The opinion
NO. COA13-773
NORTH CAROLINA COURT OF APPEALS
Filed: 4 March 2014
JOYCE FARMS, LLC
f/k/a HICKORY MOUNTAIN FARMS, LLC,
Plaintiff,
v. Forsyth County
No. 12 CVS 2114
VAN VOOREN HOLDINGS, INC., STANNY
H. VAN VOOREN, and WARRY VAN
VOOREN
And
VAN VOOREN GAME RANCH, INC.
An Ontario, Canada corporation,
Defendants.
Appeal by defendants from order entered 18 April 2013 by
Judge William Z. Wood, Jr. in Forsyth County Superior Court.
Heard in the Court of Appeals 10 December 2013.
Hendrick Bryant Nerhood & Otis, LLP, by Matthew H. Bryant,
for plaintiff-appellee.
Craige Brawley Liipfert & Walker, LLP, by William W.
Walker, for defendants-appellants.
HUNTER, Robert C., Judge.
Defendants appeal from an order entered 18 April 2013 in
Forsyth County Superior Court by Judge William Z. Wood, Jr.
granting plaintiff’s motion for partial summary judgment and
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dismissing defendants’ counterclaims. Defendants contend on
appeal that the trial court erred by granting plaintiff’s motion
for partial summary judgment because defendants’ counterclaims
were not barred, and there was ambiguity in the receivership
sale documents as to whether liabilities were transferred, thus
creating a genuine issue of material fact. Alternatively,
defendants argue that summary judgment was improper because they
fall under an exception to the general successor liability rule
as set out in Budd Tire Corp. v. Pierce Tire Co., 90 N.C. App.
684, 687, 370 S.E.2d 267, 269 (1988).
After careful review, we affirm the trial court’s order.
I. Background
This action arises from the second of two related
proceedings between the parties. The first proceeding involved a
civil action and arbitration leading to the judicial dissolution
of Van Vooren Game Ranch USA, LLC (“VVGR USA”). The second
proceeding, which gives rise to this appeal, involved a civil
action after VVGR USA was dissolved and sold at auction.
Stan Van Vooren (“Stan”) formed Van Vooren Game Ranch, Inc.
(“VVGR Canada”) in Ontario, Canada in 1987 to grow and sell
pheasants for commercial consumption. VVGR Canada created a
breed of white pheasants especially suited for meat production
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and developed a market in North America and overseas. Ron Joyce
(“Joyce”) joined the family poultry distribution business, Joyce
Foods, Inc. (“JFI”) in Forsyth County, North Carolina in 1971,
became sole shareholder and manager in 1981, and formed Hickory
Mountain Farms, LLC (“HMF”) in 2003 to manage JFI’s farming
operation.
In 2006, VVGR Canada sought a processor for its pheasants.
After negotiation, HMF and Joyce entered into an agreement with
Stan and Van Vooren Holdings Ltd. (“VVH”) to form VVGR USA.
VVGR USA was owned equally; HMF and Joyce owned 50% and Stan and
VVH owned 50%. Joyce and Stan served as co-managers of the new
company. VVGR USA was to purchase the assets of VVGR Canada for
$2,200,000.00. In late 2006 VVGR Canada moved its assets to
North Carolina. JFI provided office space and other services
for VVGR USA, and JFI’s chief financial officer administered
VVGR USA’s books and bank accounts.
In March 2007, VVGR USA established a $300,000.00 line of
credit with SunTrust Bank (“the SunTrust loan”) which was
converted to a promissory note in 2008. The note gave SunTrust
a security interest in all of VVGR USA’s assets and was
personally guaranteed by Joyce and Stan. The SunTrust loan went
into default in 2009. VVGR USA negotiated a forbearance
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agreement with SunTrust to keep SunTrust from seizing VVGR USA’s
assets while VVGR USA looked for other sources of income as it
paid interest on the note. Out of the three parties liable on
the note – Joyce, Stan, and VVGR USA – Joyce was the only party
with sufficient assets to pay the debt.
Joyce and Stan were unable to work together as co-
owners/managers of VVGR USA due to myriad disputes related to
VVGR USA’s relationship with JFI. In July 2011, JFI sent VVGR
USA a demand letter for $100,548.62 owed for product sold and
delivered. VVGR USA contended that, because of improper
charges, JFI actually owed VVGR USA funds in excess of the
amount demanded by JFI. Joyce, JFI, Stan, and VVGR USA agreed
in August 2011 to submit their disputes to arbitration.
A. Arbitration and Judicial Dissolution
In the arbitration, Stan and VVGR USA filed, among other
claims, a request for judicial dissolution of VVGR USA pursuant
to N.C. Gen. Stat. § 57-6-02. Because judicial dissolution of
VVGR USA would trigger default of the SunTrust note and Joyce’s
guaranty would be called upon, Joyce began a plan to protect his
personal obligation in the note. Joyce determined that he would
be paying off the note “one way or the other” and decided he
would rather have control of the VVGR USA assets than lose them
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in a bank auction, which he believed would not realize the
assets’ value. 2011 Asset Acquisition, LLC (“2011 AA”) was
formed by Todd Tucker, a JFI shareholder and officer, to
purchase the SunTrust note from the bank. Art Pope, another JFI
shareholder and creditor, loaned the funds to 2011 AA to buy the
SunTrust note for $299,589.42. Joyce agreed, through HMF, to
underwrite and fund 2011 AA’s costs of purchasing the SunTrust
note and take control of the VVGR USA collateral.
On 3 October 2011, Joyce and HMF commenced the dissolution
action in Forsyth County Superior Court seeking (1) judicial
dissolution of VVGR USA; (2) an order allowing the other VVGR
USA owners to buy Stan and VVGR Canada’s interest in VVGR USA;
(3) a declaratory judgment determining the scope of the
arbitration agreement; and (4) an order staying the arbitration
proceeding. HMF specifically alleged management deadlock, that
HMF was not a party to the arbitration agreement, and that VVGR
USA should be “dissolved, its assets liquidated and creditors
paid.” On 5 October 2011, the attorney for Joyce and JFI
informed Stan and VVGR USA that 2011 AA had purchased the
SunTrust note. 2011 AA demanded immediate payment of the
$299,589.42 balance on the SunTrust note and took possession of
all of VVGR USA’s assets pursuant to the original security
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agreement.
On 10 October 2011, Stan and VVGR USA filed a counterclaim,
a third-party complaint, and a motion for injunctive relief in
the dissolution action. They argued that there was no factual
or legal difference between Joyce, JFI, HMF, Tucker, and 2011 AA
and that the acts of any one of them was the act of the others,
meaning that all were subject to the arbitration agreement
entered into by Joyce and JFI as part of their dispute with Stan
and VVGR USA. Alternatively, they asked the court to enjoin
Joyce, JFI, HMF, Tucker, and 2011 AA from pursuing claims
outside the arbitration proceeding, and for the court to appoint
a receiver to manage VVGR USA.
On 4 November 2011, the trial court: (1) denied the
preliminary injunction motion; (2) found that HMF and 2011 AA
were not parties to the arbitration agreement; (3) found that
VVGR USA was deadlocked; and (4) ordered that a receiver be
appointed to dissolve VVGR USA. The receiver operated VVGR USA
until he made a motion to sell VVGR USA’s assets, which was
granted on 15 December 2011. Neither the order appointing the
receiver nor the order approving the receiver’s sale
specifically mention any contract-based claims that Stan, his
father Warry Van Vooren (“Warry”), VVH or VVGR Canada held
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against VVGR USA. The bill of sale and motion to sell were
silent with regard to the transfer of liabilities; however, an
attached asset protection agreement explicitly stated that the
sale would not transfer liabilities.
The receiver conducted an auction of VVGR USA’s assets,
where HMF submitted the highest bid of $510,000.00. The court
approved the sale in an order dated 16 December 2011, with the
details of the sale attached. The order approving sale provided
that “[t]he Purchased Assets shall be sold free and clear of all
liens, interests and encumbrances whatsoever[.]” With the sale
complete, the receiver asked Tucker to specify all amounts VVGR
USA owed to 2011 AA on the SunTrust note and security agreement
purchased by 2011 AA. Tucker claimed 2011 AA was due
$485,630.00 from VVGR USA, and the receiver paid the requested
amount to 2011 AA. Tucker subsequently transferred his sole
ownership of 2011 AA to Joyce for no consideration. Joyce
therefore controlled all of VVGR USA’s assets through the
auction sale to HMF, and had the SunTrust note paid off to 2011
AA, which Joyce now solely owned. The arbitrator later
conducted a hearing in March 2013 and entered a ruling on 2
April 2013 denying Stan’s and VVH’s claims against Joyce for
money owed from unpaid capital contributions at VVGR USA’s
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creation.
B. The Present Action
HMF commenced this action against Stan, Warry, VVH, and
VVGR Canada (collectively “defendants”) claiming they were
liable to HMF as assignee for legal claims previously held by
VVGR USA related to unapproved distributions and unpaid
invoices, among other things. Defendants counterclaimed that
HMF, as the owner of VVGR USA’s contracts and goodwill, was
liable to defendants for, inter alia, money owed from VVGR USA’s
initial purchase of assets from VVGR Canada in 2006 and
subsequent loans defendants made to VVGR USA throughout the
course of the business. After discovery, HMF filed a partial
summary judgment motion claiming that the liabilities of VVGR
USA were not transferred in the dissolution sale, and therefore
all of defendants’ counterclaims should be dismissed.
The trial court denied HMF’s motion for summary judgment as
to its own claims but granted the motion as to defendants’
counterclaims, concluding that the receivership sale did not
transfer VVGR USA’s liabilities to the buyer, HMF. The parties
settled all remaining claims shortly after jury selection. The
settlement specified that it was a “final determination of the
rights of the parties” and that “[d]efendants’ right to appeal
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the dismissal of [d]efendants’ counterclaims [was] not waived or
abridged by [the] settlement.”
Defendants filed timely notice of appeal from the trial
court’s order.
II. Discussion
Defendants contend that summary judgment was improper for
three reasons: (1) their counterclaims were not barred by the
dissolution because a genuine issue of material fact existed as
to whether the trial court ordered a sale free and clear of
defendants’ contract claims against VVGR USA; (2) the order
approving the sale of VVGR USA’s assets to HMF was ambiguous,
and thus its effect could not be determined as a matter of law;
and (3) the evidence raises genuine issues of material fact as
to whether any exceptions to the general successor liability
rule apply. After careful review, we affirm the trial court’s
order dismissing defendants’ counterclaims.
“Our standard of review of an appeal from summary judgment
is de novo; such judgment is appropriate only when the record
shows that ‘there is no genuine issue as to any material fact
and that any party is entitled to a judgment as a matter of
law.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,
576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 524, 649
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S.E.2d 382, 385 (2007)). “An issue is material if the facts
alleged would constitute a legal defense, or would affect the
result of the action, or if its resolution would prevent the
party against whom it is resolved from prevailing in the
action.” Koontz v. City of Winston-Salem, 280 N.C. 513, 518,
182 S.E.2d 897, 901 (1972). On summary judgment, facts must be
viewed in the light most favorable to the non-moving party.
Caldwell v. Deese, 288 N.C. 375, 378, 218 S.E.2d 379, 381
(1975).
A. Effect of Dissolution on Defendants’ Contract Claims
Defendants first argue that a genuine issue of material
fact exists as to whether the trial court actually ordered that
VVGR USA’s assets were to be sold free and clear of defendants’
contract claims against VVGR USA. We disagree.
Under the general successor liability rule, “a corporation
which purchases all or substantially all of the assets of
another corporation is not liable” for the transferor’s
liabilities. Budd Tire, 90 N.C. App. at 687, 370 S.E.2d at 269.
Defendants’ counterclaims all stem from alleged breach of
contractual agreements defendants held with VVGR USA. Contract
claims are liabilities that generally do not transfer to
successor corporations. See Becker v. Graber Builders, Inc.,
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149 N.C. App. 787, 791, 561 S.E.2d 905, 909 (2002). Thus, under
the general rule, when plaintiff purchased all of VVGR USA’s
assets at the receivership sale, it did not acquire VVGR USA’s
liabilities, which included defendants’ contract claims against
it.
Despite the general successor liability rule, defendants
argue that there is a genuine issue of material fact as to
whether the judicial dissolution court specifically ordered VVGR
USA’s assets to be sold free and clear of defendants’ contract
claims. Because neither the order appointing the receiver nor
the order approving the receiver’s sale specifically mention
defendants’ contract claims against VVGR USA, defendants argue
that there is a genuine issue of material fact as to whether
these liabilities were transferred. We disagree. Though the
trial court’s orders do not expressly indicate that defendants’
contract claims against VVGR USA were excluded in the receiver’s
sale of VVGR USA’s assets, they do indicate that VVGR USA’s
assets were to be sold “free and clear of all liens, claims and
encumbrances[.]” Furthermore, as is discussed in more detail
below, all relevant documents related to the receivership sale
indicate that it was intended to be a sale of assets only, with
no liabilities included.
