Azure Dolphin, LLC v. Barton

Azure Dolphin, LLC v. Barton, 

.


STATE OF NORTH CAROLINA                     IN THE GENERAL COURT OF JUSTICE
                                                SUPERIOR COURT DIVISION
FORSYTH COUNTY                                         16 CVS 7622

AZURE DOLPHIN, LLC, et al.,

                       Plaintiffs,

v.                                                OPINION AND ORDER ON
                                                   DEFENDANTS’ MOTION
JUSTIN BARTON, et al.,
                                                       TO DISMISS
                       Defendants.


     1.     This dispute relates to a business partnership between Plaintiff Jean-Pierre

Boespflug and Defendant Justin Barton to acquire and invest in real estate through

numerous entities around the country. Boespflug now claims that Barton carried out

a wrongful scheme to remove him as an owner of the investment entities and to

transfer their properties to others. In this action, Boespflug asserts more than a

dozen claims against Barton, his wife Janet Barton, and nearly twenty limited

liability companies and partnerships, most of which are organized under the laws of

other States.

     2.     Defendants have moved to dismiss the complaint for lack of personal

jurisdiction, lack of subject-matter jurisdiction, and failure to state a claim. Having

considered the motion, the briefs, and the arguments of counsel, the Court GRANTS

Defendants’ motion.

          Angstman Johnson by Thomas J. Angstman and Ashville Legal by Jake
          A. Snider and Michael G. Wimer, for Plaintiffs.

          Bell, Davis & Pitt, P.A. by Alan M. Ruley and Andrew A. Freeman, for
          Defendants.

Conrad, Judge.
                                      I.
                              PROCEDURAL HISTORY

   3.    Plaintiffs Jean-Pierre Boespflug, Azure Dolphin, LLC, and JPB Holdings,

Inc. filed their complaint in December 2016. (V. Compl., ECF No. 1.) The initial

complaint included fifteen claims for relief against twenty-one defendants.

   4.    Defendant Sanur Brokerage Company timely filed its answer, and all other

Defendants moved to dismiss Plaintiffs’ complaint. (Mot. to Dismiss, ECF No. 13;

Answer of Sanur Brokerage Co., ECF No. 29.) Defendants sought dismissal for lack

of personal jurisdiction, lack of subject-matter jurisdiction, failure to join necessary

parties, and failure to state a claim.

   5.    The motion prompted Plaintiffs to seek leave to amend their complaint.

(Pls.’ Mot. to Am., ECF No. 35.) Among other things, Plaintiffs proposed to name as

defendants several “necessary parties previously unknown to the Plaintiffs.” (Pls.’

Mot. to Am. ¶ 7.)      Three weeks later, Plaintiffs voluntarily dismissed Viking

Properties, LLC as a defendant. (Notice of Dismissal, ECF No. 43.)

   6.    On April 6, 2017, the Court granted Plaintiffs’ motion to amend (over

Defendants’ opposition) and denied Defendants’ motion to dismiss as moot. (Order

Granting Pls.’ Mot. to Am., ECF No. 45.) This Order also permitted Defendants, as

part of any renewed motion to dismiss, to “incorporate, in whole or in part, the briefs

filed in support of their original Motion to Dismiss.” (Order Granting Pls.’ Mot. to

Am. ¶ 4.)

   7.    After filing their amended complaint, Plaintiffs sought leave to file a second

amended complaint, which the Court denied on the grounds of undue delay, dilatory
motive, and failure to comply with this Court’s Rules. (Pls.’ Mot. for Leave to File

Second Am. Compl., ECF No. 56; Order Den. Pls.’ Mot. For Leave to File Second Am.

Compl., ECF No. 68.)

   8.         On May 19, 2017, Defendants moved to dismiss the amended complaint.

(Mot. to Dismiss Am. Compl., ECF No. 61.) During briefing, Plaintiffs voluntarily

dismissed their claims against all of the “necessary parties” added as part of the

amended complaint as well as Sanur Brokerage and, for the second time, Viking

Properties. (Notice of Voluntary Dismissal, ECF No. 73.) Plaintiffs also dismissed

their claims for unjust enrichment (claim 7) and conversion (claim 9) as to the

remaining Defendants and narrowed their claims for breach of fiduciary duty (claim

6), constructive trust (claim 8), and punitive damages (claim 10). (Notice of Voluntary

Dismissal.)

   9.         The Court heard oral argument on Defendants’ renewed motion to dismiss

on July 20, 2017. The motion is ripe for determination.

                                          II.
                                      BACKGROUND

   10.        Barton and Boespflug began investing in real estate together in the 1980s.

(Am. Compl. ¶¶ 51–52, ECF No. 54.) They “formed various entities to acquire and

hold investment properties throughout the United States,” mostly purchasing

commercial buildings and apartment complexes. (Am. Compl. ¶¶ 55, 59.) Twelve of

these entities—the “Investment Entities”—are Defendants in this litigation:

         a.      Jay’s Commonwealth Park, LLC and Jay’s Commonwealth Park Phase

                 II, LLC are North Carolina limited liability companies;
         b.      Barton Boespflug II and Vintage Oak II are California limited

                 partnerships;

         c.      Willamette River I GP is an Oregon general partnership; and

         d.      Ash Creek, LLC; Hess Creek, LLC; Jay’s Canby, LLC; Newby House,

                 LLC; Richmond Park, LLC; River Valley Investors, LLC; and Royal

                 Ascot, LLC are Oregon limited liability companies.

(Am. Compl. ¶¶ 4–15.) According to the complaint, Boespflug contributed most of the

capital, and Barton served as the Investment Entities’ manager. (See Am. Compl.

¶¶ 56–57, 60.)

   11.        At some point (the complaint does not specify when), Boespflug created

Azure Dolphin as “a Nevada limited liability company to hold assets in trust for his

family.” (Am Compl. ¶ 65.) Boespflug transferred a portion of his economic interest

in the entities to Azure Dolphin. (Am Compl. ¶ 66.) In his role as manager of the

Investment Entities, Barton reported “intermittently on the state of the portfolio” and

made distributions to Boespflug and Azure Dolphin. (Am. Compl. ¶¶ 63, 67.)

   12.        In April 2011, Boespflug returned to his residence in France. (Am. Compl.

¶ 70.) A few days later, Barton asked Boespflug to help secure a new loan and

refinance two others. (Am. Compl. ¶ 71.) The complaint does not identify which

entity or entities the loans concerned, but Boespflug responded that “his financial

position was no longer conducive to personally guaranteeing loans on” the investment

properties. (Am. Compl. ¶ 72.) At the end of 2011, 18 properties remained in the

investment portfolio. (Am. Compl. ¶ 59.)
   13.   Shortly after, the complaint alleges, Barton secretly took actions to remove

Boespflug from the Investment Entities. Barton deemed Boespflug’s transfers to

Azure Dolphin as having extinguished his voting rights as a member of the

Investment Entities. (See Am. Compl. ¶ 88.) Exercising his own unchecked voting

rights, Barton converted Boespflug’s membership interests into notes payable and

issued a series of promissory notes in 2012 and 2013 for their purchase. (See Am.

Compl. ¶¶ 78–80, 84–85, 98, 101.)       The interests were allegedly obtained by

Defendants Barton Boespflug II, Viking Property Investors LLC, Ash Creek, Vintage

Oak II, or Willamette River I, LLC. (Am. Compl. ¶ 79.) Barton then “unilaterally

amended the operating agreements of the Investment Entities with terms

considerably more favorable to him.” (Am. Compl. ¶ 89.)

   14.   Barton also “sold properties owned by” the Investment Entities and

“transferred” others to entities controlled by himself.    (Am. Compl. ¶ 90.)     The

complaint identifies three transferred properties: an Oregon property owned by Jay’s

Canby; a second Oregon property owned by Newby House; and a Texas property

owned by Richmond Park. (See Am. Compl. ¶¶ 116, 118, 119.)

   15.   Boespflug alleges that he first learned of these actions in the summer of

2016. (Am. Compl. ¶¶ 78, 81.) He filed this suit a few months later.

                                       III.
                                    ANALYSIS

   16.   Plaintiffs continue to assert thirteen of the fifteen claims contained in the

amended complaint. The claims include several declaratory-judgment counts; claims

for breach of fiduciary duty, civil conspiracy, fraudulent conveyance, and unfair or
deceptive trade practices; and requests for various remedies labeled as claims for

relief.

   17.    Defendants move to dismiss the complaint in its entirety. Many of the

Defendants are entities organized under the laws of other States. Some contend that

the Court lacks personal jurisdiction over them, and others argue that the Court lacks

subject-matter jurisdiction as to certain claims (such as judicial dissolution).

Defendants further contend that the complaint fails to state a claim for relief under

Rule 12(b)(6).

                              A. Personal Jurisdiction

   18.    Ten Defendants—Ash Creek; Jay’s Canby; Jay’s Canby Florence, LLC;

Montpelier Investors, LLC; Newby House; Richmond Park; River Valley Investors;

Willamette River I GP; Willamette River I, LLC; and Victoria Place GP—argue that

this Court lacks personal jurisdiction over them. All are entities organized under the

laws of other States with their principal places of business outside North Carolina.

   19.    “A North Carolina court has jurisdiction over a nonresident defendant if

(1) statutory authority for the exercise of jurisdiction under the long-arm statute,

, exists and (2) the exercise of jurisdiction comports with due

process under federal law.” Soma Tech., Inc. v. Dalamagas, 

,

at *8 (N.C. Super. Ct. Mar. 24, 2017). Here, the Court need not consider the long-

arm statute because the federal due-process analysis is dispositive.

   20.    Due process requires that a defendant “have certain minimum contacts”

with this State “such that the maintenance of the suit does not offend ‘traditional
notions of fair play and substantial justice.’” Int’l Shoe Co. v. Wash., 

 (1945). Courts “have differentiated between general or all-purpose jurisdiction,

and specific or case-linked jurisdiction.” Goodyear Dunlop Tires Operations, S.A. v.

Brown, 

 (2011). General jurisdiction allows a court “to hear any and

all claims” asserted against a defendant where the defendant’s contacts “with the

State are so ‘continuous and systematic’ as to render them essentially at home in the

forum State.” 

 Specific jurisdiction, on the other hand, “exists when the cause of

action arises from or is related to defendant’s contacts with the forum.” Skinner v.

Preferred Credit, 

, 

 (2006).

   21.   When a defendant challenges personal jurisdiction, the plaintiff has the

burden of establishing a prima facie basis for jurisdiction.         See Bruggeman v.

Meditrust Acquisition Co., 

, 

 (2000). A

court will rely on the allegations in the complaint to make this determination unless

the defendant submits sworn affidavits that contradict those allegations.             See

Inspirational Network, Inc. v. Combs, 

, 

(1998). If the defendant submits affidavits, the plaintiff may continue to rely on the

allegations in the complaint, submit its own affidavits, or request jurisdictional

discovery. See Bruggeman, 

, 

 (noting that the

trial court may resolve personal jurisdiction on the affidavits submitted to the court

or at an evidentiary hearing).

   22.   The record in this case is one-sided. Each of the ten Defendants filed an

affidavit stating it is not domiciled in and does not have its principal place of business
in this State.1 Six entities are Oregon limited liability companies with their principal

places of business in California. Two others are Oregon general partnerships with

members from Oregon, California, France, and/or Monaco. And the remaining two

entities are Michigan and South Carolina limited liability companies with their

principal places of business in California.

   23.   The affidavits also state that these ten Defendants have no property in

North Carolina, have no employees in North Carolina, and do not conduct business

here.2 In short, these Defendants have no meaningful contact of any kind with this

State.

   24.   Plaintiffs’ response is hard to follow.       In a three-paragraph argument,

Plaintiffs ignore general jurisdiction (with good reason) and do little more than wink

at the law for specific jurisdiction. (See Pls.’ Resp. Br. to Defs.’ Mot. to Dismiss 21–

22, ECF No. 75.)      They do not discuss, much less dispute, any of Defendants’

affidavits. Rather, they assert that each Defendant is part of “the Viking Properties

venture,” which “operates primarily in North Carolina.” (Pls.’ Resp. Br. 22.)




1 See Willamette River I, LLC’s Aff. ¶¶ 3–4, ECF No. 28; Ash Creek, LLC’s Aff. ¶¶ 2–5, ECF

No. 15; Jay’s Canby, LLC’s Aff. ¶¶ 3–4, ECF No. 17; Newby House, LLC’s Aff. ¶¶ 3–4, ECF
No. 22; Richmond Park, LLC’s Aff. ¶¶ 3–4, ECF No. 23; River Valley Investors, LLC’s Aff.
¶¶ 3–4, ECF No. 24; Victoria Place GP’s Aff. ¶¶ 3, 6, ECF No. 26; Willamette River I GP’s
Aff. ¶¶ 3, 6, ECF No. 27; Montpelier Investors, LLC’s Aff. ¶¶ 3–4, ECF No. 21; Jay’s Canby
Florence, LLC’s Aff. ¶¶ 3–4, ECF No. 18.
2 See Willamette River I, LLC’s Aff. ¶¶ 10–21; Ash Creek, LLC’s Aff. ¶¶ 10–21; Jay’s Canby,

LLC’s Aff. ¶¶ 10–21; Newby House, LLC’s Aff. ¶¶ 10–21; Richmond Park, LLC’s Aff. ¶¶ 10–
21; River Valley Investors, LLC’s Aff. ¶¶ 9–20; Victoria Place GP’s Aff. ¶¶ 9–20; Willamette
River I GP’s Aff. ¶¶ 9–20; Montpelier Investors, LLC’s Aff. ¶¶ 9–20; Jay’s Canby Florence,
LLC’s Aff. ¶¶ 10–21.
   25.   As best the Court can tell, Plaintiffs contend that Defendants are subject to

jurisdiction because Viking Properties (which is no longer a party to this lawsuit) has

contacts with North Carolina. This theory is untenable. The general rule is that the

relationship with the State “must arise out of contacts that the ‘defendant himself’

creates.” Walden v. Fiore, 

 (U.S. 2014) (quoting Burger King

Corp. v. Rudzewicz, 

 (1985)). Only in rare circumstances—for

example, where a defendant has acted through an alter ego—will a court impute the

contacts of one entity to another for purposes of personal jurisdiction. See State ex

rel. Cooper v. W. Sky Fin., LLC, 

, at *15 (N.C. Super. Ct. Aug.

27, 2015) (North Carolina courts will disregard the corporate form only in “an extreme

case where necessary to serve the ends of justice.”).

   26.   Those circumstances do not exist here. Plaintiffs’ brief does not address any

of the usual alter-ego or veil-piercing factors (e.g., undercapitalization and failure to

comply with corporate formalities). Even assuming Plaintiffs mean to assert such a

theory, their entire evidentiary showing is a single paragraph in an affidavit of

Boespflug, which states that Boespflug “visited Winston-Salem, North Carolina on

May 21, 2017” and “noticed that Sanur and Viking appear to still operate an office

there.” (Boespflug 2d Aff. ¶ 37, ECF No. 77.) This paragraph, which does not mention

the foreign Defendants, is facially insufficient. See Strategic Outsourcing, Inc. v.

Stacks, 

, 

 (2006) (holding that the party

asserting alter-ego liability must show the “complete domination” of the corporate

entity, such that it had “no separate mind, will or existence of its own”).
   27.   To the extent Plaintiffs are asserting a “civil conspiracy” theory of personal

jurisdiction, it also fails. (Pls.’ Resp. Br. 22.) “[T]he North Carolina Supreme Court

has never adopted a conspiracy theory of personal jurisdiction.” Weisman v. Blue Mt.

Organics Distrib., LLC, 

, at *18 (N.C. Super. Ct. Sept. 5, 2014).

Even assuming it is a valid theory, Plaintiffs’ argument is confusing and unsupported

by evidence. This Court again “declines any invitation to adopt the theory that

appellate courts have not yet embraced.” Id.

   28.   In short, Plaintiffs have not carried their burden to support the exercise of

personal jurisdiction.   There is no evidence of any “continuous and systematic”

contacts between these ten Defendants and North Carolina giving rise to general

jurisdiction. Goodyear, 

. And there is no evidence that the ten

Defendants “purposely avail[ed]” themselves “of the privilege of conducting activities

within” North Carolina, such that the exercise of specific jurisdiction would be

appropriate. Cambridge Homes of N.C. L.P. v. Hyundai Constr., Inc., 

, 

 (2008) (quoting Lulla v. Effective Minds, LLC, 

, 

 (2007)).

   29.   The Court also rejects Plaintiffs’ alternative request for jurisdictional

discovery. (See Pls.’ Resp. Br. 22.) Whether to grant jurisdictional discovery is within

the Court’s discretion, but the party seeking discovery “must offer more than

speculation or conclusory assertions about contacts with a forum state.” Pan-Am.

Prods. & Holdings, LLC v. R.T.G. Furniture Corp., 

(M.D.N.C. 2011); see also Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 

, 402–03 (4th Cir. 2003). Plaintiffs have not done so. Their “bare allegations

in the face of specific denials made by defendants” do not warrant jurisdictional

discovery. Rich v. KIS Cal., Inc., 

 (M.D.N.C. 1988); see also

Weisman, 

, at *18–19 (denying jurisdictional discovery).

   30.   The Court holds that it lacks personal jurisdiction over Ash Creek, Jay’s

Canby, Newby House, Richmond Park, River Valley Investors, Montpelier Investors,

Jay’s Canby Florence, Willamette River I, LLC, Willamette River I GP, and Victoria

Place. The claims against these Defendants are dismissed with prejudice.

                           B. Subject-Matter Jurisdiction

   31.   A court must have subject-matter jurisdiction to exercise authority over a

case or controversy. See Harris v. Pembaur, 

, 

 (1987). The absence of subject-matter jurisdiction requires dismissal. See N.C.

R. Civ. P. 12(h)(3). In deciding whether jurisdiction exists, the court may consider

matters outside the pleadings. See Tart v. Walker, 

, 

 (1978).

1. Standing as to JPB Holdings (Claim 15)

   32.   The complaint states that Plaintiff JPB Holdings, Inc. “is a California

corporation” that owns property and conducts business in North Carolina. (Am.

Compl. ¶ 3.) Plaintiffs now concede this is false. Although JPB Holdings submitted

articles of incorporation to the California Secretary of State on December 8, 2016,

those articles were returned unfiled. (Aff. of Thomas J. Angstman in Supp. of Pls.’
Mot. to Sub. Party ¶¶ 4, 6, ECF No. 84.) As a result, JPB Holdings was never formed

and does not exist. (Aff. of Angstman ¶ 9.)

   33.   Although Defendants do not challenge JPB Holdings’s standing, this Court

has inherent authority to consider its own jurisdiction. See Willowmere Cmty. Ass’n

v. City of Charlotte, 

, 808–09 (N.C. Ct. App. 2016). In North Carolina,

a claim must be maintained by “a legal person, whether it be a natural person, sui

juris, or a group of individuals or other entity having the capacity to sue and be sued,

such as a corporation, partnership, unincorporated association, or governmental body

or agency.” In re Coleman, 

, 

 (1971). For a

corporation to have the capacity to sue or be sued, it must be incorporated. See Nelson

v. Atl. Coast Line R.R. Co. Relief Dep’t, 

, 103–04, 

 (1908)

(holding that the unincorporated division of a corporation was not a natural person

or artificial being that could be sued); see also Doe v. Bayer Corp., 

, 468–69 (M.D.N.C. 2004) (“Thus, North Carolina does not confer capacity to sue

or be sued on unincorporated parts of corporations.”).

   34.   JPB Holdings lacks standing to bring suit because it was never incorporated.

The Court therefore dismisses with prejudice its claim for breach of fiduciary duty

(claim 15). To the extent JPB Holdings purports to join in any other claim brought

by Boespflug and Azure Dolphin, those claims are also dismissed.
2. Judicial Dissolution (Claim 5)

   35.   Plaintiffs’ fifth claim for relief seeks a decree judicially dissolving each of the

Investment Entities. (Am. Compl. ¶¶ 129–39.) The Court addresses this claim as it

relates to the six Investment Entities that have not challenged personal jurisdiction.

   36.   Four of these six Defendants are foreign entities:          two California LPs

(Barton Boespflug II and Vintage Oak II) and two Oregon LLCs (Hess Creek and

Royal Ascot).   They contend that this Court lacks subject-matter jurisdiction to

dissolve an entity created under the laws of another State. (See Br. in Supp. of Mot.

to Dismiss 20–21, ECF No. 62.) The Court agrees.

   37.   This Court has held that “[j]udicial dissolution of entities created under, and

granted substantial contractual freedom by, the laws of one state should be

accomplished by a decree of a court of that state.” Camacho v. McCallum, 

, at *13–14 (N.C. Super. Ct. Oct. 25, 2016). Courts in other jurisdictions

have consistently reached the same conclusion. See, e.g., In re Raharney Capital,

LLC v. Capital Stack LLC, 

, 217–18 (N.Y. App. Div. 2016) (holding

that New York courts lack jurisdiction to dissolve Delaware LLC); Young v. JCR

Petroleum, Inc., 

 (W.Va. 1992) (“The existence of a corporation

cannot be terminated except by some act of the sovereign power by which it was

created.”); Mills v. Anderson, 

 (Mich. 1927) (“It is textbook law that

the courts of one State cannot dissolve a corporation created by another State.”).

   38.   This principle is reflected in the statutory regime governing limited liability

companies and limited partnerships. The North Carolina General Assembly has
conferred jurisdiction on this Court to enter a decree of judicial dissolution as to

domestic entities, but not as to foreign entities. For example, this Court explained in

Camacho that N.C. Gen. Stat. § “57D-6-02 applies only to an LLC formed under the

North Carolina Act.” 

, at *11 (citing N.C. Gen. Stat. §§ 57D-1-

03(13), (19)). The same is true of North Carolina’s uniform partnership act: it limits

this Court’s authority to “decree dissolution of a limited partnership” only to a

“limited partnership” formed “under the laws of this State.” 

-

102(8), 802.

   39.   The complaint cites the laws of Oregon and California concerning judicial

dissolution, but these statutes, enacted by other States, cannot confer jurisdiction on

this Court. See 

 (permitting Oregon “circuit courts” to dissolve

Oregon limited liability companies); 

(a) (authorizing

California “court[s] of competent jurisdiction” to dissolve California limited

partnerships). Because Oregon or California law “enables the formation” of these

entities and governs their stakeholders’ rights and duties, a decree of judicial

dissolution must come, if at all, from the courts of those States. Camacho, 

, at *13–14; see also Valone v. Valone, 

 (Va. Cir.

Ct. Jan. 20, 2010) (holding court lacked jurisdiction to dissolve foreign limited

partnership).

   40.   Plaintiffs do not address this law or provide any authority conferring

jurisdiction on this Court to dissolve a foreign limited liability company or limited

partnership. To the extent Plaintiffs address subject-matter jurisdiction at all, they
object that strict adherence to jurisdictional requirements may result in piecemeal

litigation and a loss of judicial economy. (See Pls.’ Resp. Br. 23.) Perhaps so, but

convenience is no substitute for jurisdiction.

   41.   The Court also lacks jurisdiction, though for a different reason, as to the two

North Carolina Investment Entities, Jay’s Commonwealth Park, and Jay’s

Commonwealth Park Phase II. Under N.C. Gen. Stat. § 57D-6-02(2), only a member

of an LLC has standing to assert a claim for judicial dissolution.

   42.   According to the complaint, Azure Dolphin is not a member of either entity.

(See Am. Compl. ¶¶ 2, 4, 5.) Azure Dolphin therefore lacks standing to seek judicial

dissolution.

   43.   The same is true for Boespflug.         Although the complaint alleges that

Boespflug holds a membership interest, he concedes that he entered into a security

agreement with his attorneys, Angstman, Johnson & Associates, in which he

“grant[ed] security interests in all of [his] rights, title and ownership interest in

membership interests in” both North Carolina companies. (2d Aff. of Boespflug Ex.

9 § B, ECF No. 77.10.) Thereafter, Angstman, Johnson & Associates exercised its

right to obtain possession of the collateral because of Boespflug’s failure to pay his

debt. (Jay’s Commonwealth Park LLC’s Aff. Ex. A.) In addition, Angstman, Johnson

& Associates notified Barton that it had “accepted all of Mr. Boespflug’s right title

and interest in . . . Jay’s Commonwealth Park, LLC, [and] Jay’s Commonwealth Park

Phase II, LLC” and is entitled to “all Mr. Boespflug’s distributions payable on account

of the companies listed above.” (Jay’s Commonwealth Park LLC’s Aff. Ex. B.)
   44.   These transactions extinguished Boespflug’s membership interest. Under

N.C. Gen. Stat. § 57D-3-02, a member ceases to be a member if he “[e]xecutes an

assignment for the benefit of creditors.” Boespflug transferred his interests in Jay’s

Commonwealth Park and Jay’s Commonwealth Park Phase II to his attorneys to

satisfy a debt. He therefore lacks standing to seek a decree of judicial dissolution

under N.C. Gen. Stat. § 57D-6-02(2).

   45.   For these reasons, the Court lacks subject-matter jurisdiction as to

Plaintiffs’ claim for judicial dissolution. The claim is dismissed with prejudice.

3. Removal of Barton as Manager (Claim 2)

   46.   Plaintiffs’ second claim for relief requests a declaration removing Barton as

manager of the Investment Entities. (Am. Compl. ¶¶ 106–10.) Again, the Court

addresses this claim as it relates to the six Investment Entities that have not

challenged personal jurisdiction.

   47.   Citing Camacho, the foreign Defendants contend that a North Carolina

court lacks jurisdiction to interfere in the internal affairs of entities organized under

the laws of other States. (Br. in Supp. 20–22; Defs.’ 1st Br. in Supp. Mot. to Dismiss

11–12, ECF No. 14.) Camacho does not directly address this issue, and the Court

instead concludes that it lacks jurisdiction for a different reason.

   48.   “Managers of limited liability companies are similar to directors of a

corporation.” Kaplan v. O.K. Techs., L.L.C., 

, 

 (2009). North Carolina law is clear that a corporate director owes a fiduciary

duty to the company, and an action to remove a director for mismanagement is
properly raised by the corporation, not by individual shareholders. See, e.g., Gwaltney

v. Gwaltney, 

, at *17 (N.C. Super. Ct. Feb. 8, 2017); Greene v.

Shoemaker, 

, at *5, 8, 13–16 (N.C. Super. Ct. Sept. 24, 1998).

For the same reason, an action to remove a manager of an LLC is derivative in nature

and must be asserted by or on behalf of the LLC, rather than by an individual

member. See, e.g., Kroupa v. Garbus, 

 (N.D. Ill. 2008)

(applying Delaware law); Mich II Holdings LLC v. Schron, 

, at *11 (N.Y. Sup. Ct. June 16, 2011) (under New York law, claim for removal of

manager is “a claim of the corporation”); see also Freeman v. Premium Natural Beef,

LLC, 

, at *17 (W.D. Okla. Sept. 27, 2013).

   49.   Plaintiffs therefore lack standing to assert this claim individually, and they

have failed to take the steps necessary to bring a derivative claim. “A party’s standing

to bring a derivative claim depends on” compliance with “the demand requirement”

in N.C. Gen. Stat. § 57D-8-01(a)(2). Petty v. Morris, 

, at *4

(N.C. Super. Ct. Dec. 16, 2014). Having made no demand as to any of the Investment

Entities, Plaintiffs lack standing. See Wirth v. Sunpath, LLC, 

,

at *13 (N.C. Super. Ct. Sept. 14, 2017). The claim is dismissed with prejudice.

                        C. Failure to Join Necessary Parties

   50.   Plaintiffs allege that Barton wrongfully removed Boespflug as a member

and “unilaterally amended the operating agreements of some or all of the Investment

Entities.” (Am. Compl. ¶ 178.) In their first and eleventh claims for relief, Plaintiffs

request a declaration voiding these acts. Again, as to these claims, the Court limits
its analysis to the six Investment Entities that have not challenged personal

jurisdiction.

   51.   Defendants contend that the claims must be dismissed for failure to join all

of the Investment Entities’ members as necessary parties in the lawsuit. See N.C. R.

Civ. P. 12(b)(7). They cite the North Carolina Declaratory Judgment Act, which

requires that, in an action for declaratory relief, “all persons shall be made parties

who have or claim any interest which would be affected by the declaration, and no

declaration shall prejudice the rights of persons not parties to the proceedings.” 

.

   52.   Although Plaintiffs’ brief ignores this issue, they previously conceded that

the absent members are necessary parties in their opposition to Defendants’ original

motion to dismiss. (See Pls.’ Mem. in Supp. Mot. to Am. Compl. 15–16.) Plaintiffs

also amended the complaint to add some or all of these members as defendants but

have since dismissed them from the suit.

   53.   The Court concludes that the absent members of the Investment Entities

are necessary parties under section 1-260. The purpose of Plaintiffs’ claim is to

invalidate the Investment Entities’ operating agreements and to alter their

memberships. Yet each of the Investment Entities has one or more members or

owners who are parties to its operating agreement but are not parties to this

litigation. (See Am. Compl. ¶¶ 4, 5, 7, 8, 13, 14.) Any declaration invalidating an

operating agreement or altering the LLC’s membership under the operating

agreement would, “as a practical matter,” adversely affect the rights of these
members. N.C. Monroe Constr. Co. v. Guilford County Bd. of Educ., 

, 

 (1971) (holding that a contracting party “is a necessary party

in a proceeding to declare its contract . . . invalid”). Accordingly, this Court cannot

“properly determine the validity of” the operating agreements without making each

member “a party to the proceeding.” Id.; see also Window World of St. Louis, Inc. v.

Window World, Inc., 

, at *15 (N.C. Super. Ct. Aug. 10, 2015).

   54.   The remaining question is whether it is appropriate to dismiss the claim.

Although “[n]ecessary parties must be joined in an action,” Bailey v. Handee Hugo’s,

Inc., 

, 

 (2005), precedent makes clear that

“[d]ismissal under Rule 12(b)(7) is proper only when the defect cannot be cured,”

Howell v. Fisher, 

, 

 (1980).

