Tiller v. Phillips

Tiller v. Phillips, 2025 NCBC 63.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

MECKLENBURG COUNTY 24CV048534-590

LISA MACKENZIE TILLER and

WILLIAM PORTER TILLER,

and

WILLIAM PORTER TILLER AS

TRUSTEE OF THE TILLER GST

INVESTMENT TRUST U/A/D

FEBRUARY 8, 2021, Individually

and Derivatively on Behalf of

MedShift, LLC, ORDER AND OPINION ON

PLAINTIFFS’ MOTION TO STRIKE,

Plaintiffs, DEFENDANTS’ MOTION TO

DISMISS, AND NOMINAL

v. DEFENDANT’S MOTIONS TO

DISMISS

BRIAN S. PHILLIPS, BRIAN S.

PHILLIPS, AS FAMILY TRUSTEE

OF THE PHILLIPS

IRREVOCABLE TRUST U/A/D

AUGUST 20, 2007, and BRIAN S.

PHILLIPS, AS TRUSTEE OF THE

WAYNE E. WALCHER LIVING

TRUST (RESTATED) DATED

DECEMBER 17, 1996 U/A/D

SEPTEMBER 30, 2004,

Defendants,

and

MEDSHIFT, LLC,

Nominal Defendant.

1. This matter is before the Court on the motions to dismiss Plaintiffs’

amended complaint filed by Defendants and Nominal Defendant pursuant to Rule

12(b)(1) and Rule 12(b)(6) of the North Carolina Rules of Civil Procedure, (ECF Nos.

51, 54), and Plaintiffs’ motion to strike or, alternatively, dismiss the non-derivative

demand-related arguments in Nominal Defendant’s motion to dismiss, (ECF No. 63).

2. This matter came before the Court for a hearing on the motions on 3 July

2025, with all parties represented by their respective counsel of record. (ECF No. 80).

The Court, having considered the motions, the oral and written arguments of counsel,

the amended complaint, and (with respect to the motion to strike and the Rule

12(b)(1) portions of the motions only), all appropriate evidence of record, concludes

for the reasons stated below that the motion to strike should be DENIED without

prejudice and the motions to dismiss should be GRANTED in part and DENIED

in part as set forth below.

James, McElroy & Diehl, P.A. by John R. Brickley and John R. Buric,

for Plaintiffs Lisa Mackenzie Tiller, William Porter Tiller, and William

Porter Tiller as trustee of the Tiller GST Investment Trust U/A/D

February 8, 2021.

Johnston, Allison & Hord, P.A. by Michael J. Hoefling, James Nathaniel

Pierce, William D. McClelland, and Greg C. Ahlum, for Defendants

Brian S. Phillips, Brian S. Phillips as Family Trustee of the Phillips

Irrevocable Trust U/A/D August 20, 2007, and Brian S. Phillips, as

Trustee of the Wayne E. Walcher Living Trust (Restated) Dated December

17, 1996 U/A/D September 30, 2004.

Holland & Knight, LLP by Michael A. Grill and Nishma Patel, for

Nominal Defendant MedShift, LLC.

Houston, Judge.

I. FACTUAL AND PROCEDURAL BACKGROUND

3. The Court does not make findings of fact with respect to the motions.1

Rather, the Court summarizes the allegations asserted in the amended complaint

that are relevant to the motions before the Court.

4. Nominal Defendant MedShift, LLC (“MedShift” or “Nominal

Defendant”) is a North Carolina limited liability company with its principal place of

business in Mecklenburg County. (Am. Compl. ¶ 4, ECF No. 35).

5. Plaintiffs Lisa Tiller and William Tiller and defendant Brian S. Phillips

were the primary founders of MedShift, which they formed in 2015 to provide services

in the medical field. (Am. Compl. ¶ 11; Second Amended and Restated Operating

Agreement (“Operating Agreement”) § 2.5, ECF No. 53.1).2

6. Phillips is the trustee of both the Phillips Irrevocable Trust (the “Phillips

Trust”) and the Wayne E. Walcher Living Trust (the “Walcher Trust”), both of

which are North Carolina trusts. (Am. Compl. ¶¶ 6–7). The two trusts are members

1 Courts generally do not make findings of fact with respect to Rule 12 motions to dismiss

and need do so for motions to strike and similar motions only where expressly requested by

a party, which is not the case here. See N.C. R. Civ. P. 52(a)(2)–(3); Maynard v. Crook, 289

N.C. App. 357, 367 (2023) (“As resolution of evidentiary conflicts is not within the scope of

Rule 12 and findings of fact in a Rule 12 order are not binding on appeal, an order granting

a Rule 12(b)(6) motion to dismiss generally should not include findings of fact.” (citation

omitted)).

2 The Second Amended and Restated Operating Agreement, (ECF No. 53.1), is referenced and

incorporated into the amended complaint and was provided by Defendants in briefing.

Though it is unclear whether the document is fully executed, Plaintiffs also rely on and cite

to the document in their briefing, (e.g., ECF No. 69 at 4), and the Court considers it

accordingly. Oberlin Cap., L.P. v. Slavin, 147 N.C. App. 52, 60 (2001) (“[W]hen ruling on a

Rule 12(b)(6) motion, a court may properly consider documents which are the subject of a

plaintiff's complaint and to which the complaint specifically refers even though they are

presented by the defendant.” (citation omitted)).

of MedShift, and, together, they hold a majority ownership interest in MedShift. (Am.

Compl. ¶ 13).

7. On 20 February 2016, MedShift and Mr. Tiller entered into a Founder Level

Appreciation Rights Agreement granting Mr. Tiller 33.33 Units (representing 33.33%

of “Net Proceeds”), effective 15 December 2015. (Am. Compl. ¶¶ 14–15). Phillips

signed that agreement on behalf of MedShift. (Am. Compl. ¶ 14).

8. The same day, MedShift and Mr. Tiller also entered into a Consulting

Agreement, which was incorporated into the Founder Level Appreciation Rights

Agreement. (Am. Compl. ¶ 16). Under the Consulting Agreement, Mr. Tiller agreed

to provide consulting services to MedShift, but, as Mr. Tiller was employed full-time

elsewhere in the medical sales industry, the parties also agreed that he would

“continue his current employment until such time as [MedShift] and [Mr. Tiller]

agree otherwise[.]” (Am. Compl. ¶ 18). Thereafter, Mr. Tiller provided services to

MedShift and ultimately joined the company “in an active commercial role” in the fall

of 2019. (Am. Compl. ¶ 19).

9. In early 2016, Ms. Tiller left her employment elsewhere and joined

MedShift in an unpaid capacity, providing marketing, sales, and customer

engagement services to the company. (Am. Compl. ¶ 20).

10. Over the course of their involvement with MedShift, Plaintiffs actively

fundraised for MedShift, made loans to the company, and helped secure loans from

others for the company. They also obtained customers for the company and marketed

its services. (Am. Compl. ¶¶ 20–21, 27).

11. On or about 16 January 2020, after Mr. Tiller had joined MedShift full time,

Phillips formed East Boulevard Development Holdco, LLC and East Boulevard

Development Company, LLC. Later, East Boulevard Development Company, LLC

acquired thirteen properties for redevelopment in Charlotte, North Carolina (the

“East Boulevard Project”). (Am. Compl. ¶ 23).

12. In turn, Phillips, East Boulevard Development Company, LLC “and/or”

East Boulevard Holdco “partnered” on the East Boulevard Project with an England-

based entity, Micota Capital, through a separate North Carolina limited liability

company that it created (Micota Capital, LLC). (Am. Compl. ¶¶ 24–25).

13. To secure real estate financing from Micota,3 Phillips “pledged the Phillips

Trust's and/or Walcher Trust's shares of MedShift” as collateral and also agreed

around 14 February 2020 to appoint Micota’s founder, Alfred Foglio, to MedShift’s

board. (Am. Compl. ¶¶ 25–26).

14. Thereafter, in late 2020 and early 2021, Phillips caused MedShift to repay

approximately $5 million in loans to the Phillips Trust or Walcher Trust without

disclosing the loan repayment to MedShift’s members. (Am. Compl. ¶ 28).

15. In May 2021, at Phillips’s request and based on his suggestion that it would

increase the company’s EBITDA and allow them to claim depreciation, the Tillers

converted their 33.33 Units in MedShift (which were terminated) into a 17.5% profit

interest in MedShift. Phillips told the Tillers that “their compensation would need to

be in the form of ‘distributions or advancements’” that would ultimately “convert to

3 The amended complaint refers simply to “Micota” and does not clearly indicate to which of

the two Micota entities it refers.

K-1 income should there be a change in control of” MedShift. (Am. Compl. ¶¶ 29–35).

As part of that same set of transactions, MedShift and Mr. Tiller terminated the

Consulting Agreement, and the Tillers released MedShift and Phillips from claims

related to the Consulting Agreement and the prior units. (Am. Compl. ¶¶ 33–34).

16. The Tillers, in turn, received 22,925 non-voting common units in MedShift

effective as of 8 July 2020. (Am. Compl. ¶ 35).4 As part of an “Incentive Unit Grant

Agreement” executed in connection with the transaction, with certain exceptions and

subject to the Tillers’ continued service or employment with MedShift, the common

units would vest, and the Tillers would receive distributions, upon the earlier of (i) a

sale of MedShift or (ii) 1 June 2025. If the Tillers were terminated, all of the Tillers’

unvested units would be forfeited. (Am. Compl. ¶¶ 35–37).

17. Contemporaneously with the parties’ execution of the various documents

around 19 May 2021, the Tillers transferred their 22,925 common units in MedShift

to plaintiff Tiller GST Investment Trust u/a/d 8 February 2021 (the “Tiller Trust”).

(Am. Compl. ¶ 40).

18. At the same time, MedShift adopted the Operating Agreement. (Am.

Compl. ¶ 41). As of that date, the Tiller Trust was the sole holder of all Common Units

in MedShift, (Am. Compl. ¶ 42), but the Tillers also joined as parties to the Operating

Agreement by executing a Joinder to Amended and Restated LLC Agreement of

MedShift, LLC, (Am. Compl. ¶¶ 38, 41).

4 Based on Plaintiffs’ allegations, many of the agreements at issue were either retroactive or

backdated, as Plaintiffs allege that the agreements were executed in mid-2021 but “effective”

as of 8 July 2020. (Am. Compl. ¶¶ 34–35).

19. Under the Operating Agreement, MedShift has a three-member board of

managers. That board initially consisted of Phillips, Foglio (or another of Micota’s

designees), and Phil Van Etten, with Phillips having five of the seven board votes and

the other board members having one vote each. (Am. Compl. ¶¶ 43–44; ECF No. 53.1

§ 6.1(b)).

20. Though the Walcher Trust and the Phillips Trust are members of MedShift

and though Phillips serves as a member of the board, Phillips is not personally a

member of the company. (Am. Compl. ¶¶ 13, 43–44; see generally ECF No. 53.1).

21. Among other provisions of the Operating Agreement, the parties agreed to

eliminate any normally existing fiduciary duties or other duties by board members to

MedShift, its members, and other board members:

To the maximum extent permitted by Applicable Law (including

[Chapter 57D of the North Carolina General Statutes]), no Board

Member shall have any duties (including fiduciary duties) or liabilities

related thereto to the Company, the Members, or any other Board

Member . . . Notwithstanding the foregoing, nothing contained in this

Section 6.2(a) will be deemed to be a waiver of the implied covenant of

good faith and fair dealing by the Board of Managers under [Chapter

57D of the North Carolina General Statutes].

(ECF No. 53.1, § 6.2(a)).

22. MedShift’s members also disclaimed and waived all potential fiduciary

duties by any member to other members and limited the members’ obligations to

those “expressly set forth” in the Operating Agreement:

This Agreement is not intended to, and does not, create or impose any

fiduciary duty (or liability for breach of fiduciary duty) on any Member,

any of such Member’s representatives, or any of their respective

Affiliates, officers, managers, shareholders, partners, members, agents

and employees (the “Member’s Parties”). Further, to the maximum

extent permitted by Applicable Law (including [Chapter 57D of the

North Carolina General Statutes]), all other Members hereby waive any

and all fiduciary duties that, absent such waiver, may be implied by law

or equity, and in doing so, recognize, acknowledge and agree that the

duties and obligations of the Member’s Parties to the other Members

and to the Company are only as expressly set forth in this Agreement.

(ECF No. 53.1, § 6.4(c)).

23. The Operating Agreement also provides for readily available access to and

inspections of books and records for all members of MedShift:

The Company shall permit and cause its Controlled Companies to

permit the Members and such persons as such Members may

designate, at such Member’s expense, to visit and inspect any of

the properties of the Company and its Controlled Companies,

examine their books and take copies and extracts therefrom, [and]

discuss the affairs, finances and accounts of the Company[.]

(ECF No. 53.1, § 9.2).

24. On 24 May 2022, Phillips wrote himself a check from MedShift for $925,000,

which he allegedly used to purchase real estate and a restaurant three days later

through another of his companies. (Am. Compl. ¶ 45).

25. Throughout 2022, the Tillers and Phillips discussed a potential sale of

MedShift, but Phillips ultimately rejected the offers received in late 2022 as too low.

(Am. Compl. ¶ 47).

26. In late 2022, Mr. Tiller joined MedShift’s board, replacing Ms. Tiller5 at

Phillips’s insistence that only one spouse could serve on the board. (Am. Compl.

¶¶ 50–51). During her time on the board, Ms. Tiller inquired about Phillips’s use of

5 The Amended Complaint alleges that Ms. Tiller was on MedShift’s board for a period of

time, but there is no indication when she became a board member or when her board seat

was vacated in favor of Mr. Tiller. (Am. Compl. ¶ 51).

MedShift’s funds and sought “various Company records[.]” (Am. Compl. ¶ 51).

Plaintiffs do not suggest that she was unable to see those records. Instead, they allege

that Phillips “wanted Ms. Tiller off the Board in an effort to stop her inquiries in[to]

the Company’s finances and Phillips’[s] conduct.” (Am. Compl. ¶ 51).

27. At that time, Phillips attempted for the first time to purchase the Tiller

Trust’s membership interest in MedShift, offering what the Tillers determined to be

a “low and unrealistic valuation” of the Tiller Trust’s interest. (Am. Compl. ¶ 54).

Plaintiffs allege that Phillips thereafter attempted on multiple occasions to purchase

the Tiller Trust’s interest in MedShift, each time without success because the Tillers

had no interest in selling under the terms offered. (Am. Compl. ¶¶ 54, 88, 90).

28. Around that same time, “[i]n December 2022, Phillips told the Tillers that

MedShift needed a 90-day bridge loan prior to an anticipated refinance.” (Am. Compl.

¶ 55). At Phillips’s request and apparently without further investigation, the Tillers

agreed and promptly wired $1.5 million in loan funds to Phillips. The Court refers to

the allegations surrounding this bridge loan as the “Bridge Loan Dispute.” (Am.

Compl. ¶¶ 55, 168; ECF No. 69 at 18). The day after the loan funds were transferred,

Phillips withdrew $685,000 from MedShift to make a payment on the East Boulevard

Project. (Am. Compl. ¶ 56).

29. Through the end of 2022, Plaintiffs contend upon information and belief

that Phillips “diverted more than $14 million from the Company for his other

endeavors” while commingling his funds with MedShift’s and those of the Phillips

Trust and Walcher Trust and making distributions from MedShift only to those two

trusts. (Am. Compl. ¶¶ 57–58).

30. Plaintiffs also contend that an unspecified combination of “Phillips and/or

the Phillips Trust and/or the Walcher Trust” have kept in excess of $2 million worth

of cash-back rewards from MedShift’s credit card. (Am. Compl. ¶ 59).

31. Throughout this dispute, Phillips has continued to receive an annual salary

of $420,000 from MedShift and has withdrawn over $800,000 quarterly to cover

interest payments on the East Boulevard Project. (Am. Compl. ¶¶ 52, 85).

32. In early March 2023, the Tillers met with Foglio to discuss the creation of

a 20% equity pool into which the Tillers would contribute the shares.6 Foglio

suggested that having the Tillers contribute the equity would be most beneficial for

the overall wellbeing of the East Boulevard Project. (Am. Compl. ¶¶ 61–62). While

the Tillers initially rejected the proposal, Phillips and Foglio continued to promote an

equity pool. (Am. Compl. ¶ 63). Eventually, Phillips suggested a 15% equity pool, with

a “50/50 split between Phillips and the Tillers, such that each [would] contribute

7.5%, which would effectively reduce the Tiller Trust's shares to 10%.” (Am. Compl.

¶ 64). The Tillers asked for various information concerning the equity pool, discussed

the pool with Phillips (including both sides’ understanding of the Operating

Agreement and their obligations, if any, with respect to the equity pool), and

requested an opportunity for their attorney to review any amendments to the

6 Though Plaintiffs repeatedly refer to potential contributions by the “Tillers,” it appears that

Plaintiffs intend to refer to the Tiller Trust, given its alleged ownership interest in MedShift.

Operating Agreement necessitated by the equity pool arrangement. (Am. Compl.

¶¶ 65–67).

33. Ultimately, Phillips requested on 31 March 2023 that the Tillers

immediately “sign documentation” (an “Acknowledgement and Consent”) to authorize

a refinance of MedShift’s loans (including the $1.5 million bridge loan from the

Tillers), authorize the equity pool, and amend the Operating Agreement. (Am. Compl.

¶ 68). The Tillers did so.

34. Plaintiffs assert that they did so only “[u]nder duress” because Defendants

wrongfully suggested there was an urgency to do so and because Phillips told

Plaintiffs that the refinance loan was contingent on formation of the equity pool.

Plaintiffs “believed” that this meant there was a “risk [of] their $1.5 million not being

paid back.” (Am. Compl. ¶¶ 68–69). The Court refers to the allegations concerning

the equity pool as the “Equity Pool Dispute.”

35. Plaintiffs contend that that neither the Phillips Trust nor the Walcher

Trust contributed to the equity pool as initially discussed. (Am. Compl. ¶ 70).

36. Thereafter, though much of the conduct appears to have little bearing on

their causes of action, Plaintiffs allege that Phillips or “Defendants” engaged in a

series of ongoing wrongful conduct.

37. For example, in June 2023, “Phillips circulated an internal memorandum

detailing [MedShift’s] various cloud services,” using information that “does not

accurately describe [MedShift’s] services” and “exaggerate[ing] the information for an

audit so that [MedShift] could obtain additional funding.” (Am. Compl. ¶¶ 71, 171).

The Court refers to these allegations as the “Cloud Services Dispute.”

38. Similarly, Plaintiffs contend that, at an unspecified time, “Defendants” or

“Phillips,” depending on the paragraph, “also exaggerated MedShift’s financials in

order to avoid having to restate prior financials, to avoid restatement of the credit

agreement with one of MedShift’s lenders, and to avoid a federal and state income

tax liability.” (Am. Compl. ¶¶ 72, 172). The Court refers to these allegations as the

“Credit Agreement/Income Tax Dispute.”

39. Also at unspecified times, Plaintiffs assert that “[d]espite representations

to the contrary, Defendants did not pay all [MedShift’s] taxes, file in each state where

[MedShift] received income/had employees, and/or pay estimated quarterly taxes for

[MedShift], resulting in [MedShift] consistently being burdened with interest and

penalties.” (Am. Compl. ¶¶ 73–74, 173; ECF No. 69 at 18–19). The Court refers to

these allegations as the “Quarterly Taxes Dispute.”

40. Around October 2023, though he did not own it, Phillips engaged in

negotiations with an investor for the potential sale of the Tiller Trust’s membership

interest in MedShift. (Am. Compl. ¶ 84). At that same period in mid-to-late 2023,

MedShift converted the Tillers’ health insurance to COBRA coverage and sought

reimbursement of certain payments to the Tillers as having been overpayments.

Plaintiffs contend that these actions were all part of an effort to portray the Tillers

as no longer involved in MedShift’s operations. (Am. Compl. ¶¶ 75–85).

41. Ultimately, in November 2023, following additional discussions and further

efforts by Phillips (and Foglio on his behalf) to purchase the Tiller Trust’s

membership interest in MedShift, (Am. Compl. ¶¶ 88–90), Foglio requested that the

Tillers sign a General Release and Separation Agreement from MedShift. The Tillers

declined.

42. Within a matter of days, MedShift notified the Tillers that it was

retroactively terminating Mr. Tiller’s employment effective 31 December 2022 and

prospectively terminating Ms. Tiller’s employment effective 31 December 2023,

though Mr. Tiller’s role as a board member was confirmed. (Am. Compl. ¶¶ 91–98).

43. Phillips (and Foglio on his behalf) thereafter continued to engage in

discussions with the Tillers regarding Phillips’s potential purchase of the Tiller

Trust’s interest in MedShift. (Am. Compl. ¶¶ 99–103, 118–20).

44. After continued discussions, between 27 December and 31 December 2023,

the Tillers and Phillips negotiated and finalized an agreement for Phillips to purchase

the Tiller Trust membership interest for $6 million, plus repayment of $2.3 million

in loans and other debt. (Am. Compl. ¶¶ 102–03). As a result, the parties executed an

Assignment of Equity Interests, effective 31 December 2023.7 (Am. Compl. ¶ 103).

45. On 8 January 2024, Phillips indicated that “everything looked good to close”

within forty-five days. (Am. Compl. ¶ 104). However, Phillips never made the

7 The Assignment of Equity Interests is not attached to the amended complaint, and Plaintiffs

make no factual allegations regarding the substance of that document. Ultimately, they aver

that the sale was not consummated because Phillips did not make the requisite payments,

(Am. Compl. ¶ 108), though it is unclear whether the Assignment of Equity Interests was in

any way contingent on the payments or whether it was, in fact, effective on 31 December

2023, regardless of the future payments.

requisite payments, and the sale of the Tiller Trust membership interests did not

close. (Am. Compl. ¶ 108). Eventually, the Tillers discovered that Blue Marlin, a third

party, had negotiated to acquire a 20% minority stake in MedShift for $40 million––

far above the Tillers’ valuation of MedShift. Phillips never disclosed the anticipated

Blue Marlin transaction to the Tillers and instead asserted that the funds for his

purchase of the company—had it closed—would come from personal resources. (Am.

Compl. ¶¶ 106–08).

46. On 25 April 2024, Phillips provided the Tillers with MedShift’s purported

balance sheets for 2022 and 2023 and claimed that MedShift was not performing well.

(Am. Compl. ¶ 109).

47. The Tillers allege that MedShift’s financial condition, as represented by

Phillips, differed from the information provided to other members with respect to

default rates and the representation of MedShift’s financial performance.

Specifically, the Tillers were told MedShift had a 14% default rate in 2023, while

others were told that the default rate was 5% and that MedShift had experienced a

“solid year.” (Am. Compl. ¶¶ 111–14).

48. On 8 May 2024, Phillips once again inquired about the Tillers’ willingness

to sell the Tiller Trust’s shares, proposing that the Tillers loan him the purchase

funds, which he would repay through monthly installments until MedShift was sold.

At the same time, Phillips represented that MedShift would impose a mandatory

capital call for all members due to the company’s financial condition and that failure

to make the requisite capital contribution would result in noncompliant members’

interests being reduced to $0. (Am. Compl. ¶¶ 115–16).

49. On 14 May 2024, Phillips again inquired about purchasing the Tillers’

shares, offering $2 million. (Am. Compl. ¶¶ 118–20). Following their refusal, the

Tillers allege that Phillips continued to emphasize the urgent need for them to sell

their shares to him, warning that otherwise they would be required to participate in

the capital call and would likely be required to contribute up to $3 million––

communications that the Tillers allege only they (and not other members of MedShift)

received. (Am. Compl. ¶¶ 118–21).

50. After the December 2023 transaction involving the Assignment of Equity

Interests fell through due to Phillips’s failure to pay and close on the transactions,

the Tillers continually rejected Phillips’s entreaties to sell the Tiller Trust’s

membership interest to him, doing so once again between May and June 2024. (E.g.,

Am. Compl. ¶ 122).

51. Following the latest rejection, on 18 June 2024, Phillips notified the Tillers

that “all units held by Plaintiffs were forfeited for zero consideration as of [31

December] 2022”—approximately a year and a half before the notice. (Am. Compl.

¶¶ 121–24). Plaintiffs, however, assert that “Phillips did not have a valid basis for

claiming that all of Plaintiffs’ shares and interest in the Company w[ere] forfeited”

and that Phillips instead attempted to “steal” the interest. (Am. Compl. ¶¶ 125–26).

52. Thus, the Tillers allege that the Tiller Trust remains a member of MedShift

and that Phillips’s actions were simply bad-faith efforts to “squeez[e] out” Plaintiffs

from MedShift. (Am. Compl. ¶¶ 127–28).

53. On 17 June 2024, Ms. Tiller sent an email to Phillips, copying Mr. Tiller,

Foglio, and Plaintiffs’ attorney, John Buric. (Am. Compl. ¶ 132; ECF No. 53.2). The

email did not reference the Tiller Trust or suggest that it was sent on behalf of the

Tiller Trust or with respect to its interest in MedShift. (See generally ECF No. 53.2).

54. In the email, Ms. Tiller raised various grievances with Phillips. Among

other things, she suggested that Phillips

• “singled [] out” her and Mr. Tiller and demanded that they “either accept

[Phillips’s] extorted $2M loan/offer or participate in a capital call”;

• asked for a loan of $1.5 million before withdrawing funds for the East

Boulevard Project;

• agreed to purchase the Tillers’ interest in MedShift for a sum lower than

she believed appropriate; and

• removed Mr. Tiller from the board “without cause under the guise of a

purchase.”

(ECF No. 53.2 at 1).

55. Ultimately, however, Ms. Tiller noted that her email was an effort to

negotiate a settlement between the Tillers and Mr. Phillips. To that end, Ms. Tiller

noted that the Tillers sought “to avoid the publicity of litigation” and “would prefer

to reach a settlement agreement.” As a result, she demanded that Phillips respond to

the email within forty-eight hours “in regard to [Phillips’s] intentions,” absent which

she noted that the Tillers would “proceed with [their] lawsuit against [Phillips] and

others who benefited from [his] conduct.” (ECF No. 53.2 at 1). She further insisted

that Phillips “negotiate with John [Buric] as he is protecting our interests.” (ECF No.

53.2 at 2).

56. The email did not demand or request that MedShift investigate Phillips’s

alleged conduct, nor did it request that anyone take action against Phillips––other

than threatening that the Tillers themselves would sue if they did not receive a

response within forty-eighty hours. (See generally ECF No. 53.2).

57. Plaintiffs filed their original complaint in this action on 18 October 2024.

(ECF No. 3).

58. Contemporaneously with their filing of the complaint, Plaintiffs served a

written demand letter on Defendants. (Am. Compl. ¶ 133; ECF No. 69 at 10

(acknowledging that the letter was “sent contemporaneously with the initial

Complaint”)). The letter was sent by Plaintiffs’ attorney, John Buric, and was

addressed to MedShift at Phillips’s attention. (ECF No. 53.3 at 1). In the substance

of the letter, Plaintiffs asserted, in relevant part, that Phillips:

• improperly distributed MedShift’s funds for non-company purposes;

• wrongfully distributed funds to himself or the Phillips or Walcher Trusts to

fund separate business endeavors such as the East Boulevard Project and two

other projects;

• commingled MedShift’s funds with Phillips’s personal or other funds;

• wrongfully caused MedShift to guaranty debts for other projects;

• falsified information concerning a MedShift audit;

• “improperly and fraudulently coerced the Tiller Trust into selling its shares”;

• wrongfully declared the Tiller Trust’s membership interest in MedShift to be

forfeited;

• planned to wrongfully distribute funds to himself; and

• breached his fiduciary duties and the MedShift operating agreement.

(ECF No. 53.3 at 1–2). As a result, in the letter, Plaintiffs demanded that MedShift

“take suitable action to fully and completely investigate all the matters” addressed in

the letter and “take action to remedy those issues,” though it did not specifically

request that MedShift bring suit or assert specific legal claims against Phillips. (ECF

No. 53.3 at 2).

59. Plaintiffs’ complaint asserts causes of action individually, and the Tiller

Trust asserts causes of action individually and derivatively on behalf of MedShift.

(ECF No. 3).

60. On 28 February 2025, Plaintiffs filed their amended complaint asserting

causes of action for (i) a declaratory judgment; (ii) breach of contract (direct and

derivative); (iii) unjust enrichment (direct); (iv) unlawful distribution (derivative); (v)

alter ego; (vi) fraud (direct and derivative); (vii) conversion (direct and derivative);

(viii) tortious interference with contract (direct and derivative); (ix) facilitation of civil

conspiracy (direct and derivative); and (x) negligent misrepresentation (direct and

derivative). (See generally Am. Compl.). The latter four causes of action are all

asserted as “alternative” causes of action. (Am. Compl. ¶¶ 177–197).

61. Defendants and Nominal Defendant filed motions to dismiss the amended

complaint on 21 April 2025, (ECF Nos. 51, 54), and Plaintiffs in turn moved to strike

Nominal Defendant’s non-derivative-demand-based arguments, on 28 May 2025.

(ECF No. 63).

II. ANALYSIS

A. Motion to Strike

62. Plaintiffs move under Rule 12(f) of the North Carolina Rules of Civil

Procedure to strike Nominal Defendant’s non-derivative demand related arguments

in its motion to dismiss on the grounds that a Nominal Defendant does not have

standing to defend against the merits of a derivative action. (ECF No. 64 at 3).

63. Pursuant to Rule 12(f), a trial court “may order stricken from any pleading

any insufficient defense or any redundant, irrelevant, immaterial, impertinent, or

scandalous matter.” N.C. R. Civ. P. 12(f). Motions to strike “are ‘viewed with disfavor

and are infrequently granted.’” Loyd v. Griffin, 2021 NCBC LEXIS 110, at *28 (N.C.

Super. Ct. Dec. 10, 2021) (quoting Daily v. Mann Media, Inc., 95 N.C. App. 746, 748–

49 (1989)). “Whether to grant or deny a motion to strike under Rule 12(f) is within

the trial court’s sound discretion.” Id. (citing Reese v. City of Charlotte, 196 N.C. App.

557, 567 (2009)).

64. In this instance, the Court need not resolve whether Nominal Defendant

has standing to raise all of the arguments presented in its motion and briefing, as the

substantive arguments it raises are largely, if not entirely, duplicative of the

arguments raised by Defendants in their briefing.

65. While they disagree with the merits of the arguments, Plaintiffs do not

dispute Defendants’ (rather than Nominal Defendant’s) standing to raise the

arguments in their motion and briefing.

66. Accordingly, even if it were to strike Nominal Defendant’s arguments, the

Court would nonetheless hear and consider the same arguments (without objection),

and the Court’s ruling would be the same. Thus, to the extent the arguments overlap,

Plaintiffs’ argument is moot. Roberts v. Madison Cnty. Realtors Ass’n, Inc., 344 N.C.

394, 398–99 (1996) (“A case is ‘moot’ when a determination is sought on a matter

which, when rendered, cannot have any practical effect on the existing controversy.”

(citation omitted)).

67. As the arguments are appropriately raised by Defendants and properly

considered by the Court, the Court determines in its discretion that it is not necessary

or warranted to strike Nominal Defendant’s motion or briefing, in whole or in part.

68. Thus, in the Court’s discretion, Plaintiffs’ motion to strike, (ECF No. 63), is

DENIED as moot.8

B. Rule 12(b)(1) Motions to Dismiss Putative Derivative Claims

69. The Court next addresses Defendants’ and Nominal Defendant’s Rule

12(b)(1) motions to dismiss.

70. A Rule 12(b)(1) motion to dismiss presents “a challenge to the trial court’s

subject matter jurisdiction over a plaintiff’s claims.” Marlow v. TCS Designs, Inc., 288

8 With its ruling, the Court makes no determination regarding Nominal Defendant’s right or

ability to raise further arguments in other proceedings, and Nominal Defendant should not

construe the Court’s ruling as a license to raise arguments where it is not otherwise permitted

to do so.

N.C. App. 567, 572 (2023); see also N.C. R. Civ. P. 12(b)(1). “The plaintiff bears the

burden of establishing subject matter jurisdiction.” Lau v. Constable, 2022 NCBC

LEXIS 75, at *10 (N.C. Super. Ct. July 11, 2022).

71. “Standing is required in order to maintain subject matter jurisdiction.”

Drum v. Drum, 284 N.C. App. 272, 275 (2022); see also Cmty. Success Initiative v.

Moore, 384 N.C. 194, 205 (2023); see generally United Daughters of the Confederacy

v. City of Winston-Salem ex rel. Joines, 383 N.C. 612 (2022). As the party invoking

jurisdiction, the plaintiff also bears the burden to prove standing. Blinson v. State,

186 N.C. App. 328, 333 (2007).

72. A court may consider matters outside the pleadings in determining whether

subject matter jurisdiction exists. Tart v. Walker, 38 N.C. App. 500, 502 (1978); see

also Keith v. Wallerich, 201 N.C. App. 550, 554 (2009).

73. “[W]henever the court does not have subject matter jurisdiction, the judge

must dismiss.” O'Donnell v. City of Asheville, 113 N.C. App. 178, 180 (1993) (citing

N.C. R. Civ. P. 12(h)(3)).

74. Under N.C. Gen. Stat. § 57D-8-01, a member of a limited liability company

may bring a derivative action only if

[t]he member made written demand on the LLC to take suitable

action, and either (i) the LLC notified the member that the

member’s demand was rejected, (ii) 90 days have expired from the

date the demand was made, or (iii) irreparable injury to the LLC

would result by waiting for the expiration of the 90-day period.

N.C. Gen. Stat. § 57D-8-01(a)(2).

75. A written demand “must be made with sufficient clarity and particularity

to permit the [LLC] . . . to assess its rights and obligations and determine what action

is in the best interest of the company.” Bourgeois v. Lapelusa, 2022 NCBC LEXIS

111, at *26 (N.C. Super. Ct. Sep. 23, 2022) (alterations in original) (internal

quotations omitted) (quoting Kane v. Moore, 2018 NCBC LEXIS 157, at *14 (N.C.

Super. Ct. Nov. 26, 2018)). Among other things, the demand should clearly specify

the actions that the member would have the LLC take, the claims that the member

would have the LLC assert, and the persons or entities against whom those claims

should allegedly be asserted. Id. (citation omitted).

76. A plaintiff’s failure to comply with the demand requirements warrants

dismissal of the derivative claims for lack of standing. See, e.g., Miller v. Burlington

Chem. Co., LLC, 2017 NCBC LEXIS 6, at *27 (N.C. Super. Ct. Jan. 27, 2017); Petty

v. Morris, 2014 NCBC LEXIS 67, at *22-24 (N.C. Super. Ct. Dec. 16 2014).

77. Plaintiffs assert that they submitted two separate demands on MedShift:

one via email on 17 June 2024 and another on 18 October 2024, contemporaneously

with the filing of the initial verified complaint. (Am. Compl. ¶¶ 132–33; ECF Nos.

53.2, 53.3).9 Defendants, on the other hand, argue that both communications were

deficient and did not comply with applicable law. (ECF No. 52 at 4–8; ECF No. 55 at

9 The demand communications are expressly referenced and relied upon in the verified

amended complaint and were provided in the responsive briefing. (Am. Compl. ¶¶ 132–33

(stating that the “derivative demand is attached as Exhibit A”; failing to attach the exhibit);

ECF Nos. 53.2, 53.3 (including copies of the referenced demand communications)). A “court

may properly consider documents which are the subject of a plaintiff’s complaint and to which

the complaint specifically refers” when ruling on a 12(b)(6) motion. Oberlin, 147 N.C. App. at

60. The Court considers the documents accordingly.

4–7). The Court agrees that the demands were deficient and that the putative

derivative claims should therefore be dismissed.

78. The 17 June 2024 email is primarily Ms. Tiller’s airing of personal

grievances against Phillips on behalf of both Tillers, and the email does not suggest

that it is sent on behalf of the Tiller Trust, which is the putative derivative plaintiff

in this action. (Am. Compl. ¶¶ 3, 40, 42, 129). While the email summarizes certain

alleged wrongdoing, such as allegedly wrongful withdrawals and wrongfully

removing Mr. Tiller from the board, it makes no demand at all of MedShift. It is

instead directed solely to Phillips in his individual capacity and makes demands only

of Phillips––not of the company. Moreover, the email lacks any request that MedShift

assert any claims or conduct any investigation and ultimately makes no effort to have

MedShift take any other action against Phillips. The correspondence therefore does

not serve as an adequate or proper demand under applicable law. N.C. Gen. Stat. §

57D-8-01(a)(2); see, e.g., Garlock v. Hillard, 2000 NCBC LEXIS 6, at *10 (N.C. Super.

Ct. Aug. 22, 2000) (determining that a letter failed to satisfy derivative demand

requirements when it made no mention of a derivative claim and failed to demand

specific action and claims by the corporate entity).

79. The 18 October 2024 letter fares no better under N.C. Gen. Stat. § 57D-8-

01(a)(2). That letter was served contemporaneously with Plaintiffs’ filing of their

original complaint in this action, and, as both the plain language of the statute and

this Court’s jurisprudence make clear, such a demand is insufficient to grant

standing. N.C. Gen. Stat. § 57D-8-01(a) (noting that a member “may bring a

derivative action if the following conditions are met” at the time the action is filed);

see, e.g., Garlock, 2000 NCBC LEXIS 6, at *10–11 (“A written demand sent

simultaneously with the filing of a complaint does not meet the demand requirements

of the statute, nor may a complaint serve as the written demand.”); cf. Greene v.

Shoemaker, 1998 NCBC LEXIS 4, at *10–11 (N.C. Super. Ct. Sep. 24, 1998).

80. Though Plaintiffs argue that the demand is proper because it was served

more than ninety days before “the operative pleading––Plaintiffs’ Verified Amended

Complaint,” (ECF No. 69 at 11), this argument ignores the plain language of the

statute, which requires that “90 days have expired from the date the demand was

made” as a perquisite before the member “may bring suit” at all––not merely before

the operative complaint is filed in an already existing suit. N.C. Gen. Stat. § 57D-8-

01(a); N.C. Gen. Stat. § 57D-8-01(a)(2).

81. Beyond these two letters, Plaintiffs do not argue, nor does the amended

complaint allege, either that (i) they made any other demand that the company

rejected before they filed suit or (ii) irreparable injury to MedShift would have

resulted by waiting for expiration of the ninety-day notice period. (See N.C. Gen. Stat.

§ 57D-8-01(a)(2); see generally Am. Compl.; ECF No. 69). Without properly alleging

one of these alternative bases for jurisdiction and without a proper demand and

waiting period before filing suit, Plaintiffs lack standing to assert the putative

derivative claims in this action, and they are appropriately dismissed for lack of

subject matter jurisdiction.

82. Accordingly, the Court will DISMISS without prejudice all putative

derivative causes of action and claims asserted in this action.

C. Rule 12(b)(6) Motions to Dismiss

83. Defendant and Nominal Defendant next move under Rule 12(b)(6) for

dismissal of each of Plaintiffs’ causes of action other than for a declaratory judgment.

(ECF No. 51).

84. When considering a Rule 12(b)(6) motion, the Court must determine

“whether the allegations of the complaint, if treated as true, are sufficient to state a

claim upon which relief can be granted under some legal theory.” Corwin v. Brit. Am.

Tobacco PLC, 371 N.C. 605, 615 (2018) (citation omitted).

85. The Court treats the well-pleaded factual allegations as true and views

them “in the light most favorable to the non-moving party.” E.g., Sykes v. Health

Network Sols., Inc., 372 N.C. 326, 332 (2019) (citation omitted); Christenbury Eye

Ctr., P.A. v. Medflow, Inc., 370 N.C. 1, 5 (2017). The Court must determine “whether,

as a matter of law, the allegations of the complaint, treated as true, are sufficient to

state a claim upon which relief can be granted under some [recognized] legal theory.”

Forsyth Mem’l Hosp., Inc. v. Armstrong World Indus., 336 N.C. 438, 442 (1994)

(quoting Lynn v. Overlook Dev., 328 N.C. 689, 692 (1991)).

86. Further, the Court “may properly consider documents which are the subject

of a plaintiff’s complaint and to which the complaint specifically refers even though

they are presented by the defendant.” Oberlin, 147 N.C. App. at 60. The Court “can

reject allegations that are contradicted by the documents attached, specifically

referred to, or incorporated by reference in the complaint.” Moch v. A.M. Pappas &

Assocs., LLC, 251 N.C. App. 198, 206 (2016) (citations omitted).

87. Dismissal on a Rule 12(b)(6) motion is proper if “(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, 371 N.C. at

615 (citations omitted).

88. As the Court dismisses the putative derivative claims for lack of standing

and subject matter jurisdiction, the Court limits its discussion of Rule 12(b)(6)

motions to those causes of action asserted by Plaintiffs on behalf of themselves and

not in a putatively derivative capacity.

C.1. Alter Ego Theory/Piercing the Corporate Veil

89. Certain of Plaintiffs’ claims against Phillips are premised entirely upon an

“alter ego” or veil-piercing theory. Accordingly, the Court first addresses Plaintiffs’

fifth claim for relief, which they designate simply “Alter Ego.” (Am. Compl. ¶¶ 159–

64).

90. In the amended complaint, Plaintiffs contend that “MedShift and Phillips

are the alter ego of one another,” that “MedShift was under [Phillips’s] complete

domination and control,” that Phillips used control of MedShift “to commit fraudulent

conduct,” and that Phillips and MedShift “intermingled . . . assets and ownership.”

(Am. Compl. ¶¶ 160–64).

91. Accordingly, Plaintiffs assert that they “can pierce the corporate veil of

MedShift and hold Phillips, individually responsible for his tortious conduct.” (Am.

Compl. ¶ 163 (emphasis added)).

92. As an initial matter, “although Plaintiffs bring their veil piercing theory as

a claim, piercing the corporate veil is a remedy, not a separate cause of action.” Loray

Master Tenant, LLC v. Foss N.C. Mill Credit 2014 Fund I, LLC, 2021 NCBC LEXIS

15, at *24 n.4 (N.C. Super. Ct. Feb. 18, 2021) (citations omitted).

93. “North Carolina has adopted the instrumentality rule” when analyzing

liability under the theory of piercing the corporate veil. Id. at *26.

94. Under the instrumentality rule, to proceed on a request for veil piercing, a

party must show at least:

(1) Control, not mere majority or complete stock control, but

complete domination, not only of finances, but of policy and

business practice in respect to the transaction attacked so that

the corporate entity as to this transaction had at the time no

separate mind, will or existence of its own; and

(2) Such control must have been used by the defendant to commit

fraud or wrong, to perpetrate the violation of a statutory or

other positive legal duty, or a dishonest and unjust act in

contravention of [a] plaintiff’s legal rights; and

(3) The aforesaid control and breach of duty must proximately

cause the injury or unjust loss complained of.

Nicks v. Nicks, 241 N.C. App. 487, 497 (2015) (citation omitted).

95. Sole or common ownership of a company does not, by itself, establish

complete domination and control; there must be a showing that the entity lacks a

“separate mind, will or existence of its own.” Harris v. Ten Oaks Mgmt., LLC, 2022

NCBC LEXIS 62, at *6 (N.C. Super. Ct. June 20, 2022) (citation omitted).

96. The claimant must also adequately plead the existence of “an underlying

legal claim to which liability may attach” with respect to the entity to be pierced.

Green v. Freeman, 367 N.C. 136, 146 (2013) (citations omitted).

97. Here, despite their allegations as between Phillips and MedShift, none of

Plaintiffs’ non-declaratory causes of action are asserted against MedShift.10 Instead,

the material wrongdoing alleged in the amended complaint is that of Phillips, who

has no ownership interest in MedShift but is trustee of the Phillips Trust and Walcher

Trust, which are majority owners. (Am. Compl. ¶ 13).

98. With no substantive, non-declaratory claims against MedShift and, thus,

no “underlying legal claim to which liability may attach” as to MedShift, there is

simply no basis to pierce MedShift’s corporate veil in an effort to reach Phillips––

regardless of the merits of Plaintiffs’ allegations regarding potential control of

MedShift. See Green, 367 N.C. at 146 (“But sufficient evidence of domination and

control establishes only the first element for liability. There must also be an

underlying legal claim to which liability may attach. . . . Without these agency claims,

however, there was no legal claim still providing a basis for liability.” (citations

omitted)). The motion to dismiss is therefore properly granted on this basis.

10 Plaintiffs do not specify the particular defendants against whom their declaratory

judgment cause of action is asserted, (Am. Compl. ¶¶ 134–38). Even construing it to be

asserted against MedShift, as Nominal Defendant, however, there is no alleged wrongdoing

by MedShift against Plaintiffs that would warrant piercing the corporate veil or otherwise

support the existence of a legal claim to which liability and piercing might attach.

99. In response to this issue, raised tangentially by Defendants’ arguments that

Phillips does not have an interest in MedShift and that his only formal interest is

through the Phillips and Walcher Trusts, Plaintiffs contend that

the Trusts made promises through and acted interconnectedly

with Phillips who then used his power and control as Manager of

Medshift for his personal benefit. Further, Plaintiffs allege that

Phillips individually, the Trusts, and Medshift commingled

funds. At a minimum, the Tillers should be afforded the

opportunity to explore the Phillips and the Trusts’ control over

Medshift through discovery and/or to the extent that it is unclear

that both Phillips and the Trusts are implicated in the alter ego

claims, Plaintiffs should be afforded the opportunity to amend

their Complaint to reflect that they are. Plaintiffs and the Court

will be in a better position to evaluate the merits of this claim

after the Tillers obtain information regarding Phillips’s conduct.

(ECF No. 69 at 19).

100. The amended complaint, however, does not align with Plaintiffs’

arguments.

101. First, in their alter ego “claim,” Plaintiffs make no reference to either the

Phillips Trust or the Walcher Trust. (Am. Compl. ¶¶ 159–64). Instead, the pleadings

focus specifically on MedShift and Phillips and seek to “pierce the corporate veil of

MedShift and hold Phillips, individually responsible for his tortious conduct.” (Am.

Compl. ¶ 163 (emphasis added)). It is not merely “unclear that both Phillips and the

Trusts are implicated in the alter ego claims,” (ECF No. 69 at 19); rather, it is entirely

unpleaded.

102. Second, to the extent that Plaintiffs seek leave to amend to address that

failure, such a request made in the course of a response brief fails to comply with the

Business Court Rules and is properly denied or disregarded without further

consideration. BCR 7.2 (“Each motion must be filed as a separate document. Unless

listed in BCR 7.10, a motion must be accompanied by a brief. The Court has discretion

to deny the motion summarily if a required brief is not filed.”); BCR 7.1(c) (“The Court

has discretion to disregard or strike a filing that does not comply with these rules.”).

103. Third, inasmuch as Plaintiffs request “the opportunity to explore the

Phillips and the Trusts’ control over Medshift through discovery,” (ECF No. 69 at 19),

“plaintiffs may not simply state a generalized grievance and thereby gain the right to

go on a discovery fishing expedition.” Smith v. City of Charlotte, 79 N.C. App. 517,

529–30 (1986). Plaintiffs’ request amounts to little more than a request that the Court

enable such a fishing expedition. The Court will not do so.

104. Ultimately, whether Plaintiffs seek to hold Phillips liable for the actions of

the Phillips and Walcher Trusts or the actions of MedShift, or to hold those companies

liable for Phillips’s conduct, Plaintiffs’ allegations of control and dominion and

intermingling of funds are largely conclusory and do not rise to the level necessary to

establish complete dominion and control. (E.g., Am. Compl. ¶ 13 (“Phillips is Trustee

of, and controls, both the Phillips Trust and Walcher Trust.”), ¶ 44 (“Despite there

being three Board Members, Phillips controlled the Board, and thus the Company”

because he had more votes that the other Board members combined), ¶ 57 (“Upon

further information and belief, Phillips comingled the Company’s funds with his own

money, the Phillips Trust’s money, the Walcher Trust's money, and/or money for

other companies and projects he was involved in.” (emphasis added))).

105. Accordingly, Plaintiffs’ alter ego cause of action will be DISMISSED.

C.2. Breach of Contractual Duties

106. With their substantive claims, Plaintiffs first assert a cause of action for

breach of contractual duties against Phillips individually and Phillips in his capacity

as trustee of the Phillips Trust and the Walcher Trust. (Am. Compl. ¶¶ 139–47).

107. Specifically, Plaintiffs contend that “Defendants” collectively breached

obligations under the Operating Agreement by “wrongfully converting their

membership interest in MedShift, fraudulently coercing the Tiller Trust into

contributing its Units into an equity pool, and by making unfounded improper threats

against the Tillers related to personal guarantees and otherwise.” (Am. Compl.

¶ 146). Defendants respond by noting that Phillips is not a party to the Operating

Agreement, that Plaintiffs failed to specify in the complaint any particular provisions

of the Operating Agreement that were allegedly breached, and that the contractual

duties at issue either do not exist or have been waived. (ECF No. 52 at 17–20; ECF

No. 77 at 6). Ultimately, the Court agrees with Defendants that the claim fails.

108. “The elements of a claim for breach of contract are (1) existence of a valid

contract and (2) breach of the terms of that contract. The elements of a valid contract

are offer, acceptance, consideration, and mutuality of assent to the contract’s

essential terms.” Davis v. Woods, 286 N.C. App. 547, 561 (2022) (citation omitted).

109. As to Plaintiffs’ claim against Phillips, Phillips is not a party to the

Operating Agreement. Plaintiffs concede as much, arguing that Phillips should

instead “be deemed a signatory and held individually responsible for loss attributable

to the Medshift and/or the Trust’s breach of contract.” (ECF No. 69 at 20 (emphasis

added); see generally ECF No. 53.1). “[A]s a matter of law, a non-party to a contract

‘cannot be held liable for any breach that may have occurred.’” Howe v. Links Club

Condo. Ass’n, Inc., 263 N.C. App. 130, 139 (2018) (quoting Canady v. Mann, 107 N.C.

App. 252, 259 (1992)). Because Phillips is not a party to the Operating Agreement

and because Plaintiffs’ alter ego or piercing theory fails as set forth above, the motion

will be GRANTED as to Phillips.

110. Plaintiffs’ contract claims against Phillips as trustee of the Phillips Trust

and Walcher Trust fare no better.

111. Under North Carolina law,

[t]he operating agreement governs the internal affairs of an LLC

and the rights, duties, and obligations of (i) the interest owners,

and the rights of any other persons to become interest owners, in

relation to each other, the LLC, and their ownership interests or

rights to acquire ownership interests and (ii) the company

officials in relation to each other, the LLC, and the interest

owners. Subject to the limitations set forth in subsections (b), (c),

(d), and (e) of [N.C. Gen. Stat. § 57D-2-30], the provisions of this

Chapter and common law will apply only to the extent contrary

or inconsistent provisions are not made in, or are not otherwise

supplanted, varied, disclaimed, or nullified by, the operating

agreement.

N.C. Gen. Stat. § 57D-2-30(a).

112. With some limitations, “the laws of agency and contract, including the

implied contractual covenant of good faith and fair dealing and the requirement that

the terms of an operating agreement not be unconscionable at the time they are made,

govern the administration and enforcement of operating agreements.” Id. § 57D-2-

30(e).

113. “[M]embers of an LLC ‘are like shareholders in a corporation in that

members do not owe a fiduciary duty to each other or to the company.’” Strategic

Mgmt. Decisions, LLC v. Sales Performance Int’l LLC, 2017 NCBC LEXIS 69, at *10

(N.C. Super. Ct. Aug. 7, 2017) (quoting Kaplan v. O.K. Techs., L.L.C., 196 N.C. App.

469, 473 (2009)). “[M]embers have great freedom ‘to arrange their relationship

however they wish,’” so “they can change these default rules in the LLC’s operating

agreement.” Kixsports, LLC v. Munn, 2021 NCBC LEXIS 32, at *14 (N.C. Super. Ct.

Apr. 1, 2021) (quoting Vanguard Pai Lung, LLC v. Moody, 2019 NCBC LEXIS 39, at

*17–18 (N.C. Super. Ct. June 19, 2019)). Thus, “[t]he rights and duties of LLC

members are ordinarily governed by the company’s operating agreement[.]” Strategic

Mgmt. Decisions, 2017 NCBC LEXIS 69, at *10–11.

114. With respect to Plaintiffs’ contract claims against Phillips as trustee of the

Phillips Trust and Walcher Trust, as Defendants note, the parties agreed that

MedShift’s members waived “any claim or cause of action against the Board of

Managers and each Member” other than for a breach of “the implied covenant of good

faith and fair dealing by the Board of Managers under the [North Carolina Limited

Liability Company Act].” (ECF No. 53.1, § 6.2(a)). To the extent allowed by law, the

parties waived all fiduciary duties and limited all duties between members only to

those expressly provided by the Operating Agreement. (ECF No. 53.1, § 6.2(a)).

115. The Board of Managers is defined in the Operating Agreement as “the

Board of Managers elected and determined as provided in Section 6.1,” (ECF No. 53.1,

§ 1), and, as alleged in Plaintiffs’ amended complaint, is a Board consisting of

“Phillips, Foglio (or someone else appointed by Micota Capital), and Phil Van Etten.”

(Am. Compl. ¶ 43). The Board is not, however, a party to this action. (See generally

ECF No. 35).

116. Further, the Phillip Trust and the Walcher Trust are members of MedShift,

not managers, and Plaintiffs have not identified a viable claim against them in their

role as members of the company. See Strategic Mgmt. Decisions, 2017 NCBC LEXIS

69, at *10.

117. In short, considering the allegations of the amended complaint and the

plain language of the Operating Agreement, Plaintiffs’ claim for breach of contractual

duties fails, and the Court will DISMISS this cause of action.

C.3. Unjust Enrichment

118. For their unjust enrichment cause of action, Plaintiffs have sued Phillips

individually as well as in his capacity as trustee of the Phillips Trust and the Walcher

Trust. (Am. Compl. ¶¶ 148–54).

119. Plaintiffs contend that “Defendants have effectively received the Tiller’s

interest, or its value” in MedShift and have thereby been unjustly enriched. (Am.

Compl. ¶¶ 150–51). Defendants contend that the unjust enrichment claim fails

because there is a binding contract between the parties (i.e., the Operating

Agreement) and because Plaintiffs plead that the interests at issue were taken rather

than conferred. (ECF No. 52 at 8–10; ECF No. 81 at 4–5).

120. “A prima facie claim for unjust enrichment has five elements. First, one

party must confer a benefit upon the other party. Second, the benefit ‘must not have

been conferred officiously, that is it must not be conferred by an interference in the

affairs of the other party in a manner that is not justified in the circumstances.’ Third,

the benefit must not be gratuitous. Fourth, the benefit must be measurable. Last, ‘the

defendant must have consciously accepted the benefit.’” JPMorgan Chase Bank, Nat’l

Ass'n v. Browning, 230 N.C. App. 537, 541–42 (2013) (emphasis in original) (citations

and internal punctuation omitted); Rabinowitz v. Suvillaga, 2019 NCBC LEXIS 8, at

*28 (N.C. Super. Ct. Jan. 28, 2019) (noting that conclusory allegations will not suffice

to allege an unjust enrichment claim).

121. Plaintiffs have alleged the existence of a valid and binding contract

governing the same subject matter as the unjust enrichment cause of action and have

not indicated that the unjust enrichment cause of action is pleaded in the alternative.

While this might be a sufficient basis on which to dismiss the claim, compare Value

Health Sols. Inc. v. Pharm. Rsch. Assocs., Inc., 2020 NCBC LEXIS 65, at *37 (N.C.

Super. Ct. May 22, 2020) (dismissing unjust enrichment claim and declining to

construe it as pleaded in the alternative), with Cosma v. Fit Kitchen, LLC, 2022

NCBC LEXIS 77, at *3 (N.C. Super. Ct. July 18, 2022) (N.C. Super. July 18, 2022)

(denying motion to dismiss unjust enrichment claim made in the alternative), the

Court need not make such a determination. Rather, the Court concludes that, even if

Plaintiffs’ unjust enrichment claim is properly pleaded in the alternative, it fails to

state a claim upon which relief can be granted.

122. Plaintiffs allege that Defendants have wrongfully taken, or have passively

“received,” Plaintiffs’ membership interest, or the value of that interest, in MedShift.

(E.g., Am. Compl. ¶¶ 124–28, 149–50).

123. Plaintiffs do not allege that they conferred (voluntarily or otherwise) any

benefit on Defendants, and allegations of a wrongful taking of benefits or other

deprivation by Defendants cannot support a claim for unjust enrichment. See, e.g.,

Am. Cirs., Inc. v. Bayatronics, LLC, 2023 NCBC LEXIS 165, at *39 (N.C. Super. Ct.

Dec. 8, 2023) (granting summary judgment for defendant where plaintiff “alleged a

taking of information in violation of [a] Confidentiality Agreement, not a willing

transfer of that information to the Bayatronics Defendants”); Albritton v. Albritton,

2021 NCBC LEXIS 53, at *34 (N.C. Super. Ct. June 7, 2021) (“Neither the allegations

nor the facts in evidence support a claim for unjust enrichment. Movants have not

alleged that [Plaintiffs] conferred benefits upon Defendants, but, rather, that

Defendants took assets belonging to [Plaintiff].” (emphasis in original)); Klos Constr.,

Inc. v. Premier Homes & Props., LLC, 2020 NCBC LEXIS 85, at *48–51 (N.C. Super.

Ct. July 21, 2020) (granting summary judgment on unjust enrichment claim where it

was “undisputed that the [ ] Defendants took any benefit of Plaintiff's goodwill,” such

that the plaintiff could not have conferred it (emphasis added)); KNC Techs., LLC v.

Tutton, 2019 NCBC LEXIS 72, at *36, (N.C. Super. Ct. Oct. 9, 2019) (“Alleging merely

that the Defendants have taken for themselves some benefit to which Plaintiff

believes it is rightfully entitled does not state a claim for unjust enrichment.”).

124. Absent factual allegations suggesting that Plaintiffs conferred a

measurable benefit on Defendants, and not merely that Defendants wrongfully took

something from Plaintiffs, the amended complaint fails to state a claim for unjust

enrichment. JPMorgan, 230 N.C. App. at 541–42.

125. Accordingly, the Court will DISMISS Plaintiffs’ cause of action for unjust

enrichment.

C.4. Unlawful Distribution

126. Plaintiffs assert their fourth cause of action for unlawful distribution solely

in a putatively derivative capacity. (Am. Compl. ¶¶ 155–58; see also ECF No. 69 at

21 (“While the Amended Complaint references individual harm for unlawful

distributions, the gravamen of Count IV is that . . . the recipients or approving

parties—namely, Defendants—are personally liable to the Company under § 57D-4-

06.” (emphasis in original))).

127. As set forth above, the Court will DISMISS all putative derivative claims

in this action without prejudice for lack of standing and lack of subject matter

jurisdiction. Thus, the Court need not, and does not, further address this cause of

action.

C.5. Fraud and Negligent Misrepresentation

128. Plaintiffs further assert causes of action for fraud and, alternatively,

negligent misrepresentation—in both instances directly and derivatively against

Phillips individually and in his capacity as trustee of the Phillips Trust and the

Walcher Trust. (Am. Compl. ¶¶ 165–76, 192–97).

129. Defendants argue that Plaintiffs have failed to allege with particularity

sufficient facts to state claims for fraud or negligent misrepresentation and that

Plaintiffs have failed to allege reasonable reliance. (ECF No. 52 at 13–15). In

opposition, Plaintiffs contend that justifiable reliance need not be pleaded with

particularity and that, in any event, each alleged instance of fraud and negligent

misrepresentation is sufficiently pleaded. (ECF No. 69 at 17–19). Ultimately, the

Court agrees with Defendants that the allegations are deficient.

130. A party seeking to recover for fraud (whether framed as fraud, fraudulent

inducement, or otherwise) must plead factual, non-conclusory allegations

demonstrating the defendant’s “(1) [f]alse representation or concealment of a material

fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which

does in fact deceive, (5) resulting in damage to the injured party.” Ragsdale v.

Kennedy, 286 N.C. 130, 138 (1974) (citation omitted); S.N.R. Mgmt. Corp. v. Danube

Partners 141, LLC, 189 N.C. App. 601, 609–10 (2008) (quoting McGahren v. Saenger,

118 N.C. App. 649, 654 (1995)). “Additionally, any reliance on the allegedly false

representations must be reasonable.” Head v. Gould Killian CPA Grp., P.A., 371 N.C.

2, 9 (2018) (citation omitted).

131. “A claim for fraud may be based on an affirmative misrepresentation of a

material fact, or a failure to disclose a material fact relating to a transaction which

the parties had a duty to disclose.” Hardin v. KCS Int’l, Inc., 199 N.C. App. 687, 696

(2009) (citation and quotation marks omitted).

132. Similarly, to state a claim for negligent misrepresentation, a plaintiff must

allege that he “justifiably relie[d] to his detriment on information prepared without

reasonable care by one who owed the relying party a duty of care.” Raritan River Steel

Co. v. Cherry, Bekaert & Holland, 322 N.C. 200, 206 (1988) (citations omitted);

Sullivan v. Mebane Packaging Grp., Inc., 158 N.C. App. 19, 33 (2003).

133. “Justifiable reliance is an essential element of both fraud and negligent

misrepresentation.” Helms v. Holland, 124 N.C. App. 629, 635 (1996). For either

claim, “to establish justifiable reliance a plaintiff must sufficiently allege that he

made a reasonable inquiry into the misrepresentation and allege that he was denied

the opportunity to investigate or that he could not have learned the true facts by

exercise of reasonable diligence.” Arnesen v. Rivers Edge Golf Club & Plantation, Inc.,

368 N.C. 440, 454 (2015) (citation and internal punctuation omitted).

134. “[W]hen the party relying on the false or misleading representation could

have discovered the truth upon inquiry, the complaint must allege that he was denied

the opportunity to investigate or that he could not have learned the true facts by

exercise of reasonable diligence.” McFee v. Presley, 2022 NCBC LEXIS 74, at *10

(N.C. Super. Ct. July 11, 2022) (alteration in original) (citing Hudson-Cole Dev. Corp.

v. Beemer, 132 N.C. App. 341, 346 (1999)).

135. “[W]here the facts are insufficient as a matter of law to constitute

reasonable reliance on the part of the complaining party, the complaint is properly

dismissed under Rule 12(b)(6).” Hudson-Cole Dev. Corp., 132 N.C. App. at 346

(citation omitted).

136. Finally, Rule 9(b) of the North Carolina Rules of Civil Procedure requires

plaintiffs to plead fraud “with particularity.” N.C. R. Civ. P. 9(b). “[I]n pleading actual

fraud[,] the particularity requirement is met by alleging time, place and content of

the fraudulent representation, identity of the person making the representation and

what was obtained as a result of the fraudulent acts or representations.” Value Health

Sols., Inc. v. Pharm Rsch. Assocs., 385 N.C. 250, 263 (2023) (alterations in original)

(quoting Terry v. Terry, 302 N.C. 77, 85 (1981)).

137. The same particularity requirement applies to claims for negligent

misrepresentation. Id. at 265–66 (collecting cases); Deluca v. River Bluff Holdings II,

LLC, 2015 NCBC LEXIS 12, at *20 (N.C. Super. Ct. Jan. 28, 2015).

138. In determining whether these pleading requirements are met, the Court

need not accept conclusory allegations. E.g., Quidore v. All. Plastics, LLC, 2020 NCBC

LEXIS 140, at *16 (N.C. Super. Ct. Dec. 3, 2020) (dismissing fraud claims where

allegations of reliance and inability to investigate were conclusory).

139. Considering these standards and construing the allegations of the amended

complaint in the light most favorable to Plaintiffs, the allegations fail to state a claim

for fraud or negligent misrepresentation.

140. As set forth above, Plaintiffs’ fraud and negligent misrepresentation causes

of action are premised upon alleged misrepresentations in connection with the Cloud

Services Dispute, the Credit Agreement/Income Tax Dispute, the Quarterly Taxes

Dispute, the Bridge Loan Dispute, and the Equity Pool Dispute. (Am. Compl. ¶¶ 55–

56, 61–67, 71–74, 168–69, 171–73; ECF No. 69 at 18–19).

141. Cloud Services Dispute: Ultimately, Plaintiffs have not briefed the merits

of the Cloud Services Dispute. To the extent that Plaintiffs nonetheless rely on it for

their fraud or negligent misrepresentation cause of action, however, it fails to state a

claim.

142. Among other things, Plaintiffs fail to (i) identify to whom the alleged

memorandum concerning cloud services was circulated, stating only that it was an

“internal memorandum,” (ii) identify the alleged misrepresentations, claiming only

that the memorandum did “not accurately describe” MedShift’s services and that

Phillips “exaggerated” the unspecified information, (iii) plead non-conclusory

allegations suggesting that Plaintiffs in any way relied (much less reasonably relied)

on or were deceived by the unidentified information, alleging only that the alleged

misrepresentation was “so that the company could obtain additional funding” from

an unidentified source, or (iv) identify any factual, non-conclusory allegations

suggesting how Plaintiffs, rather than MedShift, were or even could have been

damaged. (Am. Compl. ¶¶ 71, 171, 174, 195–96). These allegations fail to state a

claim. S.N.R. Mgmt. Corp., 189 N.C. App. at 610–11.

143. Credit Agreement/Income Tax Dispute: Similarly, Plaintiffs have failed to

brief the merits of the Credit Agreement/Income Tax dispute. Moreover, in the

amended complaint, Plaintiffs did not (i) identify to whom the unidentified

statements were “exaggerated,” (ii) describe the substance of the alleged

exaggeration, (iii) plead anything more than conclusory statements suggesting that

Plaintiffs in any way relied (much less reasonably relied) on or were deceived by the

unidentified information, alleging only that the exaggerations were “to avoid having

to restate prior financials, to avoid restatement of the credit agreement with one of

MedShift’s lenders, and to avoid a federal and state income tax liability,” or (iv)

identify any factual, non-conclusory allegations suggesting how Plaintiffs, rather

than MedShift, were, or even could have been, damaged. (Am. Compl. ¶¶ 72, 172).

These allegations fail to state a claim. S.N.R. Mgmt. Corp., 189 N.C. App. at 610–11.

144. Quarterly Taxes Dispute: The Quarterly Taxes Dispute fails initially

because there is no alleged harm to Plaintiffs. Rather, Plaintiffs plead––and reiterate

in their briefing––that the alleged harm resulting from any misrepresentations

regarding the Quarterly Taxes Dispute was that it “resulted in the Company being

burdened with interest and penalties.” (ECF No. 69 at 18–19; Am. Compl. ¶¶ 73–74,

173). As Plaintiffs lack standing to assert a derivative claim on behalf of MedShift

and their putative derivative claims have been dismissed, this cause of action is

properly dismissed as to the Quarterly Taxes Dispute for failure to allege the

requisite harm to Plaintiffs. S.N.R. Mgmt., 189 N.C. App. at 610–11.

145. Further, Plaintiffs do not allege that Defendants, or Phillips specifically,

made any particular statement to them with respect to taxes. Though Plaintiffs

assert that Defendants’ purported failure to pay MedShift’s tax liabilities (a failure

that itself is pleaded upon information and belief) was “[d]espite representations to

the contrary,” there are no factual allegations as to what the purported

representations to the contrary were, to whom they were made, or when they were

made. (Am. Compl. ¶¶ 73, 173). Moreover, once again, the only allegations of

deception and reliance are entirely conclusory. (Am. Compl. ¶ 174). Thus, these

allegations fail to state a claim S.N.R. Mgmt., 189 N.C. App. at 610–11.

146. Bridge Loan Dispute and Equity Pool Dispute: The Bridge Loan Dispute

and the Equity Pool Dispute are, at best, vaguely pleaded. Considered in the light

most favorable to the non-moving Plaintiffs, the allegations fall short of meeting

Plaintiffs’ pleading burden, as Plaintiffs do not allege that they made a reasonable

inquiry into either alleged misrepresentation and do not plead facts suggesting that

they were denied an opportunity to investigate or could not have learned the true

facts by exercising reasonable diligence. Arnesen, 368 N.C. at 454.

147. Instead, as to the Bridge Loan Dispute, Plaintiffs plead only that Phillips

asserted that MedShift needed a bridge loan, that Phillips explained why he did not

want to make the loan personally, that Phillips requested that the Tillers loan $1.5

million to MedShift for ninety days, and that “the Tillers agreed, and wired the loaned

funds in late December 2022.” (Am. Compl. ¶ 55). Plaintiffs do not plead non-

conclusory facts demonstrating that they questioned Phillips’s or MedShift’s motives,

that they substantively investigated the basis for Phillips’s request, that they

conducted any due diligence whatsoever, or that they were prevented from doing so.

148. Similarly, Plaintiffs assert that the circumstances surrounding the Equity

Pool Dispute occurred in “early 2023” and specifically began at least on 1 March 2023,

culminating with their execution of the operative Operating Agreement around

31 March 2023. (Am. Compl. ¶¶ 60–69). Despite a month or more of discussions

regarding the equity pool, Plaintiffs do not allege facts suggesting that they made

reasonable inquiry into the alleged misrepresentations and, instead, suggest that the

few questions they did ask should have raised more questions. (See, e.g., Am. Compl.

¶ 65 (asserting that, in response to questions about the equity pool, “Phillips deflected

those inquiries by saying that it was not yet determined”)).

149. Ultimately, Plaintiffs allege in conclusory fashion that they reasonably

relied on the misrepresentations and that they were “induced to forego additional

investigation, and/or were not given the opportunity to conduct additional

investigation.” (Am. Compl. ¶¶ 170, 174, 196).

150. Plaintiffs’ lone factual allegation supporting this statement, however, is not

that they were prevented from accessing MedShift’s books and records but merely

stating that they complained to Foglio in October 2023 about a lack of access to the

books and records. (Am. Compl. ¶ 87). Plaintiffs do not identify instances when they

sought access to books and records but were denied. Even if those allegations were

sufficient to suggest denial of an opportunity to investigate, however, the Bridge Loan

Dispute arose in December 2022 and the Equity Pool Dispute arose in March 2023—

both months before Plaintiffs claim that they even raised the specter of a books and

records inquiry in October 2023. (Compare Am. Compl. ¶¶ 55–69, 168–69 and ECF

No. 69 at 18–19, with Am. Compl. ¶ 87).

151. As to the Equity Pool Dispute specifically, the pleaded facts reflect that

there could be no reasonable reliance. Plaintiffs assert that they authorized the

transaction not in reliance on Phillips’s representations but only “[u]nder duress” and

in light of “Defendants’ manufactured urgency.” (Am. Compl. ¶ 69; ECF No. 69 at 6–

7). Plaintiffs insist that they did so because “Plaintiffs believed they were held

hostage on giving up some of their shares because they had loaned the Company

money that would not be paid back unless they immediately executed” the documents.

(Am. Compl. ¶ 69). In short, the facts as pleaded affirmatively allege that the

Plaintiffs authorized the transaction not in reliance on a particular representation by

Phillips but instead based on Plaintiffs’ subject perceptions of “duress” and “urgency”

because they “believed” it was in their best interest to do so to obtain repayment of a

loan. (Am. Compl. ¶ 69).

152. Further, inasmuch as the Bridge Loan Dispute is premised upon Phillips’s

alleged statement that MedShift “needed a 90-day bridge loan,” a statement as to the

company’s needs reflects a subjective opinion and assessment that is open to

interpretation. Without a more particularized allegation of factual representations,

the Court determines that such a statement under the circumstances is not actionable

as the basis for a fraud or negligent misrepresentation claim. See Quidore, 2020

NCBC LEXIS 140, at *12 (“Rather than assert objective provable facts, however,

Quidore’s alleged statements reflect subjective opinion and assessment (and perhaps

exaggeration) in these circumstances and are open to differing perceptions of what

level or amount is ‘substantial’ and what qualifies as a ‘connection[ ].’ . . . As such, the

Court concludes that these alleged representations are not material as a matter of

law and, as asserted here, cannot support a fraud claim under North Carolina law.”).

153. Thus, the fraud and negligent misrepresentation causes of action fail to

state a claim and are properly DISMISSED. See Chisum v. Campagna, 2017 NCBC

LEXIS 102, at *29–30 (N.C. Super. Ct. Nov. 7, 2017) (finding no justifiable reliance

for a fraud claim where the plaintiff failed to exercise available record inspection

rights).

C.6. Conversion

154. Next, Plaintiffs assert a cause of action for conversion. The cause of action

is framed as being brought derivatively on behalf of MedShift and on behalf of each

Plaintiff against “Phillips, the Phillips Trust, and the Walcher Trust.” (Am. Compl.

at 20 (heading)). The allegations in the amended complaint, however, are tied only to

Plaintiff’s contention that Defendants “exercised ownership and control over the

Tillers’ membership interest in MedShift.” (Am. Compl. ¶ 178; see generally Am.

Compl. ¶¶ 177–80).11

155. In moving to dismiss this cause of action, Defendants argue that a

membership interest in MedShift is an intangible interest and that the cause of action

is barred by the economic loss rule. (ECF No. 52 at 10–12). The Court agrees that the

conversion cause of action is barred as pleaded.

156. “Conversion is defined as ‘an unauthorized assumption and exercise of the

right of ownership over goods or personal chattels belonging to another, to the

alteration of their condition or the exclusion of an owner’s rights.’” Norman v. Nash

11 In their briefing, Plaintiffs contend their conversion claim is based not only on their interest

in MedShift, but also on the conversion of MedShift’s monetary interests including certain

cash-back rewards from MedShift’s credit card. (ECF No. 69 at 17 (heading: “Conversion of

MedShift’s Monetary Interests”; arguing that Phillips “deprived MedShift of over $2 million

in cash-back rewards from the Company credit card.”)). However, this claim is derivative in

nature, and, as set forth above, Plaintiffs lack standing to assert it, such that it is properly

dismissed.

Johnson & Sons’ Farms, Inc., 140 N.C. App. 390, 414 (2000) (citation omitted)

(emphasis in original).

157. Consequently, the subject of a valid conversion claim must be tangible in

nature. Id. (“A claim for conversion does not apply to real property. . . . Nor are

intangible interests such as business opportunities and expectancy interests subject

to a conversion claim.”); Window World of N. Atlanta, Inc. v. Window World, Inc.,

2018 NCBC LEXIS 111, at *8–9 (N.C. Super. Ct. Oct. 22, 2018) (“[A]n intangible

interest cannot provide the basis for a conversion claim.”).

158. “Membership in an LLC is also an intangible interest.” McFee, 2022 NCBC

LEXIS 74, at *14; Surratt v. Brown, 2015 NCBC LEXIS 75, at *16 (N.C. Super. Ct.

July 27, 2015) (determining that an LLC/partnership interest was “intangible”).

159. As is the case throughout their amended complaint, Plaintiffs fail to make

any substantive distinction between the Tillers and the Tiller Trust with respect to

the conversion cause of action. To the extent that the Tillers assert a cause of action

for conversion with respect to the “the Tillers’ membership interest in MedShift,”

(Am. Compl. ¶ 178), the claim necessarily fails because the membership interest at

issue is not the Tillers’ but is instead the Tiller Trust’s––as Plaintiffs themselves

plead in the amended complaint and acknowledge in briefing. (Am. Compl. ¶ 40; see

Norman, 140 N.C. App. at 414; see also ECF No. 69 at 16 (arguing that the claim

relates to the “Tiller Trust’s interest in MedShift”)).

160. Further, the conversion cause of action fails in all respects because the

membership interest at issue is intangible and not subject to a conversion claim.

Plaintiffs do not contend that a membership certificate or other tangible

manifestation of the membership interest was taken. Rather, they allege that the

abstract, intangible interest itself was converted.

161. The cause of action for conversion therefore fails and will be DISMISSED.

See McFee, 2022 NCBC LEXIS 74, at *14 (“Membership in an LLC is also an

intangible interest.”). Accordingly, since the Court has dismissed the conversion

cause of action as set forth above, the Court need not, and does not, further address

the economic loss argument.

C.7. Tortious Interference with Contract

162. Plaintiffs next assert, both derivatively and individually, a cause of action

against Phillips for tortious interference with contract. (Am. Compl. ¶¶ 182–87).

Defendants argue that Plaintiffs have failed to plead the elements of a tortious

interference claim and have also failed to allege that Phillips acted without

justification, such that his qualified privilege as an “insider” of MedShift bars the

claim. (ECF No. 52 at 24–25).

163. “The elements of a tortious interference with a contract claim are: (1) a

valid contract existed between the plaintiff and a third person, conferring upon the

plaintiff some contractual right against the third person; (2) the defendant knows of

the contract; (3) the defendant intentionally induces the third person not to perform

the contract; (4) the defendant acts without justification; and (5) the defendant's

conduct causes actual pecuniary harm to the plaintiffs.” Pinewood Homes, Inc. v.

Harris, 184 N.C. App. 597, 604 (2007) (citing Childress v. Abeles, 240 N.C. 667, 674

(1954)).

164. “The acts of a corporate officer are generally presumed to have been done

in the interests of the corporation, but that presumption may be ‘overcome when the

means or the officer’s motives are improper.’” Gupta v. Eli Global, LLC, 2019 NCBC

LEXIS 40, at *26 (N.C. Super. Ct. June 19, 2019) (quoting Embree Constr. Grp., Inc.

v. Rafcor, Inc., 330 N.C. 487, 498–99 (1992)). This privilege “is qualified, not

absolute,” and is generally overcome by factual allegations suggesting that the

corporate officers acted for the officer’s “own benefit” or “personal interest.” Embree,

330 N.C. at 498–99 (emphasis in original) (citations omitted).

165. Defendants do not dispute that Plaintiffs have adequately alleged sufficient

facts to state each element of a tortious interference claim other than the requirement

to plead that Phillips acted without justification, (see generally ECF No. 52), and the

Court determines that Plaintiffs have sufficiently alleged those elements of the claim.

166. With respect to whether Phillips acted without justification, though the

amended complaint is not a model of clear pleading, Plaintiffs allege, among other

things, that (i) “Phillips did not have a valid basis for claiming that all of Plaintiffs’

shares and interest in the Company was [sic] forfeited,” (Am. Compl. ¶ 125), (ii)

Phillips repeatedly attempted to purchase the Tiller Trust’s membership interest in

MedShift at a reduced rate with no success before ultimately reaching an agreement

in late 2023 that did not ultimately close, (Am. Compl. ¶¶ 54, 88, 90, 102–03, 118–

20), (iii) Phillips engaged in discussions with third parties regarding a “deal” to sell

the Tiller Trust’s membership interest, (Am. Compl. ¶ 84), and (iv) they “believe that

. . . Phillips had identified a potential buyer for the Tiller Trust’s shares, which

Phillips wanted to sell for his personal gain.” (Am. Compl. ¶ 96).12

167. Ultimately, Plaintiffs have sufficiently pleaded that Phillips had a personal

interest in and attempted to purchase the Tillers’ or Tiller Trust’s interest in

MedShift on several occasions and was rebuffed by the Tillers, (Am. Compl. ¶ 54),

and that Phillips repeatedly withdrew money from MedShift for personal purposes,

(e.g., Am. Compl. ¶ 56), such that he had a personal interest in interfering with the

Tiller Trust’s rights under the Operating Agreement.

168. Thus, considering all allegations and permissible inferences of the

amended complaint in the light most favorable to Plaintiffs as the Court is compelled

to do at this preliminary stage of the litigation, the Court determines that Plaintiffs

have adequately alleged facts permitting the inference that Phillips acted in his own

self-interest rather than the interests of MedShift and that his conduct was neither

justified nor privileged. See, e.g., Embree, 330 N.C. at 501 (holding that on a motion

to dismiss for interference by an insider, plaintiff’s allegation that defendants acted

“in their own interest to avoid further liability” was enough to show the defendant

acted without justification); Gupta, 2019 NCBC LEXIS 40, at *26–27 (finding that

12 Despite the amended complaint’s myriad pleading deficiencies, the Court construes

Plaintiffs’ statement of belief as a permissible allegation made upon information and belief.

See, e.g., Myrtle Apartments, Inc. v. Lumbermen's Mut. Cas. Co., 258 N.C. 49, 51 (1962) (“In

stating his cause of action a plaintiff has the laboring oar. He may allege facts based on actual

knowledge, or upon information and belief.”).

plaintiff sufficiently alleged a company insider acted without justification such that

dismissal at the Rule 12(b)(6) stage was improper).

169. The Court therefore cannot determine “beyond doubt [Plaintiffs] could

prove no set of facts in support of [their] claim which would entitle [them] to relief,”

Gouch v. Rotunno, 291 N.C. App. 7, 10 (2023) (citation omitted), and accordingly will

DENY the motions to dismiss the cause of action for tortious interference.

C.8. Facilitation of Civil Conspiracy

170. Finally, Plaintiffs assert a cause of action for “[f]acilitation of [c]ivil

conspiracy.” (Am. Compl. at 21). However, no such claim or cause of action exists in

North Carolina,13 and any such cause of action here is properly dismissed.

171. To the extent that Plaintiffs’ cause of action is instead an attempt to assert

a claim for civil conspiracy, as their briefing suggests, that too is not a standalone

claim and “does nothing more than associate the defendants together and perhaps

liberalize the rules of evidence to the extent that under proper circumstances the acts

and conduct of one might be admissible against all.” Shope v. Boyer, 268 N.C. 401,

405 (1966) (citation omitted); New Restoration & Recovery Servs., LLC v. Dragonfly

Pond Works, LLC, 2023 NCBC LEXIS 80, at *23 (N.C. Super. Ct. June 15, 2023)

(citations omitted).

172. Thus, “[t]o create civil liability for conspiracy there must have been a

wrongful act resulting in injury to another committed by one or more of the

conspirators pursuant to the common scheme and in furtherance of the objective.”

13 Indeed, a thorough search of several legal databases finds no reference to, or recognition

of, any such claim or cause of action in any state or federal proceeding.

Krawiec v. Manly, 370 N.C. 602, 613 (2018) (citations omitted). To adequately allege

such a basis for civil liability, a party must allege “(1) a conspiracy, (2) wrongful acts

done by certain of the alleged conspirators in furtherance of that conspiracy, and (3)

injury as a result of that conspiracy.” Id. at 614.

173. The alleged conspiracy must also involve “an agreement between two or

more persons.” Boyd v. Drum, 129 N.C. App. 586, 592 (1998) (citation omitted).

174. Here, Plaintiffs assert that “Defendants” (i.e., Phillips individually, Phillips

as Trustee of the Phillips Trust, and Phillips as Trustee of the Walcher Trust) “all

agreed to defraud Plaintiffs and [MedShift] and engage in other wrongful conduct

towards Plaintiffs and [MedShift]” and that “Defendants” (again, Phillips in three

separate capacities) “committed overt and tortious acts in furtherance of that

agreement.” (Am. Compl. ¶¶ 189–90).

175. Plaintiffs do not allege in the amended complaint (or even argue in their

briefing) that Phillips conspired or otherwise entered into a conspiratorial agreement

with anyone other than himself. (Am. Compl. ¶¶ 189–90).

176. “Obviously, one person may not conspire with himself.” State v. Gallimore,

272 N.C. 528, 533 (1968) (citations omitted). This truism, though stated in a criminal

case, is equally applicable in the civil context. Indeed, “[i]t would defy logic to hold

that a natural person can conspire with himself.” McCarron v. Howell, 2024 NCBC

LEXIS 144, at *19 (N.C. Super. Ct. Nov. 19, 2024) (determining that, since plaintiff

asserted the conspiring entities “had no actual existence separate from Howell

himself, the resulting implication is that Howell sought to conspire with himself”).

177. Regardless of whether he has a personal interest in the dispute and

whether he is alleged to be the alter ego of MedShift, the Phillips Trust, and the

Walcher Trust, (Am. Compl. ¶¶ 160–64; ECF No. 69 at 19, 23), Phillips cannot

conspire with himself, and Plaintiffs have not alleged that he conspired with anyone

else.

178. Thus, the amended complaint fails to state a claim for either civil

conspiracy or facilitation of a civil conspiracy, and these causes of action are

appropriately DISMISSED.

III. CONCLUSION

179. Accordingly, the Court hereby GRANTS in part and DENIES in part

Defendants’ and Nominal Defendant’s motions to dismiss as set forth above, DENIES

as moot Plaintiffs’ motion to strike, and ORDERS as follows:

a. All causes of action and purported claims asserted by Plaintiffs on

behalf of MedShift are DISMISSED without prejudice;

b. Except for Plaintiffs’ Eighth Alternative Claim for Relief (Tortious

Interference with Contract) to the extent it is pleaded on behalf of Plaintiffs

individually, all causes of action and purported claims asserted by Plaintiffs

on behalf of themselves are DISMISSED;

c. The stay of discovery imposed by the Court’s Case Management

Order, (ECF No. 28), is hereby LIFTED; and

d. Counsel are DIRECTED, within ten days from entry of this

Order, to conduct a case management conference and file a supplemental

case management report that contains a proposed discovery schedule and

addresses all other matters required by Rule 9 of the North Carolina

Business Court Rules.

SO ORDERED, this 15th day of October 2025.

/s/ Matthew T. Houston

Matthew T. Houston

Special Superior Court Judge

for Complex Business Cases