Lecann v. Cobham

2011 NCBC 29

• Court: North Carolina Business Court
• Decided: August 2, 2011
• Docket: 10-CVS-11169
• Status: Published

Opinion

Lecann v. Cobham, 2011 NCBC 29.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 10 CVS 11169

NICOLE LECANN, DDS, Individually and ) Derivatively, ) Plaintiff ) ) v. ) OPINION AND ORDER ON MOTIONS ) FOR SUMMARY JUDGMENT SHARON COBHAM, DDS, et al., ) Defendants/ ) Third-Party Plaintiffs ) ) v. ) ) CHL II, LLC, et al., ) Third-Party Defendants )

THIS CAUSE, designated a complex business case by Order of the Chief Justice

of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b)

(hereinafter, all references to the North Carolina General Statutes will be to "G.S."), and

assigned to the undersigned Chief Special Superior Court Judge for Complex Business

Cases, is before the court upon the Plaintiff Nicole LeCann's ("LeCann") Motion for

Summary Judgment (the "Plaintiff's Motion") and the Defendants/Third Party Plaintiffs'

Motion for Summary Judgment (the "Defendants' Motion") (collectively, the "Motions"),

pursuant to the provisions of Rule 56(c), North Carolina Rules of Civil Procedure

("Rule(s)"); and

THE COURT, having considered the Motions, the arguments and briefs in

support of and opposition to the Motions and appropriate matters of record, CONCLUDES that the Plaintiff's Motion should be GRANTED in part and DENIED in

part, and the Defendants' Motion should be DENIED, for the reasons stated herein.

Sasser Fields, LLP by Robert E. Fields III, Esq. for Plaintiff.

Northern Blue, LLP by David M. Rooks III, Esq. for Defendant/Third Party Plaintiff Sharon Cobham.

Jolly, Judge.

I.

FACTUAL BACKGROUND

[1] Unless otherwise indicated herein, the material facts reflected in

paragraphs 2 through 10, 20 and 25 of this Opinion and Order are undisputed 1 and are

pertinent to the issues raised by the Motions.

[2] At times material to this civil action, Plaintiff LeCann and Defendant Sharon

Cobham ("Cobham") were joint and equal owners of several dental practices

(collectively, the "Entities") and three limited liability companies located in North

Carolina. 2 The Entities were: SHARON COBHAM, D.D.S. & NICOLE LECANN, D.D.S.

IV, P.A. (a/k/a NORTH HILLS FAMILY DENTAL CARE) (the "North Hills Practice");

SHARON COBHAM, D.D.S. & NICOLE LECANN, D.D.S. V. P.A. (a/k/a DURHAM

FAMILY DENTAL CARE) (the "Durham Practice"); SHARON J. COBHAM, D.D.S. &

NICOLE LECANN, D.D.S., P.A. (a/k/a ANNE ELIZABETH FAMILY DENTAL CARE) (the

"Burlington Practice"); SHARON JOVANNA COBHAM, D.D.S. & NICOLE LECANN,

D.D.S. & ASSOCIATES, P.A. (a/k/a APEX FAMILY DENTAL CARE) (the "Apex"

1 It is not proper for a trial court to make findings of fact in determining a motion for summary judgment under Rule 56. However, it is appropriate for a Rule 56 Order to reflect material facts that the court concludes exist and are not disputed, and which support the legal conclusions with regard to summary judgment. Hyde Ins. Agency v. Dixie Leasing, 26 N.C. App. 138 (1975). 2 Compl. ¶ 3. Practice); SHARON COBHAM, D.D.S. AND NICOLE LECANN, D.D.S. II. P.A. (a/k/a

WINSTON-SALEM II) (the "Winston-Salem Practice"). 3 The limited liability companies

were: CHL II, LLC ("CHL"); MHP III, LLC ("MHP") and SCNL, LLC ("SCNL"). 4 Defendant

Cobham also was the sole owner of Sharon Jovanna Cobham, D.D.S., P.A. ("Winston-

Salem I"), a dental practice in Winston Salem.

[3] LeCann and Cobham were the only two officers and directors of the

Entities. 5 They became deadlocked as to the management and operation of the Entities,

and were unable to break the deadlock. Their relationship, both professional and

personal, has since deteriorated.

