TAC Invs., LLC v. Rodgers, 2020 NCBC 88.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION WAKE COUNTY 20 CVS 2757
TAC INVESTMENTS, LLC,
Plaintiff,
v. ORDER AND OPINION ON DEFENDANT’S MOTION TO DISMISS JOHN RODGERS, AND MOTION FOR SANCTIONS Defendant.
1. GoPrime Mortgage, Inc. (“Prime”) is a residential mortgage company. This
case arises from a dispute between its two shareholders. The plaintiff is TAC
Investments, LLC (“TAC”), which became a shareholder in February 2017. The
defendant is John Rodgers, Prime’s founder. In short, TAC alleges that Rodgers has
used his position as director to stop Prime from paying dividends. This has rankled
TAC because its shares are preferred and have priority to dividends. Also, TAC
believes that Rodgers is purposely keeping cash in Prime’s accounts to increase the
value of his “put” right—a contractual right to divest his shares at a price based on
the company’s value. Though it asserts a handful of claims, TAC chiefly seeks a
declaration that Rodgers may not exercise his put right in these circumstances.
2. Rodgers has moved to dismiss all claims under Rule 12(b)(6) of the North
Carolina Rules of Civil Procedure. (See ECF No. 17.) He has also moved for sanctions
under Rule 11. (See ECF No. 8.) For the following reasons, the Court GRANTS in
part and DENIES in part the motion to dismiss and DENIES the motion for
sanctions. Fox Rothschild LLP, by Matthew N. Leerberg and Troy D. Shelton, and Condon Tobin Sladek Thornton PLLC, by Aaron Z. Tobin and Jared T.S. Pace, for Plaintiff TAC Investments, LLC.
Alston & Bird LLP, by Matthew P. McGuire and Kelsey L. Kingsbery, for Defendant John Rodgers.
Conrad, Judge. I. BACKGROUND
3. The following background is drawn from the amended complaint and its
attachments. (See Am. Compl., ECF No. 10.)
4. Rodgers founded Prime in 2005. (See Am. Compl. ¶ 8.) From the beginning,
he has served as the company’s president, secretary, and treasurer. (See Am. Compl.
¶ 9.)
5. When TAC became a shareholder in February 2017, it acquired half of
Prime’s outstanding shares, and Rodgers retained the other half. They entered into
a shareholders’ agreement to govern their relationship. Among other things, the
agreement limits the board of directors to two members and allows each shareholder
to appoint one. (See Am. Compl. Ex. 2 § 3(a) [“Shareholders’ Agrmt.”].) Rodgers
appointed himself to the board, while continuing to serve as president, secretary, and
treasurer. (See Am. Compl. ¶ 9.)
6. The shareholders’ agreement also specifies when and how the parties may
transfer their shares. Relevant here are the “put” and “call” rights defined in section
7. These rights allow one shareholder or the other to mandate a transfer after a
period of time has passed. The put right allows Rodgers to divest his shares at any
time starting in February 2020. (See Shareholders’ Agrmt. § 7(a).) The call right, on the other hand, allows either Prime or TAC to force a shareholder (most likely to be
Rodgers) to sell shares starting in February 2022. (See Shareholders’ Agrmt. § 7(b).)
In either case, the share price depends on Prime’s fair market value, as calculated
through a formula comprising earnings, cash, and debt. (See Shareholders’ Agrmt.
§§ 1, 7(c), (d).)
7. Rodgers and TAC own the same number of shares but not in the same class.
All of Rodgers’s shares are common; all of TAC’s are preferred. (See Am. Compl. ¶ 11.)
The difference between the two, spelled out in the articles of incorporation, largely
has to do with dividend priority. The board is supposed to declare and pay dividends
at least twice per year “to the extent of Available Cash, if any.” (Am. Compl. Ex. 1
Art. 2, § B.II.(a).) Priority goes to TAC, as owner of the preferred stock, until the total
outlay exceeds a defined “Liquidation Amount.” (Am. Compl. Ex. 1 Art. 2, § B.II.(a).)
The preferred stock will then automatically become common. (See Am. Compl. Ex. 1
Art. 2, § B.IV.(b).) But until that point, Prime may not pay dividends on the common
stock, nor may it redeem or acquire the common stock. (See Am. Compl. Ex. 1 Art. 2,
§ B.II.(b).) Although nothing requires Prime to pay out the Liquidation Amount by a
specific date, Rodgers allegedly promised to “operate Prime so that TAC’s investment
would be repaid quickly.” (Am. Compl. ¶ 33.)
8. According to TAC, that hasn’t happened. Despite having ample cash to pay
dividends twice yearly, Prime declared a dividend once in 2017 and once in 2018, shy
of the Liquidation Amount by a wide margin. (See Am. Compl. ¶¶ 18, 19.) Since then,
Rodgers has blocked the board from declaring another, most recently in February 2020. (See Am. Compl. ¶¶ 20, 21.) TAC alleges that this was strategic: by voting to
hoard cash, Rodgers boosted the value of his put right just as it ripened. (See Am.
Compl. ¶ 54.) He then exercised the put right a week later. (See Am. Compl. ¶ 23,
Ex. 3.)
9. TAC filed suit immediately. The original complaint included a single claim,
seeking a declaratory judgment that “Rodgers may not exercise his put rights . . .
until Prime first pays TAC the Liquidation Amount in full.” (Compl. ¶ 28, ECF No.
3.) TAC’s theory was that the put right “would require Prime to purchase” Rodgers’s
shares, flouting the ban on acquisitions of common shares while preferred shares
remain outstanding. (See Compl. ¶¶ 13, 15, 24.)
10. In response, Rodgers moved to dismiss the complaint and asked for Rule 11
sanctions. (See ECF Nos. 6, 8.) The basis for each motion was the same. In his view,
the shareholders’ agreement requires TAC, not Prime, to buy the divested shares.
Rodgers contends that TAC’s contrary interpretation is untenable.
11. Shortly after Rodgers filed his motions, the coronavirus pandemic led to a
lengthy statewide stay of civil cases. When the stay lifted, TAC amended its
complaint as of right, modifying the claim for declaratory judgment and adding three
new claims. TAC continues to seek a declaration that Rodgers may not close on his
put right until the Liquidation Amount is paid. It also alleges that the shareholders’
agreement “is ambiguous as to who must purchase Rodgers’s common shares” and
seeks a declaration that Prime must do so. (Am. Compl. ¶¶ 25, 41.) In the
alternative, TAC asks the Court to reform the shareholders’ agreement so that Prime is responsible for buying Rodgers’s shares. (See Am. Compl. ¶ 47.) In addition, TAC
claims that Rodgers breached his fiduciary duty and the covenant of good faith and
fair dealing. (See Am. Compl. ¶¶ 52, 53, 60.) The amendment mooted the motion to
dismiss but not the motion for sanctions.
12. Rodgers has again moved to dismiss the amended complaint. (See ECF No.
17.) That motion and the motion for sanctions have been fully briefed. At a hearing
on September 17, 2020, the Court directed each side to file supplemental briefs
related to jurisdiction over the claim for declaratory judgment. Both motions are now
ripe for determination.
II. MOTION TO DISMISS
13. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the
complaint.” Isenhour v. Hutto, 350 N.C. 601, 604, 517 S.E.2d 121, 124 (1999) (citation
and quotation marks omitted). The motion should be granted only 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. Brit. Am. Tobacco PLC, 371 N.C. 605, 615, 821 S.E.2d 729, 736–37 (2018)
(citation and quotation marks omitted).
14. In deciding the motion, the Court must treat the well-pleaded allegations of
the complaint as true and view the facts and permissible inferences “in the light most
favorable to” the nonmoving party. Sykes v. Health Network Sols., Inc., 372 N.C. 326,
332, 828 S.E.2d 467, 471 (2019) (citation and quotation marks omitted). Exhibits to the complaint are deemed to be part of it and may also be considered, see Krawiec v.
Manly, 370 N.C. 602, 606, 811 S.E.2d 542, 546 (2018), but the Court need not accept
as true any “conclusions of law or unwarranted deductions of fact,” Wray v. City of
Greensboro, 370 N.C. 41, 46, 802 S.E.2d 894, 898 (2017).
A. Declaratory Judgment
15. TAC seeks twin declarations: that Prime is the party obliged to purchase
any shares subject to Rodgers’s put right but that it may not do so until it has paid
the Liquidation Amount. Rodgers moves to dismiss the claim, arguing that the
shareholders’ agreement unambiguously requires TAC, not Prime, to buy his shares.
16. First, there is a threshold issue. An actual controversy between adverse
parties is an essential “jurisdictional prerequisite” for any claim for declaratory relief.
Gaston Bd. of Realtors, Inc. v. Harrison, 311 N.C. 230, 234, 316 S.E.2d 59, 61 (1984)
(quoting Adams v. N.C. Dep’t of Nat. & Econ. Res., 295 N.C. 683, 703, 249 S.E.2d 402,
414 (1978)). The judiciary has no power to “give a purely advisory opinion which the
parties might, so to speak, put on ice to be used if and when occasion might arise.”
Tryon v. Duke Power Co., 222 N.C. 200, 204, 22 S.E.2d 450, 453 (1942).
17. Here, the put right has an escape clause. If Rodgers disputes the valuation
of his shares after giving notice of his intent to exercise the put right, he may
withdraw the notice, making it “void for all purposes.” (Shareholders’ Agrmt. § 7(a).)
The time for Rodgers to make that decision has not yet passed. At the hearing, the
Court asked counsel whether this rendered the dispute about the put right hypothetical and invited supplemental briefing on the issue. Both parties contend
that the dispute is ripe and that the Court has jurisdiction.
18. After careful consideration, the Court agrees. There is a live dispute
between these parties. Rodgers has exercised his put right, triggering a valuation
process and revealing an interpretive dispute about who must buy his shares. The
interpretive dispute is concrete: TAC contends that Prime must buy Rodgers’s shares;
Rodgers contends that TAC must do so. The dispute has also clouded the parties’
rights and relationship, and closing cannot take place until it is resolved. To be sure,
Rodgers could call off the transfer, and if he does, the declaratory-judgment claim
might become moot. But the potential for mootness exists in nearly all cases, whether
through settlement, dismissal, or remedial action. That potential does not make the
current dispute hypothetical or advisory.
19. It follows that TAC has stated a claim for relief. “A motion to dismiss for
failure to state a claim is seldom appropriate ‘in actions for declaratory judgments,
and will not be allowed simply because the plaintiff may not be able to prevail.’ ”
Morris v. Plyler Paper Stock Co., 89 N.C. App. 555, 557, 366 S.E.2d 556, 558 (1988)
(quoting N.C. Consumers Power, Inc. v. Duke Power Co., 285 N.C. 434, 439, 206 S.E.2d
178, 182 (1974)). A trial court should dismiss the claim only “when the complaint
does not allege an actual, genuine existing controversy.” N.C. Consumers Power, 258
N.C. at 439, 206 S.E.2d at 182. As each side contends in the supplemental briefing,
there is an actual, genuine controversy related to which entity must buy Rodgers’s
shares. 20. Rodgers argues that the issue is so one-sided in his favor that the Court
should dismiss the claim anyway. Usually, the question at this stage is not whether
TAC “is ultimately entitled to the declaration it seeks.” Legalzoom.com, Inc. v. N.C.
State Bar, 2012 NCBC LEXIS 49, at *8–9 (N.C. Super. Ct. Aug. 27, 2012). Even so,
things are not as clear as Rodgers contends.
21. Section 7(a) of the shareholders’ agreement defines the put right but does
not identify the intended purchaser. The only mention of the purchaser is in section
7(d), which governs closing procedures for the put right and the call right. That
section requires the seller—whether exercising the put right or responding to the call
right—to deliver stock certificates “for transfer to the purchasing Shareholder(s).”
(Shareholders’ Agrmt. § 7(a).) Rodgers insists that the “purchasing Shareholder”
must be TAC because the agreement defines “Shareholder” to mean Rodgers and
TAC, not Prime. That is a reasonable interpretation. But there is another reasonable
interpretation. Because Prime may exercise the call right and purchase Rodgers’s
shares, it could be a “purchasing Shareholder” too. The phrase is ambiguous. See
Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 524–
25, 723 S.E.2d 744, 748 (2012) (concluding that contractual language having “more
than one possible meaning” was ambiguous).
22. The Court therefore denies the motion to dismiss the claim for declaratory
judgment. See Johnson’s Landing Homeowners Ass’n v. Hotwire Commc’ns, LLC,
2018 NCBC LEXIS 113, at *11 (N.C. Super. Ct. Oct. 29, 2018) (denying motion to dismiss when plaintiff alleged actual controversy); Gvest Real Estate, LLC v. JS Real
Estate Invs., LLC, 2017 NCBC LEXIS 32, at *9 (N.C. Super. Ct. Apr. 6, 2017) (same).
B. Reformation
23. As an alternative to its claim for declaratory judgment, TAC seeks to reform
the shareholders’ agreement. TAC alleges that the parties intended to make Prime
responsible for “purchasing Rodgers’s common shares upon the closing of his put
right” but failed to say so either due to a mutual mistake or TAC’s unilateral mistake.
(Am. Compl. ¶¶ 43, 47.) TAC contends that the agreement should be reformed to
align with the parties’ intent.
24. “Reformation is a well-established equitable remedy used to reframe written
instruments where, through mutual mistake or the unilateral mistake of one party
induced by the fraud of the other, the written instrument fails to embody the parties’
actual, original agreement.” Metropolitan Prop. & Cas. Ins. Co. v. Dillard, 126 N.C.
App. 795, 798, 487 S.E.2d 157, 159 (1997) (citation and quotation marks omitted). To
state a claim based on a mutual mistake, “[t]he party seeking reformation must allege
the provision that was agreed upon, the provision that was written, and that the
mistake was mutual.” Huss v. Huss, 31 N.C. App. 463, 467, 230 S.E.2d 159, 162
(1976) (citing Matthews v. Shamrock Van Lines, 264 N.C. 722, 142 S.E.2d 665 (1965)).
To state a claim based on a unilateral mistake, the plaintiff must allege, among other
things, that “the conduct of the promisor caused the improper expression.” Carter v.
West Am. Ins. Co., 190 N.C. App. 532, 537–38, 661 S.E.2d 264, 269 (2008). 25. The amended complaint adequately alleges a mutual mistake. Construed
liberally, the allegations show that the parties intended that Prime would purchase
Rodgers’s shares if he exercised his put right; that the shareholders’ agreement
mistakenly leaves the identity “ambiguous”; and that the mistake was mutual. (See
Am. Compl. ¶¶ 25, 43, 45.) This suffices to state a claim. Although Rodgers faults
TAC for failing to cite drafts, letters of intent, or other communications to evidence
the mistake, (Def.’s Br. in Supp. Mot. Dismiss 12, ECF No. 18 [“Def.’s MTD Br.”]),
“[i]t is not required that the pleader allege facts as to how and why the mutual
mistake came about,” Huss, 31 N.C. App. at 467, 230 S.E.2d at 162.
26. TAC’s allegation of a unilateral mistake falls short, however. A claim based
on unilateral mistake requires a showing that the defendant induced the mistake and
caused the error in the written document—for example, by “drafting, or having
drafted, an instrument contrary to the previous understanding of the parties and
permitting the other party to sign it without informing him thereof.” McCallum v.
Old Republic Life Ins. Co., 259 N.C. 573, 577, 131 S.E.2d 435, 438 (1963) (citation,
alterations, and quotation marks omitted). The amended complaint alleges nothing
of the sort. All that TAC alleges is that Rodgers falsely represented “that he would
operate Prime to repay TAC’s investment timely.” (Am. Compl. ¶ 46.) Even if true,
that does not show that Rodgers caused the error in the shareholders’ agreement.
“The mistake of one party to the . . . instrument, alone, not induced by the fraud of
the other, affords no ground for relief by reformation.” Crawford v. Willoughby, 192
N.C. 268, 272, 134 S.E. 494, 496 (1926); see Lefever v. Taylor, 2009 N.C. App. LEXIS 1243, at *18 (N.C. Ct. App. July 21, 2009) (affirming summary judgment because
plaintiff had not alleged “that the inclusion of [a] one-year limitation was induced by
the mistake, fraud or misrepresentation of defendant”).
27. The Court therefore denies the motion to dismiss the claim for reformation,
limited to the alleged mutual mistake.
C. Breach of Fiduciary Duty and Constructive Fraud
28. In its third count, TAC asserts claims for breach of fiduciary duty and
constructive fraud. The parties dispute whether the amended complaint adequately
alleges a fiduciary relationship between Rodgers and TAC, which is an essential
element of each claim. See, e.g., Panzino v. 5Church, Inc., 2020 NCBC LEXIS 17, at
*7–8 (N.C. Super. Ct. Feb. 12, 2020); Brown v. Secor, 2017 NCBC LEXIS 65, at *18–
19 (N.C. Super. Ct. July 28, 2017).
29. In general, shareholders “do not owe a fiduciary duty to each other or to the
corporation.” Freese v. Smith, 110 N.C. App. 28, 37, 428 S.E.2d 841, 847 (1993).
Majority shareholders have a duty to protect the minority, but Rodgers is not a
majority shareholder. He owns exactly 50 percent of Prime’s stock, (see Am. Compl.
¶ 11). See Potts v. KEL, LLC, 2019 NCBC LEXIS 30, at *11–12 (N.C. Super. Ct. May
9, 2019) (noting that shareholder with 50 percent interest is not a majority
shareholder).
30. TAC contends that Rodgers is a controlling shareholder, if not a majority
shareholder. (See Pl.’s Opp’n Mot. Dismiss 11–14, ECF No. 27.) “[O]ur Supreme
Court has not decided whether a minority shareholder exercising actual control over a corporation owes a duty to other shareholders.” Panzino, 2020 NCBC LEXIS 17, at
*12 (citing Corwin, 371 N.C. at 616, 821 S.E.2d at 737). Even if that were the law,
though, TAC has not adequately alleged that Rodgers wields actual control. The
parties entered into an arms’-length shareholders’ agreement that gives each
substantial rights, including an equal say on the board of directors. It is an
arrangement that allows Rodgers to withhold his consent and block corporate action
but not to control the corporation. See Corwin, 371 N.C. at 618, 821 S.E.2d at 738
(observing that a shareholder with “a contractual right to withhold its consent and
effectively veto any dividend payment” does not become a controlling shareholder by
exercising that right); Upchurch v. Sapp, 2020 NCBC LEXIS 118, at *11–12 (N.C.
Super. Ct. Oct. 8, 2020) (granting motion to dismiss because complaint lacked
allegations of control); Potts, 2019 NCBC LEXIS 30, at *12–14 (granting summary
judgment because shareholders had equal power on board of directors).
31. At the hearing, TAC suggested that Rodgers “holds all the cards” in their
relationship even if he is not a controlling shareholder. But again, TAC is far from
powerless. It has the same voting rights as Rodgers. (See Am. Compl. Ex. 1 Art. 2
§§ A.III., B.I.) And it controls half the board of directors. (See Shareholders’ Agrmt.
§ 3(a)(i).) TAC agreed to this division of rights in the sort of arms’-length transaction
that does “not typically give rise to fiduciary duties.” Dallaire v. Bank of Am., N.A.,
367 N.C. 363, 368, 760 S.E.2d 263, 266 (2014).
32. The Court therefore dismisses the claims for breach of fiduciary duty and
constructive fraud. D. Breach of Implied Covenant of Good Faith and Fair Dealing
33. The final claim is for breach of the implied covenant of good faith and fair
dealing. “In every contract there is an implied covenant of good faith and fair dealing
that neither party will do anything which injures the right of the other to receive the
benefits of the agreement.” Bicycle Transit Auth., Inc. v. Bell, 314 N.C. 219, 228, 333
S.E.2d 299, 305 (1985) (citation and quotation marks omitted). TAC’s claim is based
on allegations that the parties agreed Prime would pay dividends twice each year but
that Rodgers used his position as officer and director to halt the payments.
34. Rodgers argues, first, that the claim must be dismissed because TAC has
not also alleged a breach of the shareholders’ agreement. (See Def.’s MTD Br. 21.)
This is incorrect. “While implied covenant claims are nearly always paired with a
breach of contract claim in North Carolina practice, they need not be.” Vitaform, Inc.
v. Aeroflow, Inc., 2020 NCBC LEXIS 132, at *13 (N.C. Super. Ct. Nov. 4, 2020) (citing
Richardson v. Bank of Am., N.A., 182 N.C. App. 531, 556, 643 S.E.2d 410, 426 (2007)).
35. Next, Rodgers contends that a plaintiff may assert an independent claim for
breach of the implied covenant only “where a special relationship exists between the
parties, such as contracts for funeral services and insurance.” (Def.’s MTD Br. 20,
21–22.) As one federal district court has observed, this is “an incorrect over-
generalization of various North Carolina state appellate cases.” Robinson v. Deutsche
Bank Nat’l Tr. Co., 2013 U.S. Dist. LEXIS 50797, at *39–40 n.11 (E.D.N.C. Apr. 9,
2013). Our courts have not limited the claim in that fashion. See, e.g., Maglione v. Aegis Fam. Health Ctrs., 168 N.C. App. 49, 58, 607 S.E.2d 286, 292 (2005) (addressing
claim based on one party’s exercise of discretionary right under contract).
36. The Court therefore denies the motion to dismiss the claim. See Richardson
v. Utili-Serve, LLC, 2020 NCBC LEXIS 135, at *9–11 (N.C. Super. Ct. Nov. 17, 2020)
(denying motion to dismiss claim based on LLC member’s discretionary right under
operating agreement).
III. MOTION FOR SANCTIONS
37. Next, the Court turns to Rodgers’s motion for sanctions. This motion relates
to the original complaint, which alleged that “[a]n exercise of Rodgers’ put right would
require Prime to purchase Rodgers’ common shares, in accordance with the terms of
the Shareholders’ Agreement.” (Compl. ¶ 13.) Rodgers contends that the allegation
is baseless, contradicted by the plain text of the agreement. (See Def.’s Br. in Supp.
Mot. Sanctions 6–7, ECF No. 9.)
38. Rule 11 requires every pleading to be signed by an attorney, certifying that
it “is (1) well grounded in fact; (2) warranted by existing law . . . (legal sufficiency);
and (3) not interposed for any improper purpose.” Bryson v. Sullivan, 330 N.C. 644,
655, 412 S.E.2d 327, 332 (1992). “A breach of the certification as to any one of these
three prongs is a violation of the Rule.” Id.
39. Rodgers does not allege an improper purpose. Only the factual and legal
sufficiency of the original complaint are at issue. The test for factual sufficiency is
whether the alleged offender made “a reasonable inquiry into the facts” and, after
assessing that inquiry, “reasonably believed that his position was well grounded in fact.” Kohler Co. v. McIvor, 177 N.C. App. 396, 402, 628 S.E.2d 817, 822 (2006)
(citation and quotation marks omitted). The test for legal sufficiency is whether the
pleading is facially plausible and, if not plausible, whether the alleged offender made
a reasonable inquiry into the law. See Ward v. Jett Props., LLC, 191 N.C. App. 605,
607–08, 663 S.E.2d 862, 864 (2008). “[I]n determining compliance with Rule 11,
courts should avoid hindsight and resolve all doubts in favor of the signer.” Twaddell
v. Anderson, 136 N.C. App. 56, 70, 523 S.E.2d 710, 720 (1999) (citation and quotation
marks omitted).
40. The Court concludes that the original complaint was factually and legally
sufficient for at least three reasons. First, TAC attached the shareholders’ agreement
to the complaint, confirming that it made a reasonable inquiry into its terms. (See
Compl. Ex. 2.) Second, the shareholders’ agreement is ambiguous. As noted, section
7(a) does not say who is responsible for purchasing Rodgers’s shares. Rodgers bases
his interpretation on an oblique reference to “the purchasing Shareholder(s)” in
section 7(d). His interpretation of that phrase is reasonable, but so is TAC’s. The
claim is facially plausible. Third, Rodgers’s put notice does not identify his intended
counterparty. TAC says it understood that Rodgers intended to make Prime the
purchaser. (See Pl.’s Opp’n Mot. Sanctions 8, ECF No. 11.) In hindsight, that
understanding was erroneous; judged at the time, though, it supports the plausibility
of TAC’s claim and the reasonableness of its belief that the claim was well grounded.
41. Rodgers also points to a guarantee given by TAC’s principal, Greg Lindberg.
The document states, in relevant part, that Lindberg guarantees “the due and punctual payment by [TAC] of any amounts required to be paid to [Rodgers] upon
exercise of a Put Right or a Call Right under” the shareholders’ agreement. (Def.’s
Br. in Supp. Mot. Sanctions Ex. B.) This parol evidence supports Rodgers’s position,
but it does not conclusively resolve the ambiguity. This is particularly true given that
Rodgers filed his motion before the parties began discovery, which remains open.
Contractual ambiguities are questions of fact and should be resolved on the merits
after discovery, not through the lens of a prediscovery motion under Rule 11.
42. The Court denies the motion for sanctions.
IV. CONCLUSION
43. For all these reasons, the Court GRANTS in part and DENIES in part the
motion to dismiss. The claims for breach of fiduciary duty and constructive fraud are
DISMISSED. The Court DENIES the motion to dismiss the claims for declaratory
judgment, reformation (limited to the alleged mutual mistake), and breach of the
implied covenant of good faith and fair dealing.
44. The Court DENIES the motion for sanctions.
SO ORDERED, this the 7th day of December, 2020.
/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases