White v. Hyde

White v. Hyde, 

.


STATE OF NORTH CAROLINA                   IN THE GENERAL COURT OF JUSTICE
                                              SUPERIOR COURT DIVISION
BUNCOMBE COUNTY                                      16 CVS 1330

BARBARA WHITE,              )
                            )
             Plaintiff,     )
                            )
     v.                     )
                            )     OPINION AND ORDER ON
CHARLES W. HYDE;            ) DEFENDANTS’ PARTIAL MOTIONS TO
JOHN POWELL; SANDRA POWELL; )            DISMISS
HP PROPERTIES, LLC; and     )
HYDE-HP PROPERTIES, LLC,    )
                            )
             Defendants.    )
                            )

   1.     THIS MATTER is before the Court upon Defendant Charles W. Hyde’s

(“Hyde”) Partial Motion to Dismiss filed June 1, 2016 (“Hyde’s Motion”), and

Defendants John Powell (“Mr. Powell”) and Sandra Powell’s (“Mrs. Powell”)

(collectively, the “Powells”) Partial Motion to Dismiss filed June 17, 2016 (the

“Powells’ Motion”) (collectively, the “Motions”) pursuant to Rule 12(b)(6) of the North

Carolina Rules of Civil Procedure (“Rule(s)”) in the above-captioned case. For the

reasons stated herein, the Court hereby GRANTS Hyde’s Motion, GRANTS in part

the Powells’ Motion and DISMISSES without prejudice each of Plaintiff Barbara

White’s (“Plaintiff”) individual claims asserted against Hyde and the Powells.

   2.     The Court also, for the reasons stated herein, sua sponte DISMISSES with

prejudice Plaintiff’s derivative claims that are purportedly asserted on behalf of

Defendant HP Properties, LLC (“HP”) pursuant to Rule 12(h)(3).

        Ward and Smith, P.A., by William S. Durr and Caroline B. McLean, for
        Plaintiff Barbara White.
        Cloninger, Barbour, Searson and Jones, PLLC, by John C. Cloninger, for
        Defendant Charles W. Hyde.

        Long, Parker, Warren, Anderson & Payne, P.A., by Robert B. Long, Jr., for
        Defendants John Powell and Sandra Powell.

Robinson, Judge.

                                I.     INTRODUCTION

   3.      This action arises out of the sale of a self-storage business and real property

by Defendants. Plaintiff asserts both individual claims and derivative claims on

behalf of Defendants HP Properties, LLC (“HP”) and Hyde-HP Properties, LLC

(“Hyde-HP”).

   4.      Plaintiff alleges that, in 2014, Hyde and the Powells negotiated a sale of the

self-storage business, EZ Storage, LLC (“EZ”), and the real property on which EZ was

located for a total purchase price of $2,675,000.00. Plaintiff challenges the allocation

of the purchase price among HP, Hyde-HP, and EZ as, among other things, a breach

of Hyde’s and Mr. and Mrs. Powell’s fiduciary duties to the companies and fiduciary

duties to Plaintiff.

   5.      The Motions seek dismissal of all claims asserted by Plaintiff in her

individual capacity. Because Plaintiff’s complaint fails to allege facts necessary to

establish either that Hyde or the Powells owed Plaintiff a special duty or that Plaintiff

suffered a separate and distinct injury apart from the LLCs, the Court concludes that

the Motions should be granted and Plaintiff’s individual claims dismissed.

   6.      Defendants made clear at the hearing on the Motions that they were not,

at this stage of the litigation, seeking dismissal of any of Plaintiff’s derivative claims.
The Court thus does not consider the validity of Plaintiff’s derivative claims asserted

on behalf of Hyde-HP, the LLC in which Plaintiff is a 50% member. However, the

Court concludes that Plaintiff lacks standing to assert any derivative claims on behalf

of HP because Plaintiff is not a member of HP. Because Plaintiff lacks standing to

bring derivative claims on behalf of HP, the Court lacks subject matter jurisdiction

over these claims and therefore concludes that these claims should also be dismissed.

                          II.    PROCEDURAL HISTORY

   7.     Plaintiff instituted this action on March 24, 2016 by filing a Verified

Complaint. Plaintiff named as defendants Hyde, Mr. Powell, Mrs. Powell, HP, and

Hyde-HP. Although named as actual defendants, the Court notes that, because

Plaintiff does not assert claims against HP or Hyde-HP, but rather asserts claims

against Hyde and the Powells on behalf of the entities, their proper characterization

is as nominal defendants. See Robinson on North Carolina Corporate Law § 17.05[2]

(7th ed. 2015) (“Since a derivative action asserts a corporate claim, the corporation

itself . . . is a necessary party to the action and is normally joined as a nominal

defendant.”).

   8.     The case was designated as a complex business case pursuant to N.C. Gen.

Stat. § 7A-45.4 by order of the Chief Justice of the North Carolina Supreme Court

dated March 24, 2016, and was assigned to the Honorable James L. Gale by order

dated March 28, 2016. The case was later reassigned to the undersigned by order

dated July 5, 2016.
   9.     Hyde’s Motion was filed on June 6, 2016. The Powells’ Motion was filed on

June 17, 2016. Initial briefing on the Motions was completed, and the Court held a

hearing on the Motions on August 3, 2016 at the Buncombe County Courthouse.

   10.    Although both Motions plainly state that Hyde and the Powells “move[] to

dismiss Plaintiff’s claims for breach of fiduciary duty, constructive fraud, punitive

damages, and unfair and deceptive trade practices,” (see, e.g., Hyde Mot. Dismiss 1),

Hyde and the Powells made clear at the hearing that they seek dismissal of all claims

asserted by Plaintiff in her individual capacity, a broader set of claims than as

disclosed in the Motions.

   11.    Because Plaintiff had not been afforded the opportunity to address in

writing arguments against the dismissal of all of her individual claims, the Court

permitted Plaintiff an opportunity to file a post-hearing supplemental brief. Plaintiff

did so on August 23, 2016, and both Hyde and the Powells filed briefs in response to

Plaintiff’s supplemental brief on September 2, 2016.

   12.    The brief filed by the Powells on September 2, 2016 is titled “Supplemental

Brief to be Treated as Supplemental Motion to Dismiss” (the “Powells’ Supplemental

Brief”). Therein, the Powells request that their filing “be treated as a Supplemental

Motion to Dismiss made pursuant to Rules 12(b)(1) and (6), and 12(h) for lack of

subject matter jurisdiction and failure to state claims upon which relief can be

granted as to all purported causes of action against the Defendants Powell.” (Powells’

Suppl. Brief. 1.) Plaintiff filed a response in opposition to the Powells’ Supplemental

Brief on September 22, 2016.
   13.    The Court also requested that the parties submit supplemental briefing on

the applicability of the North Carolina Court of Appeals’ recent decision in Raymond

James Capital Partners, L.P. v. Hayes, No. COA15-745, 

(Aug. 2, 2016), to the issues raised by the Motions and the Court’s concern that

Plaintiff may lack standing to assert derivative claims on behalf of HP.           This

supplemental briefing was completed on August 23, 2016.

   14.    All briefing and argument have been completed, and the Motions are now

ripe for resolution.

                                III.   THE PARTIES

   15.    The Court does not make findings of fact on motions to dismiss under Rule

12(b)(6), but only recites those factual allegations included in the Complaint that are

relevant to the Court’s determination of the Motions. See, e.g., Concrete Serv. Corp.

v. Investors Grp., Inc., 

, 

, 758 (1986).

   16.    HP and Hyde-HP are both North Carolina limited liability companies.

(Compl. ¶¶ 5, 7.)

   17.    Plaintiff is a resident of Asheville, Buncombe County, North Carolina and

owns a 50% interest in Hyde-HP. (Compl. ¶¶ 1, 8.)

   18.    Hyde, Plaintiff’s brother, is also a resident of Asheville. (Compl. ¶¶ 2, 15.)

Hyde owns the other 50% interest in Hyde-HP and is the manager of that entity.

(Compl. ¶¶ 21, 28.) Hyde also acts as a manager of HP. (Compl. ¶¶ 28.) Hyde is also

a member of EZ. (Compl. ¶ 45.)
   19.      Mr. Powell owns a 25% interest in HP and is a manager of HP. (Compl. ¶

18.)

   20.      Hyde-HP owns a 75% interest in HP. (Compl. ¶ 23.)

   21.      Plaintiff alleges that, as a result of her 50% ownership interest in Hyde-

HP, and Hyde-HP’s 75% ownership interest in HP, she herself effectively owns a

37.5% interest in HP. (Compl. ¶ 23.)

   22.      Plaintiff does not allege that Mrs. Powell owns a membership interest in

HP, but Plaintiff does allege that Mrs. Powell may have acted as a manager of HP.

(Compl. ¶ 30) (emphasis added). Plaintiff alleges that Mr. Powell and/or Mrs. Powell

also acted as managers of EZ. (Compl. ¶ 31.)

                           IV.   FACTUAL BACKGROUND

   23.      In the 1990s, Wallace Hyde (“Wallace”), Plaintiff’s and Hyde’s father,

created HP, naming himself and Mr. Powell as managers of that entity. (Compl. ¶

15.)     Wallace initially owned a 75% interest in HP, and Mr. Powell owned the

remaining 25%. (Compl. ¶ 18.)

   24.      Around the same time, Wallace also founded EZ to operate a self-storage

facility on 3.6 acres at 75 Highland Center Boulevard in Asheville, North Carolina

(the “3.6 Acre Property”). (Compl. ¶ 17.)

   25.      At all relevant times until 2014, HP owned the 3.6 Acre Property. (Compl.

¶ 19.) EZ leased the 3.6 Acre Property from HP pursuant to a ground lease. (Compl.

¶ 20.)
   26.    In 2011, Wallace created Hyde-HP, naming Hyde the sole manager.

(Compl. ¶ 21.) Wallace initially owned a 50% interest in Hyde-HP, and Hyde owned

the other 50%. (Compl. ¶ 21.)

   27.    A few years before Wallace’s death, he transferred his 50% interest in Hyde-

HP to Plaintiff, making her an equal 50% owner of Hyde-HP along with her brother.

(Compl. ¶ 21.)    Also at some point before his death, Wallace transferred his

managerial role in HP to Hyde, making Hyde the new manager of HP. (Compl. ¶ 22.)

Finally, Wallace transferred his 75% ownership interest in HP to Hyde-HP, making

Hyde-HP the majority owner of HP. (Compl. ¶ 23.) Wallace died on January 13,

2013. (Compl. ¶ 42.)

   28.    Hyde-HP owned a 2.1 acre tract of property adjacent to the 3.6 Acre

Property (the “2.1 Acre Property”). (Compl. ¶ 26.) Hyde utilized the 2.1 Acre Property

for parking and various other activities associated with the EZ facility. (Compl. ¶

26.) Hyde never sought Plaintiff’s permission or obtained her consent to utilize the

2.1 Acre Property for Hyde’s own personal interests, and Hyde never compensated

Hyde-HP or Plaintiff for his use of the 2.1 Acre Property. (Compl. ¶ 27.)

   29.    As a tenant on the 3.6 Acre Property, EZ paid HP monthly rent. (Compl. ¶

38.) The original lease between EZ and HP, executed in 1995, provided for EZ to pay

HP rent of $8,333.33 per month. Plaintiff received a portion of this monthly rent and

used it to support herself financially. (Compl. ¶ 39.) However, the EZ rent checks

were often late, or would not arrive, while Wallace was alive, Wallace had to intervene

to ensure that Plaintiff received her share of the EZ rent. (Compl. ¶ 40.)
   30.    In April 2013, Hyde unilaterally agreed, on behalf of HP, to lower the

monthly rent EZ owed to HP from $8,333.33 per month to $6,666.66 per month.

(Compl. ¶ 43.) Hyde never consulted Plaintiff regarding the decrease in rent and

never obtained her consent for the decrease. (Compl. ¶ 44.)

   31.    Nearly a year after the rent reduction, Hyde, acting as manager of HP and

Hyde-HP, and the Powells, acting as managers of HP and EZ, negotiated a sale of

EZ’s assets, along with both the 3.6 Acre Property and the 2.1 Acre Property, to a

third-party purchaser. (Compl. ¶ 46.)

   32.    The total purchase price was $2,675,000.00, allocated as follows: $2,500,000

to HP and EZ, and $175,000.00 to Hyde-HP. (Compl. ¶ 47.) HP received $1,000,000

of the $2,500,000 allocated to it and EZ, while EZ received $1,500,000. (Compl. ¶ 48.)

This allocation was unjustified. (Compl. ¶ 49.)

   33.    No appraisal was ever commissioned for the 2.1 Acre Property. The 2.1

Acre Property was worth far greater than the amount of the purchase price allocated

to it ($175,000). (Compl. ¶¶ 53, 54.)

