Slaughter v. Winner Enters. of Carolina Beach, LLC, 2019 NCBC 1.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION NEW HANOVER COUNTY 18 CVS 2809
NICOLE B. SLAUGHTER,
Plaintiff,
v. ORDER AND OPINION ON WINNER ENTERPRISES OF DEFENDANTS’ MOTION TO DISMISS CAROLINA BEACH, LLC; and WINNER CONSTRUCTION GROUP, LLC,
Defendants.
THIS MATTER comes before the Court on Defendants Winner Enterprises of
Carolina Beach, LLC (“Winner Enterprises”) and Winner Construction Group, LLC’s
(“Winner Construction”) (collectively Winner Enterprises and Winner Construction
are referred to as “Defendants”) Motion to Dismiss (N.C. R. Civ. P. 12(b)(1), 12(b)(6)).
(“Motion”, ECF No. 10.)
THE COURT, having considered the Motion, the briefs filed in support of and
in opposition to the Motion, the evidentiary materials filed by the parties, the
arguments of counsel at the hearing, and other appropriate matters of record,
CONCLUDES, in its discretion, that the Motion should be GRANTED, in part, and
DENIED, in part, in the manner and for the reasons set forth below.
Ward and Smith, P.A., by John M. Martin and Thomas S. Babel, for Plaintiff Nicole Slaughter.
Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Robert J. King, and Daniel F. Smith, for Defendants Winner Enterprises of Carolina Beach, LLC and Winner Construction Group, LLC.
McGuire, Judge. I. FACTUAL AND PROCEDURAL BACKGROUND
1. Defendant Winner Enterprises is a North Carolina limited liability
company that owns and rents developed and undeveloped commercial and residential
property. (Compl., ECF No. 3, at ¶¶ 2–3.) Winner Enterprises was originally formed
as a limited partnership owned by certain members of the Winner family: Martin T.
Winner (31.5%) and his wife Elsie H. Winner (31.5%); their daughter E. Juanita
Winner (“Juanita”) (18.5%); and Juanita’s son Troy Slaughter (“Troy”) (18.5%). (Id.
at ¶ 9.) On or about September 26, 2000, the limited partnership was converted to
an LLC. (Id. at ¶ 7.) Winner Enterprises’ Operating Agreement (“Operating
Agreement”) was executed on or about October 6, 2000. (Id. at ¶ 8.)
2. Plaintiff Nicole Slaughter (“Nicole”) married Troy in 1996. (Id. at ¶ 10.)
In 2003, Nicole became a member of Winner Enterprises when Elsie Winner
transferred 210,000 membership units in Winner Enterprises to Nicole. (Id. at ¶ 12.)
3. In December of 2011, Troy “presented [Nicole] with a signature page
pertaining to an amendment to the [Operating Agreement]. At that time, Troy
represented to [Nicole] that the proposed amendment related to Juanita’s estate
planning.” (Id. at ¶ 16.) Nicole signed the signature page, which was actually the
signature page for the Second Amendment to the Operating Agreement. (“Second
Amendment”, ECF No. 10 at Ex. A.) Unbeknownst to Nicole, at the time Troy
obtained Nicole’s signature he was having an extra-marital affair and planning to
leave the marriage. (ECF No. 3, at ¶ 19.) 4. The Second Amendment states that its purpose was to “amend the
qualifications of Members and Managers to restrict management and control of
[Winner Enterprises] to certain family members.” (ECF No. 10 at Ex. A, p. 1.) The
Second Amendment modified the definition of “Member” in the Operating Agreement,
in relevant part, to provide that it “means each Person designated as a [M]ember of
[Winner Enterprises] on Schedule I hereto, . . . provided, however, that [M]embers of
[Winner Enterprises] entitled to act as provided in [Sections 3.5, 3.6, 3.8, 6.5, 6.6, 6.7,
10.4, 10.5, 11.1, 11.3, and 12.5 of the Operating Agreement] are restricted to any
Persons who are direct descendants or the spouses of direct descendants of Martin T.
Winner and Elsie H. Winner” (hereinafter, this defined group will be referred to as
“Direct Descendant(s) and Spouse(s)”). (Id. at pp. 1–2 (modified language
emphasized).) Nicole was listed as a Member on the Schedule I in effect at the time
of the Second Amendment, and was the Spouse of Troy, a Direct Descendant.
5. The Second Amendment also amended the definition of “Majority in
Interest” in the Operating Agreement to “mean[ ] a combination of any group of
Members who, in the aggregate, represent the owners of more than fifty percent (50%)
of the Membership Interests owned by all Members, except that no Members shall be
counted as part of a Majority in Interest who are not [Direct Descendants and
Spouses].” (Id. at p. 3 (modified language emphasized).) The Second Amendment
modified the definition of “Person,” in relevant part, to provide that a Person is
restricted to Direct Descendants and Spouses. (Id. at p. 1.) 6. Finally, the Second Amendment added a new provision to the Operating
Agreement, Section 10.2(l), restricting Members of Winner Enterprises from
transferring or selling their membership interest to anyone other than Direct
Descendants and Spouses. (Id. at p. 2.) The Operating Agreement had previously
permitted the transfer of membership interests to persons outside of Direct
Descendants and Spouses. (Id. at pp. 32–33.)
7. On May 18, 2012, Troy separated from Nicole (“the Separation”), and
Nicole and Troy divorced on August 30, 2013. (ECF No. 3, at ¶¶ 20–21.) At the time
of the divorce, Nicole still owned 210,000 membership units in Winner Enterprises.
(Id. at ¶¶ 22, 23.)
8. After the Separation, Troy began converting Winner Enterprises funds
to his own personal use and taking other actions for his personal benefit and to the
detriment of Winner Enterprises. (Id. at ¶¶ 27–40.) Since the Separation, Winner
Enterprises has not made any distributions to Nicole, and she has not been able to
“receive any financial benefits from Winner.” (Id. at ¶ 44.)
9. Nicole alleges that “the effect of [the Second Amendment] was to revoke
all rights of [Nicole] as a Member of Winner [Enterprises] in the event of a divorce,”
including prohibiting her from selling her membership interest in Winner
Enterprises to anyone other than Direct Descendants and Spouses. (Id. at ¶ 18.)
10. During January and February 2016, the Honorable Lillian B. Jordan
held a hearing in Slaughter v. Slaughter, New Hanover County District Court, 2013
CVD 1301, on Nicole’s and Troy’s claims arising from the divorce for equitable distribution, child support, and alimony (the “Equitable Distribution Action”). (Id. at
¶ 36; ECF No. 3 at Ex. 1, p. 1.) Nicole alleges that during the trial in the Equitable
Distribution Action, “Troy admitted under oath that neither he nor Winner
[Enterprises] would purchase [Nicole’s] membership interest in Winner
[Enterprises], and [sic] that he would not allow [Nicole] to receive any distributions
or financial benefits from Winner [Enterprises].” (ECF No. 3, at ¶ 41.) Nicole further
alleges that since the date of the Separation, “[she] has received no financial benefits,
including any direct or indirect distributions from Winner [Enterprises].” (Id.)
11. On March 25, 2016, Judge Jordan issued an “Equitable Distribution
Judgment and Order” (“Divorce Order”). (Id. at ¶ 42; ECF No. 3 at Ex. 1.) In the
Divorce Order, the Court found
The party’s [sic] own shares of stock in Winner Enterprises . . . . The shares owned are the separate property of each party. [Troy] owns 297,192 shares and [Nicole] owns 210,000 shares. The property in the Winner Enterprises has been in [Troy’s] family for generations. There is an operating agreement and amendments that prohibit the sale of any stock to anyone other than a direct descendant or the spouse of a direct descendant of Martin T. and Elsie H. Winner. [Troy] is a direct descendant. This amendment was executed in December 2011 and January 2012. The effect of this is that even though [Nicole]’s shares are worth $624.303.00, she cannot realize that value. [Troy] has refused to purchase them from her and his mother and brother are not able to purchase them. In addition, [Troy] is able to get distributions from Winner Enterprises whenever he wants[.]
...
A distribution in-kind of the marital and divisible property is not practical in this case due to the nature of some of the marital property. Specifically, there are closely held businesses . . . [that] are not susceptible of a division in- kind. . . . An unequal distribution in favor of [Nicole] facilitates the distribution and is necessary to achieve equity between the parties.
(Id. at pp. 10–11, 13.)
12. In the Divorce Order, the Court concluded that
[a]n unequal division of the net marital and divisible property in favor of [Nicole] is equitable. [Troy] shall receive 40% of the marital and divisible property and [Nicole] shall receive 60% of the marital and divisible property.
(Id. at p. 14.)
13. The Divorce Order directed Troy to pay Nicole an award of $494,772.00
on or before July 15, 2016. (ECF No. 3, at ¶ 43.) Troy has not paid Nicole any part
of the award, and in December 2016, Troy filed a Chapter 13 bankruptcy proceeding.1
(Id.)
14. Troy appealed the Divorce Order to the North Carolina Court of Appeals,
(ECF No. 3, at ¶ 43 n. 2), contending, inter alia, that the trial court erred in valuing
Nicole’s interest in Winner Enterprises, and improperly used the value of her interest
in making the distribution of marital property unequal. Slaughter v. Slaughter, 803
S.E.2d 419, 423, 2017 N.C. App. LEXIS 554, at *8 (2017). In his brief filed with the
Court of Appeals, Troy argued that the trial court erred in finding that Nicole could
not “realize the value” of her units in Winner Enterprises, contending that “[Nicole],
as a [M]ember of Winner [Enterprises], has the right to . . . seek dissolution.” (Pl.’s
1 On January 17, 2017, the Bankruptcy Court entered an order modifying the automatic stay
provided for under 11 U.S.C. § 362 to permit Nicole to pursue the action for dissolution. (Id. at n. 1.) Br. Opp. Mot. Dismiss, ECF No. 16, at p. 5; Appellant Brief to North Carolina Court
of Appeals, at p. 21 (embedded in brief as live link).) In response, Nicole argued in
her brief to the Court of Appeals that “Nicole is no longer part of the [Winner] family
and the Second Amendment prevents her from exercising her rights as a Winner
[Enterprises] [M]ember.” (Def. Reply Supp. Motion, ECF No. 19 at Ex. A, p. 23.) On
July 18, 2017, the Court of Appeals issued an opinion affirming the Divorce Order
and the equitable distribution award. Slaughter, 803 S.E.2d at 429, 2017 N.C. App.
LEXIS 554, at *28–29. The Court of Appeals did not expressly address whether
Nicole is a Member of Winner Enterprises.
15. On March 22, 2017, Defendant Winner Construction was formed, with
Troy and Juanita as the sole members and Troy as the manager. (ECF No. 3, at
¶¶ 50, 57.) Nicole alleges that Troy used assets belonging to Winner Enterprises to
capitalize and fund Winner Construction’s formation and activities, transferred
property belonging to Winner Enterprises to Winner Construction, and diverted a
business opportunity from Winner Enterprises to Winner Construction. (Id. at
¶¶ 52–58.) Nicole alleges that Winner Construction is the “alter ego and mere
instrumentality of Winner [Enterprises].” (Id. at ¶ 60.)
16. Nicole commenced this action on August 10, 2018 by filing a verified
Complaint raising claims for (1) declaratory judgment that Winner Construction is
the alter ego and mere instrumentality of Winner Enterprises; and (2) for judicial
dissolution of both Winner Enterprises and Winner Construction pursuant to N.C.
Gen. Stat. § 57D-6-02(2) (hereinafter, references to the General Statutes will be to “G.S.”). (ECF No. 3.) On September 12, 2018, Defendants filed the Motion and
accompanying brief in support. (Def. Br. Supp. Motion, ECF No. 11.) Plaintiff filed
her Response in Opposition to the Motion on October 15, 2018. (ECF No. 16
(hereinafter “Response”).) In the Response, Nicole requests that the Court grant her
leave to amend paragraph 18 of the Complaint if the Court believes it constitutes an
admission that Nicole has lost her membership rights. (Id. at p. 14 at n. 4.) On
October 25, 2018, Defendants filed a reply brief in support of the Motion. (ECF No.
19.)
17. On November 7, 2018, the Court held a hearing on the Motion at which
counsel appeared and made argument. At the hearing, Plaintiff’s counsel orally
renewed her request for leave to amend the Complaint if the Court finds the effect of
paragraph 18 to be that Nicole is no longer a Member of Winner Enterprises.
18. The Motion is now ripe for disposition.
II. LEGAL STANDARD
19. Defendants move to dismiss Plaintiff’s claim for dissolution of Winner
Enterprises and Winner Construction under North Carolina Rule of Civil Procedure
Rule 12(b)(1) (hereinafter, references to the North Carolina Rules of Civil Procedure
will be to “Rule(s)”) for lack of standing, and Plaintiff’s claim for declaratory judgment
under Rule 12(b)(6) for failure to state a claim for which relief can be granted.
A. Rule 12(b)(1) Standard
20. “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) (citations omitted); see also Aubin v.
Susi, 149 N.C. App. 320, 324, 560 S.E.2d 875, 878 (2002) (“Standing is a necessary
prerequisite to a court’s proper exercise of subject matter jurisdiction.”). “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). “A motion to dismiss for lack of subject matter
jurisdiction is not viewed in the same manner as a motion to dismiss for failure to
state a claim upon which relief can be granted.” Tart v. Walker, 38 N.C. App. 500,
502, 248 S.E.2d 736, 737 (1978). A court may consider matters outside the pleadings
in determining whether subject matter jurisdiction exists. Id.; see also Keith v.
Wallerich, 201 N.C. App. 550, 554, 687 S.E.2d 299, 302 (2009). “As the party invoking
jurisdiction, plaintiffs have the burden of proving the elements of standing.” Neuse
River Found. v. Smithfield Foods, Inc., 155 N.C. App. 110, 113, 574 S.E.2d 48, 51
(2002).
B. Rule 12(b)(6) Standard
21. In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court’s
inquiry is “whether, as a matter of law, the allegations of the complaint, treated as
true are sufficient to state a claim upon which relief may be granted under some legal
theory, whether properly labeled or not.” Harris v. NCNB Nat’l Bank, 85 N.C. App.
669, 670, 355 S.E.2d 838, 840 (1987). “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, 2018
N.C. LEXIS 1035, at *18–19 (2018) (quoting Wood v. Guilford County, 355 N.C. 161,
166, 558 S.E.2d 490, 494 (2002)). This standard of review for Rule 12(b)(6) is the
standard our Supreme Court “uses routinely . . . in assessing the sufficiency of
complaints in the context of complex commercial litigation.” Id. at *19 n.7. Where
the pleading refers to and depends on certain documents, the Court may consider
those documents in deciding a motion under Rule 12(b)(6). Schlieper v. Johnson, 195
N.C. App. 257, 261, 672 S.E.2d 548, 551 (2009).
22. The Court construes the Complaint liberally and accepts all allegations
as true. Laster v. Francis, 199 N.C. App. 572, 577, 681 S.E.2d 858, 862 (2009).
However, 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, 620
S.E.2d 873, 880 (2005).
III. ANALYSIS
23. Nicole seeks to dissolve Winner Enterprises and Winner Construction
under G.S. § 57D-6-02(2)(ii), which provides that “[t]he superior court may dissolve
an LLC in a proceeding brought by either of the following: . . . . (2) A member, if it is
established that . . . (ii) liquidation of the LLC is necessary to protect the rights and
interests of the member.” Nicole alleges that she “had a reasonable expectation that
she would enjoy all rights conferred on all [M]embers of Winner [Enterprises], and that she would receive financial benefits from her ownership interest.” (ECF No. 3,
at ¶ 25.)
24. Defendants argue that the claim for judicial dissolution should be
dismissed because Nicole is not a Member of Winner Enterprises nor Winner
Construction. (ECF No. 10, at p. 2; ECF No. 11, at p. 4.) Defendants contend that
Nicole alleges that she lost her rights as a Member of Winner Enterprises as a result
of the Second Amendment when she was divorced from Troy. Defendants further
argue that “the plain language of the [Operating Agreement] excludes her from
membership” in Winner Enterprises. (ECF No. 10, at pp. 1–2; ECF No. 11, at pp. 4–
5.) Nicole contends that the Complaint adequately alleges that she is a Member of
Winner Enterprises, and that, at best, the language in the Second Amendment is
ambiguous and the question of whether she lost all membership rights as a result of
the Second Amendment cannot be determined at this stage of the proceedings. (ECF
No. 16, at pp. 9, 11, 13–14.)
25. Defendants also argue that Nicole lacks standing because she is
judicially estopped from alleging that she is a Member of Winner Enterprises in this
action by assertions she made in the District Court and Court of Appeals in the
Equitable Distribution Action that the Second Amendment eliminated her rights as
a Member. (ECF No. 11, at pp. 5–7.) Nicole argues that judicial estoppel should not
be applied to these facts because her positions in this action and the Equitable
Distribution Action are not inconsistent; any inconsistencies between her positions in
the two actions are not factual inconsistencies, but legal inconsistencies; and judicial estoppel is an equitable doctrine and the Court should refuse to apply it here because
of Troy’s inequitable conduct. (ECF No. 16, at pp. 15–17.)
26. Finally, Defendants argue that the Court should reject Nicole’s request
to pierce the corporate veil and find that she has standing to seek dissolution of
Winner Construction because Nicole fails to allege that Winner Enterprises owned or
controlled Winner Construction, or that either Defendant committed any wrongdoing.
(ECF No. 11, at pp. 7–9.) Nicole counters that she has sufficiently pleaded her alter-
ego theory by alleging that Troy dominated and controlled Winner Enterprises and
Winner Construction and treated them interchangeably. (ECF No. 16, at pp. 18–22.)
27. The Court will first address Nicole’s standing to seek dissolution of
Winner Enterprises, and secondly address her claim that Winner Construction
should be treated as the alter-ego of Winner Enterprises for purposes of giving her
standing to seek dissolution of Winner Construction.
A. Nicole’s Claim Seeking Dissolution of Winner Enterprises
28. “[T]he North Carolina statutes provide for judicial dissolution only
where a proceeding is brought by the Attorney General, a member, or the limited
liability company itself.” Klingerman v. ExecuCorp, LLC, 388 B.R. 677, 678, 2008
Bankr. LEXIS 1117, at *3 (E.D.N.C. Bankr. Apr. 10, 2008). Plaintiff seeks judicial
dissolution of Winner Enterprises under G.S. § 57D-6-02(2). (ECF No. 3, at ¶ 70.)
G.S. § 57D-6-02(2) only authorizes judicial dissolution of an LLC in a proceeding
brought by a member. Azure Dolphin, LLC v. Barton, 2017 NCBC LEXIS 90, at *17 (N.C. Super. Ct. Oct. 2, 2017) (“Under [G.S.] § 57D-6-02(2), only a member of an LLC
has standing to assert a claim for judicial dissolution.”).
29. Defendants first contend that Nicole’s allegation that “the effect of [the
Second Amendment] was to revoke all rights of [Nicole] as a [M]ember of Winner
[Enterprises] in the event of a divorce,” including prohibiting her from selling her
membership interest to anyone other than Direct Descendants and Spouses, (ECF
No. 3, at ¶ 18), is admission that she is not a Member of Winner Enterprises and
precludes her from having standing to seek judicial dissolution. Nicole concedes that
the wording of her allegation is unartful, but argues that it should be read as alleging
merely that the effect of the Second Amendment was to “cripple[ ] Nicole’s ability to
realize the value of her membership in Winner Enterprises without judicial
dissolution.” (ECF No. 16, at pp. 13–14; emphasis omitted.) Nicole also contends that
she has sufficiently alleged that she is still a Member of Winner Enterprises
elsewhere in the Complaint, and that her judicial dissolution claim should survive
dismissal. (ECF No. 16, at pp. 13–14.)
30. After thorough review of the allegations, the Court concludes that Nicole
has sufficiently alleged that she retains a membership interest in Winner Enterprises
to permit her to continue with her claim for dissolution at this early stage of the case.
The Complaint makes frequent reference to her attempts to obtain compensation for
her “membership” interest in Winner Enterprises. (See, e.g., ECF No. 3, at ¶¶ 41, 58,
68, 70.) In addition, as discussed below, the Court is not convinced that the Second
Amendment eliminated all of Nicole’s rights as a Member of Winner Enterprises. At this stage, the Court believes the allegations in paragraph 18 should be construed as
claiming that Nicole lost her rights to sell her membership interest, and not as an
admission that she lacks standing.
31. Defendants next contend that Nicole admits she executed the Second
Amendment, and that the Second Amendment clearly and unambiguously
extinguishes her rights as a Member of Winner Enterprises. “An operating
agreement is a contract,” and is interpreted under the rules of contract construction.
N. Carolina State Bar v. Merrell, 243 N.C. App. 356, 370–71, 777 S.E.2d 103, 114
(2015); G.S. § 57D-2-30(e) (contract law governs the “administration and enforcement
of operating agreements”). Accordingly, the Court will interpret the Second
Amendment to determine if it clearly and unambiguously extinguishes Nicole’s rights
as a Member of Winner Enterprises.
32. “With all contracts, the goal of construction is to arrive at the intent of
the parties when the contract was issued. The intent of the parties may be derived
from the language in the contract.” Bank of Am., N.A. v. Rice, 230 N.C. App. 450,
456, 750 S.E.2d 205, 209 (2013) (quotation omitted); see also Lane v. Scarborough,
284 N.C. 407, 409–10, 200 S.E.2d 622, 624 (1973) (“Whenever a court is called upon
to interpret a contract its primary purpose is to ascertain the intention of the parties
at the moment of its execution.”). The intention of the parties “is to be ascertained
from the expressions used, the subject matter, the end in view, the purpose sought,
and the situation of the parties at the time.” Lane, 284 N.C. at 410, 200 S.E.2d at
624 (quoting Electric Co. v. Ins. Co., 229 N.C. 518, 520, 50 S.E.2d 295, 297 (1948)). In analyzing the intent of the parties “[t]he court must construe the contract as a whole
and [its provisions] must be appraised in relation to all other provisions.” Schenkel
& Shultz, Inc. v. Hermon F. Fox & Assocs., P.C., 362 N.C. 269, 273, 658 S.E.2d 918,
921 (2008) (internal quotation omitted). “It is presumed that each part of the contract
means something.” Brown v. Lumbermens Mut. Casualty Co., 326 N.C. 387, 393, 390
S.E.2d 150, 153 (1990) (quotation omitted). “The various terms of the [contract] are
to be harmoniously construed, and if possible, every word and every provision is to be
given effect[.]” Duke Energy Corp. v. Malcolm, 178 N.C. App. 62, 65, 630 S.E.2d 693,
695 (2006) (quotation omitted); see also In re Foreclosure of a Deed of Trust, 210 N.C.
App. 409, 415, 708 S.E.2d 174, 178 (2011) (quoting Duke Energy).
33. “When the language of the contract is clear and unambiguous,
construction of the agreement is a matter of law for the court and the court cannot
look beyond the terms of the contract to determine the intentions of the parties.”
Bank of Am., 230 N.C. App. at 456, 750 S.E.2d at 209 (quotation omitted); see also
Lynn v. Lynn, 202 N.C. App. 423, 431, 689 S.E.2d 198, 204 (2010). “Whether or not
the language of a contract is ambiguous [ ] is a question for the court to determine.”
Lynn, 202 N.C. App. at 432, 689 S.E.2d at 205 (quotation omitted).
34. As an initial matter, the Second Amendment provides that its purpose
is to “amend the qualifications of Members and Managers to restrict management
and control of the Company to certain family members[.]” (ECF No. 10. at Ex. A,
p. 1.) The provision does not expressly state that the purpose of the amendment is to
alter Members’ rights. 35. The Second Amendment provides that the “Member” is “each Person
designated as a Member . . . on Schedule I hereto,” but restricts Members who are not
Direct Descendants and Spouses from exercising certain rights in the Operating
Agreement. Nicole is designated as a Member in Schedule I. (ECF No. 10 at Ex. A,
p. 6.) The primary effect of the restrictions is to remove Members who are not Direct
Descendants and Spouses from participating in certain decisions regarding: the
removal, replacement and compensation of Managers; the admission of new Members
to the LLC; and the amendment of the Operating Agreement. The restrictions also
purport to impact the right of a Member who is not a Direct Descendant or Spouse
under Article 11 of the Operating Agreement to seek dissolution of the LLC.
However, to the extent Defendants contend that the restrictions would prohibit a
Member from seeking dissolution pursuant to G.S. § 57D-6-02(2), the Court is not
convinced that such a restriction would be enforceable. See G.S. § 57D-2-30(b)(1)(c)
(“The operating agreement may not . . . [s]upplant, vary, disclaim, or nullify . . . clause
(ii) of [G.S. §] 57D-6-02(2)[.]”).
36. The Second Amendment also amends the definition of “Person” in the
Operating Agreement to require that a Person be either a Direct Descendant or a
Spouse. Since a Member must be a Person, this amendment could be interpreted as
eliminating Nicole from being a Member once she was divorced from Troy, because
she was no longer a Spouse. This interpretation, however, would render the
restrictions in the Second Amendment on those Members who are counted towards a
Majority in Interest, and the restrictions on the rights of Members who are not Direct Descendants and Spouses meaningless, because anyone who was not a Direct
Descendant or a Spouse could not be a Member. If such individuals are not Members,
there would be no reason to restrict their interests from being counted in determining
a Majority in Interest, or to prohibit them from only certain membership rights. Such
a construction would make the amendments to the definitions of Majority in Interest
and Member superfluous. Duke Energy Corp., 178 N.C. App. at 65, 630 S.E.2d at 695.
37. The Court concludes that the effects of the modifications to the
Operating Agreement in the Second Amendment are, at best, ambiguous. The intent
behind the Second Amendment appears to be to keep control and management of
Winner Enterprises, and ownership of membership interests, within a small circle of
family members and their spouses. In addition, the changes to the definitions of
Member, Majority in Interest, and Person, cannot be harmonized without rendering
certain language in the Second Amendment superfluous. It is not clear that the
Second Amendment eliminated all of Nicole’s membership rights when she divorced
from Troy.
38. Defendants also argue that Nicole should be judicially estopped from
claiming that she is a Member of Winner Enterprises because of representations she
made in the District Court and the Court of Appeals in the Equitable Distribution
Action. Generally, “judicial estoppel forbids a party from asserting a legal position
inconsistent with one taken earlier in the same or related litigation.” Price v. Price,
169 N.C. App. 187, 191, 609 S.E.2d 450, 452 (2005) (quotation omitted). The North Carolina Supreme Court has identified three factors that inform whether judicial
estoppel is properly invoked:
First, a party’s subsequent position must be clearly inconsistent with its earlier position
Second, courts regularly inquire whether the party has succeeded in persuading a court to accept that party’s earlier position, so that judicial acceptance of an inconsistent position in a later proceeding might pose a threat to judicial integrity by leading to inconsistent court determinations or the perception that either the first or the second court was misled
Third, courts consider whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.
Whitacre P'ship v. BioSignia, Inc., 358 N.C. 1, 29, 591 S.E.2d 870, 888–89 (2004)
(internal citations and quotation marks omitted). Due to the equitable nature of the
doctrine, courts may consider other factors, including whether a party’s prior
inconsistent position was the result of “inadvertence or mistake.” Id. at 30, 591
S.E.2d at 889 (internal quotation marks omitted); see also Indus. Fabricators v. At-
Net Servs. - Charlotte, 2018 NCBC LEXIS 47, at *18–19 (N.C. Super. Ct. May 9, 2018).
39. The North Carolina Supreme Court has emphasized that “the doctrine
of judicial estoppel limits only inconsistent assertions of fact,” not inconsistent or
contradictory legal positions or theories. Whitacre, 358 N.C. at 32, 591 S.E.2d at 890.
Moreover, the doctrine “is not intended to eliminate all inconsistencies, however
slight or inadvertent[.]” Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81
F.3d 355, 359, 28 Bankr. Ct. Dec. 1178 (3d Cir. 1996); see also Whitacre, 358 N.C. at
33, 591 S.E.2d at 892 (quoting Ryan Operations). Rather, trial courts must “carefully balance the equities in applying judicial estoppel” and recognize that “a reasonable
justification for a party’s change in position may militate against its application in a
particular case.” Whitacre, 358 N.C. at 34, 591 S.E.2d at 892.
40. Defendants argue that Nicole obtained an unequal distribution of
marital property in the Equitable Distribution Action by asserting in that action that
she could not “realize the value of her interest in Winner Enterprises.” (ECF No. 11,
at p. 6.) The Divorce Order states that the unequal distribution is based, in part, on
Nicole’s inability to sell her membership interest in Winner Enterprises because she
was restricted to selling to Direct Descendants and Spouses, and because Troy had
refused to purchase her interests. (ECF No. 3 at Ex. 1, pp. 10–11.) However, the
Divorce Order does not mention any contention by Nicole that she was not a Member
of Winner Enterprises, nor that she did not have the ability to seek judicial
dissolution of the company. Judge Jordan did not expressly rely on any finding
regarding Nicole’s membership in Winner Enterprises in reaching the conclusions in
the Divorce Order. Rather, Judge Jordan appears to have found only that Nicole was
unable to realize the value of her membership interest because the Second
Amendment restricted Nicole’s ability to sell her membership interest.
41. Defendants further argue that Nicole made a representation in her brief
to the Court of Appeals that should estop her from contending that she is a Member
of Winner Enterprises in this action. (ECF No. 11, at pp. 6–7.) In her brief to the
Court of Appeals, Nicole asserted that “the Second Amendment prevents her from
exercising her rights as a Winner [Enterprises] [M]ember.” (ECF No. 19 at Ex. A, p. 22.) The Court of Appeals affirmed the Divorce Order. However, in its Opinion
affirming the Divorce Order, the Court of Appeals did not make any express finding
regarding whether Nicole was a Member of Winner Enterprises nor regarding her
right to seek dissolution.
42. The Court concludes that, based on the allegations in the Complaint and
the information in the record, Defendants have failed to establish that Nicole should
be judicially estopped from claiming that she is a Member of Winner Enterprises for
purposes of pursuing her claim for dissolution. While the record could support the
contention that Nicole took a factually inconsistent position in the Equitable
Distribution Action and in the appeal from the Divorce Order by asserting that she
had lost her membership rights in Winner Enterprises, the allegations and evidence
do not establish that Nicole “succeeded in persuading [either the District Court or
Court of Appeals] to accept [her] earlier position.” Whitacre, 358 N.C. at 29, 591
S.E.2d at 889 (quotation omitted). Neither court expressly found that Nicole was not
a Member of Winner Enterprises nor that she had lost her right to seek dissolution
of the company. At most, the two courts concluded that Nicole was entitled to an
unequal distribution of marital property because the Second Amendment prevented
her from selling her membership interest in Winner Enterprises to anyone other than
Direct Descendants and Spouses.
43. In addition, the Court concludes that the allegations and record fail to
show that Nicole would gain “an unfair advantage[,]” id., over Defendants by being
permitted to assert that she is a Member of Winner Enterprises in this lawsuit. As noted above, Troy’s representation to the Court of Appeals that Nicole had a right to
seek dissolution leads the Court to conclude that the question of what, if any, rights
Nicole retains as a Member of Winner Enterprises is an unsettled issue between
Nicole and Troy. The Court also notes that Nicole alleges that Troy has taken actions
to avoid paying her the award required by the Divorce Order and, to date, she has not
received payment of the award. (ECF No. 3, at ¶ 43.)
44. Based upon the foregoing, the Court concludes that Defendants’ motion
to dismiss Nicole’s Second Claim for Relief for judicial dissolution of Winner
Enterprises should be DENIED.
B. Nicole’s Claim for Judicial Dissolution of Winner Construction
45. Plaintiff has not alleged that she is a member of Winner Construction,
and she does not appear to have standing to seek judicial dissolution of Winner
Construction. See Azure Dolphin, LLC, 2017 NCBC LEXIS 90, at *17.
46. Nicole attempts to circumvent this statutory requirement through her
First Claim for Relief, which seeks a declaratory judgment from the Court, under a
veil-piercing theory, that “Winner Construction is the mere instrumentality of
Winner [Enterprises] and that Winner Construction is subject to judicial dissolution.”
(ECF No. 3, at ¶ 63.) Nicole argues that “[b]ecause Nicole has sufficiently pled that
Winner Construction is a mere instrumentality of Winner [Enterprises], she has
standing to seek the judicial dissolution of Winner Construction, along with Winner
[Enterprises].” (ECF No. 16, at p. 18.) 47. “In North Carolina, what has been commonly referred to as the
‘instrumentality rule,’ forms the basis for disregarding the corporate entity or
‘piercing the corporate veil.’” Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200
N.C. App. 644, 649–50, 689 S.E.2d 143, 147, (2009) (citation omitted). The Court of
Appeals recently held that
Piercing the corporate veil . . . allows a plaintiff to impose legal liability for a corporation’s obligations . . . upon some other company or individual that controls and dominates the corporation. It is well recognized that courts will disregard the corporate form or ‘pierce the corporate veil,’ and extend liability for corporate obligations beyond the confines of a corporation’s separate entity, whenever necessary to prevent fraud or to achieve equity.
The Supreme Court has explained that [e]vidence upon which [our courts] 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. Ultimately, [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.
Howe v. Links Club Condo. Ass'n, 2018 N.C. App. LEXIS 1222, at *37 (2018) (internal
citations and quotation marks omitted).
48. In order to pierce the corporate veil, the complaint must contain
allegations sufficient to establish 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.
Id. at *40 (citation omitted). “As our Supreme Court has recognized, the doctrine of
piercing the corporate veil is not a theory of liability.” Hamby v. Thurman Timber
Co., LLC, 818 S.E.2d 318, 324, 2018 N.C. App. LEXIS 717, at *11 (2018) (internal
citations and quotation marks omitted). Rather, in order to properly assert the legal
theory of piercing the corporate veil, Plaintiff must have “an underlying legal claim
to which liability may attach.” Nicks v. Nicks, 241 N.C. App. 487, 497, 774 S.E.2d
365, 374 (2015) (quotation omitted).
49. Preliminarily, Nicole does not cite any North Carolina authority in
support of her contention that application of the veil-piercing legal theory could
provide standing to an individual who is not a member of a limited liability company
to seek judicial dissolution of that company under G.S. § 57D-6-02(2). The Court has
not found any case standing for this proposition. Nevertheless, Nicole argues that
she has adequately alleged facts authorizing the Court to pierce the corporate veil of
Winner Construction, by virtue of Troy’s domination and control over both Winner
Enterprises and Winner Construction, to confer on Nicole statutory standing to seek
dissolution of Winner Construction under G.S. § 57D-6-02(2). (ECF No. 16, at p. 18–
20.) The Court concludes, however, that veil-piercing is not properly raised in the
context of the claims and parties involved in this lawsuit. 50. Nicole has not raised any claims in this lawsuit to which liability could
attach to Winner Construction. Nicole alleges that because Troy is the manager and
controlling member of both Winner Enterprises and Winner Construction, and has
allegedly used his control to divert assets and opportunities from Winner Enterprises
to Winner Construction, she should be able to reach Winner Construction’s assets as
part of a dissolution of Winner Enterprises. However, Troy is not a party to this
lawsuit, and Nicole has not raised any claims against Winner Enterprises, Winner
Construction, or Troy, such as breach of fiduciary duty, breach of contract, fraud, or
conversion, that challenge the alleged diversion of assets. Because there is no
underlying claim for which liability could attach to Winner Construction, Nicole’s
veil-piercing argument must fail. Nicks, 241 N.C. App. at 497, 774 S.E.2d at 374
(“[S]ufficient evidence of domination and control establishes only the first element for
liability [for veil piercing]. There must also be an underlying legal claim to which
liability may attach” (citation omitted).). The Court cannot use veil-piercing as a
mechanism to confer on Nicole the necessary standing to bring her claim for judicial
dissolution of Winner Construction.
51. Accordingly, the Court concludes that Defendants’ motion to dismiss
Nicole’s Second Claim for Relief for judicial dissolution of Winner Construction should
be GRANTED, and the claim DISMISSED, without prejudice. C. Nicole’s Claim for Declaratory Judgment
52. Nicole’s first claim for relief seeks a declaration that Winner
Construction is the alter ego and mere instrumentality of Winner Enterprises. (ECF
No. 3, at ¶ 60.)
53. “In actions involving a request for a declaratory judgment, our Supreme
Court has required that an actual controversy exist both at the time of the filing of
the pleading and at the time of the hearing.” Fabrikant v. Currituck Cty., 174 N.C.
App. 30, 44, 621 S.E.2d 19, 29 (2005) (quoting Nat’l Travel Servs., Inc. v. State, 253
N.C. App. 289, 291, 569 S.E.2d 667, 668–69 (2002) (internal quotation marks
omitted)). “Although our appellate courts have not specifically defined an ‘actual
controversy,’ it is well established that ‘[a] mere difference of opinion between the
parties’ is not sufficient for purposes of the Declaratory Judgment Act.” Id. (quoting
Town of Tryon v. Duke Power Co., 222 N.C. 200, 205, 22 S.E.2d 450, 453 (1942)). “To
satisfy the jurisdictional requirement of an actual controversy, it must be shown in
the complaint that litigation appears unavoidable. Mere apprehension or the mere
threat of an action or suit is not enough.” State ex rel. Utils. Comm’n v. Carolina
Water Serv., 149 N.C. App. 656, 658, 562 S.E.2d 60, 62 (2002).
54. Here, Nicole does not allege the existence of an actual controversy
between Nicole, on the one hand, and Winner Enterprises and/or Winner
Construction, on the other, over whether Winner Construction is an instrumentality
of Winner Enterprises. Nicole does not allege, for example, that she has requested
records or information from Winner Construction on grounds that it is the alter ego of Winner Enterprises and been denied such records. Nicole does not allege any facts
that make it appear that litigation between herself and Defendants over the issue is
“unavoidable.” Id. Instead, Nicole seems to be seeking an opinion of some type for
future use to access Winner Construction’s assets should she successfully assert
claims for liability against Winner Enterprises or Troy. A declaration of the type
sought by Plaintiff would amount to an advisory opinion, and would not “settle and
afford relief from uncertainty concerning rights, status and other legal relations”
between the Parties. N.C. Consumers Power, Inc. v. Duke Power Co., 285 N.C. 434,
446, 206 S.E.2d 178, 186 (1974). Considering all of this, the Court concludes that
Nicole’s First Claim for Relief for declaratory judgment is not yet ripe.
55. Accordingly, the Court concludes that Defendants’ motion to dismiss
Nicole’s First Claim for Relief for declaratory judgment should be GRANTED, and
the claim DISMISSED, without prejudice.
IV. PLAINTIFF’S MOTION FOR LEAVE TO AMEND
56. The Court’s decision that Nicole has sufficiently alleged at this stage
that she is a Member of Winner Enterprises renders moot her motion, made in her
Response and orally at the hearing, for leave to amend paragraph 18 of the
Complaint. Accordingly, Nicole’s motion to amend should be DENIED, without
prejudice, as moot. V. CONCLUSION
THEREFORE, IT IS ORDERED that:
57. Defendants’ motion to dismiss Nicole’s Second Claim for Relief for
judicial dissolution of Winner Enterprises is DENIED.
58. Defendants’ motion to dismiss Nicole’s Second Claim for Relief for
judicial dissolution of Winner Construction is GRANTED, and that claim is
DISMISSED, without prejudice.
59. Defendants’ motion to dismiss Nicole’s First Claim for Relief for
declaratory judgment is GRANTED, and that claim is DISMISSED, without
prejudice.
60. Nicole’s motion to amend is DENIED, without prejudice, as moot.
This, the 7th day of January, 2019.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases