Sutton v. Sutton,
2011 NCBC 43.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF ONSLOW 10 CVS 3961
JANE N. SUTTON, Shareholder of Sutton’s )
Tree Service, Inc., )
Plaintiff ) OPINION AND
) ORDER ON MOTION
v. ) TO DISMISS AND
) MOTION FOR COSTS
CARL L. SUTTON, JR., )
Defendant )
THIS CAUSE, designated a complex business case by Order of the Chief Justice
of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b)
(hereafter, all references to the General Statutes will be to "G.S."), and assigned to the
undersigned Chief Special Superior Court Judge for Complex Business Cases, now
comes before the court upon Defendant's Motion to Dismiss and Motion for Judgment
on the Pleadings (the "Motion"), pursuant to Rule 12 of the North Carolina Rules of Civil
Procedure ("Rule(s)") and Defendant's Motion for Costs ("Motion for Costs") pursuant to
G.S. 55-7-46 (both the Motion and the Motion for Costs may be referred to collectively
as the "Motions"); and
THE COURT, after considering the Motions and the arguments in support of and
in opposition to the Motions, CONCLUDES that the Motions should be GRANTED, as
reflected herein.
Collins & Maready, P.A., by George L. Collins, Esq. for Plaintiff.
Ward & Smith, P.A., by Alexander C. Dale, Esq. and Allen N. Trask, III, Esq. for
Defendant.
Jolly, Judge.
PROCEDURAL BACKGROUND
[1] On October 14, 2010, Plaintiff Jane N. Sutton filed suit against Defendant
Carl L. Sutton, Jr. Plaintiff derivatively alleges damages for conversion, breach of
fiduciary duties and improper filing of income tax returns on behalf of Sutton's Tree
Service, Inc. (the "Corporation"), of which the Complaint alleges she was a shareholder.
[2] On January 14, 2011, Defendant filed the Motion and a brief in support of
the Motion. The Motion seeks dismissal of the Plaintiff's action pursuant to Rules
12(b)(1), 12(b)(6), 12(b)(7) and 12(c), on the grounds that Plaintiff lacks standing, has
improperly brought a derivative action by failing to satisfy statutory demand
requirements and her claims are barred by res judicata and collateral estoppel.
[3] On June 8, 2011, Defendant filed the Motion for Costs and brief in support
of the Motion for Costs, pursuant to G.S. 55-7-46.
[4] The Motions are ripe for determination.
FACTUAL BACKGROUND
In substance, the Complaint alleges:
[5] The Corporation was founded by Defendant, with Defendant being the
sole shareholder, on June 27, 1989. 1
[6] Plaintiff and Defendant were married on August 5, 1991, and separated on
January 3, 2007. 2
[7] On March 1, 1992, Plaintiff acquired 500 shares of stock in the
Corporation. 3
1
Compl. ¶ 4.
2
Def. Mem. Supp. Mot. Dismiss Mot. J. Pleadings ("Memo") 2.
[8] As part of the settlement of a domestic matter between the Plaintiff and
Defendant, the parties entered into a Consent Judgment (the "Consent Judgment")
whereby Plaintiff was to surrender to Defendant any interest she had in the
Corporation. 4
DISCUSSION
Motion to Dismiss – Rule 12(b)(1)
Standing
[9] A motion pursuant to Rule 12(b)(1) seeks dismissal of an action on the
basis of a lack of subject matter jurisdiction. Subject matter jurisdiction, which enables
a court to hear a case, is a prerequisite for a court to exercise judicial authority over a
case and controversy. Harris v. Pembaur, 84 N.C. App. 666, 667 (1987).
[10] A court lacks subject matter jurisdiction if the party before the court does
not have standing to pursue the cause of action. Estate of Apple v. Commercial Courier
Express, Inc., 168 N.C. App. 175, 177 (2005). In order to have standing to commence
and maintain a derivative action on behalf of a corporate entity, an individual must meet
the requirements of G.S. 55-7-41, which provides that a shareholder must own shares
of the entity at the time of injury and "fairly and adequately represent[] the interests of
the corporation in enforcing the right of the corporation." Further, G.S. 55-7-42 requires
that before a shareholder can commence a derivative action, the shareholder must wait
ninety (90) days after the making of a written demand upon the corporation to take
action.
3
Compl. ¶ 5.
4
Memo 2-3.
[11] A dispute regarding ownership of the Corporation as between Plaintiff and
Defendant previously was litigated in a domestic proceeding entitled Sutton v. Sutton,
Onslow County No. 07 CVD 1225 (N.C. Dist. Ct.). In that matter, the parties entered
into the Consent Judgment, under which Plaintiff surrendered to Defendant any and all
interest she had in the Corporation. 5
[12] The doctrines of res judicata and collateral estoppel serve to prevent
issues from being relitigated and to maintain consistency in the courts. State, ex rel.
Tucker v. Frinzi, 344 N.C. 411, 414 (1996). If an issue previously has been decided by
a final judgment, the parties to that judgment are prevented from litigating the issue in
another proceeding.
Id. In the instant action, res judicata and collateral estoppel
prevent the parties from relitigating in this civil action issues regarding ownership of the
Corporation.
[13] The Consent Judgment constitutes a valid, final judgment determining the
respective rights of Plaintiff and Defendant regarding ownership of the Corporation.
Accordingly, at the time of filing of this civil action, Plaintiff was not, and currently is not,
a shareholder of the Corporation. Since Plaintiff is not a shareholder, Plaintiff cannot
represent the shareholders of the Corporation, and she fails to meet the requirements to
bring the derivative actions alleged in this civil action. Consequently, Plaintiff has no
standing to bring this civil action. The court therefore has no subject matter jurisdiction
to hear this civil action. Defendant's Motion pursuant to Rule 12(b)(1) should be
GRANTED, and this action should be DISMISSED.
[14] The court's determination that subject matter jurisdiction over this civil
action does not exist is dispositive of this action. Accordingly, it is neither necessary nor
5
Id.
proper for the court to consider Defendant's other contended Rule 12 grounds
supporting his Motion.
Motion for Costs
[15] In his Motion for Costs, Defendant seeks the taxing against Plaintiff of
reasonable costs incurred in this matter, including attorneys' fees and expenses. Such
an award is statutorily authorized by G.S. 55-7-46(2) upon a determination that a
plaintiff filed a derivative action without reasonable cause or for an improper purpose;
and by G.S. 55-7-46(3) upon a determination that a pleading filed in a derivative action
was not well-grounded in fact, not warranted by existing law or a good faith argument
for extending, modifying, or reversing existing law, 6 and that it was filed for an improper
purpose. The award of such expenses and attorneys' fees is within the court's
discretion. Aubin v. Susi, 149 N.C. App. 320, 326 (2002).
[16] Defendant's counsel filed an Affidavit of Attorneys' Fees and Expenses on
June 8, 2011 (the "Fee Affidavit"), which reflects that Defendant has incurred fees for
legal services, plus expenses, in the amount of $22,751.08. Plaintiff did not file a
response to Defendant's Motion for Costs. Pursuant to BCR 15.11, the Motion for Costs
will be considered and decided as an uncontested motion.
[17] Defendant contends reasonable costs and attorneys' fees and expenses
are justified because Plaintiff's Complaint lacks reasonable cause and was filed for an
improper purpose – a "personal vendetta against her ex-husband." 7
[18] Plaintiff's Complaint, on its face, is seriously deficient and subject to
dismissal on several grounds. As a threshold matter, and as determined above, Plaintiff
6
Def. Mem. Supp. Mot. Costs 2-5.
7
Id. 10.
clearly lacked standing to file this civil action. Therefore, the court FINDS and
CONCLUDES that Plaintiff commenced and maintained this action without reasonable
cause. 8 Therefore, the court further CONCLUDES, in the exercise of its discretion, that
Defendant is entitled to an award of reasonable costs, including attorneys' fees and
expenses, incurred in defense of this matter, pursuant to the provisions of G.S. 55-7-
46(2). Defendant's Motion for Costs should be GRANTED.
[19] The court has examined the Fee Affidavit propounded by Defendant. It
FINDS that the fees and expenses reflected in the Fee Affidavit are fair, reasonable and
based upon usual and ordinarily prevailing rates for attorneys and staff of similar
experience and expertise; and that said fees and expenses were necessarily incurred
by Defendant in the defense of this action.
[20] Accordingly, the court CONCLUDES, in the further exercise of its
discretion, that in addition to taxable costs, Defendant is entitled to recover from Plaintiff
in the additional amount of $22,751.08 for attorneys' fees and expenses incurred in
defense of this matter.
NOW THEREFORE, based upon the foregoing FINDINGS and CONCLUSIONS,
it is ORDERED that:
[21] Defendant Carl Sutton's Motion to Dismiss pursuant to Rule 12(b)(1) is
GRANTED, and this civil action is DISMISSED.
8
Plaintiff has not contested Defendant's allegation that this action was commenced as a personal
vendetta by Plaintiff against her ex-husband, which would amount to an "improper purpose" under G.S.
55-4-46(2). However, in view of the court's finding in paragraph 18 above, a finding of improper purpose
is not necessary to an award of costs and attorneys fees. Accordingly, the court makes no findings with
regard to this contention.
[22] Defendant Carl Sutton's Motion for Costs is GRANTED, and the taxable
costs of this civil action, plus attorneys' fees and expenses incurred by Defendant in
defense of this matter in the amount of $22,751.08, shall be TAXED to Plaintiff.
SO ORDERED, this the 28th day of November, 2011.
