff’s Motion for Partial Summary Judgment Regarding Parkway and CCH

to the extent Plaintiff sought a declaration that he is an owner/member of CCH and

Parkway. In the Opinion and Order on Cross-Motions for Summary Judgment, the

Court denied the Plaintiff’s Fourth Motion for Summary Judgment and the

Defendants’ Motion for Summary Judgment on the grounds that the record evidence provided by the parties made it impossible to conclude whether certain dispositive

facts were in dispute, and neither party had established that they were entitled to

judgment as a matter of law. (Id. at p. 17.)

This matter is now set for trial beginning on August 6, 2018. (Notice of Trial,

ECF No. 190.) In anticipation of trial, the Court asked the parties to submit briefing

addressing: (1) whether statutes of limitations or laches applied to Plaintiff’s claim

for declaratory judgment; and (2) if statutes of limitations and/or laches applied,

whether those issues are to be determined by the Court or by the jury. Both parties

filed the requested briefing. (Pl.’s Trial Br. Re Laches and Stat. of Lim., ECF No. 213;

Defs.’ Trial Br. Re Stat. of Lim. and Laches, ECF No. 209.)

Upon further consideration, the Court now concludes that statutes of

limitations are appropriately applied to declaratory judgment claims, and that laches

also may apply under appropriate facts. The Court also concludes that the three-year

statute of limitations for breach of contract under G.S. § 1-52(1) should be applied to

Plaintiff’s claim for declaratory judgment, and that issues of fact remain regarding

when Plaintiff’s claim for declaratory judgment accrued for purposes of applying the

three-year statute of limitations and, potentially, laches.

B. Discussion

1. Statutes of limitations and the defense of laches apply to claims for declaratory judgment.

North Carolina Rule of Civil Procedure 54(a) provides, in relevant part, that

“in the absence of entry of [ ] a final judgment, any order or other form of decision is

subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.” The Court has reconsidered its prior

orders granting summary judgment in Plaintiff’s favor with regard to his claim for

declaratory judgment. Specifically, the Court has reconsidered its position regarding

whether statutes of limitations are applied to claims for declaratory judgment in

North Carolina, or whether such claims are subject only to a defense of laches. The

Court now holds that both statutes of limitations and the equitable defense of laches

are applicable to declaratory judgment claims.

The Supreme Court of North Carolina has held that “[s]ince proceedings for

declaratory relief have much in common with equitable proceedings, the equitable

doctrine of laches has been applied in such proceedings.” Taylor v. Raleigh, 290 N.C.

608, 622–623, 227 S.E.2d 576, 584–585 (1976). The Supreme Court also has applied

statutes of limitations to declaratory judgment actions. Penley v. Penley, 314 N.C. 1,

20-21, 332 S.E.2d 51, 63 (1985) (applying statute of limitation to claim for declaratory

judgment and concluding the claim was not barred under the applicable statute of

limitations).

The decisions from the Court of Appeals have applied both statutes of

limitations and laches to declaratory judgment claims depending on the facts involved

in the case and, apparently, whether the issue has been raised by the parties. See

e.g., Stratton v. Royal Bank of Can., 211 N.C. App. 78, 89, 712 S.E.2d 221, 230-231

(2011) (holding that defense of laches “is an appropriate defense to [plaintiff]’s claim

for declaratory judgment”); Ludlum v. State, 227 N.C. App. 92, 94, 742 S.E.2d 580,

582 (2013) (holding that plaintiff’s declaratory judgment claim was untimely where his other claims for relief were barred by the statute of limitations); Johnson v. N.C.

Dep't of Cultural Res., 223 N.C. App. 47, 735 S.E.2d 595 (2012) (applying statute of

limitations to declaratory judgment claim, but also recognizing and considering

potential application of laches to claim); Hicks v. Wake County Bd. of Educ., 187 N.C.

App. 485, 489–90, 653 S.E.2d 236, 239–40 (2007) (applying three-year statute of

limitations and finding plaintiff’s claim for declaratory judgment barred); Tillery v.

Tillery, 790 S.E.2d 755, 2016 N.C. App. LEXIS 689, at *10 (2016) (unpublished)

(applying statute of limitations to claim for declaratory judgment); Newman Machine

Co. v. Newman, 2 N.C. App. 491, 494, 163 S.E.2d 279, 281 (1968), rev’d on other

grounds, 275 N.C. 198, 166 S.E.2d 63 (1969) (“Consequently, where it appears that

the facts alleged disclose that either the statute of limitations or the doctrine of laches

is applicable thereto, there is no justiciable controversy as contemplated by the

Declaratory Judgments Act.”).

Upon further consideration of the above cited authority, the Court concludes

that the most reasonable synthesis of these decisions is that statutes of limitations

are properly applied to claims for declaratory judgment, as is the defense of laches

under appropriate facts. See Johnson, 223 N.C. App. 47, 735 S.E.2d 595; Newman

Machine Co., 2 N.C. App. at 494, 163 S.E.2d at 281. Accordingly, to the extent the

Court suggested in its prior orders that statutes of limitations should not be applied

to Plaintiff’s claim for declaratory judgment, such portions of those orders are

VACATED, and the Court concludes Plaintiff’s claim for declaratory judgment in this

action is subject to a statute of limitations defense and potentially to a laches defense. In deciding which statute of limitations should be applied to a declaratory

judgment claim, the Court must be “guided by the principle that the statute of

limitations is not determined by the remedy sought, but by the substantive right

asserted by plaintiffs.” Baars v. Campbell Univ., Inc., 148 N.C. App. 408, 414, 558

S.E.2d 871, 875 (2002) (disregarding plaintiff’s contention that its claim was one for

constructive fraud subject to a 10-year statute of limitations and instead affirming

dismissal because the substantive rights the plaintiff sought to vindicate were

governed by three-year statutes of limitations); Penley v. Penley, 65 N.C. App. 711,

723, 310 S.E.2d 360, 368 (1984) (“Although in form the complaint asked for relief

through a declaratory judgment, in substance, as represented by the evidence

produced and the issue submitted to the jury, the action is based on contract.”), rev'd

on other grounds, 314 N.C. 1, 332 S.E.2d 51 (1985); Ludlum, 227 N.C. at 95, 742

S.E.2d at 583 (holding that “[b]ecause plaintiff waited too long to file his claim [based

on a contract], he is barred from a determination that he is owed any benefits at all

[pursuant to that contract]” under his declaratory judgment claim); Tillery, 790

S.E.2d 755, 2016 N.C. App. LEXIS 689, *10 (“When determining the applicable

statute of limitations, we are guided by the principle that the limitations period is

determined not by the remedy sought, but by the substantive right asserted by the

claim at issue.” (citing Baars, 148 N.C. App. at 414, 558 S.E.2d at 875)).

Accordingly, in determining which statute of limitations is applicable to

Plaintiff’s claims for declaratory judgment in this action, the Court must determine the rights Plaintiff seeks to establish or enforce through the request for declaratory

relief.

Through the declaratory judgment claims in this case, Plaintiff seeks a

declaration that he still has membership interest in the Chisum/Campagna LLCs.

Plaintiff also requests that the Court declare that under the Operating Agreements,

Richard and Rocco Campagna lacked authority to extinguish or otherwise eliminate

his membership interests because of Plaintiff’s failure to contribute capital to the

LLCs in response to alleged capital calls. Finally, based on his alleged continuing

membership interests, Plaintiff seeks a declaration that he still has certain rights in

the Chisum/Campagna LLCs, including rights to distributions and to his share of the

LLCs’ assets and profits.

The declarations Plaintiff seeks in this action involve his status and rights as

a member of the Chisum/Campagna LLCs. Those rights are created by and arise out

of the Operating Agreements, which are contracts. N.C. State Bar v. Merrell, 243

N.C. App. 356, 370, 777 S.E.2d 103, 114 (2015) (“An operating agreement is a

contract.”); see also Richardson v. Kellar, 2017 NCBC LEXIS 110 (N.C. Super. Ct.

Nov. 27, 2017) (same); Pure Body Studios Charlotte, LLC v. Crnalic, 2017 NCBC

LEXIS 98 (N.C. Super. Ct. Oct. 18, 2017) (same). Moreover,

A limited liability company (“LLC”) is a statutory form of business organization . . . that combines characteristics of business corporations and partnerships. The [LLC] Act contains numerous ‘default’ provisions or rules that will govern an LLC only in the absence of an explicitly different arrangement in the LLC’s articles of organization or written operating agreement. Because these default provisions can be changed in virtually any way the parties wish, an LLC is primarily a creature of contract.

Crouse v. Mineo, 189 N.C. App. 232, 237, 658 S.E.2d 33, 36 (2008) (internal citations

and quotations omitted) (emphasis added); see also Battles v. Bywater, LLC, 2017

NCBC LEXIS 54, at *8 (N.C. Super. Ct. Oct. 31, 2014) (citing Crouse).

The Court concludes that the substantive rights Plaintiff seeks to vindicate

through declaratory judgment arise from Operating Agreements, and the three-year

statute of limitations for breach of contract actions provided in N.C. Gen. Stat. § 1-

52(1) therefore applies.

In its Order on Plaintiff’s Second Motion for Partial Summary Judgment, the

Court concluded that if Plaintiff’s claim for declaratory relief was subject to a statute

of limitations, the 10-year limitations period for constructive fraud claims could

potentially be applied to the declaratory judgment action. Chisum, 2017 NCBC

LEXIS 62, at *16. That Order, however, was issued before this Court’s Order on

Campagna Defendants’ Motion to Dismiss. (“Order on Campagnas’ Mot. to Dism.”,

ECF No. 186; Chisum v. Campagna, 2017 NCBC LEXIS 102 (N.C. Super. Ct. Nov. 7,

2017).) In that Order, this Court dismissed Plaintiff’s individual claim for

constructive fraud concluding, inter alia, that the Campagnas owed fiduciary duties

to the Chisum/Campagna LLCs as managers, but they did not owe fiduciary duties

to Plaintiff as an individual member. Campagna, 2017 NCBC LEXIS 102, at *11–27.

Since Plaintiff was owed no fiduciary duty and has no individual claim for

constructive fraud, the substantive rights he is pursuing do not arise from breach of any fiduciary duty owed to him, and the statute of limitations for constructive fraud

is therefore inapplicable to the declaratory judgment claims.

2. Factual questions related to statutes of limitations and laches are properly decided by the jury

The Court also concludes that the factual issues that remain as to when

Plaintiff’s declaratory judgment claims accrued for purposes of applying the statute

of limitations must be decided by the jury. Lord v. Customized Consulting Specialty,

Inc., 182 N.C. App. 635, 643-644, 643 S.E.2d 28, 33 (2007) (“When the evidence is

sufficient to support an inference that the limitations period has not expired, the

issue should be submitted to the jury.”) (citations and quotation omitted).

The affirmative defense of laches necessarily involves analysis of both fact and

law. See e.g. Farley v. Holler, 185 N.C. App. 130, 132–33, 647 S.E.2d 675, 678 (2007)

(“[L]aches depends upon the facts and circumstances of each case . . . the delay must

be shown to be unreasonable and must have worked to the disadvantage, injury or

prejudice of the person seeking to invoke the doctrine of laches[.]”).

If the facts underlying the affirmative defense of laches are disputed, such

disputes are properly submitted to a jury. Wells Fargo Bank, N.A. v. Coleman, 239

N.C. App. 239, 247, 768 S.E.2d 604, 610 (2015) (holding that, for both statute of

limitations and laches defenses, summary judgment was inappropriate because

plaintiff presented sufficient evidence to “create a genuine issue of material fact

concerning whether its delay in discovering” the complained-of mistake was

reasonable); Builders Supplies Co. v. Gainey, 14 N.C. App. 678, 683, 189 S.E.2d 657, 661 (1972) (“Appellant assigns as error the submission to the jury of appellee's

equitable affirmative defense of laches. We think the issue was properly submitted.”)

“[T]he defense of laches will only work as a bar when the claimant knew of the

existence of the grounds for the claim.” Farley, 185 N.C. App. at 133, 647 S.E.2d at

678. A claimant’s knowledge is a question of fact that must be resolved by a jury, and

though “much of our case law . . . suggests [the claimant] must have actual knowledge

of the grounds for her declaratory judgment claim in order for laches to apply[,] . . . a

party may be charged with constructive knowledge of the grounds for her claim when

it is clear that a party had ample notice of those grounds.” Stratton v. Royal Bank of

Can., 211 N.C. App. 78, 90, 712 S.E.2d 221, 231 (2011) (citing Save Our Sch. of Bladen

Cnty., Inc. v. Bladen Cnty. Bd. of Educ., 140 N.C. App. 233, 236-37, 535 S.E.2d 906,

909 (2000) (charging plaintiff with knowledge of the grounds for its claim).

Accordingly, when in dispute, a determination of when the plaintiff had actual or

constructive knowledge of accrual of his claim for purposes of applying laches is a

questions of fact properly submitted to the jury.

C. Conclusion

Plaintiff’s claim for declaratory judgment is subject to the three-year statute of

limitations for breach of contract actions. However, there are disputed issues of

material fact as to when Plaintiff’s claims for declaratory relief accrued which must

be decided by the jury, and neither party is entitled to judgment as a matter of law. THEREFORE, IT IS ORDERED that:

1. The Court’s Order on Plaintiff’s Second Motion for Partial Summary

Judgment (ECF No. 138) granting summary judgment in Plaintiff’s favor

with regard to his claim for declaratory judgment is VACATED, and the

declaration therein is hereby WITHDRAWN.

2. Plaintiff’s Second Motion for Summary Partial Judgment is DENIED

because genuine issues of material fact exist which preclude entry of

judgment in Plaintiff’s favor as a matter of law.

3. The Court’s Opinion and Order on Cross-Motions for Summary Judgment

(ECF No. 189) granting summary judgment in Plaintiff’s favor on Plaintiff’s

Motion for Partial Summary Judgment Regarding Parkway and CCH with

regard to his claim for declaratory judgment is VACATED, and the

4. Plaintiff’s Motion for Partial Summary Judgment Regarding Parkway and

CCH is DENIED because issues of fact exist which preclude entry of

SO ORDERED, this the 27th day of July, 2018.

/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases