Howard v. IOMAXIS, LLC, 2022 NCBC 76.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF MECKLENBURG 18 CVS 11679
KELLY C. HOWARD and FIFTH THIRD BANK, NATIONAL ASSOCIATION, AS CO-TRUSTEES OF THE RONALD E. HOWARD REVOCABLE TRUST U/A DATED FEBRUARY 9, 2016, AS AMENDED AND RESTATED,
Plaintiffs, ORDER AND OPINION ON IOMAXIS DEFENDANTS’ CONSOLIDATED v. MOTION TO DISMISS THE TRUST’S FIRST AMENDED COMPLAINT IOMAXIS, LLC; BRAD C. BOOR a/k/a BRAD C. BUHR; JOHN SPADE, JR.; WILLIAM P. GRIFFIN, III; NICHOLAS HURYSH, JR.; and ROBERT A. BURLESON,
Defendants.
1. THIS MATTER is before the Court on the IOMAXIS Defendants’ 1
Consolidated Motion to Dismiss the Trust’s First Amended Complaint (“Motion”),
(ECF No. 223), pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil
Procedure (the Rule(s)).
2. Before his death, Ronald E. Howard owned a 51% interest in IOMAXIS,
LLC (“IOMAXIS” or “the Company”). The interest passed to his Estate at the time of
his death in June 2017 before being transferred to a trust in December 2017.
1 The Court refers to IOMAXIS, LLC, Brad C. Boor a/k/a Brad C. Buhr, John Spade, Jr.,
William P. Griffin, III, and Robert A. Burleson collectively as the “IOMAXIS Defendants” to distinguish them from Nicholas Hurysh, Jr. (“Hurysh”) who is also a defendant. IOMAXIS, LLC, the entity, is referred to as “IOMAXIS.” Plaintiffs are co-trustees of the trust, and this case arises from a dispute regarding
the rights of the trust with respect to its interest in IOMAXIS. Defendants are
IOMAXIS and individuals with an interest in IOMAXIS that may be affected by this
action.
3. Having considered the Motion, the related briefing, and the arguments
of counsel at a hearing on the Motion, the Court hereby GRANTS in part, DENIES
in part, and STAYS in part the Motion.
Johnston, Allison & Hord, P.A., by Greg C. Ahlum, Parker E. Moore, 2 David T. Lewis, and Lauren S. Martin, for Plaintiff Kelly Howard, as co- Trustee of the Ronald E. Howard Revocable Trust u/a dated February 9, 2016, as Amended and Restated.
Womble Bond Dickinson (US) LLP, by Lawrence A. Moye, and Loper Law, PLLC, by Johnny M. Loper, for Plaintiff Fifth-Third Bank, NA, as co-Trustee of the Ronald E. Howard Revocable Trust u/a dated February 9, 2016, as Amended and Restated.
Allen, Chesson & Grimes PLLC, by David Allen, Benjamin S. Chesson, and Anna Majestro, and Nelson Mullins Riley & Scarborough LLP, by Travis Bustamante, for Defendants IOMAXIS, LLC, Brad C. Boor a/k/a Brad C. Buhr, John Spade, Jr., William P. Griffin, III, and Robert A. Burleson.
Miller Monroe & Plyer, PLLC, by Jason A. Miller, Paul T. Flick, and Robert B. Rader, III, for Defendant Nicholas Hurysh.
Earp, Judge.
I. FACTUAL AND PROCEDURAL BACKGROUND
4. The Court does not make findings of fact on a Motion to Dismiss
under Rule 12(b)(6). The following factual summary is drawn from the allegations in
2 Since the time of the Motion hearing, Parker E. Moore has withdrawn from this matter, and
Patrick E. Kelly and Kathleen D. B. Burchette have appeared as additional counsel for Kelly C. Howard, co-trustee of the Ronald E. Howard Revocable Trust. the First Amended Complaint (“Am. Compl.”), (ECF Nos. 3, 197) 3, including its
attached exhibits.
5. Plaintiffs allege that IOMAXIS, LLC (“IOMAXIS”) is a North Carolina
limited liability company. (Am. Compl. ¶ 8.)
6. Ronald Howard (“Decedent”) died on 12 June 2017. At the time of his
death, Decedent held a 51% membership interest in IOMAXIS. The interest passed
to his Estate. (Am. Compl. ¶¶ 1, 3, 4.)
7. On 8 December 2017, the Estate transferred all of its interest in
IOMAXIS to the Ronald E. Howard Revocable Trust (“Trust”). (Am. Compl. ¶ 5.)
8. IOMAXIS has an Operating Agreement 4 that restricts the ability of a
member to transfer, voluntarily or involuntarily, all or any part of the member’s
interest in the Company without the prior written consent of a “Majority in Interest”
of the “Disinterested Members.” 5 (OA § 8.1, Compl. Ex. C, ECF No. 3.) 6
3 The Amended Complaint, (ECF No. 197), incorporates the entirety of the initial Complaint,
(ECF No. 3).
4 Plaintiffs allege that an attempt to convert IOMAXIS from a North Carolina LLC to a Texas
LLC was unsuccessful, and they seek a declaratory judgment establishing that IOMAXIS is a North Carolina LLC, that it is controlled by an operating agreement entered by its members on 26 November 2001 (the “Operating Agreement”), and that a later operating agreement (the “Texas Document”) is not controlling. For purposes of this Order and Opinion, the Court accepts as true Plaintiffs’ allegations that the Operating Agreement is controlling.
5 A “Majority in Interest” is defined as “a combination of any Members who, in the aggregate,
own more than fifty percent (50%) of the Membership Interests of all Members.” A “Disinterested Member” is one “who is not related . . . to either the Member whose Membership Interest is to be transferred as provided in Article VIII or the proposed transferee of such Membership Interest.” (OA § 1.1.) 6 The Operating Agreement is divided into Articles, and each Article contains multiple subparts. The Operating Agreement refers to the subparts as “sections” and numbers them 9. However, the death of a member triggers several other provisions of the
Operating Agreement. First, Section 4.6 provides:
Bankruptcy or Incapacity of a Member. A Member shall cease to have any power as a Member or a Manager, any voting rights or rights of approval hereunder upon death . . . ; and each Member, its personal representative, estate, or successor . . . shall have only the rights, powers, and privileges of a transferee enumerated in Section 8.4[.]
(OA § 4.6, emphasis added.)
10. Section 8.4 defines the rights of a transferee as:
Rights of Transferee. Unless admitted to the Company in accordance with Section 8.3, the transferee of a Membership Interest or a part thereof shall not be entitled to any of the rights, powers, or privileges of its predecessor in interest, except that such transferee shall be entitled to receive and be credited or debited with its proportionate share of Profits, Losses, Gains from Capital Transactions, Company Cash Flow, Company Sales Proceeds, Company Refinancing Proceeds, and Distributions in liquidation.
(OA § 8.4, emphasis added.)
11. Second, the death of a member activates the Buy-Sell provisions in
Article IX of the Operating Agreement. (Am. Compl. ¶ 51, OA § 9.1 et seq.) Section
9.2 states that the executor “shall give notice of the [death] (the ‘Buy-Sell Notice’) to
the other Members within ten (10) days after its occurrence.” (OA § 9.2.) Section 9.3
provides that upon the occurrence of the death, each of the remaining Members “shall
have an option to purchase (the “Purchase Option”) the [Decedent’s] Membership
Interest at Closing on the terms and conditions set forth in this Article IX . . . . The
according to their Article. For example, Article IV, Section 1.6 is referenced as “Section 4.6.” The Court adopts this numbering convention in this Order and Opinion. Purchasing Members must give notice of their election to exercise their Purchase
Option to the [executor] and all other Members within thirty (30) days following
delivery of the Buy-Sell Notice.” (OA § 9.3.)
12. The Operating Agreement’s provision for valuing an interest subject to
the Buy-Sell provisions is Section 9.5. That section was amended in November 2004
to read:
Agreement on Valuation. The [Estate] shall offer to sell its interest to the remaining Members . . . . The value of such interest shall be agreed upon by the [Estate] and the remaining Members. If the [Estate] and the remaining Members cannot agree on such price, then the [Estate] shall deliver his/her offer in writing to the remaining Members, to which the remaining Members must return a written notice of rejection or acceptance within a period of ten (10) days of receipt of said written offer. If said offer is rejected, the [Estate] must purchase the remaining Members’ interests at the price of [the Estate’s] written offer. If said offer is accepted, the remaining Members must purchase the [Estate’s] interest.
(First Amendment to OA § 9.5, Compl. Ex. F, ECF No. 3.)
13. There is a time limit on post-death transfers under the Buy-Sell
provisions. The “closing” of the purchase of any interest pursuant to the Buy-Sell
provisions “shall take place on the date agreed upon by the purchaser(s) and seller,
but not later than ninety (90) days after the [death].” (OA § 9.6.)
14. Furthermore, “upon the exercise of the Purchase Option, the [Estate] . . .
will have no rights in the Company or against the Company, any Member, or any
Manager other than the right to receive payment for its Membership interest[.]” (OA
§ 9.8.) 15. However, in the event the Members do not exercise their Purchase
Option, Section 9.9 of the Operating Agreement provides:
Failure to Exercise Purchase Option . . . . [The Executor] may transfer [the Estate’s] economic rights in the Membership Interest of the [Decedent] to any Person; PROVIDED, HOWEVER, that any transferee of the [Decedent’s] Membership Interest, as provided herein, (i) shall only have those rights as specified in Section 8.4, (ii) shall not be admitted as a substitute Member without full compliance with Section 8.3, and (iii) shall be subject to the Buy-Sell restrictions imposed under this Article IX.
(OA § 9.9, emphasis added.)
16. Finally, Section 11.8 of the Operating Agreement provides:
Survival of Rights. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns.
(OA § 11.8.)
17. Following Decedent’s death, his executor, K.C. Howard, requested that
IOMAXIS and its manager, Brad Buhr (“Buhr”), “provide information necessary to
complete and file an estate tax return with the Internal Revenue Service, [and to]
determine the fair value of [Decedent’s] interest and the Estate’s interest in
IOMAXIS,” among other things. (Am. Compl. ¶ 53.)
18. The Estate, IOMAXIS, and Buhr agreed to hire an appraiser. (Am.
Compl. ¶ 56.) The Estate consented to using RSM US LLP (“RSM”), the appraisal
firm requested by IOMAXIS and Buhr. RSM was then retained. (Am. Compl. ¶¶ 57–
58.)
19. Plaintiffs allege, however, that IOMAXIS and Buhr refused to provide
RSM “the information necessary to conduct a fair market value appraisal” of the Estate’s interest in IOMAXIS. (Am. Compl. ¶ 59.) Instead, IOMAXIS and Buhr
notified the Estate that they intended to have a valuation of IOMAXIS performed by
another company, Valuation Services, Inc. (Am. Compl. ¶ 60.)
20. The Estate informed IOMAXIS and Buhr that for the Internal Revenue
Service (“IRS”) to recognize the validity of the appraisal, the Estate had to retain the
appraisal firm, and it urged IOMAXIS and Buhr to cooperate with RSM. However,
IOMAXIS and Buhr allegedly did not respond to the Estate. (Am. Compl. ¶¶ 61–62.)
21. To date, Plaintiffs allege, IOMAXIS and Buhr have not provided
Plaintiffs with “all of the requested information from which the business, financial
condition and the valuation of IOMAXIS may be ascertained.” (Am. Compl. ¶ 68.)
22. In addition, IOMAXIS has allegedly made disbursements to other
Members after Decedent’s death on 12 June 2017, but it has made no payments to
either the Estate or the Trust. (Am. Compl. ¶¶ 69, 81–83.)
23. Plaintiffs’ Amended Complaint asserts a claim for declaratory judgment
with respect to whether IOMAXIS is a North Carolina limited liability company or a
Texas limited liability company, which operating agreement controls, and Plaintiffs’
entitlement to distributions. Plaintiffs also assert a claim for breach of the right to
receive interim distributions since 12 June 2017. They claim that they require an
accounting to obtain the “business, financial and valuation information” that they
contend is necessary to be able to discharge their duties to the Trust’s beneficiaries,
for the Estate to file its tax return, and to facilitate compliance with the applicable
Buy-Sell provisions in the Operating Agreement. (Am. Compl. ¶¶ 71–97.) 24. In support of their demand for an accounting, Plaintiffs assert that
IOMAXIS and Buhr, its manager, “have a duty and obligation to act in good faith and
fair dealing.” (Am. Compl. ¶ 96.)
25. In turn, the IOMAXIS Defendants seek an order: (1) dismissing the
Trust’s claims in their entirety because Plaintiffs have failed to allege that the Trust
holds a valid interest that affords it standing; (2) denying Plaintiffs’ request that the
Court enter an Order specifically enforcing the Buy-Sell provisions contained in the
Operating Agreement; (3) dismissing any claims for personal liability against any
individual defendant; and (4) denying the request for an accounting. (IOMAXIS Defs’
Br. Supp. Consol. Mot. Dismiss [“Defs’ Br.”] 7–11, ECF No. 224.) 7
II. LEGAL STANDARD
26. “It is well established that dismissal pursuant to Rule 12(b)(6) is proper
when ‘(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 v. British Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting Wood
v. Guilford Cty., 355 N.C. 161, 166 (2002)). This standard of review for Rule 12(b)(6)
is the standard our Supreme Court “routinely uses . . . in assessing the sufficiency of
7 The IOMAXIS Defendants consolidated their motion to dismiss for failure to state a claim
with Burleson’s separate motion to dismiss for lack of personal jurisdiction. The Court has stayed a determination of Burleson’s motion, as well as further proceedings with respect to Plaintiffs’ Fourth and Fifth claims for relief (fraud and violation of the Uniform Voidable Transactions Act) and their demands for a constructive trust and punitive damages. (See Order on Motion to Sever and Stay, ECF No. 283.) Consequently, only the claims asserted by Plaintiffs in the initial complaint—for declaratory judgment, for breach of right to interim distributions, and for an accounting—are addressed herein. complaints in the context of complex commercial litigation.” Id. at 615 n.7 (citations
omitted).
27. When conducting its review, the Court’s inquiry is “whether, as a matter
of law, the allegations of the complaint . . . are sufficient to state a claim upon which
relief may be granted under some legal theory[.]” Harris v. NCNB Nat’l Bank, 85
N.C. App. 669, 670 (1987). And, although the Court accepts all well-pleaded factual
allegations in the relevant pleading as true, see Krawiec v. Manly, 370 N.C. 602, 606
(2018), the Court is not required “to accept as true allegations that are merely
conclusory, unwarranted deductions of fact, or unreasonable inferences.” Good Hope
Hosp., Inc. v. N.C. Dep’t of Health & Human Servs., 174 N.C. App. 266, 274 (2005)
(quoting Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002)).
28. Furthermore, 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)
(quoting Laster v. Francis, 199 N.C. App. 572, 577 (2009)). The Court may consider
these attached or incorporated documents without converting the Rule 12(b)(6)
motion into a motion for summary judgment. Id. at 206.
III. ANALYSIS
A. Standing
29. The IOMAXIS Defendants first argue that the Estate’s assignment of
its economic interest to the Trust was attempted without the prior written consent of
a “Majority in Interest” of the “Disinterested Members” as required by Section 8.1 of the Operating Agreement. Consequently, they argue, no such assignment could have
occurred. In addition, the IOMAXIS Defendants contend that the Trust’s failure to
allege with specificity the amount of its interest or that the Estate met the conditions
required for a valid transfer prevent the Trust from establishing that it has standing
to bring this action. (Defs’ Br. 7–9.)
30. Plaintiffs, on behalf of the Trust, respond that the Amended Complaint
clearly identifies an interest in IOMAXIS that was assigned to and is currently held
by the Trust. They argue that, at this juncture, Rule 8 does not require them to plead
additional specifics regarding the amount of its interest or the conditions that led to
its transfer. (Pls’ Br. Opp. IOMAXIS Defs’ Consol. Mot. Dismiss, [“Pls’ Br.”] 5–6, ECF
No. 235.) As for the prior written consent requirement in Section 8.1 of the Operating
Agreement, Plaintiffs respond that the provision only applies when the transferor is
a member, and it does not apply when the interest is held by an economic interest
holder such as the Estate. (Pls’ Br. 6–7.)
31. The Court observes that the Amended Complaint alleges that
Decedent’s interest passed to his Estate, which, in turn, passed all that the Estate
held to the Trust. (Am. Compl. ¶ 5, Ex A.) There is no allegation that the interest
was diminished either before or since its assignment to the Trust.
32. Furthermore, Article IX sets out the Buy-Sell procedure triggered by the
death of a member, and (absent breach of the agreement) it is that procedure, rather
than the more general procedures stated in Section 8.1, that governs the transfer of the deceased member’s interest. 8 However, the transferee receives only the economic
rights specified in Section 8.4, and the transferee “shall be subject to the Buy-Sell
restrictions imposed under the Article IX.”
33. Notably, although Section 9.9 references other provisions from Article
VIII, nowhere does it reference Section 8.1 or otherwise state that a transfer pursuant
to Article IX must be approved in writing by a Majority in Interest of the
Disinterested Members. Therefore, the Court concludes that Ron Howard’s death
triggered the procedures specified in Article IX with respect to his economic rights,
and no additional written consent of the members was required for the transfer.
34. With respect to whether Plaintiffs have sufficiently pled the mechanics
of the transfer from the Estate to the Trust to establish standing, the Court
determines for the following reasons that the allegations are minimally sufficient.
35. It is clear on the face of the Amended Complaint that the Buy-Sell
process did not result in a transfer of the Estate’s interest to any of the remaining
members of IOMAXIS. Instead, Plaintiffs allege that the Estate transferred all of its
interest in IOMAXIS to the Trust.
36. What is not clear on the face of the Amended Complaint is how the
transfer occurred. But there are a limited number of possible avenues, two that
require consideration of the members’ option to purchase, and one that does not.
8 Plaintiffs argue that once deceased, a former member is no longer a member subject to the
“written consent” requirement in Section 8.1. Even if that were not true, the Court determines that the members’ inclusion of the specific procedures in Article IX of the Operating Agreement reflects their written consent for those procedures to govern transfers of a deceased member’s “record or beneficial interest in the Company” and satisfies the “written consent” requirement of Section 8.1. 37. The first scenario is that the remaining members did not exercise their
option to purchase the interest, in which case Section 9.9 permitted a transfer to “any
Person,” including the Trust. As transferee, the Trust “shall be subject to the Buy-
Sell restrictions imposed under this Article IX.” (OA § 9.9.)
38. A second scenario is that one or more of the remaining members did opt
to purchase the interest, but the process stalled because the Estate could not
formulate an offer. Plaintiffs allege that this is because IOMAXIS and Buhr, its
manager, did not provide the financial information the Estate claims was necessary
for the Estate (and now the Trust) to do so.
39. The inability to formulate an informed offer could have serious
ramifications for the Estate. Section 9.5 requires the Estate to deliver an offer in
writing to the remaining members, who have ten days to accept or reject it. If the
offer is rejected, the Estate must purchase the remaining members’ interests at the
price of its written offer. Plainly, then, the Estate is incented to value its interest
fairly and accurately, something it alleges it was prevented from doing as a result of
IOMAXIS’ refusal to provide requested financial information. However, the
IOMAXIS Defendants argue that no express provision in the Operating Agreement
requires them to provide an economic interest holder financial information, even if
that information is to value the interest.
40. The IOMAXIS Defendants are correct that no such express term exists
in the Operating Agreement. But in addition to its express terms, “[u]nder North
Carolina law, every contract contains an implied covenant of good faith and fair dealing that neither party will do anything which injures the rights of the other to
receive the benefits of the agreement.” Cordaro v. Harrington Bank, FSB, 260 N.C.
App. 26, 38 (2018) (internal marks and citation omitted). This implied covenant is a
“basic principle of contract law that a party who enters into an enforceable contract
is required to act in good faith and to make reasonable efforts to perform his
obligations under the agreement.” Maglione v. Aegis Family Health Ctrs., 168 N.C.
App. 49, 56 (2005) (quoting Weyerhaeuser Co. v. Godwin Bldg. Supply Co., 40 N.C.
App. 743, 746 (1979)). It has been called the “spirit of the contract.” Bicycle Transit
Authority, Inc. v. Bell, 314 N.C. 219, 230 (1985) (defendant breached both the “letter
and the spirit of the contract”); accord Allen v. Allen, 61 N.C. App. 716, 720 (1983)
(party’s actions were “clear violations of both the letter and spirit of the contract”).
41. The implied covenant of good faith and fair dealing is the gap-filler that
guides the parties in their performance of the express terms of the contract. Its
central purpose is “to allow enforcement of a vague or incomplete agreement that the
ratifying parties intended to be binding, but that lacks certain terms essential to
proper contract formation.” Rezapour v. Earthlog Equity Group, Inc., 2013 U.S. Dist.
LEXIS 92124, at *11 (W.D.N.C. July 1, 2013) (citing Ultra Innovations, Inc. v. Food
Lion, Inc., 130 N.C. App. 315, 317–18 (1998)).
42. Although invisible on the page, the implied covenant of good faith and
fair dealing is an essential component of a contract. It is the foundation upon which
the agreement is built. It is a material term. See Weyerhaeuser Co., 40 N.C. App. at
746 (“Good faith and fair dealing are required of all parties to a contract; and each party to a contract has the duty to do everything that the contract presupposes that
he will do to accomplish its purpose.” (citing 17A C.J.S. Contracts § 451, at 564
(1963))). 9
43. Accordingly, if the covenant of good faith and fair dealing was violated
by IOMAXIS and Buhr’s alleged refusal to provide information necessary to value the
Decedent’s interest, a material breach occurred, 10 and the anti-assignment provision
in Section 8.1 of the Operating Agreement (prohibiting transfers without the “prior
written consent of a Majority in Interest of the Disinterested Members”) would no
longer control. (OA § 8.1.) See, e.g., Millis Constr. Co. v. Fairfield Sapphire Valley,
Inc., 86 N.C. App. 506, 512 (1987) (“The general rule governing bilateral contracts
requires that if either party commits a material breach of the contract, the other party
should be excused from the obligation to further perform.”). In that event, the Estate
would be free to transfer its interest to the Trust without consent of the members.
44. The third scenario doesn’t depend on the Members’ option at all.
Amended Section 9.5 requires the Estate to initiate the Buy-Sell by naming its price,
without any mention of the option (“The withdrawing Member shall offer to sell its
9 After complaining that they, too, have been deprived of necessary information, Plaintiffs
reference the duty of good faith and fair dealing in their Third Claim for Relief: “Defendants IOMAXIS and Buhr have a duty and obligation to act in good faith and fair dealing with regard to Plaintiffs and their requests for the business, financial and valuation information necessary for the buy-sell event under the Operating Agreement and in order to file an accurate estate tax return.” (Am. Compl. ¶ 96.)
10 Implied covenant claims need not be paired with a breach of the express provisions of a
contract to be actionable in North Carolina. See, e.g., Richardson v. Bank of Am., N.A., 182 N.C. App. 531, 556 (2007); TAC Invs., LLC v. Rodgers, 2020 NCBC LEXIS 143, at **15 (N.C. Super. Ct. Dec. 7, 2020); Vitaform, Inc. v. Aeroflow, Inc., 2020 NCBC LEXIS 132, at *13 (N.C. Super. Ct. Nov. 4, 2020). interest to the remaining Members[.]”). As with the second scenario above, if the
Estate was stymied by its inability to get the financial information necessary to make
its offer and the spirit of the agreement was violated, the Estate would be relieved of
restrictions on a transfer to the Trust.
45. Considering the totality of the allegations in the Amended Complaint
and the standard upon which the Court conducts its review for Rule 12(b)(6)
purposes, the Court determines that the allegations presented in the Amended
Complaint are sufficient to establish that the Trust has standing. While it is true
that the allegations as to which scenario led to the transfer are not made explicit, in
any of the three possible scenarios described above, the Trust becomes a transferee
of an interest in IOMAXIS, giving it standing. See Ford v. Peaches Entm’t Corp., 83
N.C. App. 155, 156 (1986) (the facts and permissible inferences set forth in the
Amended Complaint are to be treated in a light most favorable to the nonmoving
party); Pyco Supply Co., Inc. v. Am. Centennial Ins. Co., 321 N.C. 435, 443 (1988)
(denying a party his day in court because of his “imprecision with the pen” would
“elevate form over substance” and run “contrary to the purpose and intent of notice
pleading and the modern rules of civil procedure”).
B. Specific Performance of the Buy-Sell
46. The IOMAXIS Defendants next argue that Plaintiffs have not alleged a
claim on behalf of the Trust that would support their request for an order enforcing
the Buy-Sell provisions of the Operating Agreement. Specifically, the IOMAXIS
Defendants argue: (a) that the Trust has not alleged a breach of the Buy-Sell provisions; (b) that the Trust has not alleged “definite and certain” obligations that
the Buy-Sell provisions impose on any of the IOMAXIS Defendants that could be the
subject of an order; and (c) harkening to its first argument, that the Trust has no
contractual right to compel the members to opt to purchase, thereby triggering the
Buy-Sell provisions. (Defs’ Br. 9–10.)
47. Plaintiffs respond that they have alleged a breach of the Buy-Sell
provisions in the Operating Agreement, as evidenced by the fact that the Decedent’s
interest has not been redeemed, and the appraisal process has not been followed. 11
48. “The remedy of specific performance is available to compel a party to do
precisely what he ought to have done without being coerced by the court.” Munchak
Corp. v. Caldwell, 301 N.C. 689, 694 (1981) (internal quotation marks omitted). “To
receive specific performance, the law requires the moving party to prove that (i) the
remedy at law is inadequate, (ii) the obligor can perform, and (iii) the obligee has
performed [her] obligations.” Reeder v. Carter, 226 N.C. App. 270, 275 (2013) (cleaned
up). Damages must be inadequate. See Whalehead Properties v. Coastland Corp.,
299 N.C. 270, 282 (1980).
49. Generally, “specific performance of a contract is decreed only when it is
equitable to do so.” Hutchins v. Honeycutt, 286 N.C. 314, 318 (1974). “The party
claiming the right to specific performance must show the existence of a valid contract,
its terms, and either full performance on his part or that he is ready, willing and able
11 Plaintiffs refer to Section 9.6 of the Operating Agreement, but that provision deals with
the closing of any purchase, not the value of the interest. The valuation provision is Section 9.5. (Compare OA § 9.5, with OA § 9.6.) That provision was amended in 2004 and no longer requires the appraisal process described by Plaintiffs in their brief. (See Am. Compl. Ex. F.) to perform.” Munchak, 301 N.C. at 694 (citing 71 Am. Jur. 2d “Specific Performance,”
§ 207 (1973)). “Specific performance will not be decreed unless the terms of the
contract are so definite and certain that the acts to be performed can be ascertained
and the court can determine whether or not the performance rendered is in accord
with the contractual duty assumed.” N.C. Med. Soc’y v. N.C. Bd. of Nursing, 169 N.C.
App. 1, 12 (2005) (quoting 12 Arthur L. Corbin, Corbin on Contracts § 1174, at 335
(2002)).
50. Here, the Court agrees with the IOMAXIS Defendants that Plaintiffs
cannot force the members to exercise the purchase option that was available to them
pursuant to Article IX following Decedent’s death. However, as discussed above, the
amended Section 9.5 does not require such an election as a precondition to the
valuation process. Indeed, Section 9.5 mandates that the Estate “shall” offer to sell
its interest to the “remaining Members” without referencing the option or even
narrowing the members to the “purchasing members.” (OA § 9.5.) Read this way, it
is the Estate that must initiate the Buy-Sell, and the Buy-Sell process occurs
regardless of whether the remaining members elect their option.
51. On the other hand, if consideration of the members’ option is not
necessary to trigger valuation of the interest, then the language of Section 9.9
(limiting transfer of the interest to a decision of the members not to elect the option)
is inconsistent. Moreover, Section 9.5 contemplates a transaction that is limited to
the Estate and the members. However, Sections 9.3 and 9.9 contemplate the
potential for a transfer to “any Person.” There is obvious discordance. 52. The Court determines, then, that the Operating Agreement with its
amended Section 9.5 is internally inconsistent, creating an ambiguity in this contract.
Plaintiffs have pled that a breach occurred when IOMAXIS and Buhr allegedly did
not provide the Estate (and now the Trust) the financial information necessary to
value Decedent’s interest in IOMAXIS. Plaintiffs have also pled that they require
information, and that legal remedies are insufficient.
53. Therefore, it is not for the Court, at this early stage and based on this
record, to rule out an interpretation of the Operating Agreement that would support
Plaintiffs’ demand for specific performance. See Dockery v. Quality Plastic Custom
Molding, Inc., 144 N.C. App. 419, 422 (2001) (“Ambiguity exists where the contract’s
language is reasonably susceptible to either of the interpretations asserted by the
parties.”); WakeMed v. Surgical Care Affiliates, LLC, 243 N.C. App. 820, 827 (2015)
(“interpretation of an ambiguous contract is best left to the trier of fact”).
54. Accordingly, the Court DENIES the IOMAXIS Defendants’ request that
it enter an order at this stage precluding the remedy of specific performance.
C. Equitable Accounting
55. The IOMAXIS Defendants also move to dismiss Plaintiffs’ demand for
an accounting. They argue that the Trust has not asserted a claim that would support
an accounting, and even if it has such a claim, the Trust has not alleged that it lacks
an adequate remedy at law. The IOMAXIS Defendants further argue that neither
Chapter 57D nor the operating agreement provides Plaintiffs with information rights.
Lastly, to the extent the Estate alleges that it requires the information to file its tax returns, the IOMAXIS Defendants contend that the Estate is not a party to this
lawsuit and therefore has no standing to seek such a remedy. (Defs’ Br. 10–12.)
56. Plaintiffs respond that the need for an equitable accounting arises out
of the Defendants’ breach of the Operating Agreement. 12 They read the Operating
Agreement, with its amendment, to require a valuation of the economic interest, and
they argue that Defendants have thwarted their efforts to obtain the information
necessary for a reliable appraisal. (Pls’ Br. 10.)
57. While styled as a “claim,” the Plaintiffs’ request is better fashioned as a
demand for the remedy of an equitable accounting. See Gottfried v. Covington, 2014
NCBC LEXIS 26, at **16–17 (N.C. Super. Ct. June 25, 2014). Such a remedy, which
most often results when there is a breach of a fiduciary duty, is distinct from an
interest holder’s information rights afforded by statute or operating agreement.
Compare Burgess v. Burgess, 205 N.C. App. 325, 333 (2010) (“An accounting is an
equitable remedy sometimes pled in claims of breach of fiduciary duty”), with
N.C.G.S. § 57D-3-04 (statutory information rights).
58. The scope and depth of the remedy of equitable accounting depends on
the nature of the harm and the information necessary to remedy that harm. An
equitable accounting can be specific and deep, or it can be general and cover a breadth
of information. It can be as simple as an order to produce records, or it can involve
an extensive audit by a neutral third-party. Fashioning the appropriate remedy
12The Trust further alleges that it is unable to discharge its fiduciary obligations to its beneficiaries without knowing the value of the asset it holds. (Am. Compl. ¶ 92.) depends on the circumstances and is in the equitable powers of the Court. See, e.g.,
Alkemal Sing. Private Ltd. v. Dew Glob. Fin., LLC, 2018 NCBC LEXIS 36, at **52–
53 (N.C. Super. Ct. Apr. 19, 2018) (“The remedy of an equitable accounting may be
available when a plaintiff has asserted a valid claim for relief in equity and an
accounting is necessary to compel discovery of information regarding accounts held
exclusively by the defendant.”) (quoting Mkt. Choice, Inc. v. New England Coffee Co.,
2009 U.S. Dist. LEXIS 73627, at *35–36 (W.D.N.C. Aug. 18, 2009) (applying North
Carolina law); Watson v. Fulk, 19 N.C. App. 377, 380 (1973) (“The appropriate method
for determining the exact amount which may be due the plaintiff, if anything, is to
require the defendant, who is in possession of the essential information, to render an
accounting.”).
59. There must be a claim to support such a remedy, however. The Court
concludes, based on a review of the Amended Complaint in its entirety, that
Plaintiffs have asserted one or more such causes of action. Moreover, they have
asserted that it is information they require, not a remedy at law. Gottfried, 2014
NCBC LEXIS 26, at **16 (pleadings must allege that plaintiff lacks adequate
remedy at law).
60. Nevertheless, the Court holds that it is premature to determine whether
an equitable accounting would be an appropriate remedy in this case. 13 Cf.
Brakebush Bros., Inc. v. Certain Underwriters at Lloyd’s of London, 2021 NCBC
LEXIS 98, at **41 (N.C. Super. Ct. Nov. 1, 2021) (too early to decide on Rule 12(b)(6)
13 In some circumstances, a plaintiff may obtain the information needed to assess a claim for
damages through discovery. See, e.g., Gottfried, 2014 NCBC LEXIS 26, at **16–17. motion whether Plaintiff would be entitled to recover consequential damages if it
ultimately prevailed); Fleming v. Horner, 2021 NCBC LEXIS 33, at *23 (N.C. Super.
Ct. April 1, 2021) (too early at Rule 12(b)(6) stage to decide whether to dismiss
punitive damages request); Aldridge v. Metro. Life Ins. Co., 2019 NCBC LEXIS 116,
at *145–46 (N.C. Super. Ct. Dec. 31, 2019) (denying a motion to dismiss to the extent
that punitive damages were sought as a remedy).
61. Accordingly, the IOMAXIS Defendants’ Motion to Dismiss the Trust’s
“claim” for equitable accounting, to the extent it is a demand for relief, is DENIED.
62. Finally, it is undisputed that the Estate is not a party to this action and
has no standing to assert a demand for relief. Therefore, the IOMAXIS Defendants’
Motion to Dismiss any demand on the part of the Estate itself for an equitable
accounting is GRANTED.
D. The Individual Defendants
63. With respect to Plaintiffs’ first three claims (declaratory judgment,
breach of the right to receive interim distributions, and accounting) Buhr, Spade,
Griffin, and Burleson (the “Individual IOMAXIS Defendants”) each move to dismiss
the claims “[t]o the extent that the Trust seeks monetary damages” from them
because the Trust has not asserted a claim for personal liability against any of them.
(Defs’ Br. 10.)
64. Plaintiffs respond that the Individual IOMAXIS Defendants have
mischaracterized the Amended Complaint. They assert that the individuals are
included in this declaratory judgment action “as a matter of statutory requirement per N.C. Gen. Stat. § 1-253 et seq.” and only “to the extent that they have any claim
or interest in IOMAXIS, or any distributions by IOMAXIS, that would be affected by
this declaratory judgment action or any claims asserted herein.” (Pls’ Br. 9.)
65. By statute, “When declaratory relief is sought, all persons shall be made
parties who have or claim any interest which would be affected by the declaration,
and no declaration shall prejudice the rights of persons not parties to the
proceedings.” N.C.G.S. § 1-260.
66. Accordingly, the Court determines that, as to Plaintiffs’ first three
claims for relief, the individual defendants have been named because Plaintiffs seek
a declaratory judgment that could impact the individual defendants’ interests in, and
distributions from, IOMAXIS. To the extent that the Motion of Defendants Buhr,
Spade, and Griffin 14 is intended to clarify that no other relief is sought from them
individually on the first three claims, the Motion is GRANTED.
67. In making this determination, the Court does not address the viability
of Plaintiffs’ Fourth (fraud) and Fifth (Uniform Voidable Transaction Act) Claims for
Relief with respect to any defendant. Given the pendency of the IOMAXIS
Defendants’ appeal to the Supreme Court of North Carolina, this Court has stayed
all proceedings with respect to those claims and their accompanying demands. (See
Order Mot. Sever and Stay, ECF No. 283.)
14 The Court does not address the Motion as to Burleson because it is stated in the alternative
to Burleson’s motion to dismiss for lack of in personam jurisdiction. The latter motion is stayed pending resolution of the IOMAXIS Defendants’ appeal of this Court’s earlier order. (See ECF Nos. 198, 283.) IV. CONCLUSION
68. WHEREFORE, the Court hereby ORDERS that the IOMAXIS
Defendants’ Consolidated Motion to Dismiss the Trust’s First Amended Complaint is
GRANTED in part, DENIED in part, and STAYED in part, as follows:
a. The IOMAXIS Defendants’ Motion to Dismiss the Trust’s
claims on the basis that the Trust lacks standing is DENIED.
b. The IOMAXIS Defendants’ Motion to Dismiss the Estate’s
demands for relief on the basis that the Estate lacks standing
is GRANTED, without prejudice.
c. The IOMAXIS Defendants’ Motion to Dismiss the Trust’s
demands for specific performance and for equitable accounting
is DENIED.
d. Except as to Burleson, the Individual IOMAXIS Defendants’
Motion to Dismiss is GRANTED with prejudice to the extent
Plaintiffs seek relief beyond that afforded by the Declaratory
Judgment Act. As to Burleson, this Motion is STAYED.
e. A determination of Burleson’s Motion to Dismiss pursuant to
Rule 12(b)(6), stated in the alternative to his Motion to
Dismiss pursuant to Rule 12(b)(2), is STAYED.
f. A determination of the balance of the IOMAXIS Defendants’
Motion to Dismiss is STAYED pending resolution of the IOMAXIS Defendants’ appeal of this Court’s Order, (ECF No.
198).
g. The parties shall meet and confer and submit a new Case
Management Report to the Court pursuant to Business Court
Rule 9 by 5:00 P.M. on or before 5 January 2023.
IT IS SO ORDERED, this the 5th day of December, 2022.
/s/ Julianna Theall Earp Julianna Theall Earp Special Superior Court Judge for Complex Business Cases