The opinion
Coleman v. Coleman, 2015 NCBC 110.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
BUNCOMBE COUNTY 14 CVS 3869
THOMAS W. COLEMAN,
Plaintiff,
v.
MAUREEN K. COLEMAN, individually,
and as Executrix of the Estate of Richard
L. Coleman, Jr.; CAROLYN G. W.
COLEMAN, individually, and as
Executrix of the Estate of Stewart B.
Coleman; AMANDA COLEMAN
FRANKLIN; WHITNEY COLEMAN ORDER AND OPINION ON
ISRAEL; THOMAS M. ISRAEL, III; DEFENDANTS’ MOTIONS
RICHARD L. COLEMAN, III; KELLY TO DISMISS
COLEMAN PREWITT,
Defendants.
v.
ASHEVILLE MALL, INC. and
SHERWOOD HEIGHTS, INC.,
Nominal
Defendants.
{1} THIS MATTER is before the Court upon the separate Motions to Dismiss
Plaintiff Thomas W. Coleman’s (“Plaintiff”) Complaint1 filed by Defendants
Maureen K. Coleman (“Maureen Coleman”), individually, and as Executrix of the
Estate of Richard L. Coleman, Jr.; Carolyn G.W. Coleman (“Gay Coleman”),
individually, and as Executrix of the Estate of Stewart B. Coleman; Amanda
Coleman Franklin (“Amanda Franklin”); Whitney Coleman Israel (“Whitney
Israel”); Thomas M. Israel, III (“Thomas Israel”); Richard L. Coleman, III (“Lee
Coleman”); and Kelly Coleman Prewitt’s (“Kelly Prewitt”) (collectively,
“Defendants”) pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil
1 Each Defendant submitted a separate Motion to Dismiss and all Defendants jointly represented by
counsel filed joint briefs for purposes of the length limitations on briefs under Business Court Rule
15.8.
Procedure (the “Motions”) in the above-captioned case. After considering the
Motions, briefs in support of and in opposition to the Motions, and the arguments of
counsel, the Court GRANTS the Motions and DISMISSES Plaintiff’s claims.
McGuireWoods LLP, by Robert A. Muckenfuss, Jodie N. Hermann,
Alexander Covington, and Emily Lowder, for Plaintiff Thomas W.
Coleman.
Adams, Hendon, Carson, Crow & Saenger, P.A., by Robert C.
Carpenter, E. Thomison Holman, and Joy McIver, for Defendants Kelly
C. Prewitt and Richard L. Coleman, III.
FisherBroyles LLP, by Cammi R. Jones, and Mainsail Lawyers, by J.
Kellam Warren, for Defendant Maureen Coleman, individually and as
Executrix of the Estate of Richard L. Coleman, Jr.
The Van Winkle Law Firm, by Stephen J. Grabenstein and James W.
Baley, for Defendants Carolyn G.W. Coleman, individually and as
Executrix of the Estate of Stewart B. Coleman, Amanda Coleman
Franklin, Whitney Coleman Israel, and Thomas M. Israel, III.
Bledsoe, Judge.
I.
FACTUAL AND PROCEDURAL BACKGROUND
{2} The Court does not make findings of fact on motions to dismiss under Rule
12(b)(6), but only recites those facts included in the Complaint that are relevant to
the Court’s determination of Defendants’ Motions to Dismiss. See, e.g., Concrete
Serv. Corp. v. Investors Grp., Inc., 79 N.C. App. 678, 681, 340 S.E.2d 755, 758
(1986).
{3} This case arises from a family business relationship gone sour. All parties
to this case are related, either through blood or through marriage, and hold present
or presumptive future interests in the Nominal Defendants, Asheville Mall, Inc. and
Sherwood Heights, Inc. (collectively, the “Corporations”).
{4} Plaintiff Thomas Coleman is a one-third owner/shareholder and director of
the Corporations. (Compl. ¶ 3.) Plaintiff, Richard L. Coleman, Jr., and Stewart B.
Coleman were brothers who shared equally in the ownership of the Corporations,
which were formed by their parents. Plaintiff is the only surviving brother.
{5} Maureen Coleman is the widow of Richard L. Coleman, Jr. and serves as
Executrix of his Estate. (Compl. ¶ 4.) The Estate of Richard L. Coleman, Jr. (“R.
Coleman Estate”) is a one-third owner/shareholder of the Corporations, and
Maureen Coleman serves as a director of the Corporations by virtue of her role as
Executrix of the R. Coleman Estate. (Compl. ¶ 4.)
{6} Lee Coleman and Kelly Prewitt are beneficiaries of the R. Coleman Estate.
(Compl. ¶¶ 9–10.)
{7} Gay Coleman is the widow of Stewart B. Coleman and serves as Executrix
of his Estate. (Compl. ¶ 5.) The Estate of Stewart B. Coleman (“S. Coleman Estate”)
is a one-third owner/shareholder of the Corporations. (Compl. ¶ 5.)
{8} Amanda Franklin and Whitney Israel are beneficiaries of the S. Coleman
Estate. (Compl. ¶¶ 6–7.) Thomas Israel is the husband of Whitney Israel and is a
director and current President of the Corporations. (Compl. ¶ 8.)
{9} Stewart B. Coleman formerly served as President of the Corporations until
2008 when he was removed from office “due to suspected improprieties in
management of the Corporations.” (Compl. ¶¶ 12–13.)
{10} After Stewart B. Coleman’s removal, Plaintiff was elected President of the
Corporations, a position he held for six years. (Compl. ¶¶ 14–17.)
{11} Plaintiff alleges that, when he was voted President, the “intent was for
Plaintiff to remain as President so long as he was capable and willing to serve,”
(Compl. ¶ 14), as “[i]t was always the intent of the founders of the Corporations and
of Plaintiff’s late brothers that so long as one of the brothers was alive and capable,
that a brother would be President of the Corporations.” (Compl. ¶ 28.)
{12} Plaintiff received a Notice of Special Meeting of Shareholders and a Special
Meeting of the Board of Directors of the Corporation (the “Notice”) on June 27,
2014. (Compl. ¶ 19.) The Notice stated that the purpose of the meeting was to “1)
remove or accept the resignation of one or more directors; 2) elect one or more
directors to fill vacancies created; 3) amend and reinstate the Bylaws of the
Corporations; 4) enter into a Management Agreement; and 5) authorize Thomas M.
Israel, III to take any action reasonably necessary to take control of all the accounts
owned by the Corporations.” (Compl. ¶ 20.)
{13} The meeting was held on July 8, 2014, at which time Plaintiff was removed
as President of the Corporations by the R. Coleman Estate, the S. Coleman Estate,
Thomas Israel, and Maureen Coleman. (Compl. ¶¶ 21–22.) Thomas Israel was
elected President of the Corporations. (Compl. ¶ 26.) Plaintiff alleges that he was
removed as President in retaliation for filing a caveat proceeding to challenge the
probate of his mother’s will in 2010. (Compl. ¶ 25.)
{14} Plaintiff’s counsel made written demand on the R. Coleman Estate, the S.
Coleman Estate, Thomas Israel, and Maureen Coleman on July 11, 2014,
demanding reinstatement as President of the Corporations. (Compl. ¶ 23.)
{15} Counsel for the R. Coleman Estate, the S. Coleman Estate, Thomas Israel,
and Maureen Coleman rejected Plaintiff’s demand on July 28, 2014.
{16} Plaintiff filed this action on August 29, 2014, alleging five claims against
Defendants in various combinations. This case was designated a complex business
case on September 5, 2014 and assigned to the undersigned on September 8, 2014.
{17} Defendants’ Motions to Dismiss have been fully briefed, and the Court held
a hearing on the Motions at which all parties were represented by counsel. The
Motions are ripe for resolution.
II.
LEGAL STANDARD
{18} The overarching question for the Court on a motion to dismiss under N.C.
R. Civ. P. Rule 12(b)(6) 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) (citing Stanback v.
Stanback, 297 N.C. 181, 185, 254 S.E.2d 611, 615 (1979)). Furthermore, “[t]he
complaint must be liberally construed, and the court should not dismiss the
complaint unless it appears beyond a doubt that the plaintiff could not prove any
set of facts to support his claim which would entitle him to relief.” Block v. Cnty. of
Person, 141 N.C. App. 273, 277–78, 540 S.E.2d 415, 419 (2000) (citation omitted).
