Williams v. Hammer,
2015 NCBC 78.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 15 CVS 3199
RONALD DUANE WILLIAMS and )
WILLIAMS GENERAL CONTRACTORS, )
LLC, )
Plaintiffs, )
) OPINION AND ORDER
v. )
)
KIMBERLY HAMMER and BITTERSWEET )
COFFEE, INC., )
Defendants. )
THIS CAUSE, designated a mandatory 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)
(hereinafter, references to the North Carolina General Statutes will be to “G.S.”), and
assigned to the undersigned Special Superior Court Judge for Complex Business Cases,
comes before the Court upon Defendants’ Motion to Dismiss (“Motion to Dismiss”) pursuant
to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure (“Rule(s)”); and
THE COURT, after reviewing the Motion to Dismiss, briefs in support of and in
opposition to the Motion to Dismiss, and other appropriate matters of record, CONCLUDES
as follows.
Williams Mullen, by Gilbert C. Laite III, Esq. and Edward James Coyne III, Esq. for
Plaintiffs Ronald Duane Williams and Williams General Contractors, LLC.
Hiller Law PLLC, by Joshua M. Hiller, Esq. for Defendants Kimberly Hammer and
Bittersweet Coffee, Inc.
McGuire, Judge.
PROCEDURAL HISTORY
1. On March 13, 2015, Plaintiffs Ronald Williams (“Williams”) and Williams
General Contractors, LLC (“WGC”) (collectively, “Plaintiffs”) filed a Complaint against
Defendants Kimberly Hammer (“Hammer”) and Bittersweet Coffee, Inc. (“Bittersweet, Inc.”)
(collectively, “Defendants”). Plaintiffs’ action was designated No. 15 CVS 3199 by the Clerk
of Superior Court of Wake County. The Complaint seeks a declaratory judgment regarding
the legal relationship between the parties.
2. On May 5, 2015, Defendants filed the Motion to Dismiss, seeking dismissal of
the Complaint pursuant to Rule 12(b)(6).
3. The Motion to Dismiss has been fully briefed and is ripe for determination.
FACTUAL BACKGROUND
Among other things, the Complaint alleges that:
4. Plaintiff Williams is the principal for Plaintiff WGC, a limited liability
company organized pursuant to the laws of the State of North Carolina and licensed as a
general contractor. Williams has a background in general contracting.1
5. Defendant Hammer is the sole shareholder and principal of Defendant
Bittersweet, Inc. Bittersweet, Inc. is a North Carolina corporation. Hammer has a
background in food service.2
6. Beginning in early 2013, Williams and Hammer discussed opening a café in
downtown Raleigh.3 As part of these discussions, between May and June 2013, Williams and
Hammer entered into a “Memorandum of Understanding” (“MOU”), an “Agreement,” and a
“Distribution Percentage Agreement.” (“Distribution Agreement”).4 On September 2, 2014,
Williams and Hammer executed several handwritten documents.5
1
Compl. ¶ 1, 2.
2
Id. ¶¶ 2, 3, 12g.
3
Id. ¶ 5.
4
Id. ¶ 6.
5
Though these documents are all referenced in the Complaint, none are attached to the Complaint. However, the MOU
and Distribution Agreement are attached to the Defendants’ Memorandum of Law in Support of Motion to Dismiss,
and at least some of the handwritten notes are attached to the Plaintiffs’ response brief. Because they have been
incorporated by reference into the Complaint, the Court may properly consider these documents in reviewing the
Motion to Dismiss. See Oberlin Capital, L.P. v. Slavin, 147 N.C. App. 52, 60-61 (2001).
7. These documents apparently were intended to formalize an agreement
between the parties regarding the creation and operation of the contemplated café in leased
premises (“Premises”) in downtown Raleigh. In pertinent part, the MOU provides that:
Hammer would be the “100% owner of Bittersweet and Williams or WGC [would] not
be an owner of Bittersweet;”6
Bittersweet would enter into a lease with a third-party landlord for the Premises and
would be responsible for that lease;
Plaintiffs and Defendants would enter into a contract to provide for the upfit of the
leased space, in exchange for which Plaintiffs would receive a contractor’s fee of
$35,000;
Plaintiffs and Hammer were to each to contribute capital in specified amounts to
finance the startup expenses of the café;
Hammer would be “solely responsible for decisions and actions related to personnel
and HR issues” and management and operational decisions of Bittersweet, but would
“work in good faith to consult with Williams regarding any expenditures outside of
the ordinary course of business in excess of $1,500;”7 and,
“Except for the limited right provided herein, Williams/WGC [would] not have any
rights with respect to the management, expenditures or business operations of
Bittersweet.”
8. The MOU also has a section entitled “Sharing of Profits,” in which the parties
identify an “Initial Distribution Period” during which the parties would receive pro-rata
payments based upon their outstanding contributions to startup expenses. Upon complete
repayment of startup expenses, Plaintiffs’ share would increase, and Defendants’ share
would decrease, on an incremental basis until Defendants would no longer be entitled to any
of the profits. The MOU does not discuss any sharing between Plaintiffs and Defendants of
any potential loss incurred by Bittersweet Café, though the Complaint alleges that “Hammer
6
MOU at 1.
7
Id. at 3.
and Williams bear[] the same risk of loss—i.e. their respective contributions to the ‘Operating
Capital and Startup Expenses.’”8
9. On May 8, 2014, Williams and Hammer entered into the “Distribution
Agreement.” The Agreement provided that it was “to memorialize the Distribution
Percentage between Hammer and Williams/WGC for Startup Expenses, Capital
Contributions and Profit Sharing as outlined in the [MOU].”9 The Agreement provided that
as of that date Williams had contributed capital of $428,840.00, and Williams had contributed
$66,165.00, resulting in Williams’ Distribution Percentage being 86%, and Hammer’s 14%.
10. While no final agreement was ever reached between the parties, none of the
aforementioned documents contain a merger clause, and the MOU states that:
This Memorandum of Understanding shall be conditioned in its entirety by
and subject to a written agreement between the parties relating to the subject
matter hereof if such agreement is executed. In the event that no such
agreement is executed prior to Bittersweet’s execution of the Lease, the
executed Memorandum of Understanding shall become legally binding on the
parties hereto upon Bittersweet’s execution of the lease and shall continue for
so long as Bittersweet is a lessor of the Premises . . . .10
11. In furtherance of the agreements contemplated and executed by the parties,
during 2013 and 2014, Hammer incorporated Bittersweet, Inc., executed a lease on behalf of
Bittersweet, Inc., and stocked and staffed the business to be located in the Premises.
Plaintiffs undertook the “build out” of the Premises. Both parties contributed money to these
endeavors. In July 2014, Bittersweet Café opened in the Premises.
12. The Complaint alleges that communication has “broken down” between
Plaintiffs and Defendants since shortly after the opening of Bittersweet Café, but does not
8
Compl. ¶ 12(j).
9
Distribution Percentage Agreement 1.
10 MOU at 7 (emphasis added).
allege that Defendants have failed or refused to perform any obligation imposed upon them
by the MOU, Distribution Agreement, or any other agreement between the parties.11
13. Plaintiffs allege that “Williams has asserted that he believes that the
relationship between at least certain [parties] is in the nature of a partnership or joint
venture” and that Hammer disagrees with this assertion.12 Plaintiffs also allege that
“Williams has asserted that he believes that the Parties agreed to certain minimum
distributions or payments to Williams,” but that Hammer also disagrees with this assertion.13
Finally, the Complaint alleges that “[r]egardless of the nature of the relationship between
the parties, there is an actual case and controversy regarding the rights and remedies
existing between the Parties.”14 The Complaint does not allege what Hammer believes to be
the legal relationship between the parties.
14. The Complaint alleges a single cause of action for “Declaratory Judgment,” and
specifically requests that the Court issue a declaration “that [ ] Williams and/or WGC and [ ]
Hammer and/or Bittersweet Coffee, Inc. entered into a partnership (or joint venture)
relationship,” and that the Court define the rights and responsibilities of each party.15
Alternatively, Plaintiff requests that the Court “otherwise declare the nature and terms of
the relationship among and between” the parties and define the rights and responsibilities
of each party.16
Analysis
15. Defendants seek dismissal of Plaintiffs’ claims on the grounds that (a) the
allegations in the Complaint and underlying documents do not support the existence of a
11 Compl. ¶ 11.
12
Id. ¶¶ 14-15.
13
Id. ¶¶ 16-17.
14 Id. ¶ 19.
15 Id., Prayer for Relief ¶ 1.
16
Id., Prayer for Relief ¶ 2.
partnership or a joint venture between the parties, and (b) Plaintiffs’ alternative prayer for
declaratory relief is no more than an impermissible request for an advisory opinion.
16. The Court, in deciding a Rule 12(b)(6) motion, treats the well-pleaded
allegations of the complaint as true and admitted. Sutton v. Duke, 277 N.C. 94, 98 (1970).
However, conclusions of law or unwarranted deductions of fact are not deemed admitted.
Id.
The facts and permissible inferences set forth in the complaint are to be treated in a light
most favorable to the nonmoving party. Ford v. Peaches Entm't Corp.,
83 N.C. App. 155, 156
(1986). The Court should grant a Rule 12(b)(6) motion when the complaint, on its face, reveals
(a) that no law supports the plaintiff's claim, (b) the absence of facts sufficient to form a viable
claim, or (c) some fact which necessarily defeats the plaintiff's claim. Jackson v. Bumgardner,
318 N.C. 172, 175 (1986).
17. Under North Carolina law, a declaratory judgment is a statutory remedy that
grants a court the authority to “declare rights, status, and other legal relations” when an
“actual controversy” exists between parties to a lawsuit. G.S. § 1-253; Pine Knoll Shores v.
Carolina Water Serv., Inc., 128 N.C. App. 321, 321 (1998). The Court may, by declaratory
judgment, “determine[] questions of construction or validity” and declare “rights, status, and
other legal relations” under a “written contract.” G.S. § 1-254. The presence of a real or
existing controversy between adverse parties, however, is an essential requirement of any
declaratory judgment action. “The Uniform Declaratory Judgment Act does not license
litigants to fish in judicial ponds for legal advice, [or] undertake to convert judicial tribunals
into counsellors [sic] and impose upon them the duty of giving advisory opinions to any
parties who may come into court and ask for either academic enlightenment or practical
guidance concerning their legal affairs.” Calabria v. N.C. State Bd. of Elections,
198 N.C.
App. 550, 553-54 (2009) (quoting Lide v. Mears,
231 N.C. 111, 117-18 (1949) (alterations in
original)).
18. When the record reveals the lack of a basis for declaratory relief, a Rule 12(b)(6)
motion may be granted against a declaratory judgment claim. Kirkman v. Kirkman, 42 N.C.
App. 173, 176 (1979). In essence, a declaratory judgment claim is subject to dismissal where
the relevant pleadings do not contain allegations upon which the sought declaratory relief
may be granted.
Partnership
19. Plaintiffs first ask this Court to declare that a partnership relationship existed
between the parties. The Complaint does not allege, nor do the MOU and Distribution
Percentage Agreement support a contention that, Plaintiffs and Defendants explicitly
contracted to form a “partnership.” Neither the word “partners” nor “partnership” appear
anywhere in the agreements that have been provided to the Court. Nonetheless, a de facto
partnership may be found in the absence of a written agreement, “based upon a rational
consideration of the acts and declarations of the parties, warranting the inference that the
parties understood that they were partners and acted as such.” Potter v. Homestead
Preservation Ass’n, 330 N.C. 569, 576-77 (1992) (citations omitted); see also Best Cartage,
Inc. v. Stonewall Packaging, LLC,
219 N.C. App. 429, 438 (2012).
20. The North Carolina Uniform Partnership Act, codified at Chapter 59 of our
General Statutes, provides the basis for the “legal concept” of partnership. The Act defines a
partnership as “an association of two or more persons to carry on as co-owners a business for
profit.” G.S. § 59-36(1). Our Supreme Court has elaborated:
To make a partnership, two or more persons should combine their property,
effects, labor, or skill in a common business or venture, and under an
agreement to share the profits and losses in equal or specified proportions, and
constituting each member an agent of the others in matters appertaining to
the partnership and within the scope of its business.
Johnson v. Gill, 235 N.C. 40, 44-45 (1952) (internal quotations and citations omitted). While
North Carolina courts have considered a variety of factors in evaluating whether a
partnership exists, “co-ownership and sharing of any actual profits are indispensable
requisites for a partnership.” Best Cartage, Inc.,
219 N.C. App. at 438 (quoting Wilder v.
Hobson,
101 N.C. App. 199, 202 (1990)) (emphasis added). Failure to properly allege facts
supporting the existence of one or both of these elements is fatal to a claim for declaratory
judgment of a partnership.
21. The first requirement is “sharing of any actual profits.” Wilder, 101 N.C. App.
at 202 (citing Sturm v. Goss,
90 N.C. App. 326 (1988)). Defendants do not argue that the
agreements between the parties did not provide for a sharing of profits, and the Court
concludes that the agreements at issue in this case clearly provided that profits would be
shared between Plaintiffs and Defendants.17 Plaintiffs have adequately alleged a sharing of
profits to support the existence of a partnership.
22. The allegations and documents also reveal certain other indicia of a
partnership between the parties: both parties contributed capital to the arrangement, and
each brought their skills, experience and labor to the opening and operation of the café.
23. Plaintiff has not alleged, however, the second “indispensable requisite” of a
partnership: “co-ownership of the business.” G.S. § 59-36(1); see McGurk v. Moore, 234 N.C.
248 (1951) (citations omitted) (finding that an arrangement in which one purported partner
operated the business, the other provided capital for the business, and the parties would
divide net profits equally once all capital was repaid, did not constitute co-ownership of the
business). The Complaint does not allege that the Plaintiffs and Defendants co-owned any
17
Defendants, however, make a compelling argument that a partnership requires the sharing of both profits and losses,
and that Plaintiffs failed to adequately allege a sharing of losses. Defendants contend that North Carolina cases
suggesting that only profits must be shared are premised on a misreading by the North Carolina Court of Appeals of
the holding in Johnson v. Gill,
235 N.C. at 44-45, in Zickgraf Hardwood Co. v. Seay,
60 N.C. App. 128, 133 (1982).
In Zickgraf, the Court cited Johnson for the proposition that existence of a partnership required “agreement to share
profits or losses.”
Id. Defendants contend that the Supreme Court’s holding in Johnson that a partnership requires a
sharing of profits and losses has been misconstrued based on the misreading in Zickgraf. Defs.’ Br. Supp. Mot.
Dismiss 7-8. Because the Court concludes that Plaintiffs’ allegations are insufficient to support the existence of a
partnership for other reasons, it need not address Defendants’ argument.
interest in a business or any other property, and the MOU expressly states that Hammer is
the sole owner of Bittersweet, and that Williams and WGC have no ownership interest. The
MOU also makes clear that Plaintiffs have no ownership interest in Hammer’s other, existing
businesses. The Distribution Agreement and other documents provided to the Court do not
contain any reference to a co-ownership interest between Plaintiffs and Defendants.
24. In their brief, Plaintiffs contend that even if they have no ownership in
Bittersweet, the MOU, Distribution Agreement, and other agreements might somehow be
interpreted as creating a partnership in some other type of business. Specifically, they
suggest that “it appears at least possible at this stage that the ‘business’ really contemplated
by and between the parties was the development and operation of the real estate that is the
Premises.”18 Plaintiff does not, however, explain how such an interpretation of the parties’
arrangement would meet the requirement of pleading co-ownership. The Court concludes
that the Complaint and incorporated documents do not allege that Plaintiffs and Defendants
had a co-ownership interest in a business that would support a finding that they were in a
partnership.
Joint Venture
25. If not a partnership, Plaintiffs seek a declaration from the Court that the
relationship between the parties constituted a joint venture. The North Carolina Supreme
Court has held that:
A joint venture is an association of persons with intent, by way of contract,
express or implied, to engage in and carry out a single business adventure for
joint profit, for which purpose they combine their efforts, property, money,
skill, and knowledge, but without creating a partnership in the legal or
technical sense of the term.
. .
Facts showing the joining of funds, property, or labor, in a common purpose to
attain a result for the benefit of the parties in which each has a right in some
18
Pls.’ Br. Opp. Mot. Dismiss 11.
measure to direct the conduct of the other through a necessary fiduciary
relation, will justify a finding that a joint adventure exists.
Pike v. Wachovia Bank & Trust Co., 274 N.C. 1, 8-9 (1968) (citation omitted).
26. “[T]he essential elements of a joint venture are (1) an agreement to engage in
a single business venture with the joint sharing of profits, (2) with each party to the joint
venture having a right in some measure to direct the conduct of the other ‘through a
necessary fiduciary relationship.’” Se. Shelter Corp. v. BTU, Inc., 154 N.C. App. 321, 327
(2002) (emphasis in original) (citations omitted). In other words, “each joint venturer [must]
stand in the relation of principal, as well as agent, as to each of the other coventurers . . . .”
Cheape v. Chapel Hill,
320 N.C. 549, 562 (1987) (citation omitted).
27. As stated above, while Plaintiffs may have successfully alleged an
arrangement in which profits are to be shared, the allegations establish that neither party
had the right to “to direct the conduct of the other.” There are no allegations that Williams
had the authority to make any decisions on behalf of the alleged joint venture, or that
Hammer was bound in any way by Williams’ input regarding Bittersweet’s business. The
MOU provides Hammer with virtually exclusive control over the daily operations of
Bittersweet Café, and requires only that she “work in good faith to consult with Williams”
regarding ordinary course of business purchases exceeding $1,500. The MOU goes on to state
that “[e]xcept for the limited right provided herein, Williams/WGC shall not have any rights
with respect to the management, expenditures or business operations of Bittersweet.”19
28. The allegations also do not support the notion that Williams and Hammer
stood in an agency relationship with one another. An agent is “one who acts for or in the
place of another by authority from him.” Cheape, 320 N.C. at 562 (citation omitted). The
Complaint does not allege, and the agreements do not provide, that Williams was authorized
19
MOU at 3.
to act on behalf of Hammer, or vice-versa. To the contrary, the MOU makes it clear that
Defendants are solely responsible for the lease of the Premises, and that Plaintiffs are not
bound in any way by that lease. Williams, on the other hand, had exclusive control over the
build out of the Premises. In other words, the agreements fail to place Williams and Hammer
(or Plaintiffs and Defendants) “in the relation of principal, as well as agent, as to each
[other].” Id.
29. The Complaint does not allege facts upon which the Court could grant
Plaintiffs the requested relief of a declaration that the agreements between the Plaintiffs and
Defendants created a partnership or a joint venture. Accordingly, the Motion to Dismiss is
GRANTED as to these requested declarations.
30. Although not explicitly set out in the relief requested in the Complaint,
Plaintiff alleges that there is a dispute between the parties as to whether Plaintiffs are still
owed certain minimum payments by Defendants under the agreements between the parties.
Defendants have not expressly moved for dismissal of, nor made argument regarding, this
alleged controversy. As discussed supra, in reviewing a Rule 12(b)(6) motion to dismiss, the
allegations should be reviewed in favor of the non-moving party. Ford, 83 N.C. App. at 156.
Accordingly, to the extent Plaintiff seeks a declaration regarding whether they are owed
certain minimum payments under the agreements, Defendants motion to dismiss this claim
should be DENIED.
Rights/Status of the Parties
31. In the alternative, Plaintiffs ask the Court to “declare the nature and terms of
the relationship among and between [Plaintiffs and Defendants]” including “[t]he parties to
that relationship,” “[t]he rights, duties, and remedies” and “[t]he other rights and obligations”
arising from that relationship.20 Defendants argue that this amounts to a request for a
“purely advisory opinion which the parties might, so to speak, put on ice to be used if and
when occasion might arise.” Gaston Bd. of Realtors, Inc. v. Harrison, 311 N.C. 230, 234
(1984).
32. In their brief, Plaintiffs suggest that the Complaint raises the following
“actual, genuine, consequential questions” for which they seek declarations:
If the relationship between the parties is one of debtor/creditor, who is the
creditor(s) and who is the debtor(s)?
If the relationship between the parties is one of debtor/creditor, what recourse
does the creditor(s) have in the event the debtor(s) defaults?
What is the effect of the September 2 Writings? Do they require a monthly
payment to Williams sufficient to reply the “operating capital” before the end
of the lease of the Premises? If not, what do they mean (or is it possible, as
Defendants appear to contend, that although Hammer and Williams chose to
execute a number of writings on September 2, 2014, those writings have no
meaning at all)?
Do the Defendants have a right to allocate revenue of Bittersweet Inc. to pay
for their own legal fees and thereby reduce the “profit” available to be paid to
Plaintiffs? What other, if any, limitations are there on Hammer’s ability to
manipulate profits via her control, in large part, of the costs of Bittersweet
Inc.?
Does the later-entered Percentage Agreement, which states “[a]s outlined in
the Memorandum of Understanding, the Startup Expenses will be repaid in
full to each party before there is any distribution of Profits,” (Defs.’ Memo Ex.
B at pg.1), control over the MOU, which seems to contemplate that any
payments of profit to Williams will cease on December 10, 2022, regardless of
whether he has been paid back his portion of the Startup Expenses (Defs.’
Memo Ex. A at pgs. 3–5, Section entitled “Sharing of Profits”)? That is, given
this apparent contradiction in the documents, does Williams have a right to be
repaid in full before Hammer is ever paid more than 14% of the profits of
Bittersweet Inc.?
20
Compl., Prayer for Relief ¶ 2.
What is the basis of the parties [sic] relationship if Bittersweet Inc. abandons
the Premises, in light of the MOU purporting to be binding only so long as
Bittersweet Inc. is a “lessor” of the Premises?21
33. First and foremost, none of these questions are raised in the Complaint.
Plaintiffs’ request that the Court declare the nature of the relationship and the rights, duties
and remedies of the parties under the written documents does not require the Court to parse
through the various alleged agreements and determine how every controversy that may arise
between Plaintiffs and Defendants would be resolved. In addition, the Complaint does not
allege that Plaintiffs and Defendants hold conflicting positions on the answers to these
questions. “[W]hen a litigant seeks relief under the declaratory judgment statute, he must
set forth in his pleading all facts necessary to disclose the existence of an actual controversy
between the parties to the action with regard to their respective rights and duties in the
premises.” Lide, 231 N.C. at 118; accord N.C. Consumers Power, Inc. v. Duke Power Co.,
285
N.C. 434, 449 (1974) (“A mere difference of opinion between the parties as to [the plaintiff’s
rights] -- without any practical bearing on any contemplated action -- does not constitute a
controversy.” The plaintiff must “allege in his complaint . . . , that a real controversy, arising
out of their opposing contentions as to their respective legal rights and liabilities . . . , exists
between or among the parties.” (citation omitted)).
34. Plaintiffs have not alleged “all facts necessary to disclose” that a controversy
exists between the parties’ rights and obligations under the agreements. Instead, they
effectively ask the Court to define all of the rights and obligations of the parties to guide them
in administering the agreements. The Court declines to issue such an advisory declaration.
While there may be genuine disputes between Plaintiffs and Defendants as to what various
provisions of the agreements require them to do, those disputes must be more clearly pleaded.
21
Pls.’ Br. Opp. Mot. Dismiss 9-10.
Accordingly, Defendants’ motion to dismiss Plaintiffs’ alternative request that the Court
“declare the nature and terms of the relationship among and between [Plaintiffs and
Defendants]” including “[t]he parties to the relationship,” “[t]he rights, duties, and remedies,”
and [t]he other rights and obligations” should be GRANTED without prejudice.
THEREFORE, IT IS ORDERED that:
35. The Motion to Dismiss is GRANTED, in part, insofar as the Complaint seeks
a finding that the parties entered into a partnership or joint venture.
36. The Motion to Dismiss is GRANTED, in part, and the Complaint is
DISMISSED WITHOUT PREJUDICE, insofar as the Complaint requests that the Court
“declare the nature and terms of the relationship among and between [Plaintiffs and
Defendants]” including “[t]he parties to the relationship,” “[t]he rights, duties, and remedies,”
and [t]he other rights and obligations.”
37. The Motion to Dismiss is DENIED insofar as the Complaint requests a
declaration that Plaintiffs are still owed certain minimum payments by Defendants under
the agreements between the parties.
This the 12th day of August, 2015.
/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge
for Complex Business Cases
