Konover v. Pantlin, 2020 NCBC 8.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 19 CVS 3752
ILAN KONOVER, HK CAPITAL., GROUP, LLC, LIN’S HOLDINGS, LLC, and YOUNG LIN, all individually and derivatively on behalf of MPHK CAPITAL, LLC,
Plaintiffs, v.
MARK PANTLIN and MPHK CAPITAL, LLC, Defendants. ---------------------------------------------------- ORDER AND OPINION ON PANTLIN’S MARK PANTLIN, individually and MOTION TO DISMISS, TO STRIKE, AND TO derivatively on behalf of DISQUALIFY COUNSEL MPHK CAPITAL, LLC, Counterclaim Plaintiff, v.
ILAN KONOVER, ARIEL KONOVER, HENRY KONOVER, HK CAPITAL GROUP, LLC, LIN’S HOLDINGS, LLC, YOUNG LIN, and MPHK CAPITAL, LLC,
Counterclaim Defendants.
THIS MATTER comes before the Court on Defendant/Counterclaim Plaintiff
Mark Pantlin’s (“Pantlin”) Motion to Dismiss, to Strike, and to Disqualify Counsel.
(“Motion,” ECF No. 6.) Pantlin moves pursuant to North Carolina Rules of Civil
Procedure (hereinafter, “Rules”) 12(b)(1), 12(b)(6), and 12(f) to dismiss certain claims, to strike all claims brought on behalf of MPHK Capital, LLC (“MPHK”), and to
disqualify MPHK’s counsel. (Id. at p. 2.) Plaintiffs did not respond to the Motion.
THE COURT, having considered the Motion, the brief in support of the Motion
filed by Defendants, and other appropriate matters of record, concludes that the
Motion should be GRANTED, in part, and DENIED, in part, for the reasons set forth
below.
Manning, Fulton, & Skinner, P.A., by J. Whitfield Gibson and Robert Strong Shields for Plaintiffs-Counterclaim Defendants Young Lin; Lin’s Holdings, LLC; HK Capital Group, LLC; and Ilan Konover.
Sigmon Law, PLLC, by Mark Russell Sigmon for Defendant- Counterclaim Plaintiff Mark Pantlin.
McGuire, Judge.
I. FACTS AND PROCEDURAL HISTORY
1. The Court adopts and relies, as it must, on the factual allegations as
pleaded in Plaintiffs’ complaint (“Verified Complaint,” ECF No. 3). See, e.g., Harris
v. NCNB Nat’l Bank of N.C., 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987); Oates
v. JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985).
2. On March 11, 2019, Plaintiffs filed their Verified Complaint in Wake
County, North Carolina alleging derivative claims, on behalf of MPHK, against
Pantlin for breach of fiduciary duty; breach of contract; and constructive fraud. 1 (ECF
No. 3.) Plaintiffs also bring individual claims against Pantlin for breach of contract;
1 Although not styled as a derivative claim, it appears Plaintiffs’ constructive fraud claim is
brought derivatively because Plaintiffs’ allegations supporting their constructive fraud claim only allege damages incurred by MPHK. (See ECF No. 3, at ¶¶ 51–52.) frustration of reasonable expectations 2; fraud; and unfair or deceptive trade practices
in violation of N.C.G.S. § 75-1.1 (“UDTPA”). (Id.) On November 12, 2019, this case
was designated to the North Carolina Business Court (Desig. Order, ECF No. 1), and
assigned to the undersigned on November 13, 2019 (Assign. Order, ECF No. 2).
3. On November 14, 2019, Pantlin filed the Motion (ECF No. 6), along with
a supporting brief (“Brief in Support,” ECF No. 7). Plaintiffs did not file a brief in
opposition to the Motion.
4. Pantlin’s Motion is ripe for review. Pursuant to North Carolina
Business Court Rule (“BCR”) 7.4, the Court, in its discretion, now decides the Motion
without a hearing.
II. ANALYSIS
A. Standard of Review
6. Pantlin moves for dismissal pursuant to Rules 12(b)(1), 12(b)(6), and
12(f).
7. “If a party does not have standing to bring a claim, a court has no subject
matter jurisdiction to hear the claim.” Estate of Apple v. Commercial Courier Express
Inc., 168 N.C. App. 175, 177, 607 S.E.2d 14, 16 (2005). “Standing concerns the trial
court’s subject matter jurisdiction and is therefore properly challenged by
a Rule 12(b)(1) motion to dismiss.” Fuller v. Easley, 145 N.C. App. 391, 395, 553
S.E.2d 43, 46 (2001).