   34.    Plaintiff was not informed of the plans to sell the two parcels comprising

the 75 Highland Center property and was not consulted in any way concerning the

sale, or how the purchase price was determined or allocated. (Compl. ¶ 57.)

   35.    On December 10, 2015, Plaintiff, as a member of Hyde-HP and HP, served

a formal demand letter on all Defendants as managers of Hyde-HP and HP,

demanding that: (a) Hyde-HP file suit on behalf of Hyde-HP itself and as a member

of HP; and (b) HP file suit on behalf of itself, to seek redress for various breaches and
unlawful actions and omissions by Hyde and the Powells. (Compl. ¶ 61.) As of the

filing of the Complaint, no defendant has formally responded to the demand letter,

nor agreed to file a derivative action on behalf of either Hyde-HP or HP. (Compl. ¶

62.)

                                V. LEGAL STANDARD

   36.    In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court

reviews the allegations of the Complaint in the light most favorable to Plaintiff. The

Court’s inquiry is “whether, as a matter of law, the allegations of the complaint,

treated as true, are sufficient to state a claim upon which relief may be granted under

some legal theory.” Harris v. NCNB Nat’l Bank, 

, 

 (1987).    The Court construes the Complaint liberally and accepts all

allegations as true. Laster v. Francis, 

, 

(2009).

   37.    Dismissal of a claim pursuant to Rule 12(b)(6) is proper “(1) when the

complaint on its face reveals that no law supports plaintiff’s claim; (2) when the

complaint reveals on its face the absence of fact sufficient to make a good claim; [or]

(3) when some fact disclosed in the complaint necessarily defeats the plaintiff’s

claim.” Oates v. JAG, Inc., 

, 

 (1985); see also

Jackson v. Bumgardner, 

, 

 (1986); Mileski v.

McConville, 

, 

 (2009); Pinney v. State Farm

Mut. Ins. Co., 

, 

 (2001). Otherwise, “a

complaint should not be dismissed for insufficiency unless it appears to a certainty
that plaintiff is entitled to no relief under any state of facts which could be proved in

support of the claim.” Sutton v. Duke, 

, 

 (1970)

(emphasis omitted).

   38.    The Court is not required “to accept as true allegations that are merely

conclusory, unwarranted deductions of fact, or unreasonable inferences.” Good Hope

Hosp., Inc. v. N.C. Dep’t of Health & Human Servs., 

, 

 (2005). The Court can also ignore a party’s legal conclusions set forth

in its pleading. McCrann v. Pinehurst, LLC, 

, 

 (2013).

   39.    Under Rule 12(h)(3), “[w]henever it appears by suggestion of the parties or

otherwise that the court lacks jurisdiction of the subject matter, the court shall

dismiss the action.” See also N.C. R. Civ. P. 12(b)(1).

                    VI.    PLAINTIFF’S DERIVATIVE CLAIMS

   40.    Hyde and the Powells made clear at the hearing that their Motions do not

seek dismissal of any of Plaintiff’s derivative claims asserted against any of them.

Hyde and the Powells have brought their Motions separately. However, the Powells’

Supplemental Brief purports to move the Court to dismiss all claims, both individual

and derivative, that Plaintiff asserts against them. Additionally, as will be explained,

the Court concludes that Plaintiff lacks standing to bring derivative claims on behalf

of HP. For these reasons, the Court addresses Plaintiff’s derivative claims first.

   41.    Plaintiff attempts to assert derivative claims on behalf of both Hyde-HP

and HP. Under the North Carolina Limited Liability Company Act, only “a member
may bring a derivative action.” N.C. Gen. Stat. § 57D-8-01; see, e.g., Bolier & Co. v.

Decca Furniture (USA), Inc., 

, at *16–17 (N.C. Super. Ct. May

26, 2015) (dismissing derivative claims where record failed to reflect that plaintiff

was a member of the LLC)

   42.    With regard to Plaintiff’s derivative claims on behalf of HP, Plaintiff admits

that she is not a member of HP. Rather, she alleges that, as a result of her 50%

ownership interest in Hyde-HP, and Hyde-HP’s 75% ownership interest in HP, she

herself effectively owns a 37.5% interest in HP. This interest, Plaintiff contends,

provides standing to pursue a derivative claim on behalf of HP against Hyde and the

Powells as managers of HP.

   43.    Plaintiff describes her claim on behalf of HP as a “double derivative” claim.

As explained by the Delaware Supreme Court, “a double derivative suit is one brought

by a shareholder of a parent corporation to enforce a claim belonging to a subsidiary

that is either wholly owned or majority controlled.” Lambrecht v. O’Neal, 

 (Del. 2010). Delaware law recognizes the right of a plaintiff, who owns stock in

a parent corporation, to bring a double derivative action as a shareholder of the

parent against directors of a subsidiary corporation for the directors’ breaches of

fiduciary duty that results in harm to the subsidiary and, indirectly, to the parent as

the subsidiary’s only or majority shareholder. See 

 at 282–83.

   44.    Here, Plaintiff’s description of her attempt to bring derivative claims on

behalf of HP as a double derivative claim exhibits a misunderstanding of the nature

of double derivative claims. A “double derivative” claim by a shareholder of a parent
company on behalf of the parent company – i.e., the company in which the plaintiff is

actually a shareholder – is brought against the directors of the subsidiary for

damages incurred by the parent company as a result of injury to the parent’s value

caused by injury to the subsidiary.      Here, however, Plaintiff attempts to assert

derivative claims on behalf of HP, the subsidiary, a company in which she is not a

member, in addition to derivative claims on behalf of Hyde-HP.

   45.    “[A] court has inherent power to inquire into, and determine, whether it has

jurisdiction and to dismiss an action ex mero motu when subject matter jurisdiction

is lacking.” Reece v. Forga, 

, 

 (2000).

Because Plaintiff is not a member of HP, the Court concludes that Plaintiff lacks

standing to assert derivative claims on behalf of HP. Because lack of standing defeats

the Court’s subject matter jurisdiction, the Court must dismiss Plaintiff’s derivative

claims asserted on behalf of HP with prejudice. See Marriott v. Chatham Cty., 

, 

 (2007) (“Standing is a necessary prerequisite

to a court’s proper exercise of subject matter jurisdiction.”).

   46.    Plaintiff’s derivative claims brought on behalf of Hyde-HP, however, are a

different matter. Plaintiff alleges that she is a 50% member of Hyde-HP, that she

made a written demand on Hyde-HP to take suitable action, and that such demand

was rejected. Thus, under N.C. Gen. Stat. § 57D-8-01, and assuming her allegations

regarding her demand to be true, Plaintiff has standing to bring derivative claims on

behalf of Hyde-HP.
   47.    Nonetheless, the Powells’ Supplemental Brief puts at issue the question of

whether Plaintiff may bring a derivative action on behalf of Hyde-HP against the

Powells for the Powells’ alleged wrongful actions that injured HP, the subsidiary LLC

in which Hyde-HP is a 75% member. Such a claim would be in the nature of a double

derivative claim. See Lambrecht, 

.

   48.    Our appellate courts have not explicitly addressed whether a plaintiff may

bring a double derivative claim under North Carolina law. The Court of Appeals, in

Hayes, dealt with individual claims in a factual scenario not unlike Plaintiff’s claims

here. The Court in Hayes was not, however, called upon to decide whether a double

derivative claim exists under North Carolina law. Absent guidance from the North

Carolina appellate courts, this Court may look to, but is not controlled by, Delaware

law on the subject. See First Union Corp. v. Suntrust Banks, Inc., 

, at *31 (N.C. Super. Ct. Aug. 10, 2001) (“North Carolina courts have frequently

looked to Delaware for guidance [on matters of corporate law] because of the special

expertise and body of case law developed in the Delaware Chancery Court and the

Delaware Supreme Court.”).

   49.    As noted above, Delaware courts recognize the legitimacy of a claim brought

by a shareholder of a parent company to enforce a claim belonging to a subsidiary, in

certain instances, so long as that subsidiary is wholly owned or majority controlled

by the parent. Lambrecht, 

. Here, Plaintiff’s Complaint, liberally

construed, states claims against Hyde and the Powells that would qualify as double

derivative claims on behalf of Hyde-HP under Delaware law.
   50.    Specifically, Plaintiff alleges that Hyde breached his fiduciary duty to HP

by unilaterally agreeing on behalf of HP to lower monthly rent owed by EZ, resulting

in a loss of income to Hyde-HP, as a 75% member in HP. (See Compl. ¶¶ 39, 43.)

Plaintiff also alleges that Hyde and the Powells breached their fiduciary duties to HP

in their allocation of the purchase price between HP and EZ, which allegedly

benefitted EZ at HP’s expense. (See Compl. ¶¶ 46, 48, 49.) These allegations, among

others, would, the Court believes, properly state a double derivative claim under

Delaware law.

   51.    In the absence of explicit guidance from North Carolina appellate courts

regarding the validity of double derivative claims in North Carolina, the Court

declines to dismiss such claims at this stage of the litigation, either on its own motion

under Rule 12(h)(3), or on the Powells’ purported Rule 12(b)(1) Motion set forth in the

Powells’ Supplemental Brief.       Accordingly, to the extent the Powells move for

dismissal of such claims in their Supplemental Brief, the Court concludes that the

Powells’ Motion should be denied, without prejudice to any of the Defendants’ right

to challenge the viability of Plaintiff’s double derivative claim at the dispositive

motion stage of this litigation.

                     VII.   PLAINTIFF’S INDIVIDUAL CLAIMS

   52.    Both Hyde’s Motion and the Powells’ Motion seek dismissal of Plaintiff’s

claims asserted in Plaintiff’s individual capacity rather than derivatively. Plaintiff

asserts individual claims against Hyde and the Powells for breach of contract, breach

of fiduciary duty, constructive fraud, conversion, unjust enrichment, punitive
damages, unfair and deceptive trade practices, and accounting. Each claim is based

on Hyde’s and the Powells’ alleged breach of their fiduciary duties to the LLCs by

their alleged wrongful allocation of the EZ purchase price among the various LLCs

and, as to Hyde specifically, for his alleged unilateral reduction of the rent EZ paid

HP each month.

   53.      Under North Carolina law, the rule is that “[s]hareholders . . . of

corporations generally may not bring individual actions to recover what they consider

their share of the damages suffered by the corporation.” Hayes, 

 (quoting Barger v. McCoy Hillard & Parks, 

,

S.E.2d 215, 220–21 (1997)). Despite this general rule, however,

         a “shareholder may maintain an individual action against a third party
         for an injury that directly affects the shareholder, even if the corporation
         also has a cause of action arising from the same wrong,” under two
         circumstances: (1) where “the wrongdoer owed [the shareholder] a
         special duty[,]” and (2) where the shareholder suffered a personal
         injury—one that is “separate and distinct from the injury sustained by
         the other shareholders or the corporation itself.”

 at *8 (quoting Barger, 

, 

). This rule, and its

exceptions, are equally applicable in the LLC context. See, e.g., SCA-Blue Ridge, LLC

v. WakeMed, 

 (N.C. Super. Ct. Jan. 4, 2016).

   A.       Hyde’s Motion

   54.      For Plaintiff to maintain individual claims against Hyde, she must allege

either (1) that Hyde owed Plaintiff a special duty, or (2) that Plaintiff suffered a

personal injury separate and distinct from the injury suffered by the LLCs. Hyde

argues that Plaintiff has not alleged facts sufficient to establish either a special duty
or unique personal injury and that, therefore, Plaintiff’s individual claims against

them should be dismissed.

   55.      As to the special duty exception, Plaintiff alleges, among other things, that

she and Hyde, each a 50% co-owner of Hyde-HP, are siblings, (Compl. ¶ 15), and that

“Hyde made every effort to exclude Plaintiff from the operation of the LLCs and

withheld information from her about both LLCs,” (Compl. ¶ 25). Plaintiff argues that

these allegations are sufficient to establish that Hyde owed Plaintiff a special duty.

   56.      The special duty that is required for a plaintiff to maintain an individual

action

         may arise from contract or otherwise. To support the right to an
         individual lawsuit, the duty must be one that the alleged wrongdoer
         owed directly to the shareholder as an individual. The existence of a
         special duty thus would be established by facts showing that defendants
         owed a duty to plaintiffs that was personal to plaintiffs as shareholders
         and was separate and distinct from the duty defendants owed the
         corporation. A special duty therefore has been found when the wrongful
         actions of a party induced an individual to become a shareholder; when
         a party violated its fiduciary duty to the shareholder; when the party
         performed individualized services directly for the shareholder; and
         when a party undertook to advise shareholders independently of the
         corporation.

Hayes, 

, at *10–11 (quoting Barger, 

, 

). Although Barger did not purport to identify an exhaustive list, the

Court of Appeals has concluded that “the special duty exception clearly requires an

articulation of some duty owed to a plaintiff that is distinct from the general fiduciary

duties directors and officers owe to the corporation.” Id. at *11.

   57.      Plaintiff contends that, in addition to the list articulated in Barger, a

familial relationship standing alone satisfies the special duty exception. In Poulos v.
Poulos, 

 (N.C. Super. Ct. June 2, 2015), for example, this Court

(McGuire, J.) held that an allegation that plaintiff and defendant were, in addition to

each being 50% members in an LLC, husband and wife was a “sufficient allegation of

a ‘special relationship’” to survive a motion to dismiss. Id. at *9.

   58.    The Court concludes that Poulos does not control in these circumstances.

Here, the relationship between Plaintiff and Hyde is one of brother and sister, rather

than husband and wife, the latter being “the most confidential of all relationships.”

Link v. Link, 

, 

 (1971). Moreover, in Poulos, the

plaintiff alleged that she relied on her husband’s representations that certain alleged

fraudulent transfers were for estate planning purposes, and that she placed actual

trust and confidence in her husband to properly engage in the business of the LLCs

in her best interests.

   59.    Here, however, there are no such allegations.         While the relationship

described in the Complaint is a strained one, there is no allegation that the

relationship between Plaintiff and Hyde, although familial, was anything more than

that of co-members of an LLC. The Court declines to hold that a sibling relationship

combined with 50% ownership of an LLC, without more, creates a special duty

sufficient to bypass the general rule in North Carolina that a member may not bring

an individual action to recover damages suffered by the LLC. See, e.g., Maurer v.

Maurer, 

, at *13 (Aug. 23, 2013) (declining to recognize special

duty where plaintiff and defendant were former spouses and 50/50 co-owners of

corporation).
   60.    Plaintiff’s allegations do not otherwise satisfy the special duty exception.

Plaintiff has not alleged that Hyde induced Plaintiff to become a member of Hyde-

HP, that Hyde performed individualized services directly for Plaintiff, or that Hyde

undertook to advise Plaintiff independently of the LLC. See Barger, 

,

.

   61.    In addition, Hyde plainly does not owe Plaintiff a fiduciary duty simply

because they are both members of Hyde-HP. “Members of a limited liability company

. . . do not owe a fiduciary to each other . . . .” Kaplan v. O.K. Techs., L.L.C., 

, 

 (2009).         Neither does Hyde owe Plaintiff a

fiduciary duty as a result of his status as the manager of Hyde-HP. See, e.g., 

(“[M]anagers of a limited liability company also owe a fiduciary duty to the company,

and not to individual members.”).        Although a controlling member may owe a

fiduciary duty to a minority member, see 

 here, Plaintiff alleges that she and Hyde

are both 50% members of Hyde-HP. Thus, Plaintiff is not a minority member, and

Hyde is not a controlling member. See Allen v. Ferrera, 

, 

 (2000) (“[P]laintiff was a fifty percent owner . . . and hence was not a

minority shareholder.”).

   62.    The Court specifically addresses Plaintiff’s claim against Hyde for breach

of the Hyde-HP Operating Agreement. As noted above, a special duty “may arise

from contract or otherwise.” Hayes, 

 (quoting

Barger, 

, 

). However, Hayes and Barger are also

clear that “the duty must be one that the alleged wrongdoer owed directly to the
shareholder as an individual.” 

 (quoting Barger, 

, 

). Here, Plaintiff alleges, specifically in regard to her breach of contract claim

against Hyde, that

         Defendants have breached their obligations, duties, and responsibilities
         under the . . . Hyde-HP [Operating Agreement], particularly the duties
         assigned to managers in the operating agreements. In particular,
         Defendants breached the duties set forth in the . . . Hyde-HP [Operating
         Agreement] not to engage in acts or omissions that were clearly in
         conflict with the interests of the LLCs and . . . engage in transactions
         from which a manager derives an improper personal benefit.

(Compl. ¶¶ 66, 67.)

   63.      These alleged duties are neither different from the usual fiduciary duties

owed by a manager of an LLC, see N.C. Gen. Stat. § 57D-3-21, nor special to Plaintiff

individually, rather than duties owed to the LLC as a matter of contract. Accordingly,

the Court concludes that the Hyde-HP Operating Agreement, itself, is not sufficient

to create a special duty owed by Hyde specifically to Plaintiff. For these same reasons,

Plaintiff’s individual claim for breach of the Hyde-HP Operating Agreement also fails.

   64.      Like Hayes, “this case does not present a situation where the recognition of

a special duty would be proper or justified.” Hayes, 

. For these reasons, the Court concludes that Plaintiff has failed to allege that

Hyde owed any special duty to Plaintiff.

   65.      Turning next to the special injury exception, to proceed under this

exception, “a plaintiff must allege an injury ‘peculiar and personal’ to itself as a

shareholder.” 

 (quoting Barger, 

, 

). “Specifically,

a plaintiff must show that its particular injury was ‘separate and distinct from the
injury sustained by the other shareholders or the corporation itself.’” 

 (quoting

Barger, 

, 

).

   66.    Plaintiff’s Complaint contains numerous allegations that, as a result of

Hyde’s wrongdoing, “HP, Hyde-HP, and Plaintiff have been damaged.” (See, e.g.,

Compl. ¶¶ 70, 81, 94, 99, 106, 110.) Completely absent from Plaintiff’s Complaint,

however, is any allegation that Plaintiff suffered a “peculiar and personal” injury,

apart from that suffered by Hyde-HP.

   67.    Plaintiff contends that the allegations that (1) Plaintiff was not a member

of EZ, and (2) Defendants engaged in a series of transactions that benefitted EZ to

the detriment of Hyde-HP, HP, and Plaintiff are sufficient to establish a special injury

suffered by Plaintiff. The Court disagrees. The harm allegedly suffered by Plaintiff

as a result of the alleged wrongful allocation of the purchase price by Hyde and the

Powells among EZ, Hyde-HP, and HP is exactly the same harm that Plaintiff alleges

was suffered by the LLCs. Plaintiff has failed to allege any injury she suffered that

is separate and distinct from the injury suffered by Hyde-HP. See, e.g., Barger, 

, 

 (“[S]hareholders cannot pursue individual causes of

action against third parties for wrongs or injuries to the corporation that result in the

diminution or destruction of the value of their stock.”).

   68.    In sum, Plaintiff’s Complaint does not allege facts sufficient to establish

either of the exceptions outlined in Barger and followed in Hayes. For these reasons,

the Court concludes that Plaintiff’s individual claims against Hyde should be

dismissed.
   B.     The Powells’ Motion

   69.    Plaintiff’s individual claims against the Powells fail for the same reasons

the same claims fail against Hyde.        Plaintiff’s Complaint does not allege facts

sufficient to establish either of the Barger exceptions. Accordingly, for the same

reasons explained above in connection with Hyde’s Motion, the Court concludes that

Plaintiff’s individual claims against the Powells should be dismissed.

   C.     Dismissal With or Without Prejudice

   70.    Plaintiff requests that any dismissal of her individual claims be without

prejudice. Plaintiff contends that, because information concerning the operation of

Hyde-HP was withheld from her, her ability to allege facts are necessarily limited to

what she currently knows or believes to be true, and that if evidence is uncovered

during discovery that would support individual claims, Plaintiff should be allowed to

amend the pleadings and assert those claims.

   71.    “The decision to dismiss an action with or without prejudice is in the

discretion of the trial court . . . .” First Fed. Bank v. Aldridge, 

,

 (2013). The Court concludes, in the exercise of its discretion, that

dismissal of Plaintiff’s individual claims, except for any such claims asserted out of

her alleged status as a member of HP, at this stage should be without prejudice to

Plaintiff’s right to attempt to reassert such claims by way of a motion to amend her

Complaint in the event discovery uncovers facts sufficient to establish one of the two

Barger exceptions discussed above, or that Plaintiff is otherwise entitled to bring

individual claims against Hyde and/or the Powells.
                               VIII. CONCLUSION

   72.      For the foregoing reasons, the Court hereby GRANTS Hyde’s Motion,

GRANTS in part the Powells’ Motion, and DISMISSES without prejudice Plaintiff’s

claims asserted in her individual capacity against Hyde and the Powells, except for

any claims asserted out of her alleged status as a member of HP, which are dismissed

with prejudice. The Court further, sua sponte, DISMISSES with prejudice Plaintiff’s

claims asserted derivatively on behalf of HP against Hyde and the Powells.      As a

result of the Court’s rulings as set forth herein, all individual claims against Hyde

and the Powells are dismissed. Plaintiff’s derivative claims against Hyde and the

Powells on behalf of Hyde-HP survive the Motions.

         SO ORDERED, this the 4th day of October, 2016.



                                        /s/ Michael L. Robinson
                                       Michael L. Robinson
                                       Special Superior Court Judge
                                        for Complex Business Cases