Chisum v. Campagna,
2018 NCBC 76.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
NEW HANOVER COUNTY 16 CVS 2419
DENNIS D. CHISUM, individually
and derivatively on behalf of JUDGES
ROAD INDUSTRIAL PARK, LLC,
CAROLINA COAST HOLDINGS,
LLC, and PARKWAY BUSINESS
PARK, LLC.
Plaintiff,
v.
ORDER AND OPINION VACATING
ROCCO J. CAMPAGNA, RICHARD PRIOR ORDERS FOR SUMMARY
J. CAMPAGNA, JUDGES ROAD JUDGMENT
INDUSTRIAL PARK, LLC,
CAROLINA COAST HOLDINGS,
LLC, and PARKWAY BUSINESS
PARK, LLC,
Defendants.
THIS MATTER comes before the Court upon its own motion. For the reasons
stated below, the Court now VACATES its prior orders granting summary judgment
in Plaintiff’s favor with regard to his claims for declaratory judgment, and instead
DENIES those motions because genuine issues of material fact exist which preclude
entry of judgment in Plaintiff’s favor as a matter of law with regard to Plaintiff’s
claims for declaratory judgment.
A. Factual and Procedural Background
The background facts of this matter are recited in several prior orders issued
by this Court, and will be recited here only as they directly pertain to the matter
currently before the Court. For purposes of this Order, Defendants Judges Road
Industrial Park, LLC (“Judges Road”), Carolina Coast Holdings, LLC (“CCH”), and
Parkway Business Park, LLC (“Parkway”) will be referred to collectively as “the
Chisum/Campagna LLCs” or “the LLCs.” Plaintiff is a signatory to the written
operating agreements of each of the Chisum/Campagna LLCs (“the Operating
Agreements”).
Plaintiff filed the Complaint initiating this action on July 19, 2016 (ECF No. 3),
and an Amended Complaint on February 8, 2017. (Am. Compl., ECF No. 28.) In the
Amended Complaint, Plaintiff made claims, inter alia, for declaratory judgment.
(Am. Compl., ECF No. 28, at ¶¶ 153–57.) In the Amended Complaint, Plaintiff alleges
entitlement to:
a declaratory judgment under N.C.G.S. § 1-253 et seq.
stating that he is an owner in each of the
Chisum/Campagna LLCs as set forth herein and entitled
to distributions from Chisum/Campagna LLCs in
accordance with the fair market value of his ownership
interests plus interest at the legal rate from the date such
distributions were due until the date of payment.
(Id. at ¶ 157.) Based on Plaintiff’s motions for partial summary judgment and his
arguments in support of those motions, the Court ultimately determined that through
the declaratory judgment claims Plaintiff sought declarations that:
1. The provisions of the Operating Agreements pertaining to capital calls
would not permit Plaintiff’s interests in those LLCs to be extinguished
entirely by the failure to pay capital calls;
2. Plaintiff currently is a member of each of the Chisum/Campagna LLCs; and
3. Plaintiff currently holds an 18.884% membership interest in Judges Road,
a 16.667% membership interest in CCH, and an 8.34% membership interest
in Parkway.
On February 8, 2017, Plaintiff filed his Second Motion for Partial Summary
Judgment. (ECF No. 29.) Plaintiff’s Second Motion for Partial Summary Judgment
sought summary judgment on Plaintiff’s claim for declaratory judgment regarding
Judges Road only. Plaintiff sought a declaration that the provisions of the Judges
Road Operating Agreement pertaining to capital calls would not permit Plaintiff’s
interest to be extinguished entirely by his failure to pay capital calls, and that, as a
matter of law, he retains a membership interest in Judges Road.
In Defendants’ Memorandum of Law in Opposition to the Plaintiff’s Second
Motion for Partial Summary Judgment (ECF No. 62), Defendants cross-moved for
summary judgment. Defendants contended that Plaintiff’s claim for declaratory
judgment was barred by the three-year statute of limitations for conversion claims
proscribed in G.S. § 1-52(4).1 (ECF No. 62, at pp. 15–19.)
On July 20, 2017 the Court issued an Order on Plaintiff’s Second Motion for
Partial Summary Judgment granting, in part, and denying, in part, Plaintiff’s Second
Motion for SJ, and denying Defendants’ cross-motion for summary judgment. (“Order
on Pl.’s Second Mot. SJ”, ECF No. 138; Chisum v. Campagna, 2017 NCBC LEXIS 62
(N.C. Super. Ct. July 20, 2017).) The Court entered a declaration that the Judges
Road Operating Agreement is unambiguous and does not permit a member’s
membership interest to be diluted to zero, or extinguished, by failure to contribute
capital in response to a capital call. Chisum,
2017 NCBC LEXIS 62, at * 28–29. The
Court denied Plaintiff’s motion to the extent he sought a declaration “that Plaintiff
1 Plaintiff subsequently abandoned his conversion claim and the claim was dismissed. (Pl.
Br. Opp. Def. Mot. SJ, ECF No. 172, at p. 13.)
retains an ownership interest in Judges Road, or that Plaintiff is entitled to
distributions or other relief from Judges Road or the Campagnas.” Id. at *29.
In the Order on Plaintiff’s Second Motion for Partial Summary Judgment, the
Court also denied Defendants’ cross-motion for summary judgment, concluding that
North Carolina legal precedent is not clear as to whether a claim for declaratory
judgment is subject to statutes of limitations or only to an equitable defense of laches.
Defendants did not argue laches as a grounds for their summary judgment motion.
The Court held that even if a declaratory judgment claim was subject to statutes of
limitations, Plaintiff’s claim for constructive fraud, which is subject to a 10-year
limitations period, could be applied to Plaintiff’s declaratory judgement claims
making the action timely. Id. at *13–17.
On May 9, 2017, before the Court issued its Order on Plaintiff’s Second Motion
for Partial Summary Judgment, Plaintiff filed a Motion for Partial Summary
Judgment Regarding Parkway Business Park, LLC and Carolina Coastal Holdings,
LLC (“Plaintiff’s Motion for Partial Summary Judgment Regarding Parkway and
CCH”). (ECF No. 112.) Plaintiff sought a declaration that the provisions of the CCH
and Parkway Operating Agreements pertaining to capital calls would not permit
Plaintiff’s interest to be extinguished entirely by his failure to pay capital. Plaintiff
also sought a declaration that Plaintiff “is an owner/member of Parkway and CCH,
leaving the issue of ownership percentages for further . . . adjudication.” (ECF No.
112, at pp. 1–2.)
On July 28, 2017, Plaintiff filed a fourth Motion for Summary Judgment
(“Plaintiff’s Fourth Motion for Summary Judgment”), seeking a declaration that he
remains a member of all the Chisum/Campagna LLCs and that he retains an 18.884%
interest in Judges Road, an 8.34% interest in Parkway, and a 16.667% interest in
CCH. (ECF No. 142.)
On July 28, 2017, Defendants filed a Motion for Summary Judgment as to all
of Plaintiff’s claims. (ECF No. 147.) Defendants again sought summary judgment on
Plaintiff’s claim for declaratory judgment on the grounds that the claim was barred
by statutes of limitations. (Defs.’ Mem. Supp. Mot. SJ, ECF No. 146, at pp. 18–19.)
On March 2, 2018, the Court issued an Opinion and Order on Cross-Motions
for Summary Judgment. (ECF No. 189.) The Court granted Plaintiff’s Motion for
Partial Summary Judgment Regarding Parkway and CCH in part, finding that the
CCH and Parkway Operating Agreements contain language identical, or virtually
identical, to the language in the Judges Road Operating Agreement regarding capital
calls. The Court concluded that Plaintiff was entitled to judgment as a matter of law
that his interests in CCH and Parkway cannot be extinguished entirely by the failure
to contribute capital in response to a capital call. (Id. at pp. 10–11.) The Court denied
the Plaintiff’s Motion for Partial Summary Judgment Regarding Parkway and CCH
to the extent Plaintiff sought a declaration that he is an owner/member of CCH and
Parkway. In the Opinion and Order on Cross-Motions for Summary Judgment, the
Court denied the Plaintiff’s Fourth Motion for Summary Judgment and the
Defendants’ Motion for Summary Judgment on the grounds that the record evidence
provided by the parties made it impossible to conclude whether certain dispositive
facts were in dispute, and neither party had established that they were entitled to
judgment as a matter of law. (Id. at p. 17.)
This matter is now set for trial beginning on August 6, 2018. (Notice of Trial,
ECF No. 190.) In anticipation of trial, the Court asked the parties to submit briefing
addressing: (1) whether statutes of limitations or laches applied to Plaintiff’s claim
for declaratory judgment; and (2) if statutes of limitations and/or laches applied,
whether those issues are to be determined by the Court or by the jury. Both parties
filed the requested briefing. (Pl.’s Trial Br. Re Laches and Stat. of Lim., ECF No. 213;
Defs.’ Trial Br. Re Stat. of Lim. and Laches, ECF No. 209.)
Upon further consideration, the Court now concludes that statutes of
limitations are appropriately applied to declaratory judgment claims, and that laches
also may apply under appropriate facts. The Court also concludes that the three-year
statute of limitations for breach of contract under G.S. § 1-52(1) should be applied to
Plaintiff’s claim for declaratory judgment, and that issues of fact remain regarding
when Plaintiff’s claim for declaratory judgment accrued for purposes of applying the
three-year statute of limitations and, potentially, laches.
B. Discussion
1. Statutes of limitations and the defense of laches apply to claims for
declaratory judgment.
North Carolina Rule of Civil Procedure 54(a) provides, in relevant part, that
“in the absence of entry of [ ] a final judgment, any order or other form of decision is
subject to revision at any time before the entry of judgment adjudicating all the claims
and the rights and liabilities of all the parties.” The Court has reconsidered its prior
orders granting summary judgment in Plaintiff’s favor with regard to his claim for
declaratory judgment. Specifically, the Court has reconsidered its position regarding
whether statutes of limitations are applied to claims for declaratory judgment in
North Carolina, or whether such claims are subject only to a defense of laches. The
Court now holds that both statutes of limitations and the equitable defense of laches
are applicable to declaratory judgment claims.
The Supreme Court of North Carolina has held that “[s]ince proceedings for
declaratory relief have much in common with equitable proceedings, the equitable
doctrine of laches has been applied in such proceedings.” Taylor v. Raleigh, 290 N.C.
608, 622–623,
227 S.E.2d 576, 584–585 (1976). The Supreme Court also has applied
statutes of limitations to declaratory judgment actions. Penley v. Penley,
314 N.C. 1,
20-21,
332 S.E.2d 51, 63 (1985) (applying statute of limitation to claim for declaratory
judgment and concluding the claim was not barred under the applicable statute of
limitations).
The decisions from the Court of Appeals have applied both statutes of
limitations and laches to declaratory judgment claims depending on the facts involved
in the case and, apparently, whether the issue has been raised by the parties. See
e.g., Stratton v. Royal Bank of Can., 211 N.C. App. 78, 89,
712 S.E.2d 221, 230-231
(2011) (holding that defense of laches “is an appropriate defense to [plaintiff]’s claim
for declaratory judgment”); Ludlum v. State,
227 N.C. App. 92, 94,
742 S.E.2d 580,
582 (2013) (holding that plaintiff’s declaratory judgment claim was untimely where
his other claims for relief were barred by the statute of limitations); Johnson v. N.C.
Dep't of Cultural Res.,
223 N.C. App. 47,
735 S.E.2d 595 (2012) (applying statute of
limitations to declaratory judgment claim, but also recognizing and considering
potential application of laches to claim); Hicks v. Wake County Bd. of Educ.,
187 N.C.
App. 485, 489–90,
653 S.E.2d 236, 239–40 (2007) (applying three-year statute of
limitations and finding plaintiff’s claim for declaratory judgment barred); Tillery v.
Tillery,
790 S.E.2d 755,
2016 N.C. App. LEXIS 689, at *10 (2016) (unpublished)
(applying statute of limitations to claim for declaratory judgment); Newman Machine
Co. v. Newman,
2 N.C. App. 491, 494,
163 S.E.2d 279, 281 (1968), rev’d on other
grounds,
275 N.C. 198,
166 S.E.2d 63 (1969) (“Consequently, where it appears that
the facts alleged disclose that either the statute of limitations or the doctrine of laches
is applicable thereto, there is no justiciable controversy as contemplated by the
Declaratory Judgments Act.”).
Upon further consideration of the above cited authority, the Court concludes
that the most reasonable synthesis of these decisions is that statutes of limitations
are properly applied to claims for declaratory judgment, as is the defense of laches
under appropriate facts. See Johnson, 223 N.C. App. 47,
735 S.E.2d 595; Newman
Machine Co.,
2 N.C. App. at 494,
163 S.E.2d at 281. Accordingly, to the extent the
Court suggested in its prior orders that statutes of limitations should not be applied
to Plaintiff’s claim for declaratory judgment, such portions of those orders are
VACATED, and the Court concludes Plaintiff’s claim for declaratory judgment in this
action is subject to a statute of limitations defense and potentially to a laches defense.