Factual allegations must be accepted as true; however, bare legal conclusions “are
not entitled to a presumption of truth.” Miller v. Rose, 138 N.C. App. 582, 592, 532
S.E.2d 228, 235 (2000) (citations omitted). Dismissal is appropriate in any of the
three following instances: “(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.” Wood v. Guilford Cnty., 355 N.C. 161, 166,
558 S.E.2d 490, 494 (2002) (citation omitted).
III.
ANALYSIS
A. Meiselman Claim
{19} In his first claim for relief entitled “Breach of Fiduciary Duty – Meiselman
Action,” Plaintiff requests equitable relief and reinstatement as President of the
Corporations based on Defendants’ frustration of his reasonable expectations as
delineated in Meiselman v. Meiselman, 309 N.C. 279, 298, 307 S.E.2d 551, 562
(1983). (Compl. ¶¶ 31–38.) To obtain relief under Meiselman’s reasonable
expectation analysis, Plaintiff must allege that:
(1) he had one or more substantial reasonable expectations known or
assumed by the other participants; (2) the expectation has been
frustrated; (3) the frustration was without fault of plaintiff and was in
large part beyond his control; and (4) under all of the circumstances of
the case plaintiff is entitled to some form of equitable relief.
Brady v. Van Vlaanderen, 2013 NCBC LEXIS 34, at *10 (N.C. Super. Ct. July 24,
2013) (quoting High Point Bank & Trust Co. v. Sapona Mfg. Co., 212 N.C. App. 148,
152, 713 S.E.2d 12, 15 (2011)).
{20} As an initial matter, Defendants argue that Plaintiff has not adequately
pleaded his Meiselman action because Plaintiff seeks relief not available under
Meiselman. (Gay Coleman Br. Supp. Mot. Dismiss 5.) In his response brief and at
the hearing, Plaintiff suggested and argued for the first time that his first claim for
relief is not simply premised on Meiselman, but is for equitable relief and damages
for breach of fiduciary duty, similar to the claims asserted in Freese v. Smith, 110
N.C. App. 28, 428 S.E.2d 841 (1993), and Farndale Co., LLC v. Gibellini, 176 N.C.
App. 60, 628 S.E.2d 15 (2006).2 (Pl.’s Resp. to Gay Coleman Mot. Dismiss 10.) The
Court finds Plaintiff’s argument unpersuasive.
{21} First, the Court does not believe a fair reading of the Complaint, as
pleaded, puts Defendants on fair notice of Plaintiff’s intention to state an individual
breach of fiduciary duty claim apart from the Meiselman line of cases. Every fact
supporting Plaintiff’s first claim for relief focuses on the elements necessary to state
a Meiselman claim and concludes with a request for “equitable relief and
reinstatement as President of the Corporations.” (Compl. ¶ 38.) Although Plaintiff
alleges that he is entitled to damages in his prayer for relief, that sole allegation is
insufficient, when read in conjunction with the rest of the Complaint, to put
Defendants on notice. See, e.g., Allen v. Land Res. Group of N.C., LLC, 2010 NCBC
LEXIS 18, *9 (N.C. Super. Ct. Sep. 22, 2010) (“Rule 8 calls for simple, concise and
direct pleadings which are sufficiently particular to give the court and each
defendant fair notice of what claims the plaintiff is asserting against each of the
defendants and the grounds upon which the claims rest.”); see also, e.g., Brad
Ragan, Inc. v. Callicutt Enterprises, Inc., 73 N.C. App. 134, 136, 326 S.E.2d 62, 64
(1985) (stating that a complaint must give defendant “fair notice of the claim
against him and the ground upon which it rests.”).
{22} The Court, therefore, concludes that Plaintiff’s first claim for relief,
entitled “Breach of Fiduciary Duty – Meiselman Action,” was pleaded under the
2 The principal difference between the Meiselman and the Freese line of cases is in the requested
relief. In Meiselman, the plaintiff minority shareholder, alleging that the majority shareholder
breached his fiduciary duty, exercised his statutory right to seek judicial dissolution and other
equitable relief under N.C. Gen. Stat. §§ 55-125 and 55-125.1 (1973) (current version at N.C. Gen.
Stat. § 55-14-30 (2015)). Meiselman, 309 N.C. at 298, 307 S.E.2d at 562. While Freese and Farndale
also involve breach of fiduciary duty claims, the plaintiffs in those cases sought monetary damages
rather than equitable relief. Freese, 110 N.C. App. at 37–38, 428 S.E.2d at 847–48 (holding that a
minority shareholder could recover damages from majority shareholders for breach of fiduciary duty
when the minority alleged that the majority used corporate assets to make preferential payments to
themselves); Farndale, 176 N.C. App. at 68–69, 628 S.E.2d at 20 (affirming a jury award of damages
to the minority shareholders who alleged that defendant majority shareholders orchestrated a stock
issuance in order to squeeze plaintiffs out of the company).
Meiselman line of cases and, as such, is insufficient to state a claim for relief for two
reasons. First, Plaintiff has not pleaded sufficient facts to show his expectations
were reasonable or concurred in by Defendants. Plaintiff has advanced only
conclusory allegations that Defendants knew of and frustrated his substantial and
reasonable expectation of continuing to serve as President of the Corporations.
(Compl. ¶¶ 31–37.) Plaintiff has failed to allege any facts that might give
Defendants notice of the “transactions, occurrences, or series of transactions or
occurrences” showing that Plaintiff possessed reasonable expectations known to
Defendants. N.C. R. Civ. P. 8(a)(1). See also Royals v. Piedmont Elec. Repair Co.,
137 N.C. App. 700, 706, 529 S.E.2d 515, 519 (2000) (citation omitted) (stating that
reasonable expectations may be gleaned from the parties’ actions, signed
agreements, and other written instruments); see generally Russell M. Robinson, II,
Robinson on North Carolina Corporation Law, § 28.11(2) (7th ed. 2014) (discussing
“reasonable expectations” under Meiselman).
{23} Next, Plaintiff has sought relief in the form of “equitable relief including
reinstatement as President” of the Companies, relief not available under the
Meiselman cases. Under former Section 55-125.1, the trial court could order relief
such as
(1) [c]anceling or altering any provision contained in the charter or
bylaws of the corporation; or (2) [c]anceling, altering, or enjoining any
resolution or other act of the corporation; or (3) [d]irecting or
prohibiting any act of the corporation or of shareholders, directors,
officers or other persons party to the action; or (4) [p]roviding for the
purchase at their fair value of shares of any shareholder, either by the
corporation or by other shareholders, such fair value to be determined
in accordance with such procedures as the court may provide.
Meiselman, 309 N.C. at 300, 307 S.E.2d at 563–64 (quoting N.C. Gen. Stat. § 55-
125.1 (1973)).
{24} “A significant difference exists between the statutory framework in which
North Carolina courts analyzed Meiselman and the framework in existence today.”
High Point Bank & Trust Co. v. Sapona Mfg. Co., 2010 NCBC LEXIS 14, *16–17
(N.C. Super. Ct. June 22, 2010), aff’d, 212 N.C. App. 148, 713 S.E.2d 12 (2011).
“Section 55-14-30(2) of the North Carolina General Statutes provides that a
‘superior court may dissolve a corporation . . . [i]n a proceeding by a shareholder if it
is established that . . . liquidation is reasonably necessary for the protection of the
rights or interests of the complaining shareholder.’” Id. at *13 (emphasis added).
Once the Court orders dissolution, N.C. Gen. Stat. § 55-14-31(d) enables the
defendant corporation to avoid dissolution by purchasing the shares of the
complaining shareholder at their fair value. Id. at *14–15. See also Royals, 137
N.C. App. at 709, 529 S.E.2d at 521 (applying Meiselman under the current
statute). Thus, under current law, courts are limited in the exercise of their
“discretionary equitable jurisdiction to order involuntary dissolution, or,
alternatively, a mandatory buyout for the protection of the minority shareholders in
closely held corporations.” Robinson, supra, § 28.11; see also id. §28.12 (discussing
mandatory buyout as an alternative to involuntary dissolution).
{25} For these reasons, Plaintiff’s first claim for relief should be dismissed.
Plaintiff’s counsel indicated at the hearing that Plaintiff is able to allege sufficient
facts to state a claim for relief under the Meiselman line, the Freese line, or both,
and argued that Plaintiff should be granted leave to amend should the Court
conclude that dismissal is proper based on the current allegations. Based on its
review, the Court finds good cause to grant Plaintiff leave to amend his Complaint
to re-allege his first claim for relief in a manner consistent with Rule 8’s
requirements and prevailing case law. Although Defendants argue that any
amendment at this stage of the litigation will work to prejudice Defendants, the
Court concludes in these circumstances that it will not work a substantial injustice
on Defendants for Plaintiff to refile his first claim for relief. The Court’s ruling
shall be without prejudice to Defendants’ right to move to dismiss any such
amended claim.
B. Breach of Fiduciary Duty (Derivative)
{26} Plaintiff alleges a derivative claim for breach of fiduciary duty distinct
from his Meiselman claim. In seeking dismissal, Defendants first argue that
Plaintiff has not satisfied the demand requirement of North Carolina’s Business
Corporation Act, which provides that no shareholder can file a derivative suit prior
to the expiration of ninety days after making written demand on the corporation to
take suitable action. N.C. Gen. Stat. § 55-7-42 (2015). The ninety day period is
waived if the corporation rejects the demand prior to the expiration of the ninety
days or if irreparable injury would result to the corporation by waiting. Id. “Under
the plain language of the statute, the demand requirement is a condition precedent
to the institution of any and all derivative actions.” Norman v. Nash Johnson &
Sons’ Farms, Inc., 140 N.C. App. 390, 410, 537 S.E.2d 248, 262 (2000). While strict
compliance may accomplish little in a close corporation setting, “the Legislature did
not create a ‘close corporation exception’ to the statutory demand requirement.” Id.;
see also Robinson, supra, § 17.03(2) (“The Act now requires a prior demand on a
North Carolina corporation to be made in all cases, without any exception[.]”).
{27} The Complaint reflects that Plaintiff sent a letter on July 11, 2014, to
counsel for the other directors and shareholders requesting that they reinstate him
as President of the Corporations. (Compl. Ex. A.) The Complaint also alleges that
“counsel for the Majority Shareholders and Majority Directors” rejected Plaintiff’s
demand by voicemail on July 28, 2014. (Compl. ¶ 24.) Plaintiff filed the Complaint
on August 26, 2014, less than ninety days after making demand, alleging the
derivative claim for breach of fiduciary duty. Arguing that “a voicemail from
counsel for one director and one shareholder rejecting the Plaintiff’s demand . . . is
not the equivalent of rejection by the [C]orporations,” Defendants contend that
Plaintiff was therefore required to wait the full ninety days before bringing his
derivative claim.3
{28} The North Carolina Court of Appeals has previously evaluated the
sufficiency of a corporate rejection. See Allen v. Ferrera, 141 N.C. App. 284, 540
S.E.2d 761 (2000). In Allen, the plaintiff was a fifty percent shareholder in the
3 Defendants’ briefs indicate that only counsel for Gay Coleman and Tom Israel left Plaintiff a
voicemail rejecting his demand, (Gay Coleman Br. Supp. Mot. Dismiss 7,) while the Complaint
alleges the rejection was made by counsel for the “Majority Shareholders and Majority Directors.”
(Compl. ¶ 24.) In accordance with the standard of review on a motion to dismiss, the Court treats
the Complaint’s allegations as true and assumes for the purposes of deciding the Motions that the
rejection was made by counsel for all majority shareholders and directors.
subject corporation (“Subject Corporation”), and the other fifty percent shareholder
was another corporation (“Shareholder Corporation”) owned by two individuals. Id.
at 286, 540 S.E.2d at 763. The plaintiff and the two individuals all served as
directors of the Subject Corporation, and one of the individuals also served as
president of the Shareholder Corporation. Id. Prior to bringing a derivative suit
against the Subject Corporation, the plaintiff sent a demand letter to the
individuals and the Shareholder Corporation. Id. at 286, 540 S.E.2d at 764. Nine
days later, the plaintiff received a rejection letter signed by the individuals in their
individual capacities, one of whom also signed in his capacity as president of the
Shareholder Corporation. Id. The Court ultimately concluded that this was not a
“rejection by the corporation” under agency principles because the plaintiff did not
allege that the individuals and the Shareholder Corporation had authority to bind
the Subject Corporation through their individual signatures. Id. at 289, 540 S.E.2d
at 765 (emphasis in original). This Court (Gale, J.) has since interpreted Allen as
standing for the proposition that, for derivative actions governed by Section 55-7-42,
“any response adequate to constitute a corporate rejection that excuses the further
running of the ninety day waiting period must be made by those with the authority
to act on behalf of the corporation.” Petty v. Morris, 2014 NCBC LEXIS 67, at *17
(N.C. Super. Ct. Dec. 16, 2014.)
{29} Seeking to distinguish this case from the holding in Allen, Plaintiff argues
that “a rejection from the attorneys of the necessary parties on behalf of those
parties is sufficient to bind them,” citing Harris v. Ray Johnson Constr. Co., 139
N.C. App. 827, 534 S.E.2d 653 (2000) (discussing agency principles in attorney-
client relationships). (Pl.’s Resp. to Gay Coleman Mot. Dismiss 14.) That
argument, however, misunderstands Allen by equating authority to bind the
individual directors and shareholders with authority to bind the corporation.
Plaintiff has not alleged that counsel who left him the voicemail had authority to
bind the Corporations, and so the Court concludes that Plaintiff has failed to allege
a rejection by the Corporations sufficient to excuse the running of the ninety day
waiting period in Section 55-7-42.4 Therefore, Plaintiff’s derivative claim for breach
of fiduciary duty should be dismissed. Allen, 141 N.C. App. at 289, 540 S.E.2d at
765 (affirming dismissal at 12(b)(6) stage for failure to comply with the demand
requirement).
{30} Defendants also argue that Plaintiff’s derivative claim must be dismissed
because it is contained in an unverified Complaint. All complaints initiating
shareholder derivative suits must be verified by oath. N.C. R. Civ. P. 23(b).
Because Plaintiff has not verified his Complaint, Plaintiff’s derivative claim for
breach of fiduciary duty must be dismissed, but without prejudice to his right to
cure the defect. See Peak Coastal Ventures, L.L.P. v. SunTrust Bank, 2011 NCBC
LEXIS 13, at *23–24 (N.C. Super. Ct. May 5, 2011) (dismissing in part for failure to
verify the complaint). See also Alford v. Shaw, 327 N.C. 526, 531, 398 S.E.2d 445,
447 (1990) (holding that failure to comply with Rule 23(b) is a procedural defect that
may be cured by amendment to the pleadings).
{31} Further, the Court finds Plaintiff has not pleaded sufficient facts to
withstand the effects of the business judgment rule. The business judgment rule
provides an initial evidentiary presumption that a director acted with due care and
in the corporation’s best interest, and, absent rebuttal of the evidentiary
presumption, a strong substantive presumption that the director’s judgment will
not be judicially second-guessed unless it cannot be attributed to a rational business
purpose. Winters v. First Union Corp., 2001 NCBC LEXIS 5, at *9–10 (N.C. Super.
Ct. July 12, 2001) (quoting State ex rel. Long v. ILA Corp., 132 N.C. App. 587, 602,
4 Plaintiff also citesNorman, 140 N.C. App. at 411–12, 537 S.E.2d at 263, to argue that, under N.C.
R. Civ. P. 9(c), a plaintiff can satisfy the demand requirement and survive a 12(b)(6) motion by
simply alleging compliance with all conditions precedent. (Pl.’s Resp. to Gay Coleman Mot. Dismiss
13.) The Court of Appeals reached that conclusion, however, as a matter of distinguishing Section
55-7-42 from its predecessor statute, N.C. Gen. Stat. § 55-7-40 (1994), which required a plaintiff to
plead his efforts to make demand “with particularity.” Norman, 140 N.C. App. at 411, 537 S.E.2d at
262. Moreover, Allen is the later-decided case and relies on Norman in affirming the trial court’s
12(b)(6) dismissal for failure to satisfy the substantive requirements of Section 55-7-42. Allen, 141
N.C. App. at 288–89, 540 S.E.2d at 765. See also Greene v. Shoemaker, 1998 NCBC LEXIS 4, ¶*18–
19 (N.C. Super. Ct. Sept. 24, 1998) (“In determining whether the demand requirement has been met
the Court must compare the derivative claims asserted in a complaint against the specific demands a
plaintiff has made prior to filing suit.”).
513 S.E.2d 812, 821–22 (1999)). In order to defeat this presumption and survive a
motion to dismiss, Plaintiff must allege in other than conclusory terms that the
board was “inattentive or uninformed, acted in bad faith, or that the board’s
decision was unreasonable.” Id. at *10.
{32} Plaintiff alleges that Defendants replaced him as President with a person
who “does not have the requisite expertise or experience to properly manage the
Corporations.” (Compl. ¶ 43.) This conclusory statement, standing alone, is
insufficient to demonstrate that the board’s actions were outside the realm of the
business judgment rule. See, e.g., Technik v. WinWholesale, Inc., 2012 NCBC
LEXIS 5, at *14–16 (N.C. Super. Ct. Jan. 13, 2012) (holding that summary
statements that the board mismanaged the president’s termination and
replacement described nothing more than routine conduct of directors engaged in
decision making). Therefore, Plaintiff’s derivative claim for breach of fiduciary
duty must be dismissed.
{33} Based on Plaintiff’s assertions of additional facts at the hearing, the Court
finds that Plaintiff may be able to plead additional facts that would suggest that
Defendants’ actions ran afoul of the business judgment rule as well as take action to
satisfy the demand and verification requirements for derivative actions. As such,
the Court dismisses Plaintiff’s derivative claim for breach of fiduciary duty without
prejudice and grants Plaintiff leave to amend his Complaint.
C. Unfair and Deceptive Trade Practices
{34} Plaintiff’s Unfair and Deceptive Trade Practices (“UDTP”) claim must fail
because Plaintiff has (1) not alleged unfair or deceptive acts or practices on the part
of the non-shareholder and non-director Defendants and (2) not alleged facts that
show the shareholders’ and directors’ actions in removing him as President of the
Corporations were in or affecting commerce. To state a UDTP claim under N.C.
Gen. Stat. § 75-1.1, Plaintiff must allege (1) that Defendants committed unfair or
deceptive acts or practices, (2) that such acts were in or affected commerce, and (3)
injury. “[T]he General Assembly did not intend for the [UDTP] Act’s protections to
extend to a business’s internal operations.” White v. Thompson, 364 N.C. 47, 53,
691 S.E.2d 676, 680 (2010). Rather, the UDTP Act was intended to apply to
interactions between market participants, and any conduct that occurs solely within
a single business cannot therefore fall within the Act. Id.
{35} The UDTP claim rests on Plaintiff’s allegation that “Defendants’ breach of
fiduciary duties, as described in the first and second claims for relief, constitute
unfair and deceptive acts under N.C.G.S. § 75-1.1.” (Compl. ¶ 54.) The first two
claims for relief, however, were only brought against the other shareholders and
directors. The Complaint does not identify other unfair or deceptive conduct on the
part of Defendants who were neither shareholders nor directors—Kelly Prewitt, Lee
Coleman, Whitney Israel, Amanda Franklin, and Gay Coleman in her individual
capacity.
{36} In arguing to preserve his claim against these Defendants, Plaintiff cites
Norman, 140 N.C. App. at 417, 537 at 266, in which the Court of Appeals upheld a
UDTP claim against interrelated corporate and individual defendants in a family-
owned close corporation. In that case, however, all of the individual defendants
were shareholders, against whom the plaintiff had pleaded a valid breach of
fiduciary duty claim. Id. The plaintiff had alleged specific acts of unfair
competition as to the corporate defendants who were neither shareholders nor
directors of the family company. Id. Thus, Norman still requires that Plaintiff
allege unfair or deceptive acts, which he has failed to do with respect to the non-
shareholder and non-director Defendants.
{37} To argue that his removal by the Corporation’s shareholders and directors
was “in or affecting commerce,” Plaintiff cites Woolard v. Davenport, 166 N.C. App.
129, 601 S.E.2d 319 (2004), in which the court upheld a minority shareholder’s
UDTP claim against majority shareholders on the basis of alleged breaches of
fiduciary duty. (Pl.’s Resp. to Maureen Coleman Mot. Dismiss 16.) Woolard,
however, more clearly involved a commercial element because it arose out of an
asset sale through which the plaintiff became a shareholder. Woolard, 166 N.C.
App. at 130, 601 S.E.2d at 320. Here, the facts as pleaded do not take the conduct
out of the realm of an internal corporate dispute. See Wilson v. Blue Ridge Elec.
Membership. Corp., 157 N.C. App. 355, 358, 578 S.E.2d 692, 694 (2003) (holding
that the selection of and qualification of directors does not affect commerce under
the UDTP Act). Accordingly, Plaintiff’s UDTP claim must be dismissed. However,
again, based on Plaintiff’s representations at the hearing, the Court finds that
Plaintiff is aware of facts that may suggest certain Defendants engaged in acts in or
affecting commerce, and as such, the Court’s dismissal of Plaintiff’s UDTP claim is
without prejudice.
D. Civil Conspiracy
{38} To state a claim for civil conspiracy, a plaintiff must allege (1) a
conspiracy, (2) wrongful acts by the alleged conspirators in furtherance of the
conspiracy, and (3) resulting injury. State ex rel. Cooper v. Ridgeway Brands Mfg.,
LLC, 362 N.C. 431, 444, 666 S.E.2d 107, 115 (2008). North Carolina does not
recognize a separate civil action for civil conspiracy. Dove v. Harvey, 168 N.C. App.
687, 690, 608 S.E.2d 798, 800 (2005). Rather, civil conspiracy is premised on the
underlying wrongful acts. Id. A civil conspiracy is essentially an action for
damages, and no action lies unless one or more conspirators actually cause damage.
See Bradshaw v. Maiden, 2015 NCBC LEXIS 80, at *46 (N.C. Super. Ct. Aug. 10,
2015) (citing Henderson v. LeBauer, 101 N.C. App. 255, 260, 399 S.E.2d 142, 145
(1991)).
{39} In this case, Plaintiff has presented a mere conclusory allegation that
Defendants “agreed to engage in a conspiracy to commit the wrongful act of
removing Plaintiff as president[.]” (Compl. ¶ 50.) Moreover, the Court has
dismissed the underlying claims relied upon by Plaintiff to support his civil
conspiracy claim. As such, Plaintiff’s claim for civil conspiracy should be dismissed
as against all Defendants. Nonetheless, the Court determines that Plaintiff should
be given the opportunity to re-allege his claim in a manner sufficient under Rule 8.
Therefore, the Court dismisses Plaintiff’s civil conspiracy claim without prejudice.
The Court has serious concerns about the viability of this claim against the non-
director, individual Defendants in particular and admonishes Plaintiff that he must
plead the specific facts to support his claim against them.
E. Temporary Restraining Order
{40} Plaintiff has pleaded a separate cause of action asserting that he is
entitled to a temporary restraining order (“TRO”) against all Defendants to prevent
immediate, irreparable harm to the Corporations. Plaintiff, however, has not filed a
motion for entry of a TRO at any time. A TRO is a “drastic” procedure that
“operates within an emergency context which recognizes the need for swift
action . . . .” State ex rel. Gilchrist v. Hurley, 48 N.C. App. 433, 448, 269 S.E.2d 646,
655 (1980). A court may, in its discretion, issue a TRO if “it clearly appears from
specific facts shown by affidavit or by verified complaint that immediate and
irreparable injury, loss, or damage will result to the applicant before the adverse
party or that party’s attorney can be heard in opposition . . . .” N.C. R. Civ. P. 65(b).
In light of Plaintiff’s failure to pursue a TRO at any time since the filing of the
Complaint in August 2014, the Court deems Plaintiff’s purported cause of action for
TRO effectively waived by Plaintiff and dismisses this claim with prejudice.5 The
Court’s ruling shall be without prejudice, however, to Plaintiff’s right to move for a
TRO based on evidence developed after the Court’s ruling.
IV.
CONCLUSION
{41} Based on the foregoing, the Court GRANTS Defendants’ Motions to
Dismiss.
{42} Plaintiff’s claims for breach of fiduciary duty – Meiselman action, breach of
fiduciary duty, unfair and deceptive trade practices, and civil conspiracy are hereby
DISMISSED without prejudice.
{43} Plaintiff’s purported claim for temporary restraining order is hereby
DISMISSED with prejudice.
5 Although pleaded as a claim for relief, the Court notes that a TRO is not a stand-alone cause of
action and instead is an ancillary legal remedy. See Hutchins v. Stanton, 23 N.C. App. 467, 469, 209
S.E.2d 348, 349 (1974) (“[A TRO]” is only an ancillary remedy for the purpose of preserving the
status quo or restoring a status wrongfully disturbed pending the final determination of the action. .
. . It is not a cause of action or a lawsuit in and of itself.”) (internal citation omitted); Register v.
Griffin, 6 N.C. App. 572, 575, 170 S.E.2d 520, 523 (1969) (“The primary purpose of a [TRO] is usually
to meet an emergency when it appears that any delay would materially affect the rights of a
plaintiff.”).
SO ORDERED, this the 10th day of December, 2015.
/s/ Louis A. Bledsoe, III
Louis A. Bledsoe, III
Special Superior Court Judge
for Complex Business Cases