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Absent any indication to the contrary, we hold that the
trial court, consistent with the general successor liability
rule, ordered a sale of VVGR USA’s assets and did not order the
transfer of VVGR USA’s liabilities, including any contract
claims defendants may have had against it.
B. Ambiguity of Order Approving Sale
Defendants next argue that the order approving the sale of
VVGR USA’s assets was ambiguous and therefore could not be
determined as a matter of law. We disagree.
At the outset, we note that defendants’ argument as to this
issue amounts to an impermissible collateral attack on the
receivership sale of VVGR USA’s assets. “Attacks on the
validity of receiverships by collateral actions are not
permissible under North Carolina law.” Hudson v. All Star
Mills, Inc., 68 N.C. App. 447, 451, 315 S.E.2d 514, 517 (1984).
The method of attacking a public sale of assets must be direct,
either by motion in the cause or appeal, not through a separate
action. See Brown v. Miller, 63 N.C. App. 694, 697, 306 S.E.2d
502, 504 (1983). “[T]he court being one of competent
jurisdiction in receivership proceedings, and having acquired
jurisdiction of the parties and the subject matter in
controversy, it may not be interfered with by any other court of
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co-ordinate authority[.]” Hall v. Shippers Exp., 234 N.C. 38,
40, 65 S.E.2d 333, 335 (1951).
Here, defendants attempted to challenge the order approving
the receivership sale in a new action brought in a trial court
of coordinate authority as that which conducted the dissolution.
The trial court in the dissolution action concluded, and
defendants do not contest, that it had proper subject matter
jurisdiction to oversee the receivership sale. Defendants
failed to file any claims, motions, objections, or appeals in
the dissolution action or otherwise challenge the receivership
proceedings or the order authorizing the sale in any way.
Therefore, because the trial court in the judicial dissolution
case had proper subject matter jurisdiction over the parties
with regard to the receivership sale, and defendants now contest
the receivership sale before a new judge with co-ordinate
authority, we hold that this argument is an impermissible
collateral attack.
However, even if this were not an impermissible collateral
attack, we would hold that defendants’ argument fails. Whether
ambiguity exists in a court order is a question of law. Emory
v. Pendergraph, 154 N.C. App. 181, 186, 571 S.E.2d 845, 848
(2002). “[W]here a judicial ruling is susceptible of two
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interpretations, the court will adopt the one which makes it
harmonize with the law properly applicable to the case.” Kniep
v. Templeton, 185 N.C. App. 622, 631, 649 S.E.2d 425, 431-32
(2007) (citations and quotation marks omitted).
Defendants’ contention that the order approving the sale
was ambiguous arises from the order’s provision that VVGR USA’s
“contracts” would be sold with its assets but that “[t]he
[p]urchased [a]ssets shall be sold free and clear of all liens,
interests and encumbrances whatsoever.” Defendants argue that
because their contract claims against VVGR USA were not “liens,
interests or encumbrances,” and that VVGR USA’s “contracts” were
transferred to plaintiff, ambiguity existed as to whether
liability on defendants’ contract claims were sold to plaintiff
and this issue should have been decided by a trier of fact. We
disagree.
The receiver’s report and motion to sell assets both
indicate that the receiver intended to conduct an asset sale
exclusive of liabilities. An “Asset Purchase Agreement” form,
which the receiver attached to the motion as a template for the
sale, specifically excluded transfer of VVGR USA’s liabilities
to the buyer:
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO
THE CONTRARY, THE PURCHASER SHALL NOT ASSUME
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ANY LIABILITIES OR OBLIGATIONS (FIXED OR
CONTINGENT, KNOWN OR UNKNOWN, MATURED OR
UNMATURED), INCLUDING ANY AND ALL
ENVIRONMENTAL LIABILITIES, OF THE COMPANY OR
ITS MEMBERS OR SHAREHOLDERS WHETHER OR NOT
ARISING OUT OF OR RELATING TO THE PURCHASED
ASSETS OR THE BUSINESS OR ANY OTHER BUSINESS
OF THE COMPANY OR ITS MEMBERS OR
SHAREHOLDERS, ALL OF WHICH LIABILITIES AND
OBLIGATIONS SHALL, AT AND AFTER THE CLOSING,
REMAIN THE EXCLUSIVE RESPONSIBILITY OF THE
COMPANY OR ITS MEMBERS OR SHAREHOLDERS (AS
APPLICABLE).
Furthermore, the bill of sale refers only to the sale of assets
and is silent with regard to liabilities. The receiver filed an
affidavit in which he stated that the auction sale was for
assets only, not liabilities. Finally, the order itself states
that “[t]he Purchased Assets shall be sold free and clear of all
liens, interests and encumbrances whatsoever.” In short, all of
the evidence related to the receivership sale clearly indicates
that it was a sale of assets, not liabilities. Defendants
produced no evidence indicating that the parties, the receiver,
or the trial court intended to contravene the long-standing
general successor liability rule by selling defendants’
unspecified contract claims together with VVGR USA’s assets.
Based on these facts, we agree with plaintiff that the order
unambiguously transferred VVGR USA’s assets and excluded all
liabilities, including defendants’ contract claims, in the
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receivership sale. Therefore, defendants’ argument is
overruled.
C. Exceptions to the General Successor Liability Rule
Defendants’ final argument is that a genuine issue of
material fact existed as to whether any exceptions to the
general successor liability rule apply. We disagree.
Defendants rely on the four exceptions enunciated in Budd
Tire to support their argument. In Budd Tire, the Court dealt
with a private sale of company assets for inadequate
consideration where the purchaser would be protected by the
general successor liability rule. Budd Tire, 90 N.C. App. at
684, 370 S.E.2d at 267. The Court was forced to carve out
exceptions to the general successor liability rule to provide an
equitable remedy to a creditor in the face of a fraudulent
transaction. Id. at 689, 370 S.E.2d at 270. Thus, the Court
held that the general successor liability rule does not apply
where:
(1) there is an express or implied agreement
by the purchasing corporation to assume the
debt or liability; (2) the transfer amounts
to a de facto merger of the two
corporations; (3) the transfer of assets was
done for the purpose of defrauding the
corporation’s creditors, or; (4) the
purchasing corporation is a “mere
continuation” of the selling corporation in
that the purchasing corporation has some of
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the same shareholders, directors, and
officers.
Id. at 687, 370 S.E.2d at 269.
However, the structured court-ordered sale of assets in the
present case is distinguishable from the type of fraudulent
private transaction in Budd Tire that involved inadequate
consideration and shielding the insolvent company from creditors
without the creditors having legal remedies prior to the sale.
See id. Defendants cite to no caselaw, and we find none,
supporting the contention that these exceptions are applicable
to a court-ordered and supervised public sale. In this context,
statutory safeguards are already in place to ensure that the
trial court and the receiver conduct dissolution fairly and
without fraud. See N.C. Gen. Stat. § 1-505 (2013) (“Sales of
property [by receivers] shall be upon such terms as appear to be
to the best interests of the creditors affected by the
receivership.”). Furthermore, unlike the private sale in Budd
Tire, defendants here could have protected their interests by
bidding on VVGR USA’s assets. The Budd Tire exceptions were put
in place to prevent fraudulent transfers in private sales. Id.
at 689, 370 S.E.2d at 270. The need to protect creditors from
fraud through application of these exceptions is minimized
where, as here, statutory safeguards were already in place to
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ensure dissolution without fraud and the creditors could have
protected their own interests by participating in the public
sale.
For these reasons, we decline to extend the exceptions to
the general successor liability rule to the new context of
court-ordered and supervised public sales of company assets.
Defendants’ contention that there existed a genuine issue of
material fact as to whether the exceptions apply is overruled.
III. Conclusion
Because the trial court unambiguously ordered VVGR USA’s
assets to be sold at the receivership sale free of all
liabilities, and the general successor liability rule applies,
there is no genuine issue of material fact and defendants’
counterclaims against plaintiff based on alleged contracts with
VVGR USA are barred as a matter of law. Furthermore, we hold
that the Budd Tire exceptions to the general successor liability
rule put in place to prevent fraudulent transfers in private
sales of company assets are inapplicable here. As such, we
affirm the trial court’s order.
AFFIRMED.
Judges MCGEE and ELMORE concur.