2 Plaintiffs’ claim for “frustration of reasonable expectations,” which prays for “equitable relief,” appears to seek judicial dissolution of MPHK. 8. “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, 821 S.E.2d 729, 736–
37 (2018) (quoting Wood v. Guilford County, 355 N.C. 161, 166, 558 S.E.2d 490, 494
(2002)).
9. Under Rule 12(f), the trial court may “strik[e] from any pleading any
insufficient defense or any redundant, irrelevant, immaterial, impertinent, or
scandalous matter.” N.C.G.S. § 1A-1, Rule 12(f). “A motion to strike is addressed to
the sound discretion of the trial court.” Kingsdown, Inc. v. Hinshaw, 2016 NCBC
LEXIS 15, at *8 (N.C. Super. Ct. Feb. 17, 2016). Likewise, “[d]ecisions regarding
whether to disqualify counsel are within the discretion of the trial judge.” Robinson
& Lawing, L.L.P. v. Sams, 161 N.C. App. 338, 339, 587 S.E.2d 923, 925 (2003)
(citation omitted).
B. Plaintiffs’ Derivative Claims
10. Pantlin seeks dismissal of Plaintiffs’ derivative claims pursuant to Rules
12(b)(1) and 12(b)(6). Pantlin argues that Plaintiffs’ derivative claims should be
dismissed because “Plaintiffs failed to allege any demand at all . . . . As a result, this
Court lacks subject matter jurisdiction.” (ECF No. 7, at p. 6.)
11. A member of a North Carolina LLC can bring a derivative action only if
the “member made written demand on the LLC to take suitable action, and either (i) the LLC notified the member that the member’s demand was rejected, (ii) 90 days
have expired from the date the demand was made, or (iii) irreparable injury to the
LLC would result by waiting for the expiration of the 90-day period.” N.C.G.S. § 57D-
8-01(a)(2); Azure Dolphin, LLC v. Barton, 2017 NCBC LEXIS 90, at *20 (N.C. Super.
Ct. Oct. 2, 2017).
12. The Court has closely reviewed the Verified Complaint and there is,
indeed, no allegation that a pre-suit demand letter was served on MPHK. (See ECF
No. 3.) Therefore, Pantlin’s motion to dismiss Plaintiffs’ derivative claims pursuant
to Rules 12(b)(1) and 12(b)(6) should be GRANTED.
C. Plaintiffs’ UDTPA Claim
13. Pantlin argues that Plaintiffs’ UDTPA claim should be dismissed
pursuant to Rule 12(b)(6) because “all of the allegations by Plaintiffs are clearly about
an internal dispute among the three members of MPHK.” (ECF No. 7, at p. 9.)
14. The UDTPA seeks “to prohibit unfair or deceptive conduct in
interactions between different market participants.
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Konover v. Pantlin, 2020 NCBC 8.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 19 CVS 3752
ILAN KONOVER, HK CAPITAL., GROUP, LLC, LIN’S HOLDINGS, LLC, and YOUNG LIN, all individually and derivatively on behalf of MPHK CAPITAL, LLC,
Plaintiffs, v.
MARK PANTLIN and MPHK CAPITAL, LLC, Defendants. ---------------------------------------------------- ORDER AND OPINION ON PANTLIN’S MARK PANTLIN, individually and MOTION TO DISMISS, TO STRIKE, AND TO derivatively on behalf of DISQUALIFY COUNSEL MPHK CAPITAL, LLC, Counterclaim Plaintiff, v.
ILAN KONOVER, ARIEL KONOVER, HENRY KONOVER, HK CAPITAL GROUP, LLC, LIN’S HOLDINGS, LLC, YOUNG LIN, and MPHK CAPITAL, LLC,
Counterclaim Defendants.
THIS MATTER comes before the Court on Defendant/Counterclaim Plaintiff
Mark Pantlin’s (“Pantlin”) Motion to Dismiss, to Strike, and to Disqualify Counsel.
(“Motion,” ECF No. 6.) Pantlin moves pursuant to North Carolina Rules of Civil
Procedure (hereinafter, “Rules”) 12(b)(1), 12(b)(6), and 12(f) to dismiss certain claims, to strike all claims brought on behalf of MPHK Capital, LLC (“MPHK”), and to
disqualify MPHK’s counsel. (Id. at p. 2.) Plaintiffs did not respond to the Motion.
THE COURT, having considered the Motion, the brief in support of the Motion
filed by Defendants, and other appropriate matters of record, concludes that the
Motion should be GRANTED, in part, and DENIED, in part, for the reasons set forth
below.
Manning, Fulton, & Skinner, P.A., by J. Whitfield Gibson and Robert Strong Shields for Plaintiffs-Counterclaim Defendants Young Lin; Lin’s Holdings, LLC; HK Capital Group, LLC; and Ilan Konover.
Sigmon Law, PLLC, by Mark Russell Sigmon for Defendant- Counterclaim Plaintiff Mark Pantlin.
McGuire, Judge.
I. FACTS AND PROCEDURAL HISTORY
1. The Court adopts and relies, as it must, on the factual allegations as
pleaded in Plaintiffs’ complaint (“Verified Complaint,” ECF No. 3). See, e.g., Harris
v. NCNB Nat’l Bank of N.C., 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987); Oates
v. JAG, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985).
2. On March 11, 2019, Plaintiffs filed their Verified Complaint in Wake
County, North Carolina alleging derivative claims, on behalf of MPHK, against
Pantlin for breach of fiduciary duty; breach of contract; and constructive fraud. 1 (ECF
No. 3.) Plaintiffs also bring individual claims against Pantlin for breach of contract;
1 Although not styled as a derivative claim, it appears Plaintiffs’ constructive fraud claim is
brought derivatively because Plaintiffs’ allegations supporting their constructive fraud claim only allege damages incurred by MPHK. (See ECF No. 3, at ¶¶ 51–52.) frustration of reasonable expectations 2; fraud; and unfair or deceptive trade practices
in violation of N.C.G.S. § 75-1.1 (“UDTPA”). (Id.) On November 12, 2019, this case
was designated to the North Carolina Business Court (Desig. Order, ECF No. 1), and
assigned to the undersigned on November 13, 2019 (Assign. Order, ECF No. 2).
3. On November 14, 2019, Pantlin filed the Motion (ECF No. 6), along with
a supporting brief (“Brief in Support,” ECF No. 7). Plaintiffs did not file a brief in
opposition to the Motion.
4. Pantlin’s Motion is ripe for review. Pursuant to North Carolina
Business Court Rule (“BCR”) 7.4, the Court, in its discretion, now decides the Motion
without a hearing.
II. ANALYSIS
A. Standard of Review
6. Pantlin moves for dismissal pursuant to Rules 12(b)(1), 12(b)(6), and
12(f).
7. “If a party does not have standing to bring a claim, a court has no subject
matter jurisdiction to hear the claim.” Estate of Apple v. Commercial Courier Express
Inc., 168 N.C. App. 175, 177, 607 S.E.2d 14, 16 (2005). “Standing concerns the trial
court’s subject matter jurisdiction and is therefore properly challenged by
a Rule 12(b)(1) motion to dismiss.” Fuller v. Easley, 145 N.C. App. 391, 395, 553
S.E.2d 43, 46 (2001).
2 Plaintiffs’ claim for “frustration of reasonable expectations,” which prays for “equitable relief,” appears to seek judicial dissolution of MPHK. 8. “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, 821 S.E.2d 729, 736–
37 (2018) (quoting Wood v. Guilford County, 355 N.C. 161, 166, 558 S.E.2d 490, 494
(2002)).
9. Under Rule 12(f), the trial court may “strik[e] from any pleading any
insufficient defense or any redundant, irrelevant, immaterial, impertinent, or
scandalous matter.” N.C.G.S. § 1A-1, Rule 12(f). “A motion to strike is addressed to
the sound discretion of the trial court.” Kingsdown, Inc. v. Hinshaw, 2016 NCBC
LEXIS 15, at *8 (N.C. Super. Ct. Feb. 17, 2016). Likewise, “[d]ecisions regarding
whether to disqualify counsel are within the discretion of the trial judge.” Robinson
& Lawing, L.L.P. v. Sams, 161 N.C. App. 338, 339, 587 S.E.2d 923, 925 (2003)
(citation omitted).
B. Plaintiffs’ Derivative Claims
10. Pantlin seeks dismissal of Plaintiffs’ derivative claims pursuant to Rules
12(b)(1) and 12(b)(6). Pantlin argues that Plaintiffs’ derivative claims should be
dismissed because “Plaintiffs failed to allege any demand at all . . . . As a result, this
Court lacks subject matter jurisdiction.” (ECF No. 7, at p. 6.)
11. A member of a North Carolina LLC can bring a derivative action only if
the “member made written demand on the LLC to take suitable action, and either (i) the LLC notified the member that the member’s demand was rejected, (ii) 90 days
have expired from the date the demand was made, or (iii) irreparable injury to the
LLC would result by waiting for the expiration of the 90-day period.” N.C.G.S. § 57D-
8-01(a)(2); Azure Dolphin, LLC v. Barton, 2017 NCBC LEXIS 90, at *20 (N.C. Super.
Ct. Oct. 2, 2017).
12. The Court has closely reviewed the Verified Complaint and there is,
indeed, no allegation that a pre-suit demand letter was served on MPHK. (See ECF
No. 3.) Therefore, Pantlin’s motion to dismiss Plaintiffs’ derivative claims pursuant
to Rules 12(b)(1) and 12(b)(6) should be GRANTED.
C. Plaintiffs’ UDTPA Claim
13. Pantlin argues that Plaintiffs’ UDTPA claim should be dismissed
pursuant to Rule 12(b)(6) because “all of the allegations by Plaintiffs are clearly about
an internal dispute among the three members of MPHK.” (ECF No. 7, at p. 9.)
14. The UDTPA seeks “to prohibit unfair or deceptive conduct in
interactions between different market participants. The General Assembly did not
intend for the Act to regulate purely internal business operations.” White v.
Thompson, 364 N.C. 47, 47–48, 691 S.E.2d 676, 676 (2010). “As a result, any unfair
or deceptive conduct contained solely within a single business is not covered by the
Act.” Id. at 53, 691 S.E.2d at 680.
15. The Court has thoroughly reviewed the Verified Complaint. Even under
its most liberal reading, it appears that the alleged unfair or deceptive conduct
occurred solely within MPHK, a single market participant. With no opposition brief to persuade the Court otherwise, the Court concludes Pantlin’s motion to dismiss
Plaintiffs’ UDTPA claim pursuant to Rule 12(b)(6) should be GRANTED.
D. Striking MPHK’s Claims and Disqualifying MPHK’s Counsel
16. Pantlin contends that “MPHK [ ] also purports to bring claims against
Mr. Pantlin” and that those claims should be stricken and MPHK’s counsel
disqualified because MPHK’s Operating Agreement mandates that “Major
Decisions,” including bringing and defending lawsuits on behalf of MPHK, require
the consent of all MPHK members. (ECF No. 6, at p. 3.) Defendants contend that
since Pantlin did not consent to MPHK bringing this lawsuit, its purported claims
“should be stricken and MPHK’s [ ] counsel disqualified from representing MPHK
in this case.” (Id.)
17. Pantlin’s argument is incorrect. MPHK does not make any claims
directly against Pantlin in the Verified Complaint. Rather, all of the claims raised
by Plaintiffs are allegedly brought derivatively on behalf of MPHK or individually by
Konover and Lin. Accordingly, Pantlin’s motion to dismiss claims brought by MPHK
directly against Pantlin should be DENIED as MOOT.
18. In addition, there is no allegation in the Verified Complaint that
Plaintiffs’ counsel is representing, or has been retained or paid by, MPHK.
Nevertheless, pursuant to the Court’s Receiver Order filed on December 5, 2019, the
Receiver has “full authority to manage the affairs of MPHK in the best interests of
its creditors and Members.” (“Receiver Order,” ECF No. 15, at ¶ 25.) More precisely,
the Receiver Order grants the Receiver authority, in place of MPHK’s members and managers, to file and maintain lawsuits on behalf of MPHK. (See id. at ¶¶ 25–26.)
Accordingly, to the extent MPHK purports to have retained Plaintiff’s counsel on its
own behalf, the Receiver has authority to take those steps necessary to continue or
discontinue such representation. The Court concludes that Pantlin’s motion to
disqualify Plaintiffs’ counsel from representing MPHK should be DENIED as MOOT.
THEREFORE, it is ORDERED that the Motion is GRANTED, in part, and
DENIED, in part, as follows:
1. To the extent the Motion seeks dismissal of Plaintiffs’ purported
derivative claims, the Motion is GRANTED, and any derivative claims
are DISMISSED.
2. To the extent the Motion seeks dismissal of Plaintiffs’ UDTPA claim, the
Motion is GRANTED, and the claim is DISMISSED.
3. To the extent Defendants move to strike claims purportedly raised
directly by MPHK and to disqualify Plaintiffs’ counsel as counsel for
MPHK, the Motion is DENIED as MOOT.
SO ORDERED, this the 30th day of January, 2020.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases