Estevez v. C&S Com., LLC, 2025 NCBC 73.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION UNION COUNTY 25CV001966-890
JULIAN ESTEVEZ and OSCAR ESTEVEZ,
Plaintiffs, ORDER AND OPINION ON v. DEFENDANTS’ PARTIAL MOTION TO DISMISS C&S COMMERCE, LLC and CAMERON CHAD CLAY, Individually and as Sole Manager of C&S COMMERCE, LLC,
Defendants.
1. This matter is before the Court on Defendants’ Rule 12(b)(6) motion to
dismiss Plaintiffs’ second cause of action for breach of fiduciary duty against
defendant Cameron Chad Clay and Plaintiffs’ request to pierce the corporate veil of
defendant C&S Commerce, LLC. (ECF No. 12).
2. Having considered the complaint, the arguments of counsel, and other
relevant matters, the Court hereby GRANTS the motion for the reasons set forth
below.
Vilmer Caudill, PLLC, by Brittney Slade and Sophia Pappalardo, for Plaintiffs Oscar and Julian Estevez.
Alexander Ricks, PLLC, by Miller F. Capps and Benjamin Leighton, for Defendants C&S Commerce LLC and Cameron Chad Clay.
Houston, Judge. I. BACKGROUND
3. The Court does not make findings of fact on a Rule 12(b)(6) motion to dismiss
for failure to state a claim. Instead, for background, the Court summarizes the
complaint’s factual allegations that are relevant to the Court’s decision.
4. Plaintiffs Julian and Oscar Estevez are brothers who were previously
employed by and held managerial positions at Warp Development Corporation. (ECF
No. 11, ¶¶ 1-2, 7–8).
5. Around October 2023, Plaintiffs, defendant Cameron Clay, and Barbara
Chambers founded defendant C&S Commerce, LLC (a North Carolina LLC) to
purchase Warp Development’s assets and to carry on Warp Development’s business,
which they ultimately did. (ECF No. 11, ¶¶ 9–10, 14).
6. With C&S, Plaintiffs and defendant Clay retained the same employment
roles that they previously held with Warp Development. (ECF No. 11, ¶ 15).
7. Around 24 January 2024, approximately three months later, Plaintiffs,
Clay, and Chambers signed and entered into an operating agreement for C&S. (ECF
No. 11, ¶ 11 & Ex. A). Clay signed the operating agreement as both the manager and
a member of C&S, while Plaintiffs and Chambers all signed as members of C&S.
(ECF No. 11, Ex. A at 30).
8. Under the operating agreement, Clay is the majority owner of C&S with a
seventy percent (70%) ownership interest, while Plaintiffs collectively own twenty
percent (20%), and Chambers owns the remaining ten percent (10%) of the company.
(ECF No. 11, ¶ 13). Clay is designated as the sole manager of C&S, with full and complete authority, power, and discretion to manage and control the business of the Company, to make all decisions regarding those matters, and to perform any and all other acts customary or incident to the management of the Company’s business (including without limitation hiring/firing of any/all employees, employee wages/salaries), except only as to those acts as to which approval by the Members is expressly required by the Articles of Organization, this Agreement, the Act, or other applicable law.
(ECF No. 11, Ex. A § 3.1).
9. Clay also has authority to transfer the position of manager, unilaterally
dissolve C&S, and amend or waive certain terms of the operating agreement. (ECF
No. 11, Ex. A §§ 3.7, 10.1(b), and 11.5).
10. As part of C&S’s operating agreement, Plaintiffs, Clay, and Chambers
agreed that the “Manager” and the “Majority Member” (i.e., Clay) would not owe a
fiduciary duty to “Minority Members” (i.e., Plaintiffs and Chambers), and “the
Minority Members waive[d], renounce[d], release[d] and disclaim[ed] the right to file,
bring, or maintain an action for breach of fiduciary duty against” the Manager, the
Majority Member, and “his heirs successors or assigns.” (ECF No. 11, Ex. A §§ 3.5.1,
4.8).
11. The operating agreement also contains provisions that:
a. prohibit Minority Members from performing banking transactions for
C&S and exclude them from access to C&S’s bank accounts, (ECF No.
11, Ex. A § 4.9); b. require quarterly financial meetings at which Minority Members are to
be provided with financial statements concerning the prior quarter,
(ECF No. 11, Ex. A § 4.10);
c. authorize the transfer of membership interests in C&S (including
Plaintiffs’ interests) under specific and limited circumstances, (see
generally ECF No. 11, Ex. A arts. VIII, IX);
d. permit the immediate transfer and forfeiture of a Minority Member’s
interest in C&S upon termination of the Minority Member’s employment
or conviction of a felony, (ECF No. 11, Ex. A art. IXA); and
e. permit termination of plaintiff Oscar Estevez’s membership interest in
C&S if he fails to obtain U.S. citizenship within four (4) years after “the
purchase of the assets of Warp Development Corporation” or
immediately upon his deportation from the country, (ECF No. 11, Ex. A
art. IXB).
(ECF No. 11, ¶ 37(a)-(e)).
12. Between January 2024 and the filing of Plaintiffs’ complaint, on at least
three occasions, Clay asked Plaintiffs to sell him their respective minority interests
in C&S. (ECF No. 11, ¶¶ 17–20, 24–25). After Plaintiffs declined to sell their interests
the first two times, Clay purportedly told them that he would “make sure their
ownership in the Company was worth nothing.” (ECF No. 11, ¶ 21). 13. In furtherance of that statement, Clay allegedly made numerous negative
comments about Plaintiffs to other employees of C&S and encouraged employees
under Plaintiffs’ supervision “not to listen to them.” (ECF No. 11, ¶¶ 22–23).
14. In early 2025, as part of his third attempt to purchase Plaintiffs’ interests
in C&S, Clay (i) issued to Plaintiffs a proposed membership interest redemption
agreement, valuing Plaintiffs’ respective individual ten percent (10%) membership
interests at $25,000 each ($50,000 total), and (ii) fired Plaintiffs––without cause and
without an eighty percent (80%) vote of C&S’s membership. (ECF No. 11, ¶¶ 25–26,
30, 33–36 & Ex. B).
15. In the course of terminating Plaintiffs’ employment, Clay barred Plaintiffs
from C&S’s property, insisting that they sign the membership interest redemption
agreement and return it by mail. (ECF No. 11, ¶¶ 27–28).
16. Though Plaintiffs requested copies of the operating agreement, amendments
to the operating agreement, and access to other books and records maintained by
C&S related to the valuation of Plaintiffs’ interests in the company, Clay refused to
permit Plaintiffs to inspect the company’s books and records, declined to negotiate
with Plaintiffs, and instead withdrew the proposed membership interest redemption
agreement. (ECF No. 11, ¶¶ 25–36 & Ex. C).
17. Plaintiffs assert that Clay’s and C&S’s actions were contrary to the terms of
the operating agreement, that no basis existed for a for-cause termination, and that
Clay otherwise was not authorized to terminate their employment or cause forfeiture of their shares in either his position as Manager or his position as Majority Member.
(ECF No. 11, ¶¶ 38–47).
18. Plaintiffs filed suit on 4 April 2025. (ECF Nos. 3, 11). In their complaint,
Plaintiffs assert causes of action for (i) breach of contract against Clay and C&S, (ii)
breach of fiduciary duty against Clay, (iii) unjust enrichment against Clay and C&S,
and (iv) a declaratory judgment concerning certain of Plaintiffs’, Clay’s, and
Chambers’ respective rights and obligations under the operating agreement. (See
generally ECF No. 11). Plaintiffs also seek injunctive relief, an award of punitive
damages, and the remedy of piercing the corporate veil. (See generally ECF No. 11).
19. Defendants filed a Rule 12(b)(6) motion to dismiss on 25 June 2025, seeking
dismissal of only Plaintiffs’ request for the remedy of piercing the corporate veil and
Plaintiffs’ cause of action for breach of fiduciary duty. (ECF No. 12).
20. The motion has been fully briefed and is ripe for disposition.
II. ANALYSIS
21. When considering a Rule 12(b)(6) motion, the Court must determine
“whether the allegations of the complaint, if treated as true, are sufficient to state a
claim upon which relief can be granted under some legal theory.” Corwin v. Brit. Am.
Tobacco PLC, 371 N.C. 605, 615 (2018) (citation omitted).
