Richardson v. Kellar,
2016 NCBC 60.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF GASTON 16 CVS 1126
DR. CHARLES RICHARDSON and )
TRANSWORLD MED, LLC, )
Plaintiffs, )
)
v. ) ORDER ON MOTION FOR
) PRELIMINARY INJUNCTION
FRANZ KELLAR, RED RAVEN, LLC, and )
TRANSWORLD MEDICAL DEVICES, LLC, )
Defendants. )
THIS MATTER comes before the Court on Plaintiffs Dr. Charles Richardson
("Richardson") and TransWorld Med, LLC's ("TW Med") Motion for Preliminary Injunction
(the "Motion"). On July 20, 2016, the Court held a hearing on the Motion.
THE COURT, having considered the Motion, briefs in support of and opposition to the
Motion, the record evidence filed by the parties, and other appropriate matters of record,
FINDS and CONCLUDES as follows.
FACTUAL AND PROCEDURAL BACKGROUND
1. Plaintiff Richardson is a medical doctor involved in scientific education and the
development of medical devices and biotechnology products.1
2. Plaintiff TW Med is a North Carolina limited liability company whose sole
member is Richardson (TW Med and Richardson, collectively, will be referred to as
"Plaintiffs"). TW Med has a 50% ownership interest in Defendant TransWorld Medical
Devices, LLC ("TW Devices").2
1 Compl. ¶ 1.
2 Id. at ¶¶ 2, 7.
3. Defendant Franz Kellar ("Kellar") is a citizen and resident of Gaston County,
North Carolina, also involved in the development of medical devices and biotechnology
products.3
4. Defendant Red Raven, LLC, ("Red Raven") is a North Carolina limited liability
company whose sole member is Kellar (Red Raven and Kellar, collectively, will be referred
to as "Defendants"). Red Raven also has a 50% ownership interest in TW Devices.4
5. In July 2007, Richardson and Kellar formed TW Devices through their
respective entities as a North Carolina limited liability company. Plaintiffs allege TW
Devices "was formed to manufacture and sell blood pumps for the heart called the Total
Artificial Heart (TAH), Left Ventricle Assistance Device (LVAD), and Right Ventricle
Assistance Device (RVAD)."5 As noted, Richardson owns 50% of TW Devices through TW
Med, and Kellar owns the remaining 50% though Red Raven.6
6. Richardson and Kellar entered into the Operating Agreement for TW Devices
effective September 30, 2007 (the "Operating Agreement"). 7 The Operating Agreement
provided for a two member board of managers ("Board").8 Section 4.1(b), in turn, provides
that:
The members of the Board (each a "Manager") shall constitute the Company's
managers for all purposes under the Act and other applicable law; provided;
however, that notwithstanding the foregoing, without being authorized by the
Board, no individual Manager shall (i) have authority to bind the Company or
(ii) otherwise be entitled to sign for or take any action on behalf of the
company.9
3 Id. at ¶ 3.
4 Id. at ¶¶ 4, 8. At the July 20, 2016, hearing, all parties agreed that named Defendant TransWorld
Medical Devices, LLC, would serve only as a nominal defendant and thus need not be represented by
counsel in this matter. Therefore, the assertions attributed to "Defendants" include only those made
by counsel for Kellar and Red Raven.
5 Compl. ¶ 9.
6 Id. at ¶¶ 7, 8.
7 Id., Exh. A.
8 TW Devices Operating Agreement §4.2.
9 Id. at § 4.1(b).
Pursuant to the Operating Agreement, TW Medical appointed Richardson as a member of
the TW Devices Board, and Red Raven appointed Kellar.10 The Operating Agreement further
established that Richardson would serve as Chairman of the Board.11
7. The Operating Agreement vested the Board with broad authority to manage
TW Devices as follows:
Except as otherwise expressly provided in this Agreement (including without
limitation Section 4.8) or the Act, the board of managers (the "Board") shall
have full, exclusive and complete discretion to manage and control the business
and affairs of the Company, to make all decisions affecting the business and
affairs of the Company and to take all such actions as they deem necessary or
appropriate to accomplish the purposes and direct the affairs of the Company.
In managing the business and affairs of the Company and exercising its powers
granted hereunder, the Board must act either through a meeting pursuant to
Section 4.7(a) or through a written consent in lieu thereof pursuant to Section
4.7(c).12
8. The Operating Agreement also established Kellar as the President and Chief
Executive Officer of TW Devices.13 The Operating Agreement did not enumerate the rights
and duties of officers, but provided in relevant part:
Any officer . . . shall have only such authority and perform such duties as the
Board may, from time to time, expressly delegate to them . . . . Unless the
Board otherwise determines, if the title assigned to an officer of the Company
is one commonly used for officers of a business corporation formed under the
North Carolina Business Corporation Act, then the assignment of such title
shall constitute the delegation to such officer of the authority and duties that
are customarily associated with such office, including the authority and duties
that a President may assign to such other officers of the Company under the
North Carolina Business Corporation Act . . . .14
The Operating Agreement expressly limited an officer's authority to take certain
actions without approval of the Board, including "sell[ing] any asset . . . of the Company, if
10 Id. at § 4.3(a).
11 Id. at § 4.5.
12 TW Devices Operating Agreement § 4.1(a) (emphasis in original).
13 Id. at § 4.12(b).
14 Id. at § 4.12(a).
the aggregate amount of consideration paid for such asset is in excess of $50,000."15 It is
undisputed that the Board did not expressly delegate any responsibilities or authority to
Kellar as President and CEO.16
9. The 2007 Operating Agreement stated that TW Devices' "business purpose"
was "to engage in (a) the Specific Company Purpose and (b) any lawful activity for which
limited liability companies may be organized under the Act."17 The Operating Agreement
defines "Specific Company Purpose" as "the conception, design, production, sales and
promotion of (1) pulmonary heart valve; (2) biomarker hardware and biomarkers; (3)
microrobotic devices for surgical applications; (4) LVAD, RVAD and TAH; and (4) [sic] remote
medical power transmission devices." 18 In July 2012, TW Devices' "Specific Company
Purpose" was amended to "the conception, design, production, sales and promotion of the
following mechanical heart assist devices; LVAD (left ventricular assist device), RVAD (right
ventricular assist device) and TAH (total artificial heart)."19
10. In December, 2007, The Cleveland Clinic Foundation ("CCF") and TW Devices
formed Cleveland Heart, Inc. ("CHI"). Initially, CHI was owned by CCF and TW Devices.
CHI's purpose was to design, manufacture, and sell three devices for patients with
irreversible end-stage heart failure: the TAH, LVAD and RVAD.
11. The parties dispute who initially held the position of CEO for CHI. Plaintiff
alleges he was CEO of CHI until August 2014, 20 and that Kellar was Chief Operating
15 Id. at § 4.12(a)(v).
16 While not directly addressed by materials contained in the record, both parties admitted this to be
the case at the July 20, 2016 hearing.
17 TW Devices Operating Agreement, § 2.4.
18 Id. under Article 1, Definitions, "Specific Company Purpose."
19 TW Devices First Am. Operating Agreement ¶ 1.
20 Richardson Aff. ¶ 17
Officer.21 Kellar, on the other hand, contends that he was CHI's initial CEO.22 Defendants
represent that Kellar, in his capacity as CEO, "directed the activities of CHI . . . [d]uring its
first 4½ years [in which] CHI raised capital and began developing the cardiac circulatory
assist devices."23 In any event, Defendants allege, and Plaintiffs do not seem to dispute, that
"[a]s of July 2012, CHI had met several milestones in the development of its products but
needed additional cash to continue developing its products."24
12. Accordingly, in July 2012, CHI agreed to sell $30 million of new CHI stock to
Wizit Power Heart Health Consortium, Inc. ("Wizit") in four installments.25 As a condition
of purchasing the stock, Wizit requested that CHI appoint Richardson CEO, President, and
Chairman of the Board.26 In addition, Wizit was given two seats on CHI's board of directors
in place of two incumbent directors, one of whom was Kellar.27 Ultimately, Wizit made an
initial $3 million investment in CHI, but did not invest the other $27 million.28 Following
the transaction, TW Devices owned 42.37% of CHI.