In deciding which statute of limitations should be applied to a declaratory
judgment claim, the Court must be “guided by the principle that the statute of
limitations is not determined by the remedy sought, but by the substantive right
asserted by plaintiffs.” Baars v. Campbell Univ., Inc., 148 N.C. App. 408, 414,
558
S.E.2d 871, 875 (2002) (disregarding plaintiff’s contention that its claim was one for
constructive fraud subject to a 10-year statute of limitations and instead affirming
dismissal because the substantive rights the plaintiff sought to vindicate were
governed by three-year statutes of limitations); Penley v. Penley,
65 N.C. App. 711,
723,
310 S.E.2d 360, 368 (1984) (“Although in form the complaint asked for relief
through a declaratory judgment, in substance, as represented by the evidence
produced and the issue submitted to the jury, the action is based on contract.”), rev'd
on other grounds,
314 N.C. 1,
332 S.E.2d 51 (1985); Ludlum, 227 N.C. at 95,
742
S.E.2d at 583 (holding that “[b]ecause plaintiff waited too long to file his claim [based
on a contract], he is barred from a determination that he is owed any benefits at all
[pursuant to that contract]” under his declaratory judgment claim); Tillery,
790
S.E.2d 755,
2016 N.C. App. LEXIS 689, *10 (“When determining the applicable
statute of limitations, we are guided by the principle that the limitations period is
determined not by the remedy sought, but by the substantive right asserted by the
claim at issue.” (citing Baars,
148 N.C. App. at 414,
558 S.E.2d at 875)).
Accordingly, in determining which statute of limitations is applicable to
Plaintiff’s claims for declaratory judgment in this action, the Court must determine
the rights Plaintiff seeks to establish or enforce through the request for declaratory
relief.
Through the declaratory judgment claims in this case, Plaintiff seeks a
declaration that he still has membership interest in the Chisum/Campagna LLCs.
Plaintiff also requests that the Court declare that under the Operating Agreements,
Richard and Rocco Campagna lacked authority to extinguish or otherwise eliminate
his membership interests because of Plaintiff’s failure to contribute capital to the
LLCs in response to alleged capital calls. Finally, based on his alleged continuing
membership interests, Plaintiff seeks a declaration that he still has certain rights in
the Chisum/Campagna LLCs, including rights to distributions and to his share of the
LLCs’ assets and profits.
The declarations Plaintiff seeks in this action involve his status and rights as
a member of the Chisum/Campagna LLCs. Those rights are created by and arise out
of the Operating Agreements, which are contracts. N.C. State Bar v. Merrell, 243
N.C. App. 356, 370,
777 S.E.2d 103, 114 (2015) (“An operating agreement is a
contract.”); see also Richardson v. Kellar,
2017 NCBC LEXIS 110 (N.C. Super. Ct.
Nov. 27, 2017) (same); Pure Body Studios Charlotte, LLC v. Crnalic,
2017 NCBC
LEXIS 98 (N.C. Super. Ct. Oct. 18, 2017) (same). Moreover,
A limited liability company (“LLC”) is a statutory form of
business organization . . . that combines characteristics of
business corporations and partnerships. The [LLC] Act
contains numerous ‘default’ provisions or rules that will
govern an LLC only in the absence of an explicitly different
arrangement in the LLC’s articles of organization or
written operating agreement. Because these default
provisions can be changed in virtually any way the parties
wish, an LLC is primarily a creature of contract.
Crouse v. Mineo, 189 N.C. App. 232, 237,
658 S.E.2d 33, 36 (2008) (internal citations
and quotations omitted) (emphasis added); see also Battles v. Bywater, LLC,
2017
NCBC LEXIS 54, at *8 (N.C. Super. Ct. Oct. 31, 2014) (citing Crouse).
The Court concludes that the substantive rights Plaintiff seeks to vindicate
through declaratory judgment arise from Operating Agreements, and the three-year
statute of limitations for breach of contract actions provided in N.C. Gen. Stat. § 1-
52(1) therefore applies.
In its Order on Plaintiff’s Second Motion for Partial Summary Judgment, the
Court concluded that if Plaintiff’s claim for declaratory relief was subject to a statute
of limitations, the 10-year limitations period for constructive fraud claims could
potentially be applied to the declaratory judgment action. Chisum, 2017 NCBC
LEXIS 62, at *16. That Order, however, was issued before this Court’s Order on
Campagna Defendants’ Motion to Dismiss. (“Order on Campagnas’ Mot. to Dism.”,
ECF No. 186; Chisum v. Campagna,
2017 NCBC LEXIS 102 (N.C. Super. Ct. Nov. 7,
2017).) In that Order, this Court dismissed Plaintiff’s individual claim for
constructive fraud concluding, inter alia, that the Campagnas owed fiduciary duties
to the Chisum/Campagna LLCs as managers, but they did not owe fiduciary duties
to Plaintiff as an individual member. Campagna,
2017 NCBC LEXIS 102, at *11–27.
Since Plaintiff was owed no fiduciary duty and has no individual claim for
constructive fraud, the substantive rights he is pursuing do not arise from breach of
any fiduciary duty owed to him, and the statute of limitations for constructive fraud
is therefore inapplicable to the declaratory judgment claims.
2. Factual questions related to statutes of limitations and laches are properly
decided by the jury
The Court also concludes that the factual issues that remain as to when
Plaintiff’s declaratory judgment claims accrued for purposes of applying the statute
of limitations must be decided by the jury. Lord v. Customized Consulting Specialty,
Inc., 182 N.C. App. 635, 643-644,
643 S.E.2d 28, 33 (2007) (“When the evidence is
sufficient to support an inference that the limitations period has not expired, the
issue should be submitted to the jury.”) (citations and quotation omitted).
The affirmative defense of laches necessarily involves analysis of both fact and
law. See e.g. Farley v. Holler, 185 N.C. App. 130, 132–33,
647 S.E.2d 675, 678 (2007)
(“[L]aches depends upon the facts and circumstances of each case . . . the delay must
be shown to be unreasonable and must have worked to the disadvantage, injury or
prejudice of the person seeking to invoke the doctrine of laches[.]”).
If the facts underlying the affirmative defense of laches are disputed, such
disputes are properly submitted to a jury. Wells Fargo Bank, N.A. v. Coleman, 239
N.C. App. 239, 247,
768 S.E.2d 604, 610 (2015) (holding that, for both statute of
limitations and laches defenses, summary judgment was inappropriate because
plaintiff presented sufficient evidence to “create a genuine issue of material fact
concerning whether its delay in discovering” the complained-of mistake was
reasonable); Builders Supplies Co. v. Gainey,
14 N.C. App. 678, 683,
189 S.E.2d 657,
661 (1972) (“Appellant assigns as error the submission to the jury of appellee's
equitable affirmative defense of laches. We think the issue was properly submitted.”)
“[T]he defense of laches will only work as a bar when the claimant knew of the
existence of the grounds for the claim.” Farley, 185 N.C. App. at 133,
647 S.E.2d at
678. A claimant’s knowledge is a question of fact that must be resolved by a jury, and
though “much of our case law . . . suggests [the claimant] must have actual knowledge
of the grounds for her declaratory judgment claim in order for laches to apply[,] . . . a
party may be charged with constructive knowledge of the grounds for her claim when
it is clear that a party had ample notice of those grounds.” Stratton v. Royal Bank of
Can.,
211 N.C. App. 78, 90,
712 S.E.2d 221, 231 (2011) (citing Save Our Sch. of Bladen
Cnty., Inc. v. Bladen Cnty. Bd. of Educ.,
140 N.C. App. 233, 236-37,
535 S.E.2d 906,
909 (2000) (charging plaintiff with knowledge of the grounds for its claim).
Accordingly, when in dispute, a determination of when the plaintiff had actual or
constructive knowledge of accrual of his claim for purposes of applying laches is a
questions of fact properly submitted to the jury.
C. Conclusion
Plaintiff’s claim for declaratory judgment is subject to the three-year statute of
limitations for breach of contract actions. However, there are disputed issues of
material fact as to when Plaintiff’s claims for declaratory relief accrued which must
be decided by the jury, and neither party is entitled to judgment as a matter of law.
THEREFORE, IT IS ORDERED that:
1. The Court’s Order on Plaintiff’s Second Motion for Partial Summary
Judgment (ECF No. 138) granting summary judgment in Plaintiff’s favor
with regard to his claim for declaratory judgment is VACATED, and the
declaration therein is hereby WITHDRAWN.
2. Plaintiff’s Second Motion for Summary Partial Judgment is DENIED
because genuine issues of material fact exist which preclude entry of
judgment in Plaintiff’s favor as a matter of law.
3. The Court’s Opinion and Order on Cross-Motions for Summary Judgment
(ECF No. 189) granting summary judgment in Plaintiff’s favor on Plaintiff’s
Motion for Partial Summary Judgment Regarding Parkway and CCH with
regard to his claim for declaratory judgment is VACATED, and the
declaration therein is hereby WITHDRAWN.
4. Plaintiff’s Motion for Partial Summary Judgment Regarding Parkway and
CCH is DENIED because issues of fact exist which preclude entry of
judgment in Plaintiff’s favor as a matter of law.
SO ORDERED, this the 27th day of July, 2018.
/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge for
Complex Business Cases
