Wheeler v. Wheeler

2018 NCBC 37

• Court: North Carolina Business Court
• Decided: April 25, 2018
• Docket: 17-CVS-16248
• Status: Published

Opinion

Wheeler v. Wheeler, 2018 NCBC 37.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 17 CVS 16248

CHRISTOPHER GRAY WHEELER,

Plaintiff,

v. ORDER AND OPINION ON JOSEPH GRAY WHEELER; SCOTT DEFENDANT’S MOTION TO A. MOE; and YALE CAROLINAS, DISMISS INC. d/b/a WHEELER MATERIAL HANDLING, INC.,

Defendants.

1. THIS MATTER is before the Court on Defendant Joseph Gray Wheeler’s

(“Joseph”) partial motion to dismiss (the “Motion”). For the reasons set forth below,

the Court GRANTS the Motion.

Cadwalader, Wickersham & Taft LLP, by Jonathan M. Watkins, Nathan M. Bull, and Hyungjoo Han, for Plaintiff.

Nexsen Pruet, PLLC, by James C. Smith and Kathleen D.B. Burchette, for Defendant Joseph Gray Wheeler.

Robinson Bradshaw & Hinson, P.A., by John R. Wester and D. Blaine Sanders, for Defendants Scott A. Moe and Yale Carolinas, Inc.

Robinson, Judge.

I. FACTUAL BACKGROUND

2. The Court does not make findings of fact on Joseph’s Motion; rather, the

Court recites the following factual allegations of the complaint that are relevant and

necessary to the Court’s determination of the Motion. 3. Plaintiff Christopher Gray Wheeler (“Plaintiff” or “Gray”) owns a 33.45%

interest in Defendant Yale Carolinas, Inc. (“YCI”). (Am. Compl. ¶ 3, ECF No. 38.)

4. Joseph, Gray’s father, owns a 51.19% interest in YCI. (Am. Compl. ¶ 4.)

Joseph is also YCI’s chief executive officer and the chairman of YCI’s board of

directors. (Am. Compl. ¶ 4.)

5. Defendant Scott A. Moe (“Scott”) worked at YCI as an account manager

from 1989 to 1994 and became YCI’s vice president of sales in 2003. (Am. Compl.

¶ 5.) Scott owns a 15.36% interest in YCI. (Am. Compl. ¶ 5.)

6. YCI is a North Carolina corporation with its principal place of business in

Charlotte, North Carolina. (Am. Compl. ¶ 6.) YCI sells, rents, services, and provides

parts for material-handling equipment such as forklifts, scissor lifts, personnel

carriers, fuel cells, batteries and chargers, and refueling systems. (Am. Compl. ¶ 6.)

YCI operates under a renewable dealer marketing agreement with its primary

supplier, Hyster-Yale Materials Handling, Inc. (Am. Compl. ¶ 6.)

7. In early 2004, Joseph recruited Gray to join YCI. (Am. Compl. ¶ 17.) Gray

alleges that in order to persuade Gray to accept a position at YCI, Joseph promised

Gray: (1) that YCI had been, and would continue to be, operated like a public company

with the transparency and professionalism that accompanies a properly run public

company; (2) a significant equity stake in YCI; (3) an apprenticeship to take over full

day-to-day decision-making authority and full profit-and-loss responsibility; (4)

transition of ownership of the business to Gray; and (5) that equity buyouts would be

done fairly and at a near-to-market-value multiple. (Am. Compl. ¶¶ 17−18.) 8. Gray alleges that these promises induced Gray to accept Joseph’s offer.

(Am. Compl. ¶ 18.) Gray began working at YCI as its controller and chief financial

officer on May 1, 2004. (Am. Compl. ¶¶ 18−19.)

9. In 2005, Joseph promoted Gray to vice president of operations, and Joseph

went into semi-retirement. (Am. Compl. ¶ 19.)

10. In 2009, Joseph promoted Gray to president. (Am. Compl. ¶ 20.)

11. In late 2011, Joseph approached Gray and Scott with a plan pursuant to

which Joseph would retire approximately 17% of his 68% interest in YCI to reduce

his interest to just over 50%. (Am. Compl. ¶ 25.) Gray alleges that Joseph told Gray

and Scott that the purpose of retiring a portion of Joseph’s interest was to fund

Joseph’s retirement while at the same time increasing the ownership interests of both

Gray and Scott without requiring additional capital outlay. (Am. Compl. ¶ 25.)

Under Joseph’s plan, YCI would take on a long-term note that would compensate

Joseph immediately for his reduction in shares. (Am. Compl. ¶ 26.) Joseph decided

that to determine the value of his shares, YCI would be valued at 4.5 times EBITDA

(earnings before interest, taxes, depreciation, and amortization) minus interest-

bearing debt. (Am. Compl. ¶ 27.) Gray alleges that, using YCI’s then-current

financial metrics, the valuation methodology proposed by Joseph would value the

company at approximately $16.7 million. (Am. Compl. ¶ 14.) Gray alleges that YCI’s

commercial bankers at PNC Bank indicated that $16.7 million was a reasonable

market value for YCI as an ongoing enterprise. (Am. Compl. ¶ 27.) 12. Based on a $16.7 million valuation, Gray calculated that the amount of

consideration to be paid to Joseph for the retirement of his shares and resulting

recapitalization would be about $2.82 million. (Am. Compl. ¶ 28.) Gray alleges that

Joseph, however, claimed that as the controlling shareholder, Joseph was entitled to

approximately $5.7 million—more than double the $2.82 million that would be due

based on the 4.5 times EBITDA minus interest-bearing debt valuation—in exchange

for retiring a 17% interest in YCI. (Am. Compl. ¶ 29.) Joseph concluded that $5.7

million was the appropriate payment by dividing the EBITDA minus interest-bearing

debt enterprise value by the number of shares outstanding to arrive at a price per

share, which Joseph then multiplied by the number of shares Joseph was retiring.

(Am. Compl. ¶ 29.) Gray contends that Joseph’s methodology yielded an

unreasonable valuation of Joseph’s 17% interest and a corresponding unreasonable

$33.75 million valuation of the company, which was a departure from values assigned

to other departing shareholders’ shares in the company. (Am. Compl. ¶¶ 30, 44.)

13. Nevertheless, Gray contends that Joseph threatened that if Gray did not

complete the transaction on Joseph’s terms, then Joseph would revoke his promise

that Gray would be the majority shareholder in YCI within a reasonable timeframe.

(Am. Compl. ¶ 33.)

14. As a result, the recapitalization was completed on Joseph’s terms, but with

a number of covenants restricting company borrowing and prohibiting non-tax

dividends from being paid through the S corporation until the note was paid down

from $5.7 million to under $3 million. (Am. Compl. ¶ 36.) 15. In 2012, Joseph went into full retirement. (Am. Compl. ¶ 4.)

16. Despite Joseph’s retirement, Joseph has insisted on retaining his title as

CEO and continues to receive his $195,000 salary, insurance, 401(k) match, and other

benefits such as a $650 per month car allowance and unlimited use of a fuel card.

(Am. Compl. ¶ 53.)

17. In or around August 2015, Gray asked Joseph to make good on

commitments to transfer majority ownership of YCI and revise Joseph’s

compensation in order to reflect his retirement. (Am. Compl. ¶ 54.) Joseph refused,

asserting that he would not at any point relinquish his controlling position in YCI.

(Am. Compl. ¶ 54.)

18. In November 2015, Gray made another request to Joseph that Joseph allow

YCI to reduce his compensation package to one that reflected his retirement, was

comparable to his retired peers, and was fair to those managers who continued to

work for YCI. (Am. Compl. ¶ 55.) Joseph refused to discuss the matter. (Am. Compl.

¶ 55.)

19. By August 2016, Gray decided that it was time to explore a transition out

of YCI. (Am. Compl. ¶ 56.) Two weeks later, Gray and Scott agreed that Scott was

capable of, and interested in, running YCI as president, and that Gray would resign

as president of the company but continue for eighteen months as a full-time advisor

to Scott and also continue serving as a member of the board of directors. (Am. Compl.

¶ 57.) 20. In November 2016, Gray formally notified Joseph and Scott of his desire to

transition out of the company. (Am. Compl. ¶ 58.) Gray offered a twelve-to-eighteen

month transition period and various options as to Gray’s role in the company after

Scott assumed position as president. (Am. Compl. ¶ 58.)

21. Thereafter, Gray alleges that Joseph embarked on a scheme to immediately

oust Gray from YCI and to force Gray to relinquish his shares at a fraction of their

fair value. (Am. Compl. ¶ 59.) In December 2016, Joseph e-mailed Gray and Scott

asserting that YCI’s value was approximately $10.7 million. (Am. Compl. ¶ 59.)

Although Joseph eventually retreated from that unreasonable valuation, Joseph then

caused YCI to accept Gray’s resignation—even though Gray had never tendered any

resignation—to attempt to force Gray to sell his shares back to YCI at book value

paid out over the course of six years. (Am. Compl. ¶ 60.) Gray contends that this is

an unfairly low valuation that would result in a windfall to the other shareholders.

(Am. Compl. ¶ 60.)

22. On April 5, 2017, Joseph misrepresented to YCI’s outside certified public

accountant that Gray’s shares had been purchased by YCI effective March 31, 2017,

caused the board to adopt minutes that purport to accept Gray’s never-given

resignation, and caused YCI to cease compensating Gray despite that Gray remained

an employee. (Am. Compl. ¶ 66.)

23. On November 14, 2017, YCI asserted for the first time that it was treating

Gray’s cessation of employment, based on YCI’s acceptance of Gray’s resignation in

April 2017, as termination for cause on the erroneous basis that Gray secretly increased his compensation while serving as president. (Am. Compl. ¶ 72.) Gray

contends that Joseph causing YCI to retroactively declare Gray’s cessation of

employment a termination for cause is an attempt to avoid paying Gray the

shareholder distributions to which he is entitled and to force a buy-out of Gray’s

shares at an unreasonable value. (Am. Compl. ¶ 72.)

24. At the end of 2017, Joseph was approached by LiftOne, YCI’s chief

competitor, regarding its interest in acquiring YCI through an all-cash transaction at

an attractive valuation. (Am. Compl. ¶ 73.) Joseph did not inform Gray of LiftOne’s

proposal. (Am. Compl. ¶ 73.) Instead, Joseph informed LiftOne that YCI would not

be sold at this time. (Am. Compl. ¶ 73.)

II. PROCEDURAL HISTORY

25. Gray initiated this action on September 1, 2017 by filing his Complaint.

(ECF No. 1.) Gray filed his Amended Complaint on January 18, 2018 seeking judicial

dissolution of YCI and asserting claims against Joseph for breach of fiduciary duty,

constructive fraud, and unfair and deceptive trade practices (“UDTP”). (Am. Compl.

38−39, 41−42.)

26. This action was designated as a mandatory complex business case by order

of the Chief Justice of the Supreme Court of North Carolina dated September 5, 2017,

(ECF No. 3), and assigned to the Honorable Louise A. Bledsoe, III by order of the

Chief Business Court Judge dated September 6, 2017, (ECF No. 2). This case was

later reassigned to the undersigned by order dated November 8, 2017. (ECF No. 15.) 27. On February 16, 2018, Joseph filed the Motion seeking dismissal of Gray’s

UDTP claim. (ECF No. 40.)

28. The Motion has been fully briefed. The Court dispenses with the necessity

of conducting a hearing on the Motion as permitted by Rule 7.4 of the General Rules

of Practice and Procedure for the North Carolina Business Court. The Motion is now

ripe for resolution.

III. LEGAL STANDARD

29. In ruling on a motion to dismiss pursuant to Rule 12(b)(6) of the North

Carolina Rules of Civil Procedure, the Court reviews the allegations of the Amended

Complaint in the light most favorable to Plaintiff. 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.” Harris v.

NCNB Nat’l Bank of N.C., 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987). The

Court construes the Amended Complaint liberally and accepts all factual allegations

as true. Laster v. Francis, 199 N.C. App. 572, 577, 681 S.E.2d 858, 862 (2009). The

Court is not, however, 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). The Court can also ignore a party’s legal conclusions set forth

in its pleading. McCrann v. Pinehurst, LLC, 225 N.C. App. 368, 377, 737 S.E.2d 771,

777 (2013). 30. Dismissal of a claim pursuant to Rule 12(b)(6) is proper “(1) when the

complaint on its face reveals that no law supports [the] claim; (2) when the complaint

reveals on its face the absence of fact sufficient to make a good claim; [or] (3) when

some fact disclosed in the complaint necessarily defeats the . . . claim.” Oates v. JAG,

Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985); see also Jackson v. Bumgardner,

318 N.C. 172, 175, 347 S.E.2d 743, 745 (1986). Otherwise, “a complaint should not

be dismissed for insufficiency unless it appears to a certainty that plaintiff is entitled

to no relief under any state of facts which could be proved in support of the claim.”

Sutton v. Duke, 277 N.C. 94, 103, 176 S.E.2d 161, 166 (1970) (emphasis omitted).

IV. ANALYSIS

31. Gray alleges that Joseph engaged in UDTP in violation of N.C. Gen. Stat.

§ 75-1.1 by abusing his position as a majority shareholder to (1) engage in self-dealing

by forcing YCI to purchase 17% of Joseph’s interest in the company at an

unreasonably high price, (2) commit corporate waste and engage in self-dealing by

forcing YCI to pay Joseph a salary of $195,000 after Joseph had retired, (3) mislead

YCI’s auditor by asserting that Gray’s shares had been purchased effective March 31,

2017, (4) purport to accept a resignation by Gray as president, (5) retroactively

attempt to terminate Gray for cause, (6) put YCI at risk by violating the Hyster-Yale

Code of Conduct for Business Partners, and (7) fail to inform Gray of LiftOne’s

proposal to acquire YCI. (Am. Compl. ¶ 91.)

32. Joseph moves to dismiss Gray’s UDTP claim, contending that the alleged

conduct occurred solely within a single market participant and, therefore, was not “in or affecting commerce.” (Mem. Supp. Def. Joseph’s Mot. Dismiss Claim for Unfair &

Deceptive Trade Practices 6−9, ECF No. 41.)

33. In order to state a UDTP claim, Gray must allege (1) an unfair or deceptive

act or practice, (2) in or affecting commerce, (3) which proximately caused injury to

Gray. Belcher v. Fleetwood Enters., Inc., 162 N.C. App. 80, 85, 590 S.E.2d 15, 18

(2004). “‘[C]ommerce’ includes all business activities, however denominated, but does

not include professional services rendered by a member of a learned profession.” N.C.

Gen. Stat. § 75-1.1(b). “Although this statutory definition of commerce is expansive,

[section 75-1.1] is not intended to apply to all wrongs in a business setting.”

Alexander v. Alexander, 792 S.E.2d 901, 904 (N.C. Ct. App. 2016) (quoting HAJMM

Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 593, 403 S.E.2d 483, 492 (1991)).

“‘Business activities’ is a term which connotes the manner in which businesses

conduct their regular, day-to-day activities, or affairs, such as the purchase and sale

of goods, or whatever other activities the business regularly engages in and for which

it is organized.” HAJMM Co., 328 N.C. at 594, 403 S.E.2d at 493. As further

explained by our Supreme Court, section 75-1.1 regulates “two types of interactions

in the business setting: (1) interactions between businesses, and (2) interactions

between businesses and consumers.” White v. Thompson, 364 N.C. 47, 52, 691 S.E.2d

676, 679 (2010). Section 75-1.1 does not apply to the internal conduct of individuals

within a single market participant. Alexander, 792 S.E.2d at 904. Rather, “the

General Assembly intended [section 75-1.1] to apply to interactions between market

participants. As a result, any unfair or deceptive conduct contained solely within a single business is not covered by [section 75-1.1].” White, 364 N.C. at 53, 691 S.E.2d

at 680.

34. The Court, taking the factual allegations of the Amended Complaint as

true, concludes that Gray has failed to allege that Joseph’s alleged unfair or deceptive

conduct was in or affecting commerce. Joseph’s alleged conduct in forcing YCI to

purchase his interest at an unreasonably high price, forcing YCI to pay Joseph his

$195,000 salary after he retired, purporting to accept Gray’s resignation as YCI’s

president, and retroactively attempting to terminate Gray for cause, plainly

constitutes conduct contained within a single business, YCI, and is therefore not in

or affecting commerce.

35. The remaining allegations that Joseph misled YCI’s auditor by asserting

that Gray’s shares had been purchased, violated the Hyster-Yale Code of Conduct

and thus put YCI’s relationship with its principal supplier at risk, and failed to inform

Gray of LiftOne’s proposal to acquire YCI, also allege unfair or deceptive conduct that

occurred only within YCI. “[W]hen the unfair or deceptive conduct alleged only

affects relationships within a single business or market participant, and not dealings

with other market participants, that conduct is not ‘in or affecting’ commerce within

the section of section 75-1.1, even if other market participants may be indirectly

involved in the unfair or deceptive acts.” Powell v. Dunn, 2014 NCBC LEXIS 3, at *9

(N.C. Super. Ct. Jan. 28, 2014).

36. The fact that YCI’s auditor, YCI’s principal supplier, and LiftOne are

tangentially involved does not make Joseph’s conduct in or affecting commerce. Rather, this is a dispute between the shareholders of a corporation regarding its

internal management and the shareholders’ right to fair value for their ownership

interest. “Our courts have recognized similar disputes for what they really are: intra-

company feuds about internal operations.” Potts v. KEL, LLC, 2018 NCBC LEXIS

24, at *14 (N.C. Super. Ct. Mar. 27, 2018).

37. As the alleged conduct concerns the internal operations of a single business,

the Amended Complaint fails to state a UDTP claim and, therefore, such claim is

dismissed with prejudice.

V. CONCLUSION

38. For the foregoing reasons, the Court GRANTS the Motion and

DISMISSES with prejudice Plaintiff’s UDTP claim.

SO ORDERED, this the 25th day of April, 2018.

/s/ Michael L. Robinson Michael L. Robinson Special Superior Court Judge for Complex Business Cases