[4] On July 12, 2010, Plaintiff filed her Complaint in this matter, by which she

seeks relief in eight (8) Counts ("Claim(s)"): Count I (Removal of Director); Count II

(Breach of Fiduciary Duty to Plaintiff); Count III (Derivative Claim - Breach of Fiduciary

Duty, Mismanagement and Waste); Count IV (Derivative Claim - Conversion, Money had

and Received, and Money on an Account); Count V (Tortious Interference with Contracts

and Prospective Economic Advantages); Count VI (Derivative Claim - Tortious

Interference with Contracts and Prospective Economic Advantages); Count VII

(Derivative and Individual - Unfair and Deceptive Trade Practices) and Count VIII

(Derivative Action - Conflict of Interest and Self-Dealing).

[5] Defendant Cobham has timely answered and asserted a counterclaim

against Plaintiff individually, cross-claims against the Entities and third-party claims

against MHP and SCNL (the "Answer").

[6] On September 17, 2010, Plaintiff filed her Motion.

3 Id. 4 Id. 5 Id. ¶ 8. [7] In its Order on Motion for Dissolution and Appointment of Receiver (the

"Dissolution Order"), entered on September 29, 2010, the court dissolved the Entities

pursuant to G.S. 55-14-30, dissolved the limited liability companies pursuant to G.S.

57C-6-02 and appointed Dr. Joseph Laton, D.D.S. to serve as the Receiver for the

Entities. 6

[8] On October 6, 2010, Defendant filed her Motion.

[9] On December 9, 2010, the court authorized the Receiver to go forward

with four transfer agreements (the "Transfer Agreements") whereby he offered to

transfer to Plaintiff LeCann and Defendant Cobham, individually, practice locations and

assets of four of the dissolved Entities. The transfer was anticipated to be in exchange

for assumption and ultimate satisfaction by LeCann and Cobham of certain debts and

obligations associated with the respective dissolved Entities involved. Pursuant to the

Transfer Agreements, Plaintiff LeCann assumed the obligations related to the North Hills

and Apex practices and Defendant assumed the obligations related to the Durham and

Burlington practices.

[10] Effective December 1, 2010, Plaintiff and Defendant began operating new,

solely owned dental practices from the old locations.

[11] The Motions have been fully brief and argued, and are ripe for

determination.

6 On March 8, 2011, the court discharged Dr. Laton as Receiver and appointed Christine Mayhew, Esq. as substitute Receiver. II.

MOTIONS FOR SUMMARY JUDGMENT

A.

Plaintiff's Motion

[12] Under Rule 56(c), summary judgment is to be rendered "forthwith" if the

pleadings, depositions, answers to interrogatories and admissions on file, together with

the affidavits, if any, show that upon the forecast of evidence there exists no genuine

issue as to any material fact and that any party is entitled to a judgment as a matter of

law. Grayson v. High Point Dev. Ltd. P'ship, 175 N.C. App. 786, 788 (2006). The court

views the evidence in the light most favorable to the nonmoving party. Bruce-Terminix

Co. v. Zurich Ins. Co., 130 N.C. App. 729, 733 (1998).

[13] Plaintiff moves the court for partial summary judgment requiring

dissolution of the Entities and appointing a licensed dentist to serve as receiver for

purposes of winding up the affairs of the Entities, with the exception of prosecution of the

Claims encompassed by Plaintiff's derivative Claims ("Derivative Claims") for alleged

breach of fiduciary duty and self-dealing by Defendant Cobham and recovery of

unauthorized transfers made by Defendant Cobham from one or more of the Entities to

Winston-Salem I, her solely-owned practice. Plaintiff requests that the right and

responsibility to prosecute the Derivative Claims remain with her and not the Receiver.

[14] In response, Defendant Cobham argues that Plaintiff is improperly

asserting the Derivative Claims, as to which Defendant argues Plaintiff LeCann has not

made demand as required by North Carolina law. 7 Therefore, Cobham contends, the

7 For the reasons stated below, the court concludes that the demand by LeCann was proper. court should order the Receiver to pursue any corporate claims against her rather than

Plaintiff.

[15] In light of the court's Dissolution Order, Plaintiff's Motion with respect to

the dissolution of the Entities and the appointment of a Receiver is MOOT. Accordingly,

Plaintiff's Motion with respect to those requests should be DENIED.

[16] With regard to Plaintiff's contention that the court should allow her to

continue prosecution of the Derivative Claims asserted against Defendant Cobham, the

court notes that Plaintiff has vigorously and thoroughly pursued the Derivative Claims so

far in the litigation process. Plaintiff is more knowledgeable about the Claims and the

facts than the Receiver, who has only been involved in this matter since March 2011.

The court is not persuaded by Defendant's contention that LeCann is unable to

prosecute the derivative Claims because of hostility between the parties.

[17] Accordingly, the court CONCLUDES that Plaintiff is a proper party to

prosecute the Derivative Claims, and Plaintiff's Motion in that regard should be

GRANTED.

B.

Defendant's Motion

[18] Defendant Cobham contends that she is entitled to summary judgment on

Counts II through VIII of Plaintiff's Complaint because Plaintiff has not properly asserted

the Derivative Claims and because Plaintiff's individual claims fail since shareholders

generally are not entitled to sue for injuries to a corporation. 1.

Derivative Claims – Demand Requirement

[19] Specifically, Defendant contends that Plaintiff failed to make demand

pursuant to G.S. 55-7-42 prior to asserting the Derivative Claims.

[20] Plaintiff responds that on numerous occasions, and more than ninety (90)

days before filing the Complaint, 8 she made written demand upon Defendant Cobham to

stop her alleged misappropriation of corporate funds. In support of this contention,

Plaintiff submits copies of e-mails, affidavits and even Defendant's Answer, in which

Defendant acknowledges that Plaintiff objected to Defendant's transfers of funds to

Defendant's solely owned practice, Winston Salem I. 9

[21] Under North Carolina law, if shareholders bring an action to enforce a

primary right belonging to the corporation, their claim is derivative and the corporation is

a necessary party. Howell v. Fisher, 49 N.C. App. 488, 492 (1980). North Carolina law

requires shareholders to "seek to obtain their remedy within the corporation itself" before

a derivative action can be brought. Bridges v. Oates, 167 N.C. App. 459, 467 (2004).

One of these intracorporate remedies is the making of a "demand" upon the corporation

to take suitable action. Russell M. Robinson, II, ROBINSON ON NORTH CAROLINA

CORPORATION LAW, § 17.03[1] (7th ed. 2009).

[22] Under North Carolina's demand requirement:

No shareholder may commence a derivative proceeding until: (1) written demand has been made upon the corporation to take suitable action; and (2) 90 days have expired from the date the demand was made unless, prior to

8 Plaintiff argues in the alternative, that even without demands, Plaintiff has standing to proceed directly as the only disinterested shareholder since Defendant Cobham is disqualified from acting with regard to such claims by virtue of her conflict of interest. 9 See Answer ¶ 20. the expiration of the 90 days, the shareholder was notified that the corporation rejected the demand, or unless irreparable injury to the corporation would result by waiting for the expiration of the 90-day period.

G.S. 55-7-42.

[23] "A plaintiff's failure to satisfy this demand requirement constitutes an

insurmountable bar to recovery." Green v. Condra, 2009 NCBC 21, ¶ 89 (internal

quotations omitted).

[24] "The form of the demand is not specified, except to require that it be in

writing; but to serve its purpose it should set forth the facts of share ownership and

describe the redress demanded with enough particularity to allow the corporation either

to correct the problem, if any, without a lawsuit or to bring its own direct action."

ROBINSON ON NORTH CAROLINA CORPORATION LAW, § 17.03[1] (7th ed. 2009). This court

has noted that "[i]n determining whether the demand requirement has been met the

Court must compare the derivative claims asserted in a complaint against the specific

demands a plaintiff has made prior to filing suit." Garlock v. Hilliard, 2000 NCBC 11, ¶

14 (N.C. Super. 2000). The demand must be made with sufficient clarity and

particularity to permit the corporation to assess its rights and obligations and determine

what action is in the best interest of the company. Id.

[25] Plaintiff argues that she made written demand numerous times upon

Defendant Cobham to cease and desist from diverting corporate funds. Plaintiff submits

several e-mails dating back to 2009 in which Plaintiff demands that Defendant Cobham

cease transferring corporate funds and to return any money already transferred. 10

Plaintiff also submits two sworn affidavits in which she testifies that she repeatedly made

10 July 16, 2010 LeCann Aff. Exs. C, G; July 23, 2010 LeCann Aff. Ex. B; Pl. Reply Br. Supp. Mot. Summ. J. Ex. A. demands on Defendant to stop diverting funds. Plaintiff's demands were clear and were

particular enough to put Defendant Cobham reasonably on notice as to the substance of

Plaintiff's objections. 11

[26] Based upon the evidence submitted by Plaintiff, the court CONCLUDES

that Plaintiff made proper demand before asserting the Derivative Claims and therefore,

may proceed with them in this action. Defendant Cobham's Motion in this regard should

be DENIED.

2.

Plaintiff's Individual Claims

[27] The court now turns to whether Plaintiff has valid individual Claims against

Defendant Cobham. Defendant categorizes Plaintiff's individual Claims as derivative

and contends that Plaintiff may not proceed with her individual Claims since Plaintiff is a

50 percent owner and not at risk of being oppressed by a majority shareholder.

Defendant further argues that allowing Plaintiff to proceed with her individual Claims

poses a serious risk to the claims and interest of creditors of the Entities. Plaintiff

responds that Defendant owed her a special duty as the only other shareholder in the

Entities and that she has suffered an injury separate and distinct from the Entities.

[28] It is a well-established rule in North Carolina "that shareholders cannot

pursue individual causes of action against third parties for wrongs or injuries to the

corporation that result in the diminution or destruction of the value of their stock." Barger

v. McCoy Hillard & Parks, 346 N.C. 650, 658 (1997). Shareholders cannot bring actions

in their individual capacity to enforce causes of action accruing to the corporation.

Fulton v. Talbert, 255 N.C. 183, 185 (1961). 11 July 16, 2010 LeCann Aff.; July 23, 2010 LeCann Aff. [29] There are, however, two exceptions to the Barger rule:

[A] shareholder may maintain an individual action against a third party for an injury that directly affects the shareholder, even if the corporation also has a cause of action arising from the same wrong, if the shareholder can show that the wrongdoer owed him a special duty or that the injury suffered by the shareholder is separate and distinct from the injury sustained by the other shareholders or the corporation itself.

Regions Bank v. Reg'l Prop. Dev. Corp., 2008 NCBC 8, ¶ 45 (2008) (quoting Barger,

346 N.C. at 658-59) (emphasis added).

[30] To proceed under the first, or "special duty" exception to Barger, "the

[special] duty must be one that the alleged wrongdoer owed directly to the shareholder

as an individual." Barger, 346 N.C. at 659 (internal quotations omitted).

[31] The special duty may arise from contract or otherwise. Id at 659. "The

existence of a special duty thus would be established by facts showing that defendants

owed a special duty to plaintiffs that was personal to plaintiffs as shareholders and was

separate and distinct from the duty defendants owed the corporation." Id. A special duty

has been found when an individual was induced to become a shareholder by the

wrongful actions of a party. Id. (citing Howell, 49 N.C. App. at 498). Other examples

include "when a party violated its fiduciary duty to the shareholder . . . when the party

performed individualized services directly for the shareholder . . . and when a party

undertook to advise shareholders independently of the corporation . . . ." Id. (internal

citations omitted).

[32] Here, Plaintiff has alleged that Defendant, as the only other shareholder

in the Entities, owes both Plaintiff and the Entities a fiduciary duty of due care, good faith, loyalty, fair dealing and full disclosure. 12 In fact, in her Answer, Defendant alleges

that Plaintiff, "as an officer, director or manager of the [Entities] owes a duty of care,

good faith, loyalty, fair dealing, full disclosure, avoidance of self dealing . . . to the

[Entities] and to her business partner, Dr. Cobham." 13 It appears that the parties, as fifty

percent shareholders in the Entities, acted more as partners than shareholders.

[33] Given the nature of the professional relationship between the parties, the

organization of the Entities and the fact that both parties contend they owed the other a

fiduciary duty of care, the court CONCLUDES that there exists one or more genuine

issues of material fact as to whether Defendant Cobham owed Plaintiff a special duty

under the first exception to the Barger rule. Accordingly, Defendant's Motion in this

regard should be DENIED.

III.

ORDER

NOW THEREFORE, based upon the foregoing CONCLUSIONS, it hereby is

ORDERED that:

[34] Plaintiff LeCann's Motion for Summary Judgment is MOOT with regard to

her request for dissolution of the Entities and appointment of a Receiver, and it therefore

is DENIED.

[35] Plaintiff's Motion is GRANTED with regard to her request that she

prosecute the Derivative Claims asserted in the Complaint.

[36] Defendant Cobham's Motion for Summary Judgment is DENIED.

12 Compl. ¶ 28. 13 Answer ¶ 27. [37] This matter will be called for non-jury trial at 10:00 a.m., on August 15,

2011. Trial will be held at the North Carolina Business Court, 225 Hillsborough Street,

Suite 303, Raleigh, North Carolina 20603.

[38] On or before the close of business on Monday, August 8, 2011, each party

shall file with the court (a) a trial brief stating that party's contentions and arguments with

regard to the legal, factual and evidentiary issues reasonably anticipated to be raised at

trial of this matter; (b) proposed findings of fact and conclusions of law and (c) any

motions in limine requiring resolution before trial. If opposing counsel wishes to respond

to any of the foregoing, such response shall be filed with the court before the close of

business on Thursday, August 11, 2011.

SO ORDERED, this the 2nd day of August, 2011.