Hilco Transp., Inc. v. Atkins

Hilco Transp., Inc. v. Atkins, 2015 NCBC 44.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

COUNTY OF GUILFORD 14 CVS 8677

HILCO TRANSPORT, INC., )

)

Plaintiff, )

)

v. )

)

NATALIE L. ATKINS; MICHAEL )

ALLAN BREWER, as Custodian for )

Patterson Riley Brewer under the )

North Carolina Uniform Transfers to )

Minors Act; and MICHAEL ALLAN )

BREWER, as Custodian for Nicholas )

Alan Brewer under the North Carolina )

Uniform Transfers to Minors Act, )

)

ORDER

Defendants and )

Third-Party Plaintiffs, )

)

v. )

)

JOHN GURNEY LONG; )

JONATHAN DREW LONG; )

RICHARD WOHLFORD; )

LONG INVESTMENT PROPERTIES, )

LLC; CAROLINA TRANSPORT OF )

GREENSBORO, INC.; and ASHLEY )

LONG MICHAELS, )

)

Third-Party Defendants. )

)

{1} THIS MATTER is before the Court on Defendants’ Motion to Dismiss

(“Motion”), made pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil

Procedure (“Rule(s)”). The Motion seeks to foreclose Plaintiff’s right to demand

specific performance for the sale of Defendants’ shares. For the reasons stated

below, the Motion is DENIED.

Carruthers & Roth, P.A. by J. Patrick Haywood and Mark K. York for

Plaintiff.

Law Offices of Charles Winfree by Charles H. Winfree, Joseph B. Bass III,

and Ryan Q. Gladden for Defendants.

Gale, Chief Judge.

I. STANDARD OF REVIEW

{2} On a motion to dismiss pursuant to Rule 12(b)(6), the Court inquires

“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.” Crouse v. Mineo, 189 N.C. App. 232, 237,

658 S.E.2d 33, 36 (2008) (quoting Harris v. NCNB Nat’l Bank of N.C., 85 N.C. App.

669, 670, 355 S.E.2d 838, 840 (1987)). The Court may grant a motion to dismiss

under Rule 12(b)(6) where one of the following is true: (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. Oates v. JAG, Inc.,

314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985).

{3} In considering a Rule 12(b)(6) motion, the Court accepts the factual

allegations of the Complaint as true without assuming the veracity of Plaintiff’s

legal conclusions. See Walker v. Sloan, 137 N.C. App. 387, 392, 592 S.E.2d 236, 241

(2000).

II. PROCEDURAL HISTORY

{4} Plaintiff initiated this action on August 29, 2014, seeking specific

performance of a stockholder agreement. The case was designated a complex

business matter on September 5, 2014, and assigned to the undersigned on

September 9, 2014.

{5} On November 3, 2014, Defendants filed the present Motion, seeking to

dismiss the breach of contract claim and challenging Plaintiffs’ right to specific

performance. The Court heard argument on January 6, 2015. The Motion is ripe

for disposition.

III. FACTUAL BACKGROUND

{6} Plaintiff Hilco Transport, Inc. (“Hilco”) is a closely held North Carolina

corporation that provides transportation services for waste, petroleum, propane,

asphalt, dump, and aggregate hauling. William H. Long (“Doc Long”) and his

daughter, Patty Long Hill (“Patty Hill”) founded Hilco in 1987.

{7} Shortly after Hilco’s incorporation, Doc Long’s sons, Charles Long and

Third-Party Defendant John Gurney Long (“Gurney Long”) (collectively, “the Long

Brothers”), began managing Hilco’s operations.

{8} On January 17, 2005, a Stockholder Buy-Sell Agreement (“Stockholder

Agreement”) was executed. The signatories were Hilco and seven of the ten existing

stockholders.1 The stockholder signatories were the Long Brothers; Third-Party

Defendants Jonathan Drew Long and Ashley Long Michaels, who are Gurney

Long’s children; and Wendi L. Brewer, Natalie L. Atkins (“Atkins”), and Tyra L.

Nall (“Nall”), who are Charles Long’s daughters. Defendant Michael Allen Brewer

(“M.A. Brewer”), subsequently agreed to be bound by the Stockholder Agreement

after taking Wendi Brewer’s shares as custodian for their children, Patterson Riley

Brewer and Nicholas Alan Brewer, under the North Carolina Uniform Transfers to

Minors Act.

{9} The Stockholder Agreement recites that it was intended to ensure that,

“upon the death of one of the Long Brothers, the Long Brother who survives will

have the right, but not the obligation, to acquire some or all of the Shares of the

deceased Long Brother and his family and thereby obtain voting control over the

Corporation.” (Compl. Ex. A (“Stockholder Agreement”).) The Complaint asserts

that the Stockholder Agreement’s further unstated purpose was “to ensure that the

1 A subsequent motion challenges whether Hilco effectively adopted the agreement at the time of

execution, because it was not signed in accordance with the company’s bylaws. This Order does not

address that issue.

deceased Long Brother’s family members would be fairly compensated for their

Shares and that the surviving Long Brother would be able to continue running

Hilco in a congenial manner.” (Compl. ¶ 25.)

{10} More specifically, the Stockholder Agreement provides,

Notwithstanding anything contained in this Agreement to the contrary

. . . upon the death of one of the Long Brothers, the surviving Long

Brother shall have (i) the right to acquire the Shares of the Deceased

Long Brother pursuant to Article IV and thereby obtain voting control

over the Corporation, (ii) the ability (upon acquisition of voting control)

to elect a controlling majority of the Board of Directors of the

Corporation, and (iii) the ability to require one or more of the family

members of the Deceased Long Brother to sell their Shares to the

Corporation.

(Stockholder Agreement § 5.1.) The Stockholder Agreement states that any shares

sold pursuant to Section 5.1 are to be sold at fair market value measured at the end

of the month preceding the exercise of the option. Under the agreement, R. Wayne

Hutchins, CPA (“CPA Hutchins”) is to determine the value of the shares to be sold.

(Stockholder Agreement § 6.1.)2

{11} In addition to Section 5.1, a separate section of the Stockholder

Agreement gives each signatory a right to specific performance:

Each Stockholder agrees that each and every provision of this

Agreement is reasonably necessary for the protection of the rights and

interest of each Stockholder and his or her successors or assigns and

that monetary damages may not be an adequate remedy for a breach of

this Agreement. The Stockholders and their successors and assigns

shall therefore be entitled to specific performance and injunctive relief

to enforce the provisions of this Agreement.

(Stockholder Agreement § 10.1.)

{12} No provision of the Stockholder Agreement expressly provides a right

of specific performance directly to Hilco. However, a surviving Long Brother can

require corporate redemption of shares.

2 A subsequent motion challenges whether CPA Hutchins’s valuation is binding as to the shares at

issue. This Order does not address this issue.

{13} On June 30, 2005, Charles Long passed away unexpectedly. On

October 17, 2005, Gurney Long purchased Charles Long’s shares from the Estate of

Charles L. Long, based on a valuation by CPA Hutchins. Gurney Long has since

remained active in Hilco’s operations. In or around the fall of 2010, Nall redeemed

her 223 shares. In or around 2013, Wendi Brewer initiated a discussion concerning

Hilco’s possible redemption of Defendants’ shares, but no agreement was reached.

{14} On April 25, 2014, Gurney Long issued a Notice of Special Meeting of

the Board of Directors of Hilco Transport, Inc. for the purpose of considering a

motion to redeem Defendants’ shares pursuant to the Stockholder Agreement. On

April 28, 2014, Atkins purported to gift her shares to Doc Long.3

{15} The special meeting was held on May 9, 2014. During the meeting, the

Board (1) ratified the Stockholder Agreement on behalf of Hilco; (2) declared void

and ineffective Atkins attempted transfer to Doc Long; and (3) authorized Hilco to

exercise its option under the Stockholder Agreement to redeem Defendants’ shares.

(Compl. ¶¶ 86–90.) Hilco subsequently issued written notice to Atkins and M.A.

Brewer that it was exercising its option to purchase their shares.

{16} Hilco engaged CPA Hutchins to value Atkin’s and M.A. Brewer’s

shares. The closing for the redemption of their shares was scheduled for August 15,

2014. Defendants refused to allow Hilco to redeem their shares, giving rise to the

present dispute. Among other issues, Defendants challenge whether CPA Hutchins

prepared a proper valuation consistent with the Stockholder Agreement.4

{17} The present Motion is limited to the issue of whether the terms of the

Stockholder Agreement preclude Hilco’s right to seek specific performance.

3 If it applies, Section 1.1 of the Stockholder Agreement restricts such a transfer.

By a subsequent

motion which this Order does not address, Atkins contends that she made her gift prior to Hilco’s

ratification of the Stockholder Agreement, so that her transfer was not governed by the Stockholder

Agreement.

4 A subsequent motion raises the issue of what burden Defendants must meet to challenge CPA

Hutchins’s valuation. This Order does not address that issue.

IV. ANALYSIS

{18} The Court is called upon to interpret the terms of the Stockholder

Agreement and to reconcile potential conflicts of language among its various

provisions. Where a contract is sufficiently specific and mutually enforceable, a

court will permit specific performance of its terms. See Lacy J. Miller Mach. Co. v.

Miller, 58 N.C. App. 300, 306, 293 S.E.2d 622, 626 (1982). Assuming the

Stockholder Agreement is enforceable,5 no party challenges either that the

individual stockholders have the right to specific performance or that Gurney Long

has the right to cause Hilco to redeem the shares. Rather, the Motion asserts that

only the stockholders, but not Hilco itself, have a right to compel specific

performance.

{19} There are special rules for interpreting stockholder agreements that

limit share transfers, including that “restrictions on alienation or transfer of stock

are not favored and consequently are strictly construed.” Avrett & Ledbetter

Roofing & Heating Co. v. Phillips, 85 N.C. App. 248, 251, 354 S.E.2d 321, 323

(1987). However, such agreements can be upheld where the language is clear,

because “[w]hile both option contracts and restrictions on the alienation of property

interests are strictly construed, the clear intent of the parties as expressed on the

face of the contract controls.” Lee v. Scarborough, 164 N.C. App. 357, 360, 595

S.E.2d 729, 732 (2004).

{20} The parties’ intent is to be gleaned from the language used within the

four corners of the contract. Stovall v. Stovall, 205 N.C. App. 405, 410, 698 S.E.2d

680, 684 (2010) (quoting Lynn v. Lynn, 202 N.C. App. 423, 431, 689 S.E.2d 198,

204–05 (2010)). The contract is to “be construed as a whole, considering each clause

and word with reference to all other provisions and giving effect to each whenever

possible.” Marcoin, Inc. v. McDaniel, 70 N.C. App. 498, 504, 320 S.E.2d 892, 897

(1984).

5 Again, a subsequent motion, not addressed in this Order, challenges the validity and enforceability

of the Stockholder Agreement.

{21} Defendants contend that the parties to the Stockholder Agreement

clearly intended that Hilco would not be entitled to specific performance.

Defendants argue that because the Stockholder Agreement expressly gives such a

right to the stockholders but not to Hilco, it necessarily follows that Hilco has no

such right. Defendants cite Lee v. Scarborough to support their argument that,

unless expressly granted, no right to specific performance of a contract exists. The

Lee court implied that corporate conduct must be clearly prohibited by a restrictive

agreement in order for it to be actionable. Lee, 164 N.C. App. at 360, 595 S.E.2d at

732 (noting the relevant inquiry was whether a restriction on change in

capitalization of a company “clearly prohibited” approval of a merger). Lee does not,

however, speak to whether an option contract that operates as a restriction on

alienation must expressly authorize specific performance. Other North Carolina

Court of Appeals opinions have specifically enforced such agreements without

mentioning whether the underlying agreements expressly authorized specific

performance. See generally Crowder Constr. Co. v. Kiser, 134 N.C. App. 190, 517

S.E.2d 178 (1999); Lacy J. Miller Mach., 58 N.C. App. at 306, 293 S.E.2d at 626

(1982).

{22} Defendants also contend that the doctrine of expressio unius est

exclusion alterius, meaning that the expression of one thing is the exclusion of

another, dictates that Hilco’s right to specific performance should not be inferred

from the Stockholder Agreement. See Evans v. Diaz, 333 N.C. 774, 779–80, 430

S.E.2d 244, 247 (1993). The doctrine does not resolve the issue of contract

interpretation in this case. Defendants’ argument is based on an assumption that

Section 10.1 is the only section that governs Hilco’s right to specific performance.

Plaintiff counters that Section 5.1 of the Stockholder Agreement is also relevant to

discerning the parties’ intent. The Court agrees.

{23} Section 5.1 begins with the phrase, “[n]otwithstanding anything

contained in this Agreement to the contrary,” and then provides that the surviving

Long Brother can require family members of the deceased brother to sell their

shares to the Corporation. (Stockholder Agreement § 5.1.) Plaintiff contends that

this language makes clear that Hilco is ultimately entitled to purchase the shares of

the deceased brother’s immediate family members. Plaintiff asserts that Hilco is

entitled to a specific performance remedy in its own name to accomplish the purpose

of the Stockholder Agreement, particularly where the surviving Long Brother

directs the corporate action as he is entitled to do. See Crowder Constr., 134 N.C.

App. at 211, 517 S.E.2d at 192 (specifically enforcing a stock restriction and buy-out

agreement against a shareholder because such contracts “are designed to ensure

that ownership of all of the stock, especially of a close corporation, stays within the

control of . . . those who will continue to contribute to its successes or failures”

(quoting Gallagher v. Lambert, 549 N.E.2d 136, 137 (N.Y. 1989))).

{24} The Complaint alleges that Hilco was authorized under Gurney Long’s

motion to redeem the shares in question. Under Section 5.1, if Gurney Long was

entitled to cause Hilco to call shares, this defeats a negative implication that Hilco

was to be barred from specific performance.

{25} Defendants’ argument essentially is that Gurney Long cannot compel

or authorize Hilco to take the necessary action to redeem the shares, and that only

Gurney Long individually can take such actions. The Court finds the argument

inconsistent with Section 5.1. Moreover, according to the Stockholder Agreement,

to the extent Section 5.1 and Section 10.1 conflict, Section 5.1 controls.

{26} In sum, the Court concludes that it should not construe Section 10.1 as

an express limitation on Hilco’s right to specific performance to compel redemption

when acting pursuant to Section 5.1 of the Stockholder Agreement.

{27} In denying the present Motion to Dismiss, the Court has not

determined that Hilco is actually entitled to specific performance. There are many

issues yet to be resolved in that regard. The Court’s determination is limited to the

conclusion that the Stockholder Agreement does not expressly limit Hilco’s right to

specific performance, and that Hilco may properly seek that remedy.

V. CONCLUSION

{28} For the foregoing reasons, Defendants’ Motion to Dismiss is DENIED.

IT IS SO ORDERED, this the 5th day of May, 2015.

/s/ James L. Gale

James L. Gale

Chief Special Superior Court Judge

for Complex Business Cases