22. The Court treats the well-pleaded factual allegations as true and views
them “in the light most favorable to the non-moving party.” Sykes v. Health Network
Sols., Inc., 372 N.C. 326, 332 (2019) (citation omitted); Christenbury Eye Ctr., P.A. v.
Medflow, Inc., 370 N.C. 1, 5 (2017). The Court must determine “whether, as a matter of law, the allegations of the complaint, treated as true, are sufficient to state a claim
upon which relief can be granted under some [recognized] legal theory.” Forsyth
Mem’l Hosp., Inc. v. Armstrong World Indus., 336 N.C. 438, 442 (1994) (quoting Lynn
v. Overlook Dev., 328 N.C. 689, 692 (1991)).
23. Further, the Court “may properly consider documents which are the subject
of a plaintiff’s complaint and to which the complaint specifically refers” regardless of
the party presenting them. Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60
(2001) (citation omitted). The Court “can reject allegations that are contradicted by
the documents attached, specifically referred to, or incorporated by reference in the
complaint.” Moch v. A.M. Pappas & Assocs., LLC, 251 N.C. App. 198, 206 (2016)
(citations omitted).
24. Dismissal on a Rule 12(b)(6) motion is proper if “(1) the complaint on its
face reveals that no law supports the plaintiff’s claim; (2) the complaint on its face
reveals the absence of facts sufficient to make a good claim; or (3) the complaint
discloses some fact that necessarily defeats the plaintiff’s claim.” Corwin, 371 N.C. at
615 (citations omitted).
25. With their motion, defendants Clay and C&S have moved to dismiss
Plaintiffs’ request for the equitable remedy of piercing the corporate veil and their
second cause of action for breach of fiduciary duty. The Court addresses each
argument in turn. a. Piercing the Corporate Veil
26. While Plaintiffs (appropriately) do not assert piercing the corporate veil as
a standalone cause of action, 1 they request as a remedy that the Court “pierce the
corporate veil of Defendant C&S Commerce, LLC and hold Defendant Clay liable for
all damages arising from the misconduct alleged” in the complaint. (ECF No. 11,
¶ 55).
27. Under North Carolina law, “[a] person who is an interest owner, manager,
or other company official is not liable for the obligations of the LLC solely by reason
of being an interest owner, manager, or other company official.” N.C. Gen. Stat.
§ 57D–3–30.
28. However, “a member of a limited liability company, like shareholders and
directors of corporations, may be held individually liable for the company’s obligations
through the doctrine of piercing the corporate veil.” Est. of Hurst ex rel. Cherry v.
Moorehead I, LLC, 228 N.C. App. 571, 576 (2013) (citing prior version of N.C. Gen.
Stat. § 57D–3–30 and applicable case law).
29. Piercing the corporate veil is an equitable remedy that disregards the
corporate form “to impose legal liability for a[n entity’s] obligations, or for torts
committed by the [entity], upon some other company or individual that controls and
dominates” it. Green, 367 N.C. at 145 (citation omitted).
1 “[P]iercing the corporate veil is an ancillary equitable remedy and not an independent cause
of action.” W&W Partners, Inc. v. Ferrell Land Co., LLC, 2018 NCBC LEXIS 52, at *21–22 (N.C. Super. Ct. May 22, 2018) (citing Green v. Freeman, 367 N.C. 136, 146 (2013)). 30. “Like lightning, [the remedy of piercing] is rare and severe.” Gallaher v.
Ciszek, 2022 NCBC LEXIS 131, at *33 (N.C. Super. Nov. 4, 2022) (quoting S. Shores
Realty Servs. v. Miller, 251 N.C. App. 571, 583 (2017)). As a result, piercing “is a
remedy that ‘should be invoked only in an extreme case where necessary to serve the
ends of justice.’” W&W Partners, 2018 NCBC LEXIS 52, at *22 (quoting Dorton v.
Dorton, 77 N.C. App. 667, 672 (1985)).
31. The veil-piercing inquiry is a multi-step process. First, “[t]he aggrieved
party must show that ‘the corporation is so operated that it is a mere instrumentality
or alter ego of the sole or dominant shareholder and a shield for his activities in
violation of the declared public policy or statute of the State.” Green, 367 N.C. at 145
(2013) (quoting Henderson v. Sec. Mortg. & Fin. Co., 273 N.C. 253, 260 (1968)) (noting
also that “[e]vidence upon which we have relied to justify piercing the corporate veil
includes inadequate capitalization, noncompliance with corporate formalities, lack of
a separate corporate identity, excessive fragmentation, siphoning of funds by the
dominant shareholder, nonfunctioning officers and directors, and absence of
corporate records” (citation omitted)); Loray Master Tenant, LLC v. Foss N.C. Mill
Credit 2014 Fund I, LLC, 2022 NCBC LEXIS 1, at *16-17 (N.C. Super. Ct. Jan. 11,
2022).
32. “It is not the presence or absence of any particular factor that is
determinative. Rather, it is a combination of factors which, when taken together with
an element of injustice or abuse of corporate privilege, suggest that the corporate
entity attacked had 'no separate mind, will or existence of its own' and was therefore the 'mere instrumentality or tool' of the dominant [shareholder].” W&W Partners,
2018 NCBC LEXIS 52, at *24–25 (quoting Atl. Tobacco Co. v. Honeycutt, 101 N.C.
App. 160, 164-165 (1990)). Then,
[a]fter the fact finder determines that the corporate veil should be pierced—in other words, that the corporate identity should be disregarded—the next inquiry is whether a noncorporate defendant may be held liable for her personal actions as an officer or director. To succeed in this inquiry, plaintiffs must present evidence of three elements:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of [a] plaintiff's legal rights; and
(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
Green, 367 N.C. at 145–46 (quoting Glenn v. Wagner, 313 N.C. 450, 455 (1985)); Nicks
v. Nicks, 241 N.C. App. 487, 497 (2015); Tiller v. Phillips, 2025 NCBC LEXIS 141, at
*31 (N.C. Super. Ct. Oct. 15, 2025).
33. Because limited liability companies are permitted by statute and their
operating agreements to deviate from or dispense with many of the formalities
generally observed by corporations, the factors used in analyzing a request to pierce
the corporate veil “may be weighed differently” when considering whether to pierce the veil of an LLC. Insight Health Corp. v. Marquis Diagnostic Imaging of N.C., LLC,
2018 NCBC LEXIS 56, at *25 (N.C. Super. Ct. Feb. 24, 2017) (citation omitted).
34. While Plaintiffs here allege that Clay failed to observe corporate formalities
and dominated and controlled C&S such that C&S had no independent identity. (ECF
No. 11, ¶¶ 48–55), “the totality of Plaintiffs’ allegations in support of their veil-
piercing theory consists of a rote recitation of the factors enunciated by North
Carolina's appellate courts.” W&W Partners, 2018 NCBC LEXIS 52, at *25.
35. Plaintiffs assert that Clay “owns, controls, and dominates” C&S; that C&S
“operated as a mere alter ego of Defendant Clay, lacking independence in decision-
making and financial operations”; that Clay “exercised complete control over the
Company, failed to observe corporate formalities, and used the Company to advance
his own personal financial interests at the expense of” Plaintiffs; and that C&S “was
so dominated by Defendant Clay that it lacks a separate legal identity.” (ECF No. 11,
¶¶ 49–53).
36. However, Plaintiffs largely do not plead facts to support these conclusory
allegations or to detail how Clay allegedly dominated C&S, operated the company as
a mere instrumentality or alter ego, or otherwise failed to observe corporate
formalities.
37. The primary example specifically identified by Plaintiffs is their contention
that “Defendant Clay did not follow the Operating Agreement’s terms when firing
Julian from Defendant Company nor did he follow the Operating Agreement’s terms
when firing Oscar from Defendant Company.” (ECF No. 11, ¶ 51). 38. However, a defendant’s failure to follow the terms of an operating agreement
(itself a contract) “is not enough” by itself to invoke the remedy of piercing. Kerry
Bodenhamer Farms, LLC v. Nature’s Pearl Corp., 2018 NCBC LEXIS 84, at *11–12
(N.C. Super. Ct. Aug. 15, 2018). Rather, “[o]ur Court of Appeals has rejected the
argument that a breach of contract, ‘in itself, can amount to a wrongdoing to meet the
second element of the [instrumentality] test.’” Id. at *11 (quoting Best Cartage, Inc.
v. Stonewall Packaging, LLC, 219 N.C. App. 429, 440 (2012)). There generally must
be “compelling factors apart from the breach itself,” such as “some indicia of
fraudulent or inequitable conduct: a showing, for example, that the puppet entity was
created for the purpose of entering into the relevant contract or used as a means to
unjustly insulate another from liability.” Id. at *12–13 (citations omitted).
39. Plaintiffs’ allegation that Clay failed to follow the specific procedural terms
of the operating agreement, while potentially providing the basis for a breach of
contract claim, does not rise to the level of “noncompliance with corporate formalities”
or “lack of a separate corporate identity,” such as commingling funds, lack of
recordkeeping, or similar issues, and there are otherwise no allegations of inadequate
capitalization, excessive fragmentation, siphoning of funds, or nonfunctioning
executives or officers. Green, 367 N.C. at 145 (citation omitted).
40. Plaintiffs in turn rely heavily on Clay’s majority ownership of C&S and,
thus, his controlling interest for voting purposes, seeking to have the Court infer
instrumentality or alter ego status. (ECF No. 15 at 6–12). But “[s]ole or common
ownership of a company does not, by itself, establish complete domination and control; there must be a showing that the entity lacks a ‘separate mind, will or
existence of its own.’” Tiller, 2025 NCBC LEXIS 141, at *31–32 (quoting Harris v.
Ten Oaks Mgmt., LLC, 2022 NCBC LEXIS 62, at *6 (N.C. Super. Ct. June 20, 2022));
Cold Springs Ventures, LLC v. Gilead Scis., Inc., 2015 NCBC LEXIS 1, at *17–22,
33–34 (N.C. Super. Ct. Jan. 6, 2015) (determining that deciding to dissolve the entity
and directing the “day-to-day” operations of the entity, without more, were not
enough to justify piercing).
41. Ultimately, Plaintiffs’ rote recitations and contract-based allegations do not
provide sufficient non-conclusory allegations to maintain a request for piercing the
veil of C&S, and the Court determines that Defendants’ motion to dismiss that
request should be GRANTED and that Plaintiffs’ request to pierce the corporate veil
should be DISMISSED WITHOUT PREJUDICE. 2 See generally, e.g., W&W
Partners, 2018 NCBC LEXIS 52; Estate of Chambers v. Vision Two Hospitality Mgmt.,
LLC, 2013 NCBC 49 (N.C. Super. Ct. Nov. 21, 2013); Blue Ridge Pediatric &
Adolescent Med., Inc. v. First Colony Healthcare, LLC, 2012 NCBC LEXIS 52 (N.C.
Super. Ct. Oct. 3, 2012).
b. Breach of Fiduciary Duty
42. Defendants further seek dismissal of Plaintiffs’ second cause of action for
breach of fiduciary duty.
2 “The decision to dismiss an action with or without prejudice is in the discretion of the trial
court[.]” First Fed. Bank v. Aldridge, 230 N.C. App. 187, 191 (2013) (citation omitted). The Court determines, in the exercise of its discretion, that denial and dismissal of Plaintiffs’ request for the remedy of pierce should be without prejudice in the event that discovery uncovers facts sufficient to support factual allegations sufficient to plead and warrant such a drastic remedy. 43. As the basis for their breach of fiduciary duty cause of action, Plaintiffs
allege that Clay owes “fiduciary duties” to Plaintiffs and that he violated those duties
by (i) failing to follow the operating agreement in connection with the attempted
purchase of Plaintiffs’ interest in the company and firing of Plaintiffs, (ii) failing to
follow the operating agreement’s provisions with respect to terminating Plaintiffs’
ownership interest in the company, (iii) refusing to provide “financial information” to
Plaintiffs when requested, and (iv) “[e]ngaging in self-dealing.” (ECF No. 11, ¶ 68).
Plaintiffs also assert that “fiduciary duties, like the duty of good faith and fair
dealing, cannot be eliminated entirely through the Operating Agreement’s terms.”
(ECF No. 11, ¶ 71).
44. Defendants contend, among other things, that Clay owed no actionable
fiduciary duties to Plaintiffs and, alternatively, that any fiduciary duties that he
might have owed were waived by the parties’ contractual operating agreement.
i. Waiver of Fiduciary Duty Claims
45. “To establish a claim for breach of fiduciary duty, a plaintiff must show that:
(1) the defendant owed the plaintiff a fiduciary duty; (2) the defendant breached that
fiduciary duty; and (3) the breach of fiduciary duty was a proximate cause of injury
to the plaintiff.” Sykes, 372 N.C. at 339 (quoting Green, 367 N.C. at 141).
46. With limited exceptions, “the North Carolina Limited Liability Company Act
‘does not create fiduciary duties among members.’” Strategic Mgmt. Decisions v. Sales
Performance Int’l, 2017 NCBC LEXIS 69, at *10 (N.C. Super. Ct. Aug. 7, 2017)
(quoting Kaplan v. O.K. Techs., L.L.C., 196 N.C. App. 469, 473 (2009)). Thus, members generally do not owe a fiduciary duty to other members of a limited liability
company. Id.
47. Recent case law has suggested, under some circumstances, a potential
exception to this rule—that “‘a holder of a majority interest who exercises control over
the LLC owes a fiduciary duty to minority interest members.’” Id. (citing Fiske v.
Kieffer, 2016 NCBC LEXIS 22, at *9 (N.C. Super. Ct. Mar. 9, 2016); Zagaroli v. Neill,
2016 NCBC LEXIS 106, at *18 (N.C. Super. Ct. Dec. 29, 2016)). However, “[t]he scope
of this exception, borrowed from precedents governing corporations, remains
unsettled,” and “[t]his Court has cautioned against a broad application because of the
fundamental differences between LLCs and corporations.” Lafayette Vill. Pub, LLC
v. Burnham, 2022 NCBC LEXIS 104, at *15-16 (N.C. Super. Ct. Sept. 12, 2022)
48. As explained below, this Court need not settle the scope or application of
that rule in this case:
“[A]n LLC is primarily a creature of contract” and [its] “members are generally free to arrange their relationship however they wish,” . . . [A]n LLC’s members could draft an operating agreement to narrow or eliminate fiduciary duties owed by members and managers. Or members could adopt comprehensive rules for transfers of membership interests, thus displacing default or background rules that might otherwise apply.
McFee v. Presley, 2022 NCBC LEXIS 74, at *8 (N.C. Super. Ct. July 11, 2022) (quoting
Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at *17 (N.C. Super. Ct.
June 19, 2019)). 49. Thus, courts have frequently recognized the right of parties to an LLC
operating agreement to waive various duties, including the duty of loyalty. Klos
Constr., Inc. v. Premier Homes & Props., LLC, 2020 NCBC LEXIS 85, at *28 (quoting
Pender Farm Dev. v. NDCO, 2018 NCBC LEXIS 189, at *38 (N.C. Super. Ct. Mar. 12,
2018)); Plasman v. Decca Furniture (USA), Inc., 2016 NCBC LEXIS 80, at *36 (N.C.
Super. Ct. Oct. 21, 2016).
50. Simply stated, minority members of a limited liability company may
contractually waive fiduciary duties that might otherwise be owed by a majority
member or imposed by default under applicable law. See generally, e.g., id.; Merrell
v. Smith, 2023 NCBC LEXIS 155, at *27 (N.C. Super. Ct. Dec. 13, 2022) (“The
language of Section 4.7 [of the Operating Agreement] is evidence that members of
CBB did not owe the company a fiduciary duty of loyalty, and the Operating
Agreement did not otherwise provide for any fiduciary or fiduciary-like duties among
members and, in fact, is reasonably interpreted to renounce such duties.” (citation
omitted)); Vanguard Pai Lung, 2019 NCBC LEXIS 39, at *21 (“Thus, when the
operating agreement confers controlling authority on the majority member, [the
majority member] owes a duty not to use its control to harm the minority, assuming
no other provision disclaims such a duty.” (emphasis added)); Bennett v. Bennett, 2019
NCBC LEXIS 19, at *16-21 (N.C. Super. Ct. Mar. 15, 2019) (allegations in complaint
were insufficient to plead fiduciary duty given disclaimers in operating agreement).
51. Thus, the scope of a majority shareholder fiduciary duty is narrowly
construed and applied. Strategic Mgmt., 2017 NCBC LEXIS 68, at *10 (citing HCW Ret. & Fin. Servs., 2015 NCBC LEXIS 73, at *47 n.102; Blythe v. Bell, 2013 NCBC
LEXIS 17, at *13-14 (N.C. Super. Ct. Apr. 8, 2013)); see also N.C. Gen. Stat. § 57D–
2–30.
52. Here, C&S’s operating agreement––signed by Plaintiffs, Clay, and
Chambers––contains two nearly identical waivers of fiduciary duties providing, in
relevant part, as follows:
3.5.1 Fiduciary Duty. Notwithstanding anything to the contrary in the Act or North Carolina law, it is specifically understood and agreed that as a condition of the acceptance of a Membership Interest in the Company that the Manager shall not owe a fiduciary duty to the Minority Members; therefore the Minority Members waive, renounce, release and disclaim the right to file, bring, or maintain an action or claim of any kind or description for breach of fiduciary duty against the Managery [sic] Member, his heirs successors or assigns.
(ECF No. 11, Ex. A § 3.5.1 (located in Article III, “MANAGEMENT OF THE
COMPANY”)).
4.8 Fiduciary Duty. Notwithstanding anything to the contrary in the Act or North Carolina law, it is specifically understood and agreed that as a condition of the acceptance of a Membership Interest in the Comply that the Majority Member shall not owe a fiduciary duty to the Minority Members; therefore the Minority Members waive, renounce, release and disclaim the right to file, bring, or maintain an action or claim of any kind or description for breach of fiduciary duty against the Majority Member, his heirs successors or assigns.
(ECF No. 11, Ex. A § 4.8 (located in Article IV, “RIGHTS AND OBLIGATIONS OF
MEMBERS”)).
53. Acknowledging these express waivers, Plaintiffs nonetheless contend that
the waivers are invalid, illegal, “unreasonable, unconscionable, and against public
policy.” (ECF No. 11, ¶ 72). The Court disagrees. 54. As both parties acknowledge, the duty of good faith and fair dealing
generally cannot be waived under the terms of an operating agreement. (ECF No. 13
at 18; ECF No. 11, ¶ 71).
55. Plaintiffs frame this duty of good faith and fair dealing as an unwaivable
fiduciary duty sounding in tort, (see ECF No. 11, ¶ 71), 3 while Defendants argue that
it is a contractual duty that necessarily sounds in contract, (ECF No. 13 at 18–19).
56. As this Court has previously recognized, the duty of good faith and fair
dealing is a “contractual obligation.” Klos Constr., 2020 NCBC LEXIS 85, at *33-34
(“‘The implied contractual covenant of good faith and fair dealing should not be
confused with the fiduciary duty of good faith that is one of the managers' duties
under [N.C.G.S. §] 57D–3–21.’” (quoting 1 Russell M. Robinson II, Robinson on
North Carolina Corporation Law § 34.04 n.37 (7th ed. 2019))). Plaintiffs identify no
other specific duty that they contend is unwaivable.
57. Thus, while Plaintiffs may pursue a breach of contract cause of action
arising from the alleged breach of the implied covenant of good faith and fair dealing,
to the extent that the cause of action is framed as one for breach of fiduciary duty and
that duty was contractually and expressly waived by the C&S operating agreement,
Plaintiffs fail to state a claim upon which relief can be granted.
3 Despite the allegations in their complaint, Plaintiffs in large part fail in their briefing to
engage with many of their own allegations and Defendants’ arguments. Accordingly, the Court cites more to the allegations of the complaint at issue than to Plaintiffs’ briefing. ii. Enforceability of Fiduciary Duty Waivers
58. Further, inasmuch as Plaintiffs contend that the waivers are in violation of
public policy, unreasonable, and unconscionable, Plaintiffs’ allegations are
unsupported and conclusory and do not align with North Carolina law. (ECF No. 11,
¶ 72).
59. To the extent Plaintiffs assert that the operating agreement’s provisions are
“unreasonable,” the North Carolina appellate courts have recognized that
[p]eople should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain. Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side. It is only where it turns out that one side or the other is to be penalized by the enforcement of the terms of a contract so unconscionable that no decent, fairminded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability.
Blaylock Grading Co., LLP v. Smith, 189 N.C. App. 508, 511 (2008) (emphasis added)
(citation and internal punctation omitted); Westmoreland v. High Point Healthcare
Inc., 218 N.C. App. 76, 91 (2012). Plaintiffs cite no case law in support of the argument
raised in their complaint, and their briefing fails to reference, much less discuss, the
purported reasonableness of the operating agreement or grounds for negating the
agreement on that basis. (See generally ECF No. 11).
60. Quite simply, public policy in North Carolina favors freedom of contract,
including the ability for parties to negotiate the scope of a company’s operating
agreement. Strategic Mgmt., 2017 NCBC LEXIS 69, at *14 (noting that imposing duties beyond the scope of the law and the parties’ bargained-for contractual duties
“would be inconsistent with the parties’ bargain and with this State’s policy of ‘giving
the maximum effect to the principle of freedom of contract and the enforceability of
operating agreements.’” (quoting N.C. Gen. Stat. § 57D-10-01(c) (internal quotation
marks omitted))). Plaintiffs identify no case law suggesting that the parties’
bargained-for agreement is against public policy, and, in fact, Plaintiffs fail to
substantively address “public policy” in their briefing.
61. Further,
[a] court will find a contract to be unconscionable only when the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other. An inquiry into unconscionability requires that a court consider all the facts and circumstances of a particular case, and if the provisions are then viewed as so one-sided that the contracting party is denied any opportunity for a meaningful choice, the contract should be found unconscionable. . . . A party asserting that a contract is unconscionable must prove both procedural and substantive unconscionability. . . . [P]rocedural unconscionability involves bargaining naughtiness in the form of unfair surprise, lack of meaningful choice, and an inequality of bargaining power. Substantive unconscionability, on the other hand, refers to harsh, one-sided, and oppressive contract terms.
Musselwhite v. Cheshire, 266 N.C. App. 166, 180 (2019) (citation and internal
quotation marks omitted).
62. Plaintiffs make no specific allegations of procedural or substantive
unconscionability regarding the C&S operating agreement. (See generally ECF No.
11). 63. Instead, as the complaint reflects, the individual parties to the operating
agreement were sophisticated management and owner-level individuals engaged in
arm’s-length negotiations when the operating agreement was signed. (ECF No. 11,
¶¶ 8–15). Though Plaintiffs contend that the operating agreement was drafted by
Clay’s attorney, (ECF No. 11, ¶ 11), there are no allegations that they were prohibited
from reviewing and revising it or from having their own attorney of choice review it.
Instead, the complaint and its attachments reflect that Plaintiffs (i) on 24 January
2024, signed the operating agreement with both sections 3.5.1 and 4.8, (ECF No. 11,
Ex. A at 30), and (ii) confirmed that they had the opportunity to obtain counsel or
voluntarily choose not to consult counsel regarding the provisions of the operating
agreement, (ECF No. 11, Ex. A § 11.15).
64. In sum, absent specific factual allegations suggesting illegality, violations of
public policy, unconscionability, or unreasonableness that might render the operating
agreement unenforceable, Plaintiffs’ breach of fiduciary duty cause of action is
foreclosed by the plain language of the waivers and releases contained within the
C&S operating agreement.
65. Accordingly, considering the factual allegations of the complaint in the light
most favorable to Plaintiffs and further considering the unambiguous language of the
C&S operating agreement attached to the complaint, the Court determines that
Plaintiffs’ cause of action for breach of fiduciary duty and request for the remedy of
piercing the corporate veil should be dismissed. III. CONCLUSION
66. Therefore, the Court ORDERS as follows:
a. Defendants’ motion to dismiss, (ECF No. 12), is GRANTED;
b. Plaintiffs’ request for the remedy of piercing the corporate veil is
DENIED and, in the Court’s discretion, DISMISSED WITHOUT
PREJUDICE; and
c. Plaintiffs’ cause of action for breach of fiduciary duty is DISMISSED
WITH PREJUDICE.
SO ORDERED, this 25th day of November 2025.
/s/ Matthew T. Houston Matthew T. Houston Special Superior Court Judge for Complex Business Cases