   55.   Here, any attempt to cure would be futile. The complaint is clear that all of

the additional parties reside outside North Carolina, and there are no allegations that

would support the exercise of personal jurisdiction over them. (See Am. Compl. ¶¶ 4,

5, 7, 8, 13, 14.) Plaintiffs have had several opportunities to identify a basis for the

exercise of jurisdiction, including in their briefs opposing the original and renewed

motions to dismiss and in the amended complaint, which purported to name the

members as defendants. They have failed to do so. Accordingly, the Court dismisses

the eleventh claim for relief without prejudice. See Crosrol Carding Devs., Inc. v.

Gunter & Cooke, Inc., 

, 

 (1971) (dismissal

under Rule 12(b)(7) “is not a dismissal on the merits and may not be with prejudice”).
                          D. Rule 12(b)(6) Motion to Dismiss

   56.   The Court, in deciding a Rule 12(b)(6) motion, treats the well-pleaded

allegations of the complaint as true, see Sutton v. Duke, 

, 

 (1970), and views the facts in a light most favorable to the non-moving party,

see Ford v. Peaches Entm’t Corp., 

, 

 (1986).

The Court “may properly consider documents which are the subject of a plaintiff’s

complaint and to which the complaint specifically refers.” Oberlin Capital, L.P. v.

Slavin, 

, 

 (2001). Accordingly, a Rule 12(b)(6)

motion should be granted only “(1) when the complaint on its face reveals that no law

supports plaintiff’s claim; (2) when the complaint on its face reveals the absence of

fact sufficient to make a good claim; [or] (3) when some fact disclosed in the complaint

necessarily defeats plaintiff’s claim.” Jackson v. Bumgardner, 

, 

 (1986).

1. Fiduciary Duty (Claim 6)

   57.   Plaintiffs’ sixth claim for relief is a combined claim for constructive fraud

and breach of fiduciary duty. (Am Compl. ¶ 141–47.) Having voluntarily dismissed

all claims against Viking Properties, Plaintiffs now continue to assert this claim

against only Barton and Viking Property Investors.

   58.   Although Plaintiffs plead them together, the causes of action are different

and require Plaintiffs to prove different elements. Nevertheless, an essential element

of each claim is the existence of a fiduciary relationship. See Dalton v. Camp, 

, 

 (2001) (breach of fiduciary duty); Crumley &
Assocs., P.C. v. Charles Peed & Assocs., P.A., 

, 

 (2012) (constructive fraud). The Court limits its analysis to this element, which

is dispositive.

   59.    A fiduciary relationship exists when a person places special confidence in a

party who “is bound to act in good faith and in the best interest of the” person reposing

the confidence. Lynn v. Fed. Nat’l. Mortg. Ass’n, 

, 

 (2014).    North Carolina courts have identified two types of fiduciary

relationships. The first type “arise[s] from ‘legal relations’”—attorney and client,

partners, principal and agent, and similar relationships. S.N.R. Mgmt. Corp. v.

Danube Partners 141, LLC, 

, 

 (2008)

(quoting Rhone-Poulenc Agro S.A. v. Monsanto Co., 

 (M.D.N.C.

1999)). The second type includes relationships “that exist ‘as a fact, in which there is

confidence reposed on one side, and the resulting superiority and influence on the

other.’” Id.

   60.    According to Plaintiffs, “Boespflug reposed trust and confidence in Barton

to manage and control” the various Investment Entities and their properties. (Pls.’

Br. 7 (citing Am. Compl. ¶¶ 54, 62, 63, 76).) The amended complaint alleges that

Barton became the entities’ manager “because he claimed that he possessed more

experience and expertise” and “held himself out as a real estate investment expert.”

(Am. Compl. ¶¶ 54, 62.) As a result, “Boespflug placed Barton in a position of trust

and gave him some discretion to manage the Properties, reporting to Boespflug

intermittently on the state of the portfolio.” (Am. Compl. ¶ 63.)
   61.   Plaintiffs have not adequately alleged the existence of a fiduciary

relationship. It is well-settled that, as a matter of law, a manager of an LLC does not

owe a fiduciary duty to its members. See Kaplan, 

, 

. The allegation that Barton managed the Investment Entities is therefore

insufficient to establish a fiduciary relationship between Barton (as manager) and

Boespflug (as member or former member).

   62.   The complaint also fails to meet the “demanding” standard for alleging that

a fiduciary relationship exists as a fact. Lockerman v. S. River Elec. Membership

Corp., 

 (N.C. Ct. App. 2016). The picture painted by the complaint

is one in which both men played a key role: Boespflug contributed most of the capital

while Barton contributed most of the real estate expertise. (Am. Compl. ¶¶ 53–54,

56–57.) As alleged, neither held “all the financial power or technical information” or

exercised dominion and influence over the other. Lockerman, 

(quoting S.N.R., 

, 

).

   63.   Accordingly, Plaintiffs have failed to state a claim for constructive fraud or

breach of fiduciary duty. The sixth claim for relief is dismissed with prejudice.

2. Fraudulent Conveyance (Claim 13)

   64.   Plaintiffs assert their claim for fraudulent conveyance against four

Defendants: Janet Barton, Viking Property Investors, Montpelier Investors, and

Jay’s Canby Florence. (Am. Compl. ¶ 190.) The Court lacks personal jurisdiction

over the latter two Defendants and therefore addresses this claim only as to Janet

Barton and Viking Property Investors.
   65.   Defendants contend the claim should be dismissed because it does not

“specifically identify the property transferred, the timing of the transfer, and the

consideration paid for the property” as required by Rule 9 of the North Carolina Rules

of Civil Procedure. (Defs.’ 1st Br. in Supp. 23; see also Br. in Supp. 34.) Plaintiffs

offer no response in their brief and do not make any affirmative argument in support

of the claim.

   66.   Defendants’ argument is compelling.         Rule 9 requires that “[i]n all

averments of fraud, duress or mistake, the circumstances constituting fraud or

mistake shall be stated with particularity.”         This requirement encompasses

fraudulent conveyance. See Doby v. Lowder, 

, 

, 29–

30 (1984).

   67.   Here, the allegations do not come close to satisfying Rule 9. Plaintiffs’ claim

for relief is vague and conclusory, alleging that they are entitled to recover “real

property, proceeds from that property and/or revenue streams associated with the

property.”      (Am. Compl. ¶ 193.)   Of the three transfers of property identified

elsewhere in the complaint, none involves Janet Barton. (See Am. Compl. ¶¶ 116,

118, 119.)      And the only allegation as to Viking Property Investors does not

specifically identify the property conveyed or when the transaction allegedly

occurred. (See Am. Compl. ¶ 118.)

   68.   These allegations are not sufficiently particular under Rule 9. Plaintiffs’

thirteenth claim for relief is dismissed with prejudice.
3. Section 75-1.1 (Claim 14)

   69.     Plaintiffs’ fourteenth claim for relief is for a violation of section 75-1.1. As

filed, the amended complaint asserted this claim against nine Defendants. (Am.

Compl. ¶ 203; see also Am. Compl. ¶ 27.) Plaintiffs voluntarily dismissed all claims

against two entities (Viking Properties and Sanur Brokerage), and the Court lacks

personal jurisdiction over four others (Montpelier Investors, Jay’s Canby Florence,

Willamette River I, LLC, and Victoria Place). The remaining three Defendants are

Justin Barton, Janet Barton, and Viking Property Investors.

   70.     A violation of section 75-1.1 occurs if a defendant commits an “unfair or

deceptive act or practice” that is “in or affecting commerce” and “proximately cause[s]

injury.”    Bumpers v. Cmty. Bank of N. Va., 

, 

(2013). Plaintiffs rely on the alleged “instances of fraud, constructive fraud, and fraud

by omission” to show an unfair or deceptive act.          (Am. Compl. ¶ 202.)      Having

determined that Plaintiffs did not adequately allege facts to support their claims for

constructive fraud and fraudulent conveyance (the only “fraud” claims asserted in

their complaint), the Court further concludes that Plaintiffs have not alleged facts to

show that Defendants committed an unfair or deceptive act under section 75-1.1. The

claim is dismissed with prejudice.

4. Civil Conspiracy (Claim 12)

   71.     Plaintiffs’ twelfth claim is for civil conspiracy. (Am. Compl. ¶¶ 185, 187.)

Plaintiffs voluntarily dismissed their claims against two of three alleged co-

conspirators, Sanur Brokerage and Viking Properties. The Court concludes that
Plaintiffs have failed to state a claim against the only remaining co-conspirator,

Barton, because there is no independent claim for civil conspiracy in North Carolina.

Rather, “civil conspiracy claims” are premised on some underlying unlawful conduct.

Williams v. United Cmty. Bank, 

, 

, 550–51

(2012); Esposito v. Talbert & Bright, Inc., 

, 

(2007). Here, the conspiracy claim depends on the underlying “fraud” claims, which

the Court has dismissed. (Am. Compl. ¶ 185.) Therefore, Plaintiffs’ conspiracy claim

is likewise dismissed with prejudice.

5. Remedies (Claims 3, 4, 8, and 10)

   72.   Plaintiffs assert four purported “claims for relief” for injunction,

appointment of a receiver, constructive trust, and punitive damages. (Am. Compl.

¶¶ 111–21, 155–61, 168–76.) All are remedies, not causes of action. See Porter v.

Armstrong, 

, 

 (1903) (noting that a complaint must

“state a cause of action on which to procure an injunction,” which is a remedy); Collier

v. Bryant, 

, 

 (2011) (“Punitive damages are

available, not as an individual cause of action, but as incidental damages to a cause

of action.”); Weatherford v. Keenan, 

, 

(1997) (“Defendant errs when he suggests that a constructive trust is a cause of action

rather than a remedy.”); Camacho, 

, at *31 (“Appointment of a

receiver is a rare and drastic remedy”). Having dismissed all of Plaintiffs’ underlying

causes of action, the Court also grants the motion to dismiss these remedial claims.
                                     IV.
                                 CONCLUSION

73.     For these reasons, the Court GRANTS Defendants’ motion.

      This the 2nd day of October, 2017.



                                      /s/ Adam M. Conrad
                                      Adam M. Conrad
                                      Special Superior Court Judge
                                       for Complex Business Cases