13. Defendants allege that during Richardson's tenure as CEO and President of
CHI, he engaged in numerous unauthorized transactions that primarily benefitted himself
financially. 29 Kellar claims that Richardson did not hold any shareholders meetings, or
provide Kellar with any information about CHI.30
14. Richardson alleges that on or about August 1, 2014, Kellar, acting under his
authority as President of TW Devices, signed a CHI Shareholders' Resolution on behalf of
21 Compl. 11.
22 Kellar Aff. ¶ 8.
23 Id. at ¶ 9.
24 Id.
25 Id. at ¶ 10.
26 Kellar Aff. ¶ 10.
27 Id.
28 Id.
29 Id. at ¶¶ 12-26. The Court notes that Richardson denies these allegations.
30 Id. at ¶ 27.
TW Devices, albeit without authorization from the TW Devices' Board, removing Richardson
as Chairman of the Board and CEO of CHI.31 Kellar also removed Richardson as TW Device's
representative on the CHI board.32 Richardson objected to Kellar's actions.33 In November
2015, Kellar, without seeking authorization from the TW Devices Board, voted the CHI
shares owned by TW Devices to appoint five (5) new members to CHI's board, including
himself, but excluding Richardson.34 Plaintiffs refer to this newly constituted CHI board as
the "Illegal Board."35 Richardson objected to Kellar's action.36 On December 1, 2015, the CHI
board notified Richardson that he was officially removed as CHI's President and CEO.37
15. Plaintiffs allege that the so-called "Illegal Board" "has continued to conduct
business in the name of CHI to the exclusion of the [former board] and Dr. Richardson."38
Plaintiffs further allege that "Defendants, individually and through TW Devices, have
engaged in oppressive and wrongful conduct directed toward removing Dr. Richardson from
meaningful participation in the activities of CHI, an entity in which he was a founding
member." 39 Plaintiffs' claim the wrongful conduct includes, but is not limited to, "[t]he
wasting of corporate assets of TW Devices by Defendant Kellar" and "[t]he improper voting
by Defendant Kellar of CHI stock owned by TW Devices with the goal of controlling CHI and
to avoid action by the legitimate CHI Board."40
16. Defendants contend that CHI currently lacks funds with which to continue to
develop its products and that, thus far, attempts to find new investors have been
31 Compl. ¶ 20.
32 Id. at ¶ 28, Exhs. S.
33 Richardson Aff. ¶ 19.
34 Compl. ¶ 22; Kellar Aff. ¶ 28.
35 Compl . ¶ 22.
36 Richardson Aff. ¶ 21; Compl. ¶ 24.
37 Kellar Aff. ¶ 28, Exh. T.
38 Compl. ¶ 25.
39 Id. at ¶ 28.
40 Id.
unsuccessful. On June 3, 2016, CCF notified CHI that it was terminating its technology
license with CHI effective in 90 days. Defendants allege that "[w]ithout the Technology
License Agreement in place, CHI lacks critical intellectual property rights that are needed to
develop its products and to continue in business. As a result, CHI has no ongoing business
and, absent a new agreement with The Cleveland Clinic Foundation, no prospects for future
business."41
17. On March 24, 2016, Plaintiffs filed the Complaint in this action. The
Complaint alleges claims for breach of contract, breach of fiduciary duty, dissolution of TW
Devices, and a declaratory judgment. The Complaint also requests an injunction.42
18. On June 17, 2016, Plaintiffs filed the Motion along with an affidavit from
Richardson. On July 1, 2016, Defendants filed their Brief in Opposition to Plaintiffs Motion
for Preliminary Injunction along with an affidavit from Kellar. On July 11, 2016, Plaintiffs
submitted a Reply Brief in Support of their Motion for Preliminary Injunction. On July 20,
2016, the Court held a hearing on the Motion.
DISCUSSION
19. A preliminary injunction may be issued during litigation when "it appears by
affidavit that a party thereto is doing or threatens or is about to do . . . some act . . . in violation
of the rights of another party to the litigation respecting the subject of the action, and tending
to render judgment ineffectual." N.C. Gen. Stat. § 1-485(2) (hereinafter, "G.S."). The movant
41 Kellar Aff. ¶ 30.
42 In the Complaint, Plaintiffs allege that they seek an injunction "prohibiting Defendants Kellar and
Red Raven from voting the shares of CHI owned by TW Devices without the express written consent
and approval of Dr. Richardson" (¶ 38), and "prohibiting Defendants from voting the shares of TW
Devices during the pendency of this action" (prayer for relief, p. 9). In their Motion, Plaintiffs request
an order "to enjoin these Defendants from voting [TW Devices]'s shared in Cleveland Heart, Inc. in
violation of the Operating Agreement of [TW Devices]." At the hearing, Plaintiffs' counsel clarified
that Plaintiffs are seeking an injunction preventing Defendants from voting TW Devices shares in CHI
without the express approval of Richardson.
bears the burden of establishing the right to a preliminary injunction. Pruitt v. Williams,
288 N.C. 368, 372,
218 S.E.2d 348, 351 (1975). In order to secure preliminary injunctive relief
from the Court, a movant must show "a likelihood of success on the merits of his case and . . .
[that the movant] is likely to sustain irreparable loss unless the injunction is issued, or if, in
the opinion of the Court, issuance is necessary for the protection of his rights during the
course of litigation." Analog Devices, Inc. v. Michalski,
157 N.C. App. 462, 466,
579 S.E.2d
449, 452 (2003) (citations omitted); accord Looney v. Wilson,
97 N.C. App. 304, 307-08,
388
S.E.2d 142, 144-45 (1990). Likelihood of success means a "reasonable likelihood." A.E.P.
Indus., Inc. v. McClure,
308 N.C. 393, 404,
302 S.E.2d. 754, 761 (1983). In addition, the Court
must balance the equities, and a preliminary injunction "should not be granted where there
is a serious question as to the right of the defendant to engage in the activity and to forbid
the defendant to do so, pending final determination of the matter, would cause the defendant
greater damage than the plaintiff would sustain from the continuance of the activity while
the litigation is pending." Board of Provincial Elders, etc. v. Jones,
273 N.C. 174, 182,
159
S.E.2d 545, 551-552 (1968). The issuance of an injunction is "a matter of discretion to be
exercised by the hearing judge after a careful balancing of the equities." State v. Fayetteville
St. Christian School,
299 N.C. 351, 357,
261 S.E.2d 908, 913 (1980).
A. Likelihood of Success.
20. Plaintiffs' primary claims are for breach of the Operating Agreement (breach
of contract) and breach of fiduciary duty. In their briefs, the parties have argued only
regarding the likelihood of success on the claim for breach of the Operating Agreement.
Accordingly, the Court addresses Plaintiff's claim for breach of contract.
21. Section 57D-2-30(e) of the North Carolina General Statutes provides that the
laws of contract "govern the administration and enforcement of operating agreements." See
also N.C. State Bar v. Merrell, 777 S.E.2d 103, 114,
2015 N.C. App. LEXIS 820, *28 (2015)
("An [LLC] operating agreement is a contract."). Accordingly, "[t]he elements of a claim for
breach of contract are (1) existence of a valid contract and (2) breach of the terms of that
contract." Supplee v. Miller-Mott Bus. Coll., Inc., 768 S.E.2d 582, 590,
2015 N.C. App. LEXIS
49, *15 (N.C. Ct. App. 2015). The parties do not dispute that, at all relevant times, TW
Devices had a valid operating agreement. Accordingly, in determining whether Plaintiffs
have a reasonable likelihood of success in establishing that Defendants breached the
Operating Agreement, the Court must consider: (1) the proper interpretation of the terms of
the Operating Agreement and (2) whether Defendants' conduct constituted a breach of those
terms.
22. Plaintiffs contend that Kellar violated the Operating Agreement by voting of
TW Devices' shares in CHI because the Operating Agreement requires the consent and
approval of both managers (the Board), and Kellar did not obtain that approval. Defendants
contend that the Operating Agreement names Kellar the President and CEO of TW Devices
and, in the absence of an express delegation of authority by the Board, vests him with the
authority customarily held by corporate presidents; chiefly, the authority to manage TW
Devices ordinary, day-to-day business. Defendants argue that TW Devices currently
operates as a de facto holding company for the shares in CHI, and that voting the shares is
TW Devices' only day-to-day business. The determinative question, then, is whether the
Operating Agreement authorized Kellar to vote TW Devices' shares in CHI without the
approval and consent of the Board.
23. The Operating Agreement vests the authority to manage TW Devices in its
Board. Section 4.1(a) of the Operating Agreement gives the Board the "full, exclusive and
complete discretion to manage and control the business and affairs of the Company, to make
all decisions affecting the business and affairs of the Company and to take all such actions
as they deem necessary or appropriate to accomplish the purposes and direct the affairs of
the Company." The Board can only act by "the affirmative vote of a majority of the
Managers."43 In addition, "without being authorized by the Board, no individual Manager
shall (i) have authority to bind the Company or (ii) otherwise be entitled to sign for or take
any action on behalf of the company."44 Finally, section 4.1(c) further provides that
Except as otherwise expressly provided in this Agreement or required by any
non-waivable provision of the Act or other applicable law, no Holder or Member
shall (a) have any right to vote on or consent to any matter, act, decision, or
document involving the Company or its business . . . . Except to the extent
expressly delegated by the Board, no member, Holder, or other Person shall be
an agent for the Company or have any right, power or authority to transact
any business in the name of the Company or to act for or on behalf of or to bind
the Company.
24. Defendants do not contend that the Board ever delegated the authority to vote
TW Devices shares in CHI to Kellar, or ever assigned specific authority or duties to the
position of President or CEO.45 Nevertheless, Section 4.12(a) of the Operating Agreement
provides that in the absence of such delegation by the Board, "if the title assigned to an officer
of the Company is one commonly used for officers of a business corporation formed under the
North Carolina Business Corporation Act, then the assignment of such title shall constitute
the delegation to such officer of the authority and duties that are customarily associated with
such office." Defendants argue that Kellar was vested with "the authority and duties that
are customarily associated with" the offices of president and CEO. Defendants contend that
TW Devices "ordinary business, indeed its only business, was its ownership of shares of CHI,
and the primary responsibility of [TW Devices'] President was to nominate [TW Devices']
director on CHI's board of directors."46
43 Operating Agreement § 4.7(b).
44 Id. at § 4.1(b).
45 Indeed, Defendants conceded that "Plaintiffs are correct that Kellar could not act as a manager on
behalf of [TW Devices] without Richardson's approval," but argue that Kellar was acting as an officer,
and not a manager, in voting TW Devices shares in CHI. Defs.'s Br. Opp. Mot. for Prel. Injunction p.
10.
46 Id. at p. 10.
25. North Carolina law does not provide definitive guidance regarding the
"customary" authority possessed by corporate presidents. The Business Corporation Act does
not define the duties or powers possessed by officers. North Carolina's leading commentator
on corporate law has noted that
The allocation of authority and duties among corporate officers is usually
outlined to some extent, either specifically or generally, by the corporate
bylaws, and is then further defined in more detail by the directors and by the
officers themselves. To the extent that these respective functions of corporate
officers and agents are not thus defined by the corporation, they may be defined
by the law and custom as developed by normal practices.
Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 16.01 (7th ed. 2015)
(footnotes omitted). Furthermore, "the president is usually designated as the principal
executive officer of the corporation so that he exercises the functions of its general manager."
Id.
The broadest implied authority is vested in the general manager of the
corporation, since he is in charge of the ordinary conduct of its business. This
authority does not extend to matters that are outside the ordinary course of
business, but whether a particular matter is within the ordinary course of
business is not governed by any inflexible rule. For example, a general
manager ordinarily would not have implied authority to dispose of corporate
real estate, but he would if the company customarily deals in realty.
Id. at § 16.04.
26. The Supreme Court of North Carolina has stated that a corporate officer's
position's "carries with and includes in it, as an incident, all the powers which are necessary,
proper, usual and reasonable as means to effectuate the purposes for which it was created."
Brimmer v. M. H. Brimmer Co., 174 N.C. 435, 439,
93 S.E. 984, 985 (1917). Moreover, "[i]n
the absence of a charter or bylaw provision to the contrary, the president of the corporation
is the general manager of its corporate affairs. Burlington Indus., Inc. v. Foil,
284 N.C. 740,
759,
202 S.E.2d 591, 604 (1974) (internal citations omitted); accord First Union Nat. Bank v.
Brown,
166 N.C. App. 519, 528,
603 S.E.2d 808, 815 (2004) ("The president of a corporation
is the head and general agent of the corporation and may act for it in matters that are within
the corporation's ordinary course of business or incidental to it"; citations omitted)
Accordingly, whether a president's conduct falls within the scope of his or her authority turns
on whether such conduct involves "matters that are within the corporation's ordinary course
of business." Burlington Indus., 284 N.C. at 758,
202 S.E.2d at 604.
27. The record evidence regarding TW Devices ordinary business is inconsistent,
at best. TW Devices' original business purpose, as stated in the Operating Agreement, was
to engage in "the conception, design, production, sales and promotion of (1) pulmonary heart
valve; (2) biomarker hardware and biomarkers; (3) microrobotic devices for surgical
applications; (4) LVAD, RVAD and TAH; and (4) [sic] remote medical power transmission
devices." 47 Currently, TW Devices' amended "Specific Company Purpose" involves "the
conception, design, production, sales and promotion of the following mechanical heart assist
devices; LVAD (left ventricular assist device), RVAD (right ventricular assist device) and
TAH (total artificial heart)."48
28. Kellar, on the other hand, claims in his affidavit that TW Devices' "only
business is to own shares in [CHI]."49 Defendants cite to the
29. TW Devices was formed approximately five months before CHI existed, so TW
Devices original purpose could not have been to act as a holding company for its shares in
CHI. Rather, it appears that TW Devices' ownership and participation in CHI became the
platform for achieving TW Devices' stated business purposes. In fact, the evidence is that
CHI's purpose was the same as TW Devices – to design, manufacture, and sell the TAH,
LVAD, and RVAD cardiac devices.50
47 Operating Agreement, Article 1, Definitions, "Specific Company Purpose."
48 TW Devices First Am. Operating Agreement ¶ 1.
49 Kellar Aff. ¶ 6.
50 Id. at ¶ 7; Richardson Aff. ¶ 12.
30. There is insufficient record evidence that TW Devices was formed and is
operated solely as a holding company for the shares in CHI, thereby making the voting of the
CHI shares an act incidental to the company's ordinary course of business. The stated
purpose of TW Devices as provided in the Operating Agreement supports Plaintiffs' assertion
that TW Devices was formed to develop cardiac devices, and not exclusively to hold shares in
CHI. In addition, evidence presented by both sides establishes that Richardson and Kellar,
at various times, engaged in activities as officers of CHI that advanced TW Devices stated
business purpose of developing the three cardiac devices and extended beyond merely voting
the shares in CHI.51 While those activities may have been undertaken by Richardson and
Kellar in their roles as officers of CHI, that does not preclude such activities from also being
on behalf of TW Devices' business.
31. Defendants’ cite the Delaware Chancery Court’s decision in Flaa v. Montano,
2013 Del. Ch. LEXIS 244 (Del. Ch. 2013) as support for their contention that Kellar, as
President and CEO, has the authority to vote TW Devices’ shares in CHI. In Flaa, Daniel
and Vicki Montano jointly owned a large block of stock in CardioVascular Therapeutics, Inc.
(“Cardio”). Id. at *2. The couple formed a corporation, Vizier Investment Capital Limited
(“Vizier”), in which Daniel and Vicki were 50% shareholders, “for the sole purpose of holding
the [ ] shares of Cardio owned by Daniel and Vicki” in order “to insulate the couple’s shared
from creditors.” Id. at *7. Vizier “had no day-to-day operations; it exist[ed] only to hold
Cardio stock.” Id. at *8. Vizier’s corporate articles provided that Vizier’’s President was “to
manage the day to day affairs of the Company.” Id. at *9. Daniel Montano was Vizier’s
President, and “historically voted the Cardio shares on behalf of Vizier,” Id. at *27, “without
51 Richardson Aff. ¶ 17; Kellar Aff. ¶¶ 8, 9, and 12.
Those activities included raising capital, developing
the cardiac devices, entering into licensing agreements, acquiring assets and equipment, and other
activities.
objection from the other [Vizier] directors”. Id. at *8. In addition, a regulatory filing by Vizier
stated that “’Mr. Montano has sole voting and investing powers’” over Vizier’s shares of
Cardio.” Id. at *8. On this evidence, the Vice Chancellor concluded that Daniel Montano, as
President, had the authority to vote Vizier’s shares in Cardio. Id. at 32.
32. The Court believes that Defendants reliance on Flaa is misplaced. In Flaa, the
parties purchased the shares in Cardio and later formed Vizier “for the sole purpose” of
holding the shares, and the evidence established that the only business Vizier ever engaged
in was voting the shares. In addition, as the President of Vizier, Daniel Montano apparently
exercised the right to vote the shares in Cardio without objection from his wife or the
company’s directors. In this case, as discussed above, the evidence before the Court does not
support the conclusion that TW Devices was formed to act as a holding company for its shares
in CHI, or that TW Devices only business activities were voting of the CHI shares. The
evidence also establishes that Richardson has objected to Kellar’s unilateral exercise of
authority over TW Devices’ shares in CHI.
33. The Court concludes that, based on the current record, Plaintiffs have
established a reasonable likelihood of success on their claim for breach of the Operating
Agreement.
B. Irreparable Harm and Balancing of Equities.
34. Plaintiffs contend that if a preliminary injunction does not issue, Richardson
will be irreparably harmed by his being excluded from having any input in TW Devices'
operations despite his 50% ownership interest. Defendants contend that granting the
injunction would not preserve the status quo, but would upend it, since Kellar has been voting
TW Devices shares in CHI. Defendants further argue that an injunction will not permit
Richardson to "participate in the governance of CHI" because Richardson will not be able to
vote TW Devices' shares in CHI without Kellar's consent.52 Finally, Defendants contend
issuance of a preliminary injunction would ensure the demise of TW Devices because
Richardson will not agree to CHI being acquired by third-party.
35. Plaintiffs' position is compelling. The nature of the shared ownership of TW
Devices, as reflected in the provisions of the Operating Agreement, strongly supports
Plaintiff's contention that he is entitled to participate in the management of TW Devices,
including decisions regarding how to vote its shares in CHI. The Operating Agreement
clearly establishes the parties' intent that the Board, comprised of both Richardson and
Kellar, would have to approve any significant decisions involving TW Devices. If Defendants
are not enjoined, Plaintiffs will be unable to exercise their rights in TW Devices as envisioned
in the Operating Agreement. Neither the parties nor the Court can anticipate all of various
issues that might require the voting of TW Devices shares in CHI, but it is a certainty that
Plaintiffs will be deprived of any input regarding these issues if Defendants are not enjoined
from voting the shares.53
36. Defendants assert that "Richardson admits that Kellar has been voting [TW
Devices'] shares of CHI" and that "the status quo warrants denying, not granting, plaintiffs'
motion for preliminary injunction."54 Defendants ignore the fact, however, that Richardson
has not acquiesced in Kellar's exercise of authority over the shares, but instead has objected
to it.55 In addition, the Court's authority is not limited to preserving the "status quo," but
52 Defs.'s Br. Opp. Mot. for Prel. Injunction pp. 7-8.
53 Defendants contend some of the "the transactions requiring approval by a supermajority of CHI's
shareholders are CHI's only hope for staying in existence," including "(i) merging the business
operations of the Company with another business, (ii) licensing technology; (iii) borrowing funds; or
(iv) entering a transaction with a shareholder." Id. at p. 9.
54 Id.
55 Richardson Aff. ¶¶ 19, 21; Compl. ¶¶ 21, 24.
extends to enjoining a party from doing acts "in violation of the rights of another party." G.S.
§ 1-485(2).
37. Defendants' contention that a preliminary injunction will not allow Richardson
to unilaterally vote TW Devices' shares in CHI or otherwise participate in CHI's "governance"
are equally unavailing. Plaintiffs do not seek to wrest the right to vote the shares from Kellar
and for themselves. Rather, they request only that Defendants be prohibited from voting the
shares without the approval of the TW Devices Board during the pendency of this action. As
Plaintiffs note, "[t]hough the preliminary injunction . . . would not restore Dr. Richardson to
his position as Chair and CEO of CHI, . . . it would require Mr. Kellar to consult and engage
Dr. Richardson regarding issues for which [TW Devices'] shares in CHI must be voted, and
vice versa."56 To the extent CHI seeks shareholder approval for certain actions, an order
requiring Defendants to seek approval from the TW Devices Board to vote the shares in CHI
shares will, in fact, allow Richardson to participate in CHI's governance.
38. Finally, Defendants' argument that issuance of a preliminary injunction will
ensure the demise of TW Devices is speculative. Defendants contend that CHI's best chance
of a continued existence is some kind of acquisition of CHI by a third party. Defendants
implicitly suggest that Richardson will not agree to vote TW Devices shares in favor of any
acquisition.57 The Court rejects the notion that Kellar should be permitted to vote the shares
in CHI with Richardson's input on the unsupported grounds that Richardson would
intentionally frustrate any opportunity that might be beneficial to the business. Such a
proposition defies both well-established principles of law and basic logic. Not only would
56 Pls.' Reply Supp. of Mot. for Prel. Injunction. P. 8.
57 At the hearing, Defendants conceded that pursuant to section 4.12(a)(v) of the Operating Agreement
Kellar would not be able to vote TW Devices' shares in favor of a proposal that required the sale of TW
Devices shares to another party without the approval of the TW Devices Board and, hence, Richardson.
Nevertheless, both parties admitted that they could not rule out other potential proposals for a change
in control of CHI that would not involve the sale of TW Devices shares.
Richardson have a fiduciary responsibility to consent to a transaction that was in the best
interest of TW Devices, 58 he would also be personally incented to do so by virtue of his
substantial monetary interest in TW Devices.59 Accordingly, the Court finds unpersuasive
the argument that enjoining Kellar from voting TW Devices' CHI shares without
Richardson's consent will necessarily ensure the demise of CHI.
39. Accordingly, Plaintiffs have established that they will suffer irreparable harm
if the requested order is not issued, and the Court concludes in its discretion that Plaintiffs'
Motion for Preliminary Injunction should be GRANTED.
THEREFORE, IT IS ORDERED that:
40. Plaintiffs' Motion for Preliminary Injunction is GRANTED.
41. Franz Kellar and Red Raven, LLC are IMMEDIATELY ENJOINED and
PROHIBITED, directly or indirectly, alone or in concert with others, from voting TransWorld
Medical Devices, LLC's shares in Cleveland Heart, Inc. without the express written consent
and approval of the TW Devices Board, including Dr. Richardson.
42. On or before 5:00 p.m. on Friday, August 5, 2016, Plaintiffs shall post security
for the issuance of this Order in the amount of $ 250.00, as required by Rule 65(c), in form
satisfactory to the Clerk of Superior Court of Gaston County.
43. Except as specifically granted herein, Plaintiffs' Motion for Preliminary
Injunction is DENIED.
58 N.C. Gen. Stat. § 57D-3-21 ("Each manager shall discharge that person's duties (i) in good faith . . .
and (iii) subject to the operating agreement, in a manner the manager believes to be in the best
interests of the LLC.").
59 The Court also notes that Richardson recently claimed to have a potential buyer for CHI. Kellar
Aff. ¶ 38, Exh. V. While Defendants expressed skepticism as the buyer's ability to consummate such
a purchase, it does not appear to the Court that Richardson is opposed to any potential sale of CHI or
TW Devices shares in CHI.
SO ORDERED, this the 2nd day of August, 2016.
/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge
for Complex